\”Specific government institutions and programmes supported by the central bank must be targeted to the needs of the economy. For the UK, the primary need is investment for SMEs and new firms.\”
To ensure credit makes its way through to small businesses, he said the Bank and the Treasury should work together to \”set up two new public institutions\”.
\”One would be a public bank or authority for lending to small business [that] would in the first instance be choosing among loan applications already rejected by pre-existing banks,\” he said.
The other should be \”an entity to bundle and securitise loans made to SMEs\” – a \”good\” version of the US\’s Fannie Mae and Freddie Mac. \”Bennie\”, as Mr Posen dubbed it, would ensure the market has sufficient liquidity.
Just how long does anyone think it takes to set up a new banking institution, staff it and get it making loans?
Making sensible loans that is? Anyone willing to argue for less than three years? I\’m not.
So leave aside entirely the question of whether such state backed banking is a good idea or not for the economy in the long term, it\’s simply not a useful response to a cyclical down turn, is it?
And Bennie of course: how amusing that securitisation has returned to the drawing board so soon. And if you thought that rating mortgages to put into pools was difficult, wait until you see how tough it is to rate small business loans…..