While the watchdogs slept

There’s a bit of a banking scandal going on in Massachusetts right now.

In the wake of 9/11, the government chose to fight against some of the economic devastation with small business loans. More specifically, they set up a special program with the Small Business Administration to encourage banks to loan money to businesses who had suffered from the attacks.

The loan program was very attractive to banks. The additional guarantees made these loans even less risky than average loans, so they signed on cheerfully.

So cheerfully, they started offering them to pretty any business that asked for a loan — whether or not they had been affected by 9/11. Even a few that didn’t even exist in 2001 got the loans.

A lot of people are outraged over this. Even a lot of the businesses are unhappy — the banks never told them that the loans were tied to 9/11. The SBA is a bit chagrined; they required the banks to document how 9/11 had affected the borrowing business, but didn’t bother to enforce that. And the banks say they were under the impression that the loans were to generally boost the economy after 9/11, not just for businesses that could document specific damages from the terrorist attack.

A Massachusetts congressman is calling for an investigation into this. And right now it looks like the heat will fall on the banks, for violating the rules, and the SBA, for not bothering to enforce them. Right now, it looks like the businesses themselves will not be blamed — there’s little evidence they knew they were part of a scam.

Bonfire of the Vanities #135
There are none so blind as those paid to see only what they want to

7 Comments

  1. JohnAnnArbor January 31, 2006
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