Don Roach: Governornment Loans are Bad Business

Don Roach: Governornment Loans are Bad Business

If 38 Studios didn’t teach us anything, GoLocal’s story on defaulted business loans in Providence yesterday certainly should – government loans to private businesses are NOT the answer to jumpstart our economy.

Not the answer.

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When I talked about what was wrong with the 38 Studios deal, some of you mentioned how I forgot the most glaringly obvious reason for not the doing the deal – government should keep its nose out of private businesses. I’m still trying to figure out how I missed that one, but indeed Providence’s situation doesn’t look good.

Some of you have raised very pertinent questions about government investing in private businesses.

A commenter wondered:

“Why are they not collecting on the bad debt? Why are they not going after these businesses who cannot pay back their loans? If it were you and I, we would lose everything..they would take away everything we own.”

First I’m sure that while these may be write-offs, will the city actually ‘forgive’ these loans and make the taxpayers foot the bill? Will Mayor Taveras stand by while that happens? I have to think no, and yes if we as individuals default there’s usually no mercy for us. Yes, we would have to pay back every dime and may get lucky and not have to pay all of the interest. If these companies are still in business, and last I looked, Ada’s Creations was, then they need to come up with a payment plan to repay these loans. The city has a responsibility to its taxpayers to recoup the money without overly burdening the taxpayer.

Still, if we didn’t have these loans, banks who are in the business of loaning money would be the lenders and they assume that in the course of doing business they may suffer losses via bad debt. Government isn’t a bank and I don’t really want the government lending my money to businesses for which I have no investment.

Another commenter probably sums up the feelings of a typical Providence resident:

“These companies barely made a dent in their original loan> Barely a dent, as in, didn't even try. Just take the money and run. Silly me, I'm just catching on that all I have to do is get refused for two loans (easy) and go to the PEDP for a free one! Let me guess, Providence will be the #1 city on the best places to live countdown. That would be a big joke. How about the best places to squat for free?”

I mean really what can you say? I’ll try this. The economy over the last half decade has been rough, sure, and businesses – large and small - have had difficulty surviving much less maintaining profitability. We all know people who have been laid off or were laid off ourselves so it’s not surprising that these businesses had trouble repaying their loans.

But, and this is a big but, when our taxes are going up, services are getting cut, and politicians are telling us to tighten our already 10 sizes too small belts it’s very disconcerting to read about 38 Studios and a 25% default rate in Providence business loans as reported by GoLocal. All of us have sacrificed the last few years and many of us are still struggling, stuff like this, I’m sorry, just makes you upset. Like I said before, I hope the mayor’s office does something to assuage residents’ concerns of footing the bill and have to take on even more.

I think these government loans are teaching us that government should not be in the banking business. We, as taxpayers, are the ones paying for these programs initially yet we do not have a direct stake in their profitability. Said a little differently, if these companies turn a profit we don’t receive a dividend check. However, if they fail and government needs to recoup the money where will they turn? If you said our wallet, you’re correct.

And me, I want to keep the government as far from our wallets as possible. If the last month is any indication, I hope some of you have been persuaded that government loans are, save a select few, bad business.

Don Roach is a member of the RI Young Republicans. Don can be reached at [email protected].