Last Updated on Monday, 20 September 2010 08:05 Written by dbhalling Monday, 20 September 2010 08:05

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President Obama’s latest proposal to stimulate the economy is to subsidize community banks so that they lend to small businesses.  Gary Townsend has a great article on this at Seeking Alpha.  He suggests the program is flawed because of poor execution issues.  In his more cynical mood (honest mood), he suggests that it is payback to the banks for supporting financial reform.

More important than poor execution is that Obama’s proposal is fundamentally flawed.  It is another case of the government stealing money from one group to give it to another group.  It will not create jobs.  Banks lead to established businesses that have assets and cash flow.  The Kauffman Foundation has shown that all net new jobs over any decade are created by new businesses not small businesses.  High quality jobs are created by new business that are creating new technologies.  President Obama could get 300 times the impact with 1/30^th the spending by fully funding the Patent Office and repealing Sarbanes Oxley and the new financial reform bill.  New companies (start-ups) that create high quality jobs are funded by equity investments.  These equity investments are backed by intellectual capital – patents.   The best return on these equity investments occurs when these companies go public.  Sarbanes Oxley has made this almost impossible.

This proposal by President Obama is not about creating jobs, but about political payback.