William J. Holstein

The Key Is Getting U.S. Banks to Lend
JUNE 15--The financial reform legislation appears likely to win final congressional approval, which is good. But we should not lose sight of the end goal of this reform process.

That is, we need major banks and investment banks to start lending money to Americans. They seem to want to play games with derivatives and speculating on the future of Europe or betting on the future of commodity prices. There are trillions of dollars in these financial institutions that is sloshing around financial markets, creating all sorts of volatile movements.

My recent research for The Next American Economy has shown that there are many great ideas attempting to break out of research universities and weapons research labs run by the U.S. Department of Energy. There are thousands of small companies that are trying to develop these ideas and go global with them. But a major drag on this effort is the availability of capital. Venture capital firms are in retreat from early stage investments. Banks simply won't lend to most small businesses and are in retreat from financing small companies that want to expand production to export or else want letters of credit to make sure that they get paid by their foreign customers.

So pass the legislation. President Obama will sign it. But our national leadership should continue applying heat to banks to get them to do what they are supposed to do--lend money to small American companies.