This is a good idea from a "look, i'm being counter-intuitive" sense. But it will not work.
There's a reason the federal government can borrow at 0% short term and my hypothetical auto parts manufacturing company can't. I am a default risk; the federal government is not.
IRL, banks essentially borrow at 0% from the federal reserve. They do exactly what Cuban is suggesting the federal government do. They have lots of money. Their mission is to lend that money to businesses who will "create jobs" with it. They price those loans at an interest rate which The problem right now is that not enough businesses see good investment opportunities that justify taking out a loan at rate X, and not enough banks see businesses who are not so risky that they can justify making the loan at a price they would pay. We're in equilibrium, but it's a lowish one.
At the margin, we can increase some of that activity by either (a) making the loan cheaper for business or (b) making the risk lower for the bank of (c) both. In this case, the federal government acts as a guaranteeing middleman between a bondholder (the "bank") and a business. Because the bondholder doesn't have to worry about a business default, the lending takes place at essentially 0%. So this plan boils down to having the federal government guarantee loans to businesses, only instead of saying, "I'm guaranteeing a private loan to a business," they're going through the process of actually initiating the loan themselves (with a website?? please.)
The idea of federally guaranteed loans is not new. Organizations like Fannie Mae and Freddy Mac literally do exactly that; subsidize loans to achieve some kind of social good (in that case, home ownership). The problem is that -- unsurprisingly -- people default, and the programs end up going hundreds of billions of dollars in the hole. And then the taxpayer is on the hook. And that's, kind of what we want to avoid here.
More oddly, Cuban is making the assumption that not only should the federal government subsidize the loan, they should originate and (probably) administer it, which only makes sense if you believe the federal government has a better eye for businesses that will actually succeed and "create jobs" (I suppose) than the many thousands of banks that do this professionally. Color me skeptical.
Yes, money is cheap. But disintermediating the entire corporate paper industry is not a solution here.
This is by far the clearest response to the core of what Cuban is aiming at, and thanks for that.
I am interested in drilling down deeper on your comment about Fannie & Freddy. I don't view their failure as a criticism of the idea of loaning for the public good. I definitely view their failure as a lack of oversight combined with perverse incentive structures and a truly mind-boggling denial on the risk of loans.
But what befell Fannie and Freddy also blew up Wall Street. So the deeper underlying question is if there are people out there who are better at assessing loans who the government could use as intermediaries for taking advantage of the low credit available to the gov? (yes that's predicated on this being feasible at all in the first place, which i don't take for granted)
I'm also dubious about how Fannie and Freddie failed. There was a bubble (caused by what, low rates? guarantees? demographics? the credit bubble?), and it deflated. But the US government is not the only entity to screw up in this way. The UK housing bubble also burst. Japan had the same problem. And while the government was certainly involved, so was private industry and the general public. It doesn't prove "government = bad", that's just confirmation bias.
What it does prove is that you (the government, industry, or general population) shouldn't pour too much money into areas that show all the signs of a credit bubble.
Obviously opinions can differ here, but what happened in 2007-2008 was in my view a lesson on what happens when you ignore the inherent risk of lending money to a private actor. Mortgage originators and a whole slew of investors ignored those risks in an effort to chase returns; Fannie and Freddie ignored those risks as a matter of charter. They both ended up in more-or-less the same spot.
There's a reason the federal government can borrow at 0% short term and my hypothetical auto parts manufacturing company can't. I am a default risk; the federal government is not.
IRL, banks essentially borrow at 0% from the federal reserve. They do exactly what Cuban is suggesting the federal government do. They have lots of money. Their mission is to lend that money to businesses who will "create jobs" with it. They price those loans at an interest rate which The problem right now is that not enough businesses see good investment opportunities that justify taking out a loan at rate X, and not enough banks see businesses who are not so risky that they can justify making the loan at a price they would pay. We're in equilibrium, but it's a lowish one.
At the margin, we can increase some of that activity by either (a) making the loan cheaper for business or (b) making the risk lower for the bank of (c) both. In this case, the federal government acts as a guaranteeing middleman between a bondholder (the "bank") and a business. Because the bondholder doesn't have to worry about a business default, the lending takes place at essentially 0%. So this plan boils down to having the federal government guarantee loans to businesses, only instead of saying, "I'm guaranteeing a private loan to a business," they're going through the process of actually initiating the loan themselves (with a website?? please.)
The idea of federally guaranteed loans is not new. Organizations like Fannie Mae and Freddy Mac literally do exactly that; subsidize loans to achieve some kind of social good (in that case, home ownership). The problem is that -- unsurprisingly -- people default, and the programs end up going hundreds of billions of dollars in the hole. And then the taxpayer is on the hook. And that's, kind of what we want to avoid here.
More oddly, Cuban is making the assumption that not only should the federal government subsidize the loan, they should originate and (probably) administer it, which only makes sense if you believe the federal government has a better eye for businesses that will actually succeed and "create jobs" (I suppose) than the many thousands of banks that do this professionally. Color me skeptical.
Yes, money is cheap. But disintermediating the entire corporate paper industry is not a solution here.