Saturday, July 10, 2010

Tax dollars headed for Wal-Mart

A great post from John Stossel this week revealed a scheme that will put tax dollars in the hands of Sam's Club, the concrete-floor warehouse stores of Wal-Mart Stores Inc.

Wal-Mart has been a magnet for anti-globalization, anti-corporation and anti-capitalist nonsense. Last month it was revealed rival retailers had been astroturfing community groups to block proposed Wal-Mart stores. I'm used to the Wal-Mart corporation being the whipping boy of small business protectionists, so it was interesting to see an actual example of the company using dirty corporatist political tricks.

Stossel quoted the New York Times saying Sam's Club will loan some customers up to $25,000, and the loans will be backed by the Small Business Administration - and by "backed" they mean the SBA will help pay back loans when customers can't. Stossel responded:

"This is just crony capitalism. Sam’s Club uses government to help itself, and compliant government rips you off.

"If Wal-Mart really wanted to loan its customers money to help them buy stuff at Sam’s Club, fine. But why the heck is the SBA involved?

"It’s involved because we sucker taxpayers allow the SBA to reimburse up to 85% of the loan if a borrower defaults. Sounds familiar (remember Fannie and Freddie’s guarantees?)."

So Wal-Mart gets more money coming in, small businesses take loans they otherwise wouldn't because the risk will be absorbed by the government, and when those loans default the tax payers will have to buck up. The corporation wins, the small business wins, the tax payers lose.

As Stossel said, it's the same thing that happened with Fannie Mae and Freddie Mac. Wall Street won (for a long time, and then the bailouts served as a mulligan to keep them from losing), new home owners won, the tax payers lost.

The most ironic part is Wal-Mart, often depicted as the destroyer of small businesses, will be propping up unfit small-businesses and using the government agency built to coddle them in a plot against everyone else. It's the polar opposite of what normally happens - Wal-Mart breaks up local monopolies and shuts down the uncompetitive small businesses that had been overcharging customers, and everyone else benefits.

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