
Obama Announces $2B Fund for Startups - aba_sababa
http://www.whitehouse.gov/the-press-office/2011/12/08/we-can-t-wait-obama-administration-announces-2-billion-resources-support?spMailingID=2405268&spJobID=34909673&spReportId=MzQ5MDk2NzMS1&spUserID=ODQ5NDAwOTg1S0
======
timjahn
Throwing $2B at startups isn't going to create a new generation of
entrepreneurs.

1\. Fix the healthcare system. Right now, you're punished if you don't work
for a large company in the sense that you're charged up the wazoo for health
insurance. Work for a large company and it's close to free.

2\. Fix student loans. One could argue don't go to college but I think we can
agree there's some value to good schools.

3\. Educate tomorrow's would-be entrepreneurs. A lot of America is taught to
go to college and get a job at a large corporation after. Let's shift the
perspective. Let kids know that starting your own business is a possibility
and not something to be ashamed of.

~~~
anamax
> 1\. Fix the healthcare system. Right now, you're punished if you don't work
> for a large company in the sense that you're charged up the wazoo for health
> insurance. Work for a large company and it's close to free.

No, it's not "almost free". It's paid for by the company.

And yes, paying yourself is tax-deductible in many circumstances.

I've actually paid for health insurance out of pocket as an "older american".
Rent was more expensive.

That said, healthcare could be a lot less expensive, but since much of that
expense comes from govt involvement, it's unclear why anyone would think that
even more govt involvement would help.

For example, there are a lot of procedures for which I don't want coverage,
but thanks to govt requirements, I can't opt out and pay less.

> 2\. Fix student loans. One could argue don't go to college but I think we
> can agree there's some value to good schools.

Student loans are one way to pay college costs. The method of payment doesn't
actually affect the costs much.

Increased student aid seems to increase college cost.

~~~
Retric
The US and Canadian government spend the same amount per person on healthcare
but Canada has universal health care. On average the US and Canadian
healthcare systems provide vary similar outcomes on average.

So, clearly more government involvement is an option. But, so is less the US
could save a ridiculous amount of money if we could stop wasting it on end of
life care that proves little to no benefit. Healthcare is an endless money
sink and because the US government agrees to hand over money with little veto
power we have are left with the _worst_ healthcare system money can buy.

Just think about this for a second would you rather have an extra 250,000$ to
spend when your young, or have a 50/50% shot of spending an extra 2 months on
your death bead in a semi lucid state?

~~~
anamax
> The US and Canadian government spend the same amount per person on
> healthcare but Canada has universal health care.

As does the US, it just doesn't go by that name.

Yes, there is free healthcare in the US. It isn't unlimited and you can buy
better, but the same is true of Canada.

However, I'll note that the US govt directly pays for about half of US
healthcare (employees, etc.). If US govt healthcare will be so good, why isn't
it? (Half of the population is enough to prove what it can do.)

However, I'm willing to give Obama free rein over US govt paid healthcare to
show how much better it can be. All I ask is that he spends the same per-
person this year, 10% less per person the 2nd year, and 20% less the third
year. (Since govt healthcare advocates claim far more savings to be had, this
should be easy.)

FWIW, pointing out how the US govt can't do healthcare isn't much of an
argument for more US govt involvement in healthcare....

~~~
scarmig
Going to the emergency room when you're on the brink of death doesn't count as
"free healthcare," no matter how many times they beat their chest claiming it
is. Emergency room healthcare is significantly more expensive than getting
your blood pressure checked every couple of months.

The right to healthcare isn't something that only applies to the emergency
room.

~~~
anamax
> Going to the emergency room when you're on the brink of death doesn't count
> as "free healthcare,"

So?

You're ignoring medicaid and the free clinics that are in many areas. Medicaid
is especially interesting because the vast majority of the "poor uninsured"
are eligible and get signed up as soon as they actually need care.

Both programs are fairly well publicized, so it's interesting that you
mentioned emergency care as if it's the only option.

And there's a third option which is less well known. With the possible
exception of much of Alaska (due to population density), every county has a
public hospital that provides free healthcare.

------
jaysonelliot
I'm disappointed by the amount of political commenting on this post, as
opposed to what I was hoping to find—discussion of how the fund will actually
work and how to take advantage of the various elements of the initiative.

I'm trying to make sense of the press release, but finding it difficult. It's
full of announcements, but seems to be missing any calls to action.

There's more information at the SBA - <http://www.sba.gov/startupamerica>

It contains this promising paragraph: "…the gap is particularly acute in the
so called “Valley of Death” for financing rounds between $1-4 million. Over
the past 4 years only 6% of all venture capital has been deployed in that
stage … The Innovation Fund will target this gap, providing a 1:1 match to
private capital raised by early stage seed funds."

Does this mean that access to money in this fund is only through existing VC
firms? Or does it mean something else?

If anyone can extract the actionable information from all this static, please
do share.

It would be great to know if new funding methods were actually opening up, or
if this is just an infusion of cash to VCs.

~~~
temphn

      It's full of announcements, but seems to be missing any 
      calls to action.  
    

Ok. Here is the call to action: hire a lobbyist or ex-Congressman who will get
you in front of Startup America. Preferably a large bundler like George
Kaiser. They will get you sweetheart loans and endorsements from the President
and Vice President.

We've seen this dozens of times before when "free money" is available.
Scarcity requires an allocation mechanism. In the case of the very similar
Qualifying Therapeutic Discovery Tax Credit (QTDTC) from last year, those who
lobbied were those who got the bling.

    
    
      http://www.bizjournals.com/sanfrancisco/blog/2010/10/winners_losers_in_race_to_biotech_tax_credits.html
    
      Clearly somebody — probably a few thousand somebodies — 
      are going to lose out.
    
      ...
    
      The takeaway for those biotech companies that miss out on 
      the tax credit, according to Eisenberg: Tell your member 
      of Congress to extend and expand the program.
    
    

And as with the QTDTC there will be a catch. Failure is criminalized. The
failure of Solyndra prompted an FBI raid. What did the executives know and
when did they know it? All government "grants" are like this. For example, to
get the biotech "Qualifying Therapeutic Discovery Tax Credit" from last year,
you had to essentially submit to an IRS audit.

    
    
      http://www.irs.gov/newsroom/article/0,,id=224505,00.html
    
      Q5. What type of documentation and records related to the 
      application should applicants maintain in order to satisfy 
      IRS requirements in the event of a future audit of 
      “qualified investment” claims?
    
      A. Documentation and recordation should include 
      information sufficient to verify and explain costs treated 
      as qualified investments, e.g., detailed work papers and 
      invoices. 
    

Translation: embarrass us and we will retroactively find your definition of
"qualified investment" to be at variance with that of the IRS. Bottom line, it
is unlikely this program will be substantively different from those preceding
it.

------
paul
Fixing the immigration and patent systems would be infinitely more helpful
(i.e. stop getting in the way).

~~~
anigbrowl
Congress has to do that, the executive branch can't. To the extent that the
executive branch is streamlining the existing immigration system, they're
being derided as amnesty-offering traitors by the xenophobic know-nothings
that want Berlin Wall 2.0.

~~~
rbanffy
Just as a side note, you really don't want an executive branch that can do
that (fixing the immigration and patent systems).

edit: sorry if it didn't end up as clear as it should

~~~
thmcmahon
Works OK for countries with parliamentary democracies.

~~~
jacques_chester
Parliamentary democracies still have distinct executive branches.

~~~
dimitar
Sure, but they are usually appointed by the majority party of parliament and
its leader becomes head of government.

------
gojomo
Let a thousand Solyndras bloom!

But seriously, exempting smaller firms and fundraising efforts from costly
regulations is a good part of this initiative. Routing public funds through
private investors, not so much.

While they're at it, they should completely eliminate the wealth tests for
'accredited investor' status. If some fig leaf of 'accreditation' is still
needed, it should be experience-based or net-worth proportional. For example,
everyone with certain business/economics/legal degrees or certifications
(Series 7?) should be 'accredited' as knowledgeable enough for private
investing. Or, anyone who has an equivalent amount of money in public
investments or government-approved retirement accounts, should be able to
invest that same amount with 'accredited' status in private investments.

~~~
paul
I don't recommend angel investing for anyone who can't afford to lose a fairly
substantial amount of money, which pretty much excludes anyone who isn't
already an accredited investor. Finding the next Facebook or Google is a lot
harder than you might think, and even if you did, they probably don't want
your money. You are better off investing in your own self (education and the
like).

Eliminating the wealth test would mainly benefit scammers.

~~~
gojomo
I wouldn't 'recommend' it either. But there's a difference between 'not
recommending' and 'effectively prohibiting via a wealth test'.

We don't prevent people from spending their entire net worth, and then some
via loans, on poker or state lottery tickets. Nor do we include wealth tests
against investing in public stocks, derivatives, real-estate, or dubious
collectables – all of which can also 'go to zero' quite quickly, especially
with easy access to leverage.

Is private investing, especially in things like friends/family/personal-
expertise-related startups, so much more treacherous than these other things
that it alone needs special protections?

~~~
paul
Public stocks and the like are heavily regulated. If we let random people
invest in startups, a bunch of people would get scammed out of their money,
then there would be calls for more regulation to protect investors, which
would only serve to hurt startups. Meanwhile, none of those little investors
would make any money because the median startup is a bad investment (vs the
median public company, which is an ok investment). Nearly all of the startup
returns come from a small number of outliers, and those outliers will most
likely continue getting funding from larger investors.

~~~
gojomo
Public stocks and the like are heavily regulated, yes, _and they can still
drive anyone's bankroll to zero_. And via leverage or iteration you can make
them as risky and rapid-loss-prone as private investments (or even outright
scams). See for example: forex, real-estate, and casino ads in every medium.

So this rule protects fools from losing their money in private investing, but
they still have a thousand other ways to lose their money. Meanwhile, this
rule also prevents lots of people of moderate means from making wise, moderate
investments in areas they know well.

These sorts of from-the-masses, for-the-masses investments wouldn't
necessarily follow the valley hit-driven model of "nearly all of the startup
returns come from a small number of outliers".

But even if they did, why shouldn't people of all wealth levels be able to
take their chances on finding an outlier? The current rule essentially says:
the very best investments are only, by legal rule, allowed to the already-
wealthy. Everyone else, here, buy a scratch-off.

------
CrazyInu
Maybe Obama should stop "investing", we've seen how that turned out with
Solyndra, Light Squared, Fisker Automotive, etc.

Maybe Obama and the Federal government shouldn't be in charge of "fixing"
economic aspects of society, as that is not what the founding fathers of this
country intended, and that is not really within the authority of Congress.

Government picking winners and losers is a proven way to eradicate innovation
and destroy wealth.

No thanks.

~~~
mkramlich
> Maybe Obama and the Federal government shouldn't be in charge of "fixing"
> economic aspects of society, as that is not what the founding fathers of
> this country intended, and that is not really within the authority of
> Congress.

demonstrably not true. think the US federal postal service, department of
treasury, the patent system, right to regulate and tax trade. All of which
helps to both "fix", promote and tax economic activity throughout the nation.
Also keep in mind that those same founding fathers whose "intent" you seem to
want to honor, birthed a country where neither women or black people (for the
most part, as slaves) were not allowed to vote. So unless you agree with that
original state of affairs, clearly their intent can be wrong or evil, in some
cases. And therefore just citing their intent is not sufficient to win an
argument.

------
gallerytungsten
If you google the "Early Stage Innovation Fund" this is the first result:

Early Stage Innovation Fund - COMING FY 2012 | SBA.gov www.sba.gov/node/15261
Early Stage Innovation Fund - COMING FY 2012. Earlier this year, the President
announced the launch of "Startup America," an initiative to support high-
growth ...

<http://www.sba.gov/node/15261>

If you go there, you get:

<title>Access denied | SBA.gov</title>

Seems rather fitting for a government effort. Further digging shows that these
funds are really only open to VC firms with $20 million in funds already.
<http://www.sba.gov/inv/earlystage>

~~~
jszielenski
What a sham. Obama fail yet again. I can't believe I voted for this guy.

------
3pt14159
Laissez faire, telle devrait être la devise de toute puissance publique,
depuis que le monde est civilisé ... Détestable principe que celui de ne
vouloir grandir que par l'abaissement de nos voisins! Il n'y a que la
méchanceté et la malignité du coeur de satisfaites dans ce principe, et
l’intérêt y est opposé. Laissez faire, morbleu! Laissez faire!!

(Trans: "Leave it be, that should be the motto of all public powers, as the
world is civilized ... That we cannot grow except by lowering our neighbors is
a detestable notion! Only malice and malignity of heart is satisfied with such
a principle and our (national) interest is opposed to it. Leave it be, for
heaven's sake! Leave it be!")

~~~
rayiner
There have been developments in our knowledge of the market since 1680 (when
that quote was uttered).

~~~
3pt14159
I was going to respond with something along the lines of "how's that working
out for you" but really Alan Greenspan is still a staunch capitalist that
would more or less agree with the quote above. If anyone has had the benefit
of studying the market since that time it would be him.

Edit: After a minute of posting this I've realized I've committed a logical
fallacy, Appeal to Authority. Granted I was responded to a comment based on a
logical fallacy (Appeal to Time?) but I would like to expand my thoughts.

The best way to allocate resources is to have knowledgeable parties commence
in free exchange. The role of government is to ensure that force and fraud are
absent from the marketplace. If there is any further goal of the government it
could possibly be encouraging the spread of information, although that is rife
with conflicts of interest.

Even if Obama's fund nets a positive return, the cost at which it does is
unknown. Pumping money into sectors of the economy mis-aligns investment. The
free market is the best allocator of wealth.

~~~
rayiner
> The best way to allocate resources is to have knowledgeable parties commence
> in free exchange. The role of government is to ensure that force and fraud
> are absent from the marketplace. If there is any further goal of the
> government it could possibly be encouraging the spread of information,
> although that is rife with conflicts of interest.

We have about 50 years of research showing that there are way more barriers to
efficient allocations via the market than just information asymmetries. Start
here: <http://www.hss.caltech.edu/~camerer/ribe239.pdf>

------
brc
Egads - having filled out the application forms for government export grants,
I can only imagine all the strings attached, hoops to jump through and
everything else.

Use the money to pay down the debt and just relax the regulations on capital
formation and hiring and let the private sector do the work. And work some
type of internet freedom into the constitution alongside freedom to have guns.

------
9085
If they want to help entrepreneurs then they should give contractors more tax
relief. 1099 tax payers get shafted.

------
droithomme
Oh great so now rather than compete with other entrepreneurs on a level
footing we have to compete with companies that are partially owned and funded
by the federal government.

------
steins
"Specifically, the President has called for increasing limits on
“miniofferings,” allowing “crowdfunding,” and phasing in some requirements for
small firms as they go public."

They are going to ruin a good thing.

~~~
jdavid
you read this wrong. they were going to open up crowd sourcing of funds and
make it easier to legally start a company from 'crowd sourced' funds.

------
DaniFong
I am so frustrated with these government programs that supply hyperactive,
startups (Solyndra! Argh!) with too much funding, then crash and sully the
reputation of entire fields with their profligate spending and successive
failures.

The scientific grant system is even worse! With the rate of grants being
accepted at 5%, everyone becomes extremely conservative. Many professors spend
most of their time fundraising, not doing science. There is a good case that
science would be progressing faster with no government funding at all.

There are _obvious_ things the government could do to improve
entrepreneurship. Like simply not kicking our entrepreneurs out! Stapling a
green card to our graduate's diplomas -- the fact that we invest nearly a
quarter million dollars in each STEM PHD and then don't let them stay has been
a known absurdity for more than decade, yet they still don't fix this problem.

Or how about taxing oil and gas like everything else! Even ignoring the
trillions of dollars spent policing the persian gulf region, the tax policies
surrounding oil amount to an enormous subsidy, making it cheaper in the US
than almost anywhere in the world. Simply taxing it would save the budget and
dramatically improve prospects for green energy.

The list goes on. I'm stunned by the collective incompetence of the government
in stimulating startup growth. Maybe there are good, structural reasons for
inaction in the short term, but these issues have been around for years!

------
goodweeds
Here's my idea, up that to $2T by ending our current wars, forget start-ups,
and instead invest it all into installing gigabit fiber to every home in the
country. This would assure America's competitive infrastructure edge, and
create more market opportunity than we can currently fathom.

------
feralmoan
$2 Billion is probably all that can be afforded until the bigger political
battles can be won - ie: the 1% issue and getting corporate tax back into the
public coffers. Quite a gamble to take however that the next generation of
public funded Delaware startup corps will realize their longer term tax
potential.

------
fleitz
$1 trillion for banks, $1 billion for startups, you can really see how
important this administration feels startups are. Why not just tell banks,
lend half the money we're giving you to startups, instead of using it to prop
up your balance sheets.

~~~
shantanubala
The bailout was a mess, but I feel there's some truth to what Kissenger wrote
a while back: basically, a leader will never be given credit for choosing
between two evils (a possible crisis, or a poorly-executed bailout) because
you will never be able to prove with certainty how bad the other option would
have been. We have no way to truly know what things would be like without the
bailout, and we really ought to think of long-lasting solutions. Like funding
startups, right?

Frankly, your comparison doesn't make much sense. The administration is making
an obvious effort, but there's a big difference between investing in startups
and attempting to patch an economy that looks like it will collapse. Investing
in startups is quite literally an investment for a future economy. The bailout
was a bit of the opposite -- a quick-and-dirty patch up.

~~~
HilbertSpace
Some clarity and contact with reality:

"The bailout was a mess"

The efforts of big gumment to get people who couldn't afford a house into one
that blew a housing bubble that popped and created the worst financial and
economic disaster since the Great Depression "was a mess".

The 'bailout', that is, the TARP program was not "a mess" at all but a grand
success:

(1) TARP made money. All or nearly all the money has been paid back with very
high interest, about 11% per year.

As far as I know, all the TARP money will be paid back without difficulty.

(2) The money was nothing like a 'bailout' but just loans to tell the world
that the institutions would not go bust. So, TARP stopped 'runs' on the banks.

(3) TARP was not a 'bailout' but just to solve a short-term 'liquidity'
problem, that is, as in 'runs' on the banks.

Note: A 'liquidity' problem is when you are worth $10 million but have only
$500 in cash and suddenly have a traffic ticket for $600 and have to pay up or
go to jail right NOW.

You have the money but just don't have it in cash right away; you can get the
cash easily enough but will need some days or weeks to do so.

So to solve your 'liquidity' problem, you get a loan using some of your $10
million in assets as collateral. The loan is not really at risk; you pay your
$600 bill; then a few weeks later you repay your loan with interest.

You are not broke. You are not begging for welfare. The loan is not a gift.
The loan is not at risk. The loan is NOT a 'bailout'.

(4) Secretary Paulson called the nine bank CEOs to DC, sat them on one side of
a table with a form in front of them, and told them all, "You WILL sign this
form before you leave here today.". They all signed.

Goldman Sachs was one of the nine, didn't want or need the money, signed, took
the money, but paid it back, with interest, as soon as Paulson would permit.

(5) Paulson's main point was just to tell the world that those nine banks were
NOT bust and, thus, to stop 'runs' on those banks.

What Paulson did was fine. It was a good solution to a serious problem. The
effort cost the taxpayers $0.00 and actually showed a nice little profit (11%
was HIGH interest for such a loan).

To have not done TARP, we might have had cascading runs on all the major
financial institutions in the US and all of the industrialized world and,
then, been well into a second Great Depression, WWIII, global nuclear war,
etc.

Yet too many people want to leap to call TARP a 'bailout'. It was no such
thing.

Lesson: Those sources that call TARP a 'bailout' you should realize are
providing toxic sewage in place of information for a well informed citizenry.
For such sources, you should put on a rubber suit, hold your nose, dump the
swill, pull the chain, and call a toxic dump cleanup crew.

Why do these 'news' sources scream 'bailout'? Because they want to grab you by
the heart and the gut so that your eyeballs will follow for their ads and know
that to grab you they should scream versions of greed, corruption, danger,
scandal, etc.

So, they spout glowing, fuming, bubbling, sticky, toxic nonsense.

If the newsies had actually informed us, then we wouldn't have gotten into the
popped housing bubble nonsense in the first place. In Iraq, we would have
known that there was no good evidence that Saddam had WMDs. If we invaded Iraq
anyway, then we would have dumped the Saddam regime and gotten out in three
weeks instead of staying for 10 years and losing 5000 dead, 50,000 wounded,
and $1.5 trillion. If we had good information on Akrapistan, then we would
have been out'a there years ago. With good information, China wouldn't have
wiped out much of our textile, manufacturing, and other industries and been
ripping off our intellectual property.

Meanwhile, back in the US, the media was telling us ALL about Brit, Paris,
Lindsay, Kim, etc. BUMMER.

Bad information from the newsies, such as screaming 'bailout', is the worst
and most dangerous problem facing civilization at present.

PG and HN don't like for me to criticize 'big media', but I do so anyway
because the media nonsense is the most dangerous problem facing civilization
at present. Sorry PG.

~~~
mgkimsal
(3) TARP was not a 'bailout' but just to solve a short-term 'liquidity'
problem, that is, as in 'runs' on the banks.

Note: A 'liquidity' problem is when you are worth $10 million but have only
$500 in cash and suddenly have a traffic ticket for $600 and have to pay up or
go to jail right NOW.

You have the money but just don't have it in cash right away; you can get the
cash easily enough but will need some days or weeks to do so.

So to solve your 'liquidity' problem, you get a loan using some of your $10
million in assets as collateral. The loan is not really at risk; you pay your
$600 bill; then a few weeks later you repay your loan with interest.

You are not broke. You are not begging for welfare. The loan is not a gift.
The loan is not at risk. The loan is NOT a 'bailout'.

\-------------------------------------------------

What would define a 'bailout' as then?

Your example may be a bit extreme. If you're "worth" $10 million, but don't
have $500 in liquid cash, you're stupid. You're not prepared for every day
eventualities in your line of work (or just life in general). When people are
unprepared for otherwise predictable things (washing machine breaks, you need
an oil change, flat tire, etc) they have to suck it up and deal with it. They
don't get to tie up all their money in investments and have someone loan them
money for 100% foreseeable day to day life realities.

"You have the money but just don't have it in cash right away; you can get the
cash easily enough but will need some days or weeks to do so."

I get emails from these guys in Nigeria all the time.

"You are not broke. You are not begging for welfare. The loan is not a gift.
The loan is not at risk. The loan is NOT a 'bailout'."

Yes, you are broke. No, you're not begging for welfare. But, the loan is a
gift to save you from otherwise going to jail.

When normal people in their every day lives don't have a safety
net/cushion/rainy-day-fund to fall back on, they're labelled irresponsible,
lazy, deadbeats, or charged with "living beyond their means". But if a bank
does it... WTF? It's just normal business?

~~~
HilbertSpace
"What would define a 'bailout' as then?"

It's to "help" someone in a "predicament". The context is that the someone is
in trouble and to need the help is pejorative.

But with this definition, TARP was not a 'bailout'.

Help? The "help" is usually much like a gift and not likely to be paid back.
The banks had to pay HIGH interest, and did. The US Treasury made out like
vulture capital. In the end it was the banks, and their stockholders, who gave
'help' to the US Treasury and the US taxpayers.

Need? At least Goldman Sachs didn't need the money in any sense.

In most respects, the banks didn't really need the money; that's why they were
able to pay back the money quickly with interest.

Any need there was was due just to the liquidity issue.

The main reason Paulson acted was to stop international runs on banks and,
thus, save the world from something that stood to be worse than the financial
collapse that caused the Great Depression.

Pejorative? Whatever the banks did wrong in blowing the housing bubble, the
TARP effort was short term and not really the fault of the banks but caused by
the Bear Stearns and Lehman problems and, thus, the FEAR (the seed of a bank
run -- remember FDR) in the world that might have led to a run.

Recall also the 1987 stock market crash: Greenspan was at a big meeting, left,
went to a phone, got the news, called the major NYC banks and told them "The
window at the Fed is open". Greenspan was going to provide liquidity and avoid
a liquidity problem that could have done serious damage.

My little example on the meaning of a liquidity problem was pitched at the
grade school level. You SHOULD be able to understand it. Your reactions are
way, WAY off base. If you don't like the ratio of $600 and $10 million, then
assume $1 million and $10 million.

Or improve the example to be a college student who just inherited an office
building worth $10 million but needs $600 for a DUI case. He's not broke, but
he does have a liquidity problem. He can get the $600 but not in just a few
minutes to get out of jail.

In finance, 'liquidity' is a crucial topic; you should quit straining to
misunderstand it.

If you want a real example, then when my wife died, I faced $6000 in funeral
expenses. I didn't have the $6000 in my checking account. But within the next
month, I sold some stock, raised the $6000, and paid the bill. So I had a
'liquidity' problem. I could have borrowed money using the stock as
collateral. Such a loan would not have been a 'bailout', or 'help' and nothing
pejorative.

~~~
gammarator
You seem to have missed the recent story [1] from Bloomberg that the Fed made
7.7 TRILLION dollars--10x TARP, and half of the US GDP--available to banks at
0.01 interest. They used that money to buy Treasuries--ie, loaned the money
back to the government at interest, earning an estimated $13 billion in
profit.

So yes, they were able to pay back TARP pretty easily.

[1] [http://www.bloomberg.com/news/2011-11-28/secret-fed-loans-
un...](http://www.bloomberg.com/news/2011-11-28/secret-fed-loans-undisclosed-
to-congress-gave-banks-13-billion-in-income.html)

~~~
HilbertSpace
Yes, the Fed did 'quantitative easing' which is obscure nonsense for they
printed some money and gave it to the banks. The bank stockholders should
thank the Fed. Actually the taxpayers should own the banks and slowly sell
them back to private investors as the economy recovers.

When Greenspan did such money printing, he called it "rebuilding the balance
sheets".

A 'secret' is that the large banks are creatures of the Fed. They just are.

Yes, it might be more fair to the taxpayers, who really gave the money to the
banks, and who are BACKING the banks, to have the banks be so tightly
regulated that they are "boring" with little chance of going bust or of
putting people in the "1%". So, for the risky stuff, let hedge funds like MF
Global, LTCM, etc. do that. And break up the big banks so that if one fails it
won't bring down the whole economy. But these changes are too hot politically.

I doubt that the Fed's quantitative easing was the main reason those nine
banks were able to pay back TARP. Again, TARP was just some fast money to stop
runs on the banks and, as your data suggests, a relatively small amount of
money.

So, why did the Fed print money and give it to the banks? Because otherwise we
would have no financial system and, then, no economy and then hunger,
revolution, war, massive death, etc., little things like that.

So, what happened to the money the banks were supposed to have, that is, the
money the Fed replaced? It disappeared! Uh, actually with 'fractional reserve
banking' the banks can essentially 'create money'. Or you borrow $100 from a
bank and deposit the loan in your checking account. Then the bank loans out
$90 which is deposited in a checking account. Then they loan out $81 which is
deposited in a checking account. It's called the 'multiplier effect'. So,
that's mostly the same $100 loaned out 3+ times.

It may be that the bank only has about $10 of the stockholders' money and the
rest is from depositors via checking accounts ('demand deposits'). So, the
bank has maybe $10 but about $300 loaned out.

Loaning money this way on 'financial assets', e.g., to buy stocks, especially
on thin margin, that is, with high leverage, can blow an asset bubble -- 1929.
So we passed some laws keeping banks from loaning money for such purposes and
put in place some higher margin requirements. Then the sneaky bankers
discovered houses, Fannie, Freddie, the CRA, adjustable rate mortgages, the
Countrywide business model, and 'social justice' and blew a bubble based on
housing instead of stocks.

When the stock market bubble burst in 1929, we got The Great Depression. When
the housing bubble burst in 2008, we got The Great Recession. See a pattern
here?

Now if the economy gets sick from, say, a popped bubble, then some of that
$300 in loans won't get paid back. If as much as $10 of that $300 doesn't come
back, then the bank is bust. In simple terms, that's what happened in the
housing bubble, both its growth and its shrinkage.

So, when the bubble burst, some of that $300 or so the bank created is
destroyed.

So, we can try to continue on with that money destroyed, but that would cause
deflation. In a credit economy, deflation is a bummer because the easy way to
make money is just not to spend it and just to put it under a mattress. So the
economy goes into the tank and just stays there as people get poor, sick,
cold, and dead. We can get wars that way. At least we can get people
'occupying' city parks.

So, the Fed is trying to avoid deflation. But the economy is very sick, and
even with interest rates near 0.00% per year the economy is plenty sick. Why?
We don't get good answers from the newsies, not even Bloomberg, but first cut
businesses don't want to borrow for inventory, expansion, etc. because the
customers aren't coming, and the banks don't want to lend because the
businesses are sick and might not pay back. Or, the Fed's money has the banks
flush again, but that money is not yet in the hands of small businesses and
consumers.

Maybe a better solution would have been Milton Friedman's Helicopter: Print up
some money, about what was destroyed, load it into a helicopter, fly across
the US, scatter it, and let people pick it up and spend it. This is not
entirely a joke.

There is a great title for a magazine and maybe a Web site -- Secret Romantic
Confessions. It's TOO tempting not to look! Well, Bloomberg is a newsie site
so has Fed "secrets", 'secret money given away'. BS. Total, 100%, reeking,
fuming, bubbling, sticky BS. Grab'm by the heart, gut, and below the belt
nonsense BS and collect the ad revenue. Net, Bloomberg is spouting nonsense to
get yahoos up on their hind legs. Deliberate, deceptive, destructive nonsense.
Of COURSE the Fed gave money to the banks: That's EXACTLY what 'quantitative
easing' meant to anyone but a total yahoo, idiot, fool. There was no 'secret'
involved!

It was just such nonsense from yahoos that was largely responsible for killing
about 100 million people from the crash in 1929 to the end of WWII in 1945.
How? Because when the US stock market bubble burst in 1929, a LOT of money the
banks had created by loaning money to buy stocks on thin margin was destroyed.
Remember "The Roaring 20's?" -- lots of parties from lots of money created by
bank lending.

So, when the bubble burst, we had no banking system. Even out in Kansas,
depositors lost 100%. We were back to a barter economy. We had massive
deflation:

"For Sale. Nearly new car. Lost all in stock market. No offer too low."

"Deflation is the easiest thing in the world to fix: Just print money.". But
we didn't. Various yahoos didn't understand we needed to PRINT MONEY. However
even Betty Boop understood. Still we didn't.

So we went from 1929 to 1941 refusing to print money as needed. Unemployment
was a disaster. Some of the problems in loss of US 'social capital' are STILL
with us. Dumb. Really dumb.

Since the US was not buying, foreign developed economies were not selling to
us. Since part of their economy was not selling, that part was not buying, and
other sellers in that economy were not selling. Nearly no one was either
buying or selling. The economy shut down. People were cold and hungry. So, the
sickness of the US economy spread around the developed world.

Then along comes a wacko house painter with a solution: "Ein Folk. Ein Reich.
Ein Führer". He gets dictatorial powers over the economy for four years. With
those powers, actually he puts people back to work, building roads, bridges,
ships, guns, tanks, etc. Yes, he abolishes the labor unions. Then he gets four
more years of dictatorial powers and decides that he wants some new 'living
space', say, to the east to a line from, say, Stalingrad to Moscow to
Leningrad or, really, just to the Urals. For the people there, kill a lot of
them right away (as 'inferior breeds') and kill the rest slowly as slaves on
1000 calories a day. What he did resulted in 50 million, maybe 100 million,
people dead.

Then in 1941 or so people started shooting at us.

Then we got serious, and in about three months we had about three jobs for
everyone who could work and were OUT of the Great Depression. Why? We printed
enough money to start to replace what was destroyed in the 1929 market crash.

For now? We can be back to work anytime we want within about three months --
JUST PRINT MONEY. That's what the Fed is trying to do, but apparently
Friedman's Helicopter would be more effective.

There's more, but I know; I know: This is post is already too long for a
trivial little subject like putting 25 million people back to work. But, gotta
tell you: Don't look for anything real on this subject from the newsies.

But, if another 100 million people die, or a billion or few, then the newsies
will be right there reporting on the pains, the passion, pathos, and
poignancy, with poetry, about the human suffering. They won't have even as
much as a weak little hollow hint of a tiny clue about what caused the problem
or how to fix it, but they can report what it 'feels' like.

~~~
chrisbennet
That post is a pearl. Thanks.

------
jszielenski
So how do I apply? Where is a link to the application?

~~~
useful
<http://www.startupamericapartnership.org/get-registered>

afaik it basically gives you access to this:
[http://www.startupamericapartnership.org/search/content?f[0]...](http://www.startupamericapartnership.org/search/content?f\[0\]=bundle%3Aresource)

------
wilschroter
It's going to be interesting to see how companies themselves deal with the
concept of having a slew of shareholders (fiduciary duty, reporting, etc.)

------
Achshar
But will they accept foreign startups? Also where can i apply?
startupamericapartnership.org does not seem to accept foreign applications.

------
mmphosis
Meh.

Who needs the new economy? <http://news.ycombinator.com/item?id=3336286>

------
inaworldofideas
Making helicopter drops is destroying the economy not helping, they think
innovation comes from the printing press.

------
useful
Nice to see a website I worked on finally get on HN.
<http://www.startupamericapartnership.org/>

------
sentinel
His own money, right?

------
electic
Death of SOPA > $2B Dollar Fund

------
wavephorm
$7 Trillion for the banking cartel and $2 Billion for job creators? Explain
that one to entrepreneurial voters next year.

------
andyl
Let the startup fund be paid for by a tax on patent trolls.

------
beatle
Obama should've done this on the first year of his presidency. And I agree,
$2B seems like a low number compared to the bank bailout.

