Small Business Owners Under Fire

Apr 17th, 2009 @ 8:01 AM by Alden Smith

It is of particular interest to those that watch happenings in the mortgage market to see what happens when small-business owners get in difficulty.  In an article in the New York Times this morning, there was an article about a Chicago banker turned junk loan buyer.  The buyer, Rick Williamson, sees his role as that of someone helping to clean up bad debt that is clogging the economy.  Mr. Winston says “if you want to fix what is ailing this country, you need to destroy the worthless debt out there.  You have to shut down the zombies, liquidate their assets.”

Mr. Williamson is part of a new niche industry that purchases businesses that are in trouble at rock-bottom prices.  These commercial loans are ones that the FDIC auctions off after it seizes a failed bank.  This is lucrative for both the FDIC in the bargain hunter.  The FDIC has seized 58 banks in the past 15 months.  Selling the toxic loans has generated about $2.2 billion.  Funds are placed into the FDIC fund that insures deposits at other banks.

The FDIC is not want to be seen as an entity that throws homeowners into the street.  It has no qualms, however, about going after small businesses.  These are the loans that are typically sold at their auctions.

You can hardly blame the FDIC for using the services of people like Mr. Williamson.  They typically are willing to work much harder, using resources that the FDIC wouldn’t use to settle this debt.  The FDIC often runs into debt that is almost impossible to collect.  When this happens, they auction off the loans, and loan brokers pick them up for a song.  Recently a mortgage broker in Chicago bought 191 delinquent loans with a book value of a $6 million.  His price was a little over $15,000.

It takes a tough cookie to handle these kinds of operations.  Mr. Williamson has no problems with confronting delinquent business owners.  He refers to the federal government as “the nanny state”, because they try to protect delinquent borrowers.

I feel for the people who have to go through this kind of situation.  I have mixed feelings about the point of view of people like Mr. Williamson.  But I have to think that what he does is a necessary evil.  If we are ever going to get the economy back on track, action must be taken.  Drastic times call for drastic measures.