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Charity is an insult to small business

By Samuel Sherraden, Special to CNN
  • Goldman Sachs is creating $500 million fund to help small business
  • Samuel Sherraden says government allowed Goldman to thrive in crisis
  • He says small business wasn't "too big to fail" and didn't get bailed out
  • Sherraden: U.S. needs to offer small business same level of support

Editor's note: Samuel Sherraden is a policy analyst for the Economic Growth Program at the New America Foundation, a Washington-based think tank that promotes innovative thought across the ideological spectrum.

(CNN) -- Goldman Sachs, the most profitable firm on Wall Street, announced last week that it will set aside $500 million for "10,000 Small Businesses," a charity co-sponsored by famed investor Warren Buffett and devoted to helping small American businesses survive the economic crisis.

While Goldman may see this as a generous move, its charity is an offense to struggling entrepreneurs and a symbol of failed government policy.

The $500 million allocated to fund the initiative is a small share of the massive profits Goldman has earned on the back of huge government subsidies it has received since the onset of the financial crisis.

When the financial system collapsed in fall 2008, the federal government supported "too big to fail" firms like Goldman Sachs with generous lending conditions, government guarantees, and outright subsidies.

Goldman received $12.9 billion when the government bailed out AIG and agreed to pay its creditors, including Goldman, 100 cents on the dollar for AIG's debts, still benefits from $21 billion in long-term debt guaranteed by the U.S. government, and has access to low-cost capital as a bank holding company, a preferential status that was granted to the firm in September 2008.

Instead of using government support mainly to reinvest in the U.S. economy, Goldman is using much of it for trading and generating big profits. Now the firm wants to take a paltry $500 million of what it has made, put it into a charity, and take credit for acting as if it's on the side of the small American entrepreneur.

But the U.S. government should share the blame. Washington failed to hold banks accountable on two fronts: First, the government did not force banks to lend and reinvest in the U.S. economy. Second, the government did not demand a share of the profits proportional to the support they were giving Wall Street banks.

Goldman Sachs is expected to earn $10.6 billion in net income in 2009 and Wall Street is set to break the record for profits set three years ago during the peak of the credit bubble. It is only right that taxpayers be paid back for the extraordinary government support that made these profits possible. The government is to blame for putting the taxpayers' dollar at risk without demanding an adequate stake in the profits.

Small businesses in the United States do not need charity. They need the government to give them the same level of support that is now given to Wall Street banks. Small businesses need permanent initiatives to make them more competitive in the long run such as a better infrastructure network, better trained workers, more access to bank credit and corporate tax cuts.

There is little doubt that if small businesses across America received the preferential treatment now given to Goldman Sachs they would be generating profits, too. But because small businesses received no bailout, they are now laying off workers and closing their doors as a result of lack of access to credit.

Small businesses in the United States don't need the change from Goldman's pockets. They need a government that recognizes that they can provide the job growth, innovation and products and services that the economy needs to recover.

The opinions expressed in this commentary are solely those of Samuel Sherraden.