Looking for Stimulus Money? Check your Community

Around the time of the debate over the stimulus/TARP, I heard time and again from folks who would say, half-jokingly “where’s MY money?” The implication to this of course is that the federal government planned to give wads of cash to a large grey blob of institutions (mostly banks), but average joes certainly weren’t included in the mix.

I’d try my best to comfort with a mix of economic theory and political tact, but my powers of persuasion are often not as finely tuned as I would like.

So to my relief comes this USA Today story on money from the economic recovery package that is going to Community Development Financial Institutions (CDFIs). CDFIs are valuable in communities that are often wastelands for big bank lending, and they provide a defense against high-cost predatory lending.

And to boot, CDFIs have performed relatively well over the past two years. This is mostly because they’re less concerned about massive profit margins, and instead focus on the health of the communities in which they operate. And because of their relationships with individual customers, community banks and lenders have been more meticulous about their lending and thus, haven’t felt the sting of subprime. From the story:

“Overall, the stimulus law and budget plan allocate about $400 million over two years to community lenders, a huge increase from the roughly $50 million the Bush administration proposed in 2008.

That may seem like chump change compared with the trillions the Treasury Department and Federal Reserve have poured into large financial firms. But every dollar of CDFI funding should leverage $14 to $20 in economic activity, providing vital activity in low-income areas that were reeling even before the downturn.”

In short, THIS is your money. Communities across the country have been ravaged by this downturn (and plenty weren’t doing so hot in prior years). Giving community finance a leg up is an effective strategy for rebuilding communities, starting small businesses, and generally helping those who actually need it.

For more, you’re welcome to read a recent paper from international superstar Ellen Seidman (and myself) on the topic.