Actually, Bruce, You Did Benefit from Bailouts
Something about Bruce Poliquin’s current political ad has always irked me even more than the usual “ad from a politician I disagree with.” Until now, I couldn’t quite put my finger on why it bothered me so much.
Well, today I finally figured it out.
Now, to be fair, Poliquin doesn’t claim to actually be a construction contractor in the commercial (one might argue that it certainly looks like he is). In fact, if you read his bio, Poliquin has done a lot of different things – e.g., one of his recent jobs was as a developer for environmentally sensitive housing. Perhaps that experience was the inspiration for the character he’s playing in the ad. Between that, and his self-claimed “understand(ing) how our economy works,” one should assume he knows the basics of how the construction industry works, right?
How the Construction Industry Really Works
Let’s say you’re a builder. It costs a lot of money to buy the lumber, plywood, concrete, insulation, shingles, doors, windows, flooring, wiring, plumbing, etc. etc. etc. No sane developer pays for the materials up front – think about it: if the person purchasing the property bails on you, fails to get the loan, or whatever, you’d be on the hook for the cost of materials for that property until it’s (hopefully) sold. That’s not a smart business move. Instead, builders usually have lines of credit with their materials suppliers for all of their projects. I pay that debt down as my business gets paid. That allows my business to “float” through rough times, paying for operating expenses (like employee salaries) until the cash comes in for the cost of materials.
Why Do I Know This?
A few years ago I worked for a company founded in Maine called BlueTarp Financial. They’re in the middle of this business. Let’s say I’m a Building Materials Supplier – “Mike’s Masonry Materials.” My business is selling bricks. Homebuilders and masons come to me, and they want a line of credit. As a business owner, I really don’t have time to do credit checks, check references, generate invoices, and do collections when contractors get behind on payments. Nor am I in a financial position to have a lot of outstanding debt on my books. So I outsource that work to BlueTarp Financial, and they get a percentage on each transaction. BlueTarp checks the credit on the contractor, gives me the money for the sale of my bricks right away, and takes on the responsibility of collecting payments.
But There’s More
BlueTarp Financial isn’t a bank. They aren’t sitting on a wad of cash. In fact, they draw on a bigger line of credit to pay their dealers while they wait to get paid back. This has the added benefit of mitigating risk; they have a giant pool of debtors, and hopefully only a small percentage of them default. That small percentage might kill Mike’s Masonry Materials, but it’s a smaller percentage of BlueTarp’s line of credit. Who gives BlueTarp this line of credit? Large banks, ones that are “too big to fail.” These are banks like TARP recipient, CIT.
Let’s Review
Bruce Poliquin is doing construction, in his ad, slyly proclaiming that businesses like his didn’t get a bailout. He seems to be saying he’s one of us. The less deserving fat cats on Wall Street getting the government’s money is bad policy that doesn’t help the struggling small business owner. Yet he’s building houses, and builders use lines of credit, and lines of credit ultimately come from big banks, who “got a bailout” to ensure their survival.
Not to mention the fact that, at the peak of the credit crisis, BlueTarp had to lay off a huge chunk of their workforce. Those were Maine jobs. They were technology-based, well paying, startup jobs. BlueTarp would probably no longer exist if it’s credit lifeline had disappeared.
Did Bruce Poliquin get a bailout? No – the Federal (and let’s remember this is a federal policy… Poliquin is running for governor, remember?) Government didn’t write Poliquin a check. But I’m betting he wouldn’t be building “environmentally sensitive” homes if the bailout hadn’t happened. So either he’s either engaging in shallow pandering in the commercial, or he doesn’t understand how the construction industry and our economy work. I’m uncomfortable with either conclusion.
