Great post. One lesser known factor that's contributing to this problem is bank consolidation in the US. * Big banks prefer to lend to big companies because it's more profitable to make one $100M loan than 1,000 $100k loans. * Banks also prefer to lend for non-productive consumption like mortgages because loans backed by hard assets are less risky than productive loans to small businesses, despite those loans not con…
Your second point is totally correct, but it is exacerbated as a result of (broadly good) government policy. A bank wouldn’t mind making uncollateralised loans any more than a mortgage, although it might charge more interest for the risk. However the government penalises banks based on (approximately) the sum of their risk weighted assets [0]. Here mortgages, as collateralised loans, are greatly incentivised over uncollateralised loans to business.
It’s hard to say if the situation would be worse without it, it’s possible we might have more risky business loans leading to growth, but also more likely we could see a serious global financial crisis.
[0] I am simplifying here slightly but you can see how the US ranks major banks here, higher is worse from the banks point of view https://www.fsb.org/uploads/P261124.pdf