Yes, my favorite bubble business again. The Wall Street Journal ran a piece a couple of weeks ago on franchisees’ defaults on loans guaranteed by the SBA. “A list of loans at 500 franchises shows the number of defaults by franchisees increased 52% in the fiscal year ended Sept. 30, 2008, from fiscal 2007.” The SBA, of course, guarantees a portion of these loans because the businesses cannot qualify for conventional credit. Now, in spite of these recent figures on defaults, the Stimulus in WonderLand wishes to encourage more of the same because the stimulus package raised the guaranteed amount from 75% to 90%.

The failed franchises include Cold Stone, tanning salons, and Dream Dinners, another bubble-only, franchised company that brings dinner right to your home so that you don’t have to do a thing. Can you imagine how many middle-class people put that on their credit cards? Cold Stone had the 2nd-highest number of defaults though it had the highest default rate at almost 10%.

Since I am following the franchisee lawsuit against Kahala-Cold Stone, I get to see progress reports and litigation updates. Still, the franchisees don’t get it – to them it was the “failed business model” of Kahala-Cold Stone, and the company says no, it’s the economy. That’s tragic because since none of the people involved understand Austrian business cycle theory, they don’t understand that the boom reflected fantasy, not real prosperity, and that such a business model – that depended on credit card use, zealous spending, warped time preferences, and bubble-driven gross immaturity – would never exist in a free market economy based on sound money and banking principles.