Top Official, Citing TARP, Doubts Obama's Small Business Lending Plan

The watchdog overseeing TARP doubts that President Barack Obama's plan to boost lending to small businesses will actually work, according to prepared remarks delivered Tuesday.

The plan, like TARP, relies on injecting taxpayer funds into banks. While TARP funds were dispersed to stabilize the financial system, Congress also intended that the money be used to maintain lending and to stem the rising tide of foreclosures.

TARP accomplished neither, which is why Paul Atkins of the Congressional Oversight Panel doubts this new plan will work.

"After a thorough review, we found little evidence that these programs have had a noticeable effect on business credit availability," Atkins said in his prepared remarks to the House Financial Services Committee.

This new $30 billion initiative involves pumping money into community banks -- those with less than $10 billion in assets -- with the hope that they'll lend it out to small businesses. Banks will get the taxpayer cash at a five percent rate; the more they increase their lending, the cheaper the money gets. It can drop to one percent.

No such incentive existed in TARP.

It's the incentive that leads administration officials to think that this plan will boost lending.

In a recent report, the Congressional Oversight Panel said that banks with more than $100 billion in assets cut their lending after receiving taxpayer cash, while medium-sized banks experienced an increase.

Megabanks cut their small business lending by nine percent from 2008 to 2009; their overall lending dropped just four percent.

Comments

[wassilij]

07:46 AM on 05/21/2010

http://www.youtube.com/watch?v=yge311sFhC8

[Chris Gunn]

01:16 PM on 05/19/2010

It's also important to note that the Congressional Oversight Panel concluded that providing small businesses with increased access to loans and credit will be futile unless the government takes steps to increase demand. Small businesses need customers and contracts flowing through their doors. The government needs solutions like H.R. 2568, the Fairness and Transparency in Contracting Act, which would infuse our nation's economy with billions of dollars in federal contracts every year. http://www.govtrack.us/congress/bill.xpd?bill=h111-2568

[confused most times]

12:15 PM on 05/19/2010

OMG - The Obama administration not keeping it's word to help small businesses - I can't believe it!

[AngusC]

01:30 AM on 05/19/2010

I doubt they will get anything done for small business, they are idiots when it comes to that from the top down.
I contacted my idiot of a governor here in Michigan and told her that I was willing to put up a $100,000 of my own money to open another business if they were willing to match it.
She and her office never got back to me.

However, they awarded a $9 million tax credit to a man and his so called green company, and a day after that a reporter found out on a tip that the man's "corporate headquarters" was a trailer in a trailer park. He did not even own the trailer, a little old lady did.
And he had gone to jail for fraud before that.
A simple Google search or a drive to his "office" would have exposed him in 5 secs.

So for those that wonder why a state like Michigan is in the toilet, that is but one example.

[Janine547]

05:14 AM on 05/19/2010

Granholm is worthless, and always has been. I to live in Michigan and her in her final months of service can't end soon enough.

[Mafdet]

11:29 PM on 05/18/2010

That's correct, it won't work. In 2009, $5b was put through the SBA for small business and it never got to us. The $30b that Obama promised at the first of this year is conceived of as going directly through the banks because of the failure of the SBA to deliver before.

But what the Administration seems oblivious to is that whether the money is dispersed through the SBA or through the local banks, applicants have to meet the most stringent underwriting requirements in 40 years. Small businesses that have been locked out by the banks for 3 years now can't get past the underwriters, and if we do, the application process takes 3 to 4 months.

Current underwriting rules effectively block any company that has shown a decline in income from year to year from borrowing. That means any company that had a lot of employees but had to lay them off when cash flow was cut off does not qualify.

AGAIN: Those companies that will actually use the borrowed capital to hire people do not qualify for the capital.

If Obama wants to help small business, (which I do not think he does; I think he is a Reagan Democrat) then he needs to run the lending program to small business like the student loan program is run. We need the money BECAUSE we are stressed. And we need it now.

[unite4change]

01:16 AM on 05/19/2010

Once upon a time, our government ran the SBA.

[Hdaryl01]

01:34 AM on 05/19/2010

Excellent post! Fanned!

Just a few clarifications:
1) Not only was money funneled through the SBA to the banks in an effort to spur lending, but the SBA loan guarantee rate was radically increased from 50% to the unheard of 90% (almost equal to the scandalous student loan guarantee rates. And, nothing happened, except probably a REDUCTION in aggregate small business lending.

2) You are absolutely correct that this small business credit cruch has been going on for 3 years. All credible evidence and analysis clearly indicate a precipitous drop in small business lending beginning in early 2007. Thus, 1 1/2 years of Bush-nothing, and 1 1/2 years of Obama-nothing.

3) Underwriting-once again you are right on-if you need money you can't get it...

4) Not all small businesses need money. Because, many, many, many small businesses are dead, bankrupt, auctioned off, foreclosed, shut down, and non-existent after 3 years (and counting) of horendous neglect and funding drought. One example is a third generation business in my town that had expanded to employ 225 people nby the end of 2006. They had 18 by October 2009. And, never saw the new year. All buildings, plant and equipment auctioned off. Dead. It will take generations to replace the small business infrastructure that has been lost already. I agree, anyone else that is still surviving, needs money NOW if not 3 years ago.

[Mafdet]

11:07 PM on 05/18/2010

That's correct, it won't work. In 2009, $5b was put through the SBA for small business and it never got to us. The $3

[Will Hart]

10:52 PM on 05/18/2010

Paul Atkins...Republican Shill...Of course, he doesn't think it will work...he doesn't want it to work!
http://dealbook.blogs.nytimes.com/2009/08/20/tarp-oversight-panel-hires-former-sec-official/

[Mafdet]

11:37 PM on 05/18/2010

Almost everyone in and out of Obama's administration has weighed in on this issue to say that Obama has done nothing and is doing nothing for small business. I wrote 30 or 40 letters to the White House from the fall of 2008 until a month ago when I finally got a reply. Want me to summarize it for you? Here goes:

"...so yeah, we aren't doing enough to encourage lending to small business but I have tasked Congress to discuss ways to do something with the $30b I promised small business 6 months ago... Best regards, Barak Obama."

He is a Reagan Democrat. He believes that if the market is taken care of everything else will take care of itself. And that is why Tim Geithner said only a few weeks ago: "It could be years before unemployment is significantly reduced..."

[totalliberal]

10:38 PM on 05/18/2010

Top officials? Thank you Huffox. Top officials predicted that Obama would lose. Huffox wanted Hillary to win.

[Dialogue]

10:35 PM on 05/18/2010

Radio and television banking advocates and lobbyists should be careful, because, if bank earnings are not the catalyst that create lending, then, the government has the right to step in, in a big way. Debt-liquidity, when granted, tends to weaken small business balance sheets, while enriching the bank or investors balance sheet - unless or until default occurs. A subtle argument seems to be, that if predatorial price-risking tools are stripped from lenders and/or investors, they will simply elect to forgo lending. A rapidly growing view among many people in this society is that once they default, or pay off their existing credits or loans, the banks or investors will need to go into the commercial shrimp business, in the Gulf of Mexico, because whether its a small business owner or "Joe Sixpack," they have no further interest in obtaining a mortgage, car loan or any kind of loan. Interest rate and contract predators, see what your greed has done - because you kept pushing the "free market" anything goes envelope!

[RickO]

09:44 PM on 05/18/2010

The problem is that the federal government is simply nibbling around the edges of the problem. I don't think anyone wants to face the actual scale of this issue and certainly nobody we've elected has the guts to do anything useful. Feckless and useless, we might as well abolish the Senate for the good they do.

[OleProfessor]

08:42 PM on 05/18/2010

If we had Nationalized the Corrupt Major Banks as we should have we could have reformed them top to bottom fired the corrupt top executives and been lending at low rates to Stimulate Economy and Lending instead of enriching and rewarding them as Obama did and then have them Constrict Economy with their usurious Credit Card Rates and Predatory Lending..!

Obama Sold us Out Big Time and It's all Coming Back on Him, He Sells Out So Cheaply!

[Van Carter]

08:20 PM on 05/18/2010

Banks are over-leveraged. Banks are part of our capital structure that is bleeding and badly broken by ideologies that too heavily incentivize profit and think nothing of the collective good of their depositors or investors, or the communities in which they reside.

I do have to admit however that I don't understand why interest incentives would not work. Unless these banks are so unsteady because of the recently ended recession that they simply cannot afford to lend until their debt ratios are dramatically reduced.

[OleProfessor]

08:44 PM on 05/18/2010

They're getting money from Fed for .5% and Lending it to Treasury at 3%...

[practical]

07:50 PM on 05/18/2010

i can't wait to hear the excuses for Obama that are sure to start. Ok let's hear em'

[jasongrundy]

09:27 PM on 05/18/2010

Do you know who started the TARP project?...that's right BUSH!!!!!!!!!!!!...It started October 3rd 2008...and YES BUSH gets the blame...Do your homework before you comment.

[VoteThemAllOut]

09:52 PM on 05/18/2010

I will accept you assertion as to the start date of TARP - BUT under whose administration is it being administered? If TARP, as initiated, was/is totally flawed, why didn't the 'brilliant', constitutional scholar, never to accept any responsibility for anything, and whose administration controlled both sides of the isle to correct or rescind this piece of garbage?

Instead, he has tried to use it to divert attention from the failed 'bailout' to Wall Street. Let's see, Wall Street $700+ Billion and $30 Billion to the 'small fish'. Gee - I have to wonder if all of the Goldman Sachs 'boys' in his administration had something to do with it?

[EWeiss]

07:44 PM on 05/18/2010

He makes a valid point. But the fact that there will be incentives to increase lending that weren't there under TARP might make a difference. I dunno.

I'd guess that anyone who's taking sides here is either an economist themselves, or a hack. Check out the defenders of the Bush legacy below me, seeing a possible opportunity to score a political point and running with it.

Don't be one of those guys. Nobody likes those guys.

[GrimJack]

07:28 PM on 05/18/2010

just another example of how the Obama Administration is completely disconnected with the small business community and what small businesses need or want...they should be listening more to Lloyd Chapman