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Lynn Tilton

Lynn Tilton

Posted: October 27, 2009 04:20 PM

The plan announced last week by President Obama to encourage lending to small businesses, in its recognition of the severity of the problem, is a noble first step. However, if we are truly committed to the salvation and revival of America’s small and mid-sized businesses and to saving and creating jobs, a more comprehensive plan is required. The Obama plan, while well intentioned, places the onus, in its entirety, on community banks to restart lending.  In theory and political pacification, this might make sense, but in practice, it will never work. And we are out of time. The plan we place forth now must offer an immediate and effective solution or permanent unemployment will plague us for decades.

Community banks have not been able to ride the full force and effect of TARP and other government programs. They struggle under the weight of large non-performing home loan mortgage and commercial real estate portfolios, with the rates of defaults showing no sign of deceleration.  Most community banks fight for their own survival, and regardless of incentives, are in no position to provide resources or inure the detriment of risks inherent to lending to small businesses, many in liquidity crises. Moreover, many community banks will be wary to accept the reporting requirements and conditions attached to TARP funds. The Independent Community Bankers of America, its primary trade association, immediately expressed concerns following Obama’s announcement.  “It’s uncertain how many community banks will use the program given the current examination environment and the conditions Congress has imposed on TARP funds,” Cam Fine, president and CEO of the ICBA said in the release.

We need a plan that is designed to ensure funds will reach small and mid-sized enterprises (SMEs) directly and with requisite sense of urgency. More than 70% of America’s work force is housed in SMEs and the liquidation of these businesses continue daily because they have no access to the basic working capital loans needed to operate their businesses. SMEs are the backbone of our economy, and they are in desperate need of support. Permanent unemployment will reach epidemic levels if finding a solution to continued job loss is not our nation’s priority. The SME Rescue Loan Program (RLP), my proposal to address this crisis, provides a qualitative and tactical plan founded in a patented quantitative solution that protects taxpayer dollars. For more information, see www.smerescueloans.com.

Earlier this summer, I proposed the RLP as a natural expansion to the Public–Private Investment Partnership (PPIP) under TARP. The existing PPIP, announced a year ago, was established by Treasury to purchase toxic assets from bank balance sheets. With time, it has grown evident toxic assets are neither the major danger to our economy or obstacle to new lending.   

The RLP is designed to address the current threat to our economy within the construct of Treasury’s original plan. The RLP is drafted to support origination of new loans to those SMEs that cannot access traditional bank lending.  Because it is based on an existing program, the RLP can be implemented with rapidity.  And by reliance on private investment managers, who demonstrate the risk profile for troubled credits, rather than community banks, probability for success is exponentially enhanced.

A year ago, the implosion of credit markets began as a Wall Street crisis but rapidly spread to Main Street, paving a path of destruction. Credit markets seized and the global economy appeared to stand on the precipice of collapse.  Governments intervened with myriad programs designed to slow the pace of damage.  These programs succeeded, to varying degrees. Although grave risk of impending financial collapse may be behind us, the economy remains fragile. The fall-out from the crisis of last autumn has given way to new and dangerous threats of extremely high unemployment and permanent job losses, a prospect more frightening than others to Main Street Americans.  Absent an immediate rescue, unemployment could peak in excess of 12 percent with underemployment levels approaching 20 percent, exacerbating demand destruction and further economic deterioration.

With each passing day, the schism between Wall Street, Washington and Main Street widens. The American people grow increasingly incredulous with the complacency of Washington leadership.  Spreading optimism, in the face of Main Street hopelessness, is an affront that will no longer be borne. Wall Street buoyancy adds insult to injury, and Americans will not accept Wall Street bailouts founded upon taxpayer dollars with no meaningful action to save American jobs. We have a plan that initiates rescue financing and saves jobs in a manner that can be immediately effective by means of a combined private and public sector solution. The time to act is now.

 

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