Facing the stark reality of double-digit unemployment and the failure of his first $862 billion economic stimulus, President Barack Obama unveiled his second stimulus plan last month including a mix of subsidies and government-subsidized loans targeted solely at small business. Obama’s Second stimulus will be funded in part by roughly $33 billion from the TARP, that will be then redirected to community banks through the Federal Small Business Administration (SBA).
While the aim of promoting job growth through the “acceleration” of small business creation and expansion is laudable, businesses do not want more government intrusion. Unfortunately, in an attempt to stimulate job creation and small business growth, the last round of pledges from the White House will only further expand government regulation over business.
Small business certainly comprises a large share of total employers in the US economy and as small businesses expand—or originate—there is more employment in local economies. It is not clear, however, that there is a direct link between the loan guarantees provided through the SBA and the volume of small business lending in local markets
Most importantly, despite holding nearly $90 billion in total loans (an increase of 70 percent since 2001), the SBA’s system of lending has fallen short on its ability to keep up with industry standards where the average quality of an SBA federally-guaranteed loan (in 2008 corresponding to a Moody’s rating of Ba) falls below that of a typical private, non-government subsidized loan. In a 2009 report, the Government Accountability Office discovered that the “SBA does not follow sound validation practices or use its own data to independently assess the risk ratings, the effectiveness of its lender risk rating system…may deteriorate as economic conditions and industry trends change over time.”
In addition, the President is promising that the SBA will guarantee the loans dispersed under this new round of stimulus spending at the 90 percent level. Considering the mounting evidence against the ability of SBA to maintain industry standards, this should be worrisome to the American taxpayer since they subsidize these loans—under the current lending structure, SBA guarantees up to 90 percent that SBA lenders make to small businesses.
Leaving aside the fact that the SBA has a poor track record of targeting effective loans and overseeing these loans it is vital to reiterate that small businesses will continue to react to uncertainty. The most pressing issue for every American is ensuring that the economy and net employment begins to rebound.
Rather than entertaining poorly targeted policies, the White House and Congress should be spending time assuring American businesses that they are committed to a policy mix centered on permanently lowering capital gains tax rates, income tax rates, the estate tax, as well as mitigating regulation and employer mandates which would give businesses the necessary incentives to innovate and expand in the most efficient manner.
After suffering major electoral and legislative defeats last month, President Barack Obama took to the campaign trail in Nashua, New Hampshire, pitching his administration’s latest new plan to lower our nation’s double digit unemployment rate. This time, the President hopes to do for small businesses what Fannie Mae and Freddie Mac did for home mortgages. Specifically, he wants to create a new $30 billion “Small Business Lending Fund” which will loan money to banks with assets under $10 billion at favorable new rates, as long as they comply with a slew of new regulations designed to incentivize them to loan that money to small businesses. Never mind that a recent poll of small business owners by the National Federation of Independent Businesses ranked “Finance and Interest Rates” as the second to last most important problem facing their business.
And just where does the President plan to get this new $30 billion? The President explained yesterday: “This proposal takes the money that was repaid by Wall Street banks to provide capital for community banks on Main Street.” In other words, TARP – the $700 billion Troubled Asset Relief Program first signed into law by President George Bush, and then used by Treasury Secretary Hank Paulson to force many financial firms into taking taxpayer money they never wanted in the first place. But if Wall Street banks are paying-back their TARP funds, then how can President Obama say the following when justifying his Financial Crisis Responsibility Fee:
We want our money back, and we’re going to get it. And that’s why I’m proposing a Financial Crisis Responsibility Fee to be imposed on major financial firms until the American people are fully compensated for the extraordinary assistance they provided to Wall Street. If these companies are in good enough shape to afford massive bonuses, they are surely in good enough shape to afford paying back every penny to taxpayers. Now, our estimate is that the TARP program will end up costing taxpayers around $117 billion — obviously a lot less than the $700 billion that people had feared, but still a lot of money.
So which is it? Are Wall Street banks repaying their TARP obligations in full so that the President can afford to spend $30 billion on his new Small Business Lending Fund? Or is TARP going to lose $117 billion? The answer is both. In reality, the major financial firms that took TARP money – many against their will – are paying-back those funds, and American taxpayers will get every single dime they are owed. But TARP has long since devolved from a one-time emergency action into a crony-capitalist political slush fund. TARP will lose money. But those losses will come almost entirely from the bailouts of union-backed firms General Motors and Chrysler, as well as AIG. Of course, GM and Chrysler are exempted from President Obama’s Crisis Tax, as are the government firms at the core of the housing bubble – Fannie Mae and Freddie Mac. The President’s Crisis Tax has nothing to do with recovering unpaid taxpayer TARP money and everything to do with finding a new source of revenue to help cover up the Obama administration’s massive new spending increases.
And unfortunately, more government spending and more government regulation are this administration’s answer to every economic problem. But more debt and more regulation will not create new jobs. According to a new Gallup poll, 57% of Americans are worried that there will be too much government regulation of business, half say the government should become less involved in regulating and controlling business, and only 24% say the government should become more involved in regulating and controlling business, which is exactly what the President’s new “Small Business Lending Fund” does. And remember that NFIB poll that showed borrowing costs as the next to last problem small businesses face? Well, that same poll also identified taxes as their second biggest problem and government regulation and red tape as the third. Americans and America’s small businesses know what will create new jobs, and it ain’t taxpayer campaign giveaways from the White House.
Quick Hits:
- Due to a debt burden that will climb to 97.5% of gross domestic product, Moody’s Investors Service said the United States will “test the Aaa boundaries” of their top debt rating.
- House Majority Leader Steny Hoyer (D-MD) said Tuesday that the White House is reassessing a plan to move Guantanamo detainees to a prison in northwest Illinois.
- The Obama administration’s top intelligence officials on Tuesday described it as “certain” that al-Qaeda or its allies will try to attack the United States in the next six months, and they called for new flexibility in how U.S. officials detain and question terrorist suspects.
- Iran test-fired a new satellite rocket and unveiled three new telecommunications satellites and a new satellite-carrier engine.
- MSNBC’s Keith Olbermann has lost 44% of his audience since President Barack Obama was sworn into office and is now third in the ratings behind Nancy Grace.