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TARP shortchanges small business as banks hoard cash and don’t loan

June 25, 2009

On Oct. 3, 2008, the Troubled Asset Relief Program (TARP) was signed into law. At $700 billion, this bank bailout was unprecedented. Perhaps more striking at the time, however, was the complete lack of meaningful guidelines, measurable benchmarks, and strings attached to the bailout money. In essence, the only restriction placed on the secretary of the Treasury was that he had to spend the money on financial institutions or financial instruments.

When Congress passed the bailout bill in October, the sky certainly seemed to be falling. Jobs were being lost, stocks were falling, and banks seemed on the edge of failure. Yet instead of taking a measured and deliberative approach as our Founding Fathers intended Congress to do, the House and Senate voted to give the administration a blank check. Now, almost nine months later, we see even more homeowners losing their homes, we see businesses struggling to make payroll, and we see bankers struggling to explain where the money went.

The simple fact is that the Obama administration, for all its poll-tested speeches and good intentions, has failed to initiate programs that address the lack of credit to both homeowners and small businesses. And despite all of the Democrat majority’s rhetoric about saving and creating jobs, we continue to lose hundreds of thousands of jobs each month. Little attention was paid to the fact that only a tiny fraction of the $800 billion so-called Obama “stimulus” bill is dedicated to helping small businesses and little attention is being paid to the fact that not one dollar has gone out to small businesses yet.

Furthermore, even if it had gone out, the “small business” money that made it into the stimulus would not have gone directly to small businesses. Instead it would have gone to the Small Business Administration (SBA), which itself does not even loan directly to small businesses. Instead, the SBA guarantees loans, which means that banks still have to agree to make them.  Instead, banks are refusing. Under normal circumstances, these SBA guarantees surely increase the amount of available credit for small businesses by making banks more confident that the loans will be repaid. But banks are less concerned about repayment from longtime customers than they are about the need to hoard cash in an effort to satisfy arbitrary requirements placed on them by government bureaucrats.

Yet despite all of these facts, and despite the abysmal results, the Obama administration, in cooperation with the Federal Reserve, has decided to increase the amount committed to bailing out the financial industry up to $2 trillion. How much of this money will go directly to struggling small businesses or homeowners? Zero. Despite the taxpayers’ largesse, small businesses that have never missed a payment find themselves unable to secure a loan from their longtime banks.

Many of my constituents have been amazed to hear that the administration does not need congressional approval to spend this money. The sad reality is that the TARP bill was so loosely written that the Treasury, in conjunction with the Federal Reserve, can do almost anything they want.

I opposed this legislation in the beginning on principle, and I oppose it now because I have seen the results. Banks can be bailed out when they get into trouble. Auto companies can be bailed out when they get into trouble. But small businesses, which have accounted for 70 percent of the new jobs over the last 10 years, get no such consideration. Individuals, who through no fault of their own lose their jobs and lose their homes, get no such consideration. And all of this despite repeated statements by the Obama administration that small businesses and honest Americans are the very people this spending is supposed to help.

It is past time for this administration and the Democrat majority in Congress to rein in the trillions of dollars worth of special interest spending and focus on the people who make this economy work.