Subterfuge and sleight of hand. It's a bailout of smaller, regional banks who made ridiculous loans on strip malls and assorted commercial real estate garbage.
Very little will flow to small businesses. A much simpler idea is to suspend the payroll tax for employees and employers. Make it cheaper to hire new workers. This legislation will do nothing but keep inefficient, irresponsible banks in business for a few years longer, until Sheila Bair and the FDIC eventually get around to shutting them down.
- "TARP will boost lending."
- "This new bill will increase lending to small business."
Fake left. Go right. Claim it will end world hunger. Just don't call it what it is -- another bailout and kick to the gut of American capitalism.
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Obama's cash giveaway won't help small businesses
First and most important, the $30 billion won't actually go to small businesses in the form of loans; it will go to small banks in the form of capital. At its heart, this plan is nothing more than a Son-of-Paulson TARP (Troubled Asset Relief Program) bank bailout - except, of course, that it is much smaller and is focused on community banks rather than Wall Street banks. But won't this new capital lead the recipients to make more loans to small businesses? To answer this question, we need only look at what happened to bank lending after the original TARP, engineered by George W. Bush administration Treasury Secretary Henry Paulson. From June 2008 to June 2010, commercial and industrial lending by commercial banks declined by $222 billion or 18 percent, from $1,204 billion to $982 billion. Over the same period, small-business lending by commercial banks declined by $57 billion or 8 percent, from $661 billion to just $604 billion. The lesson is clear: Investing taxpayer dollars in commercial banks leads not to more lending, but to less lending by the banks.
Why this perverse outcome? The answer is that TARP and this new mini-TARP are bleak examples of crony capitalism at its worst - an unholy alliance of big government and big business. Taxpayer money goes to bankers who made hundreds of billions of dollars in bad loans, which depleted their capital. The taxpayers' investments recapitalize these failing banks but do nothing to remove the bad loans from the bank balance sheets. The troubled assets remain in the system, which could lead to a lost decade, just as a similar strategy did in Japan during the 1990s.
Instead of going to small-business loans, look for the $30 billion investment in bank capital to morph into a political slush fund for Democrats to use to bail out politically connected banks. Think Shorebank in Illinois and OneUnited in California. The FDIC's most recent problem-bank list includes more than 800 banks - more than one in 10 - even though it already has closed 126 banks year-to-date. Look for these problem banks to line up at the public trough in yet another Obama bank bailout.
Second, the $12 billion in targeted small-business tax credits won't result in new investment or hiring. Remember "cash-for-clunkers" and first-time-homebuyer tax credits? Those costly programs simply time-shifted sales of cars and houses from after to before the programs expired. In both cases, sales of cars and houses fell off a cliff when the programs expired. These tax policies are tantamount to handing out winning lottery tickets to those lucky enough to qualify for them at the time they are offered.
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Included is a new and controversial $30 billion Treasury-backed credit facility to boost business lending by smaller community banks, and the Small Business Administration’s own loan limits are expanded significantly.
Among the tax provisions, a generous bonus depreciation provision is worth as much as $40 billion over the next two years, and to attract investors, the bill promises a temporary 100 percent exclusion from capital gains taxes for stock acquired after enactment and held for more than five years.
“Unfortunately, the legislation we are considering today does not provide the protections we need to make sure that small businesses access affordable capital,” the New York Democrat told her colleagues in floor debate Thursday.
At the same time Republicans derided the initiative as “Stimulus II” or a “bank bailout” akin to the Treasury’s massive Troubled Assets Relief Program, made famous in the 2008 rescue of collapsing financial markets.
“Another day, another $30 billion borrowed,” said Rep. Jeb Hensarling (R-Tex.) in a mocking tone, but House Financial Services Committee Chairman Barney Frank (D-Mass.) countered that the minority was too trapped in ideological arguments to see the real potential for help for small companies.
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