TARP Mission Creep Watch, SBA Edition

I’m beginning to think that the TARP fund is really just an all-purpose slush fund, it has suffered from so much mission-creep at this point. Not only was it used to bail out the automakers, but now David Cho reports that

the Obama administration is developing an initiative to take money from the $700 billion program for the banking system and make it available to millions of small businesses.

This is pretty desperate stuff: a Stimulus II in all but name, using TARP funds because there’s no way the administration has any intention of trying to push an actual second stimulus bill through Congress.

The reaction to this proposal should be exactly the same as the reaction would be to a stimulus bill proposing the same thing — and while I think that SBA loans are often good things, I also think there are other, more effective ways to stimulate the economy and increase employment over the short term. And in the long term small businesses have a way of looking after themselves; government is most effective in building large-scale national infrastructure. So I’m not a fan of this idea.

Comments

[Dave Wrixon:]

Yep, it about time to admit that Obama is a liar.

What ever happened to the "Biggest Road Building Program since the 1950's"?

Sorry, but we have all been sold a load of horse shit.

Jul 11 05:35 AM

[look closer:]

Road building program ???? What we need are repairs on bridges, dams, water pipes, and critical infrastructure collapsing all around us. Screw the banks and SBA, they will find a way to survive or someone will find a way to replace them. We may as well get a decent bang for the stimulus bucks being thrown around as the country descends into chaos.

Jul 11 08:51 AM

[Neil459:]

Expect big spending announcements on road building/repairs, hospitals, public works, police departments and etcetera just in time for the 2010 elections. Of course, there will be just enough truth that it can not be called a bold face lie, but nonetheless it will be deception. Why because the waste will make the real value less than 10% of anything announced.

Remember the Obama campaign. "Transparency now." Now its transparency later.

Remember the Obama campaign. "I will not sign pork bills." Now its "I have to do it for the good the economy."

When is a pathologic lier and pathologic lier?

Jul 11 09:01 AM

[Old Trader:]

I suppose we shouldn't be surprised by the "mission creep" the article describes. Giving the Federal government a chunk of money, and expecting it NOT to be spent, is like expecting a sailor, making a port call after a 6 month voyage, to stay sober! (No offense intended to sailors).

Jul 11 09:11 AM

[Adam855:]

If you read the TARP legislation, you'd see how it was written in ridiculously general language. It was basically a blank check, so it shouldn't be surprising that they'll use it for whatever seems appropriate at the time. The real problem is that it got passed at all, in particular with the loosest of guidelines on a massive amount of taxpayer money.

Jul 11 09:18 AM

[Danny Newton:]

The Bailout Binge has no exit strategy. I think this is the first evidence that economic stimulation is more addictive than Meth. When do you stop bailing and stimulating?

Jul 11 09:26 AM

[Mark Bern:]

The writes that "small businesses have a way of looking after themselves."

Felix, Felix, Felix. While small businesses in aggregate will grow in number and prosperity over time, it is true, in the here and now they are closing their doors by the thousands. Over time there will be more smalls but that is because more small businesses are started than fail over time. Many of the smalls today that could thrive during better economic times will not be with us for the long term. The Great Recession is killing small businesses. And let's not forget that more jobs are created by small businesses than any other segment of the economy (historically speaking).

Support for small businesses may be the first good idea to come out of this administration in terms of facilitating a recovery. We need jobs...permanent jobs. Yes, we still need a lot of outdated, unsafe infrastructure replaced and that would be a good place to put federal investment because it would accomplish what most local governments have failed to do and can't afford. But those jobs would be temporary, project oriented in nature. That is just a bandaid, not a cure.

Public works programs are not the path to economic recovery for a service-oriented economy such as ours. It only helps that segment of the unemployed who are used to manual labor. Will the ex-Wall Street financier seek a job replacing NYC sewars? I doubt that very much.

Now, having said all that, I'm not in favor of using TARP money for any additional purpose. I would hope that Congress could see the benefit of modifying the current stimulus package to include real stimulus initiatives with lasting purpose in substitution for some of the pork. Of course, I would also be terribly wrong to give our Congress that much credit.

Jul 11 10:04 AM

[User 357705:]

Its not offensive to speak the truth. Those that are offended by the truth have the problem.


On Jul 11 09:11 AM Old Trader wrote:

> I suppose we shouldn't be surprised by the "mission creep" the article
> describes. Giving the Federal government a chunk of money, and expecting
> it NOT to be spent, is like expecting a sailor, making a port call
> after a 6 month voyage, to stay sober! (No offense intended to sailors).

Jul 11 11:07 AM

[User 357705:]

I'd rather see TARP money in the hands of small business owners. Its a great idea.

Jul 11 11:09 AM

[ed233:]

I think if another poll were taken it would be hard to find majority support for a new stimulus package at this present time. Making funds available through the issuance of guarantees backed by the government to enable lenders to grant loans to small business makes sense. It is a deployment of existing stimulus money but what's wrong with utilizing funds for this cause. It's either using funds that were set aside in the original stimulus bills or taxation. Taxation hardly seems to be a worthy alternative given the fact that the recovery will only be stalled further into the future. Everyone knows that the generation of jobs are created from small business private sector. They are the real generator of jobs. It is in this sector where you get the largest multiplier effect which is needed to kick start the economy that seems to be in the doldrums unless you rely on those so-called green shoots. The bulk of earlier stimulus packages were mainly aimed toward banks and the auto industry. Neither of these sectors are predicting any increase in employment in the foreseeable future. I'm in support of small business. I can think of a lot worse places to put this money. LOL Looking after your money.

Jul 11 12:50 PM

[John Lounsbury:]

Felix - - -

You wrote: "government is most effective in building large-scale national infrastructure." Bingo!

See my comments: seekingalpha.com/autho... and seekingalpha.com/autho...

Jul 11 03:42 PM

[Mark54:]

The more chaotic the economic environment gets, the easier it is to push something like this through the process. If 2Q earnings are as weak as I suspect, this is (or anything else) is a slam dunk for the administration.

Jul 11 11:05 PM

[Vox Rationalis:]

This is actually much in line with other government interventions in the last year. Most notably, the Fed's entrance into the commercial paper market in September-November. Banks basically ceased lending in the CP market, regardless of risk, as they shored up their capital in the face of big losses. The Fed started paying nominal interest on banks' deposits at the Fed, and rolled those deposits back into the CP market.

As banks have re-worked their risk equations, they have dramatically reduced the credit available, including to many businesses that depend on seasonal credit to survive (think retail buying for the Christmas season). If done well, the government's backing of such lines of credit should enable banks to extend more credit without lending to doomed enterprises. This supports not only the businesses, but the jobs on the margins.

While not even close to the original intention for TARP (which was an interesting academic idea doomed to real-world failure), this program makes a lot of sense to me.

Jul 13 11:56 AM