TARP for Small Businesses?

Call it the second stimulus incognito. Reports are swirling around about the administration’s plans to use TARP funds to support small businesses. Before your blood pressure reaches danger levels take a deep breath. Despite all the heavy breathing in the blogosphere, they appear to just be kicking ideas around.

Make no mistake about it, they are worried, particularly about jobs, and want to get more money out. They have to do it via the backdoor since they know they have zero chance of getting money from Congress. So TARP has become their little slush fund.

Here is how the WSJ sizes up the talk about helping small business:

The Obama administration is discussing ways to expand assistance to struggling small businesses, but there is some disagreement among top officials over the best approach, according to people familiar with the matter.

One idea floated by the Treasury would make more capital available to small businesses by having the government essentially underwrite loans used to fund their businesses. That idea was challenged by National Economic Council Chairman Lawrence Summers, who said such a move would expose the government and taxpayers to too much risk, these people said.

The Treasury and White House are considering other ideas, including using more money from the $700 billion financial-industry bailout to unlock credit for small business. That sector has been particularly hard hit by the financial crisis, because banks, worried about their own capital needs, have pulled credit lines and declined to make small-business loans. Unlike some other industries, small businesses look to banks for their primary source of funding.

“The economic team is very united in the understanding that we have to be constantly looking at creating a favorable job creation environment for small business in these very challenging economic times,” said Gene Sperling, an adviser to Treasury Secretary Timothy Geithner. “The hard part is as always figuring out what will be most effective and most efficient.”

If they are going to do anything it will have to be done through community banks. That’s who lends to small businesses and that’s who understands them. Even the SBA uses the banks to do the underwriting. All they do is guarantee loans.

I wouldn’t worry much about this one going anywhere. The community banks are by and large too deep in problem loans to take on the business, the SBA is a god-awful bureaucracy to deal with and most small businesses don’t want anything to do with its paperwork nightmares. By the time they get anything up and running we will either be deep in depression or well on our way to recovery.

It just seems to me to indicate an increasing level of discomfort if not panic within the administration. What do they see that they aren’t sharing — an economy in free fall or just bad poll numbers?

Comments

[Mark Bern:]

"What do they see that they aren’t sharing — an economy in free fall or just bad poll numbers?"

Both!! The Administration may not acknowledge it but they are getting awfully concerned about unemployment, the lack of consumer spending and the economy in general. So far, results from their efforts aren't showing up and that leads us to the second part of the question: poll numbers. The polls have started to drop and without results on the economic front this Administration is beginning to understand that they can no longer orchestrate an economic recovery through press releases. "Oh, no! We've actually got to do something. The recession isn't going to work itself out on its own!" Just telling us everything will be okay doesn't make it happen.

So, as the author points out, they're getting desperate. We'll probably hear about a lot more possible schemes before long. They (the Administration) will ask focus groups, advisors, and public opinion pollsters what the best political move could be and test the waters in all directions. The problem is just that: they'll be looking for the best political solution instead of the best economic solution. And all the king's horses and all the king's men...

Jul 13 01:23 AM

[U Dontknow ...:]

CIT is bankrupt because of making tons of bad small business loans.

Comrade Obama now wants to take $700 billion of our money to burn that up too. What insanity!

Jul 13 08:31 AM

[Mark54:]

CIT is a dead-man-walking because of looming debt maturities. The core business is solid but no one is in the business of extending credit to a credit company.... hell that's doubling down. General Growth Properties felt a similar fate, decent to excellent properties that could pay the monthly debt service 1.5 to 3 times but no one to refi the balloon payment.

We all should have seen the writing on the wall last week when the govt mentioned lending to small businesses.

Jul 13 08:29 PM