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The Senate leadership is trying to pass some of the worst pieces of the administration’s agenda in a desperate attempt to buy campaign contributions with taxpayer monies going into a tough election. The so called Small Business Lending Fund (SBLF) is a terrible idea that would cost taxpayers between $6.6 billion to $11.1 billion according to my estimates. This bill allows the government to pick winners and further socialize the banking industry. It injects up to $30 billion of preferred stock with dividends as low as one percent into small banks with less than $10 billion in assets.

The Senate leadership needs to win an extra Republican vote after Olympia Snowe (R-Maine) said she would not support another fund similar to the Troubled Asset Relief Program (TARP). Senator Snowe is the frequent swing vote that is usually necessary for any bill to pass the Senate. The Dow Jones Newswire reports that Democratic sponsors are trying to woo a Florida Republican Senator George LeMieux, who wants the taxpayer dollars to be injected into Florida’s near zombie banks with marginal regulatory ratings, a CAMELS rating of 3 out of 5. This is a sure way to turn the U.S. towards a Japan-style lost decade of propping up zombie lenders. Further, capital injections into lenders with marginal regulatory ratings is a sure fire way to lose billions of dollars.

The SBLF is meant to be a “cheap” stimulus program. If the administration wants a stimulus bill, it should try to pass another stimulus bill. It should stop throwing cheap capital at banks. The TARP Jr. will be much more expensive than its supporters claim because the smaller banks are very risky investments. Yet, this socialism, which means throwing more money at banks, should be objectionable to both conservatives and progressives. It is disingenuous for the administration to "end TARP" early and pass a $30 billion extension of TARP immediately after it "ended TARP." I expect the Senate to vote on this new bank bailout fund very soon.



Disclosure: I only have long positions in broad-based index funds. I do not own individual securities in the companies mentioned.

Source: Can TARP Jr. Get 60 Votes in the Senate?