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Today in Washington – July 29, 2010

The Senate is debating a bill today that includes bailouts for small business, TARP, Jr.  The debate between right and left on this legislation is a great example of the big government versus small government approach to economic growth.  H.R.5297, officially titled the “Small Business Jobs” bill, will spend another day on the Senate floor as the left pushes to retain the TARP bailout model for small businesses.  Senators Max Baucus (D-MT) and Mary Landrieu (D-LA) have offered an amendment that would, according to Congressional Quarterly (subscription required), “create a $30 billion small-business lending fund, offer about $12 billion in tax breaks and enhance federal programs designed to assist small companies.”  President Obama and his liberal allies are pushing government bailouts as a way to help small business.  

The House is scheduled to vote on 13 suspension bills,  H.R. 5850, the Transportation-HUD appropriations bill and H.R. 5903, Investing in American Jobs and Closing Tax Loopholes Act of 2010. The Senate Armed Services Committee will have another hearing on the New Start Treaty.

The TARP, Jr. approach to expanding small business legislation provides perverse incentives for banks to make risky loans to small business.  In the long run this idea will hurt, not help, small business.  According to Bloomberg:

Maine Senator Olympia Snowe, ranking Republican on the small business panel, says the plan promotes risky loans by rewarding banks that lend more and punishing those that don’t.

The federal government will buy an interest in banks and set conditions that will force them to make risky loans.  This terrible policy and will promote bad business practices.  Providing an incentive to force banks to hit loan quotas will promote risk.  Furthermore, promoting risky loans may cause long term problems with the solvency of banks.  This is typical of President Obama’s ideology that promotes the end goal of a government managed economy. 

As Bloomberg describles the bill as follows:

The plan calls for the U.S. Treasury Department to buy preferred stock with a 10-year term in lenders that have assets of $10 billion or less. The shares will pay an initial dividend of 5 percent, dropping to 1 percent if the banks increase small- business loans or rising as high as 7 percent if the loans stay the same or decrease. For all recipients, the dividend resets after 4-1/2 years to 9 percent to encourage repayment.

Conservatives support less government intervention in the economy, not more.  Liberals want to force small business to loan more, even though these banks are making business decisions not to make loans that may lead to a bank’s insolvency.  President Obama said of the TARP, Jr., bill, as quoted in the New York Times, “surely, Democrats and Republicans ought to be able to agree on this bill.  Helping small businesses, cutting taxes, making credit available. This is as American as apple pie. Small businesses are the backbone of our economy.”  Don’t spoil that apple pie with inscentives for small business to cook the books so as to get special government handouts.

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