The proponents tell us that this bill will increase lending to small businesses. To do so they are creating a $30 billion slush fund to make loans to smaller banks, therefore encouraging smaller banks to make loans to small businesses. Or so they say.
It is a splendid example of what I like to call McClintock’s Second Law of Political Physics: the more we invest in our mistakes, the less willing we are to correct them.
It’s apparently escaped the proponents’ attention that we are already doing precisely what the proposed new small business lending fund would do through the TARP’s existing Capital Purchase Program.
That’s the conclusion of the Special Inspector General of TARP, Neil Barofsky. He wrote to the Financial Services Committee on May 17th and said: “in terms of its basic design, its participants, its application process, and perhaps, its funding source from an oversight perspective, the (Small Business Lending Fund) would essentially be an extension of TARP’s (Capital Purchase Program).”
So if this scheme actually worked, we wouldn’t need this bill – banks would already be lending like crazy. The problem is, it doesn’t work. But some members can’t bear to face the American people and admit that they’ve squandered billions of dollars of working families’ hard-earned money. So instead they bring us more of the same.
This places an additional $30 billion of taxpayer money at risk. We’re told, don’t worry, we’ll get the money back.
When have we heard this song before? Oh yes, when they bailed out Fannie Mae and Freddie Mac. According to the Congressional Budget Office, taxpayers have now lost $145 billion heading to $400 billion.
What’s likely to happen to the $30 billion put at risk in this bill? Those banks with sound finances won’t touch this money – they don’t need it and they don’t need the federal entanglements that come with it.
Only those banks with unsound finances will accept these funds, with little chance they will ever be repaid. In fact, by removing the Special Inspector General from oversight of these funds, that risk is further aggravated.
And just to be clear, there is no guarantee that a dime of this money will actually be lent to small businesses in the first place – in fact, ANY commercial or industrial loan will count towards the requirements of this bill.
After a failed $700 billion TARP, $30 billion might not sound like much. But let’s put it in perspective – the combined cleanup and economic costs of the Gulf Oil Spill are currently estimated around $17 billion. So in terms of economic damage, this bill could actually cost more than cleaning up the entire mess in the Gulf.
It’s true that small businesses are having great difficulty getting loans. So are homebuyers. Why is that?
I suspect one of the principal reasons is that unprecedented public-sector borrowing has crowded out the capital pool that would otherwise have been available to make these private-sector loans.
Under this administration and this Congress, the government is running a 1 ½ TRILLION dollar annual deficit. That’s roughly $20,000 for every family of four in America.
Where does that money come from? We borrow it. From whom do we borrow it? We borrow it from the same capital pool that would otherwise have been available to loan to small businesses and other employers seeking to add jobs, or loan to homebuyers seeking to re-enter the housing market, or to loan to consumers seeking to afford consumer purchases – and remember that two thirds of economic growth depends upon consumer spending.
But that money now isn’t available to loan to employers and homebuyers and consumers to expand the economy – because government has borrowed it in order to expand government.
That is the core of the problem. I had offered an amendment to forbid the use of this TARP III money in the presence of a deficit – for a very simple reason. If the government borrows that money to loan to one small business, that same money won’t be there to loan to another one.
Government cannot inject a single dollar into the economy that it has not first taken out of the very same economy.
But of course, this amendment was forbidden under the rule we are now considering.
Therefore, I oppose the rule and I oppose the underlying bill.
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