Originally posted at FreedomWorks.org.
On Monday, President Obama signed the Small Business Bill also known as mini-TARP into law. At the signing, he declared that the law was “a great victory for America’s entrepreneurs.” The centerpiece of the law will pump $30 billion taxpayer dollars into smaller banks in hopes that they will lend out more to small businesses.
However, small banks that have responsibly handled their money do not want or need these mini-TARP funds. In the end, mini-TARP is unlikely to spur lending to small businesses. William Chase, CEO of Triumph Bank in Memphis states that “we have taken a strategic decision not to have our primary regulator, the government, also be a partner in our bank.”
As part of the plan, the US Treasury will buy stock in the small banks that receive taxpayer funds. Consequently, banks will be forced to pay an annual dividend of 5 percent to the federal government. As Larry Kudlow states in Real Clear Markets, “Who in their right mind would sign up for this? This is government-planning intervention almost beyond belief.”
It is believed that mini-TARP will be rejected by a majority of small banks that do not want to be burdened by excessive government regulation. In fact, the Congressional Oversight Panel found that 690 small banks that were bailed out by the original $700 billion TARP funds are actually worse off.
Simply, the original TARP failed to meet its intended goals. The Congressional Oversight Panel report says that “there is very little evidence to suggest that the (bailouts) led small banks to increase lending.”
The biggest problem is not that banks are unwilling to loan to small businesses. A poll by the National Federation of Independent Business found that 91 percentof small business owners say all of their credit needs are met. Instead, the harsh economy has discouraged small business owners from seeking loans.
Noah Wilcox, CEO of Grand Rapids State Bank says that he has plenty of money to loan to small businesses. However, “many of our clients, business owners, put their projects on ice in 2008 because their job number one is to see their company through to the other side of this economic crisis.” Despite wrongfulclaims that the recession is supposedly over, the economy is likely to get muchworse in 2011.
With the largest tax hike in history only 93 days away, most small businesses are reluctant to expand their operation. The minor tax cuts present in the mini-TARP law will not likely make a significant impact to restore business certainty. The best way to increase the number of small businesses that seek loans is to permanently extend the major Bush-era tax cuts to all Americans and end the dramatic uncertainly created by constant threats of massive change, like the cap and trade bill.
In the end, mini-TARP will not spur lending to small businesses. Responsible banks and small businesses refuse to take part in a misguided program that will only increase their compliance costs. All banks should face the full consequences of their actions. Taxpayers should not be forced to bail out any banks that have engaged in risky behavior with their money. Instead, the federal government should step back and allow the market to correct itself instead of imposing regulations that harm taxpayers and small businesses.