TARP Again?
Small businesses and banks don’t want any part of Obama’s new $30 billion program.


Larry Kudlow

President Obama is crowing about his small-business bill, signed into law on Monday. “It was critical that we cut taxes and made more loans available to entrepreneurs,” he said. Trouble is, small businesses and community banks don’t want Obama’s $30 billion program. That’s right. They don’t want it.

An AP story quotes community bankers who do not want the Treasury Department or other federal agencies to own stock in their banks. They know the regulatory takeover risk that will come with this program. Next thing you know, the government will order banks to make unaffordable mortgages available to low-income folks, or perhaps force business loans on the basis of race or gender.

“We have taken a strategic decision not to have our primary regulator, the government, also be a partner in our bank,” said William Chase Jr., CEO of Triumph Bank in Memphis, Tenn. The upshot is that Obama’s whacky $30 billion mini-TARP is likely to be rejected by the vast majority of small banks. They took a look at the TARPed-up regulation overhanging the big banks, and they don’t want any part of it.

Triumph’s Chase also said that his “business customers are mired in uncertainty and are reluctant to invest in their businesses.” Chase is onto something. According to the National Federation of Independent Business (NFIB), only 4 percent of small-business owners surveyed in August cited a lack of financing as their top business problem. And a full 91 percent say all their credit needs are met.

So what’s the real problem? It’s the economy, stupid. And it will get worse should the entire Bush tax-cut plan, including the alternative minimum tax, wind up in flames at year-end.  If the Bush rates expire, an already sluggish recovery will be doomed. That’s the real issue.

But Obama thinks his $30 billion mini-TARP will do the trick. Most folks may not know it, but as part of this plan, the Treasury would buy stock in the community banks that qualify, with those banks having to pay an annual dividend of 5 percent to the government. If those banks make loans to small businesses, the dividend payment might drop to 4 percent. But if they don’t use the money for loans, the dividend payment becomes a penalty at 7 percent. That amounts to Treasury control of the small banks that play this silly game.


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