More TARP, Please

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More TARP, Please
A jobs bill pending in the House it will give Democrats a new opportunity to make the case for their economic policies.
Tim Fernholz | September 22, 2010 | web only



More TARP, Please


(Stephen J Boitano/NBC Newswire/AP Images)


Sometime this week, perhaps as soon as tonight, the House of Representatives is expected to vote on what is referred to in Washington environs as the Small Business Jobs Bill. It's an Obama administration proposal to address unemployment that, while reduced to relatively meager size by political constraints, will be the government's most significant economic program this year. Moreover, by replicating the most effective ideas in the much-maligned bank bailout and the nearly-as-controversial stimulus act, it will give Democrats a new opportunity to make the case for their economic policies.

The legislation targets small businesses for two reasons: Somewhat misunderstood research that suggests small business provides the bulk of job growth (the truth is closer to, younger businesses provide the bulk of job growth) and Republicans are inclined to support help for small business over more direct economic intervention. Two Senate Republicans, George Voinovich and George LeMieux, crossed the aisle to support this bill. Not coincidentally, both are retiring this year.

Politics aside, the bill is trying to correct a problem that has hindered recovery since the financial crisis: Small businesses are finding it tough to get affordable credit to invest in equipment, hiring, and expansion. With economic growth slowing, banks worry that lending is too risky. Large Wall Street banks with the capacity to lend remain focused on trading and corporate clients; small banks, whose bread and butter is lending to small business, haven't been as effective in trading their way out of losses incurred during the crash. Today, most Wall Street banks have paid the government back for the aid they received through TARP, and then some. Many small banks, however, remain fragile -- 120, about 1/6 of the banks in the TARP program have missed deadlines to pay their debts -- and are unable to marshal the resources to drum up new business.

That's why the Obama administration requested, and the Senate approved, this bill, whose centerpiece is a new $30 billion fund at Treasury, designed to inject capital into small banks with the condition that it be used to lend to small business -- exactly the kind of conditionality progressives desired in the original bank bailout. Not only will the bill help get needed cash to small businesses and encourage hiring -- Democrats hope to see 500,000 jobs come from the bill -- but it will also shore up the balance sheets of Main Street banks that rightly feel overlooked by the administration.

That the plan looks set to pass with some Republican support, is tacit recognition that the TARP program did, in fact, benefit the economy, and a timely reminder of its conception nearly two years ago under President Bush. TARP was a success -- it has mainly been repaid, with profit -- despite the invectives directed against from all points on the political spectrum. As Matt Yglesias has observed, much of the scorn directed at TARP comes from the failure of progressives to explain how the policy was not an aberration in the government-market relationship but rather the first step towards turning that long-existing partnership to better public outcomes. Hopefully, progressives won't forget that lesson if they have an opportunity to promote this new legislation.

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http://www.prospect.org/cs/articles?article=more_tarp_please