For the last few months, President Obama has been pushing for the passage of a bill to provide 30 billion dollars of federal help to smaller banks so that they can make loans to small businesses that need the money. The bill finally passed the House the other day and it is sitting on Obama's desk waiting for his signature. (I guess it was not that urgent despite what he said). According to Obama, this law will provide a rush of funds to small businesses and will lead to a great amount of job creation. The only problem is that he seems to be wrong once again. First, the small banks (those with less than ten billion in assets) who are to get the funds do not seem to want them. Many have adequate assets to make all the loans that the market wants; they do not need additional govenment money in order to meet their loan demand. Even for those banks that might come close to needing the funds, many are skittish about taking the funds since they saw how the big banks were treated under TARP. The feds stepped in and directed dividend levels, salary levels, and other corporate matters. The feds also refused to allow early repayment to get out from under the restrictions, and eventually exacted a penalty for such repayment. In short, other than for those banks that were in danger of failing, the TARP funds were a major pain in the butt. The small banks who are covered by this new bill have already weathered the storm. They will survive without government help and they are loath to take on all of the extra regulation that the government money will bring with it.
Then there are the borrowers who are the targets of this program. Right now, the big problem in small business is not a lack of loan money. the problem is a lack of customers. For businesses that need loans to expand, there are adequate funds in the market already. Strangely, Obama is increasing loan funds which come with federal regulation while pushing for a decrease in retained profits (through the impending Obama tax increase) that can be spent as needed by the business. So, those businesses that are in not likely to expand will be punished since their profits will be taken. Those businesses who want to expand will be forced to take loans to do so and this will bring them under federal regulation. These businesses will not be able to use internally generated funds as a big chunk of those funds will be taxed away. Adding the interest on the loans to the cost of any expansion project will, of course, prevent some of those projects from going forward.
In short, Obama and his brain trust have once again come up with a plan to "help" business which really hurts. Just how dumb are these people? Or are they doing all this on purpose?
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