In the earlier paragraphs of a Friday report on the recently passed small business lending bill at the Associated Press, reporter Pallavi Gogoi gave readers the impression that Congress's allegedly noble intentions might be thwarted because banks and businesses who should apparently be grateful for the "help" don't want it.
Gogoi gives no direct indication that the bill involves government "investment" in (i.e., partial state ownership of) participating financial institutions.
The AP reporter didn't have to look very far to see what's really involved. The defined purpose of the bill, which weighs in at over 40,000 words (full text here), is right there at its beginning (bold is mine):
An Act -- To create the Small Business Lending Fund Program to direct the Secretary of the Treasury to make capital investments in eligible institutions in order to increase the availability of credit for small businesses, to amend the Internal Revenue Code of 1986 to provide tax incentives for small business job creation, and for other purposes.
This is not very different from what ended up happening with the Troubled Asset Relief Program (TARP) enacted two years ago. In fact, two lawyers writing on the law's potential impact describe it as a "mini-TARP." You'd never know that from Gogoi's report (one cryptic reference to the underlying state control involved is in bold):
President Barack Obama's $30 billion small community business lending program faces one big challenge: many of the community banks and businesses it's supposed to help don't want it.
The lending program is part of a bill that passed the House of Representatives on Thursday and now awaits the president's signature. The legislation contains a mix of tax cuts and credits aimed at helping small businesses. The centerpiece of the bill is an effort to make billions of dollars available to community banks for loans to small businesses.
It seems like a simple effort to unclog a credit pipeline that has been blocked since the financial meltdown two years ago. But interviews with seven community bankers, as well as small business owners, show a reluctance to participate.
Bank executives say their customers don't want loans, even at low interest rates, because the sluggish economy has chilled expansion plans. Some say the federal money isn't worth it because they fear it will come with too much regulatory oversight.
"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.
Chase said the bank already has enough capital to meet the paltry demand for loans. "Our business customers are mired in uncertainty and are reluctant to invest in their businesses," Chase said.
Ninety-one percent of small business owners surveyed in August by the National Federation of Independent Business (NFIB) said all their credit needs were met. Only 4 percent cited a lack of financing as their top business problem. Plans for capital spending were at a 35-year low.
As to "regulatory oversight," let's look at just one requirement present in the bill:
(Part of Section 3005 -- "APPROVING STATE CAPITAL ACCESS PROGRAMS")
At the time that a State applies to the Secretary to have the State capital access program approved as eligible for Federal contributions, the State shall deliver to the Secretary a report stating how the State plans to use the Federal contributions to the reserve fund to provide access to capital for small businesses in low- and moderate-income, minority, and other underserved communities, including women- and minority-owned small businesses.
The states will have their hands in this enterprise, and will be under pressure to ensure that loan decisions are based on race, gender, or other "underserved" status, not on their economic merits. Imagine that.
Then there's this item, which, briefly translated, is a mandate that participating institutions work with their local "community organizers":
OUTREACH TO MINORITIES, WOMEN, AND VETERANS- The Secretary shall require eligible institutions receiving capital investments under the Program to provide linguistically and culturally appropriate outreach and advertising in the applicant pool describing the availability and application process of receiving loans from the eligible institution that are made possible by the Program through the use of print, radio, television or electronic media outlets which target organizations, trade associations, and individuals that--
(A) represent or work within or are members of minority communities;
(B) represent or work with or are women; and
(C) represent or work with or are veterans.
I don't recall the fact that the government will be taking partial ownership stakes in participating financial institutions as a precondition of their participation getting any kind of establishment media coverage. Gigoi's failure to note it is just one small example of a much larger epic media fail.
P.S. Here's a more detailed description of what is involved in "capital investment":
(b) Use of Fund- (1) IN GENERAL- Subject to paragraph (2), the Fund shall be available to the Secretary, without further appropriation or fiscal year limitation, for the costs of purchases (including commitments to purchase), and modifications of such purchases, of preferred stock and other financial instruments from eligible institutions on such terms and conditions as are determined by the Secretary in accordance with this subtitle.
Original graphic was found here.
Cross-posted at BizzyBlog.com.
