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I would rather that money come back to the tax payer. After all, we paid for the initial bailout of the banks
CG: Bush/Obama economic policy continues. When in doubt, give more money to banks.
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NEW YORK (CNNMoney.com) -- President Obama will call on Congress Tuesday to recycle $30 billion of the remaining Troubled Asset Relief Program (TARP) funds into a new government lending program offering super-cheap capital to community banks that boost their small business lending this year.
Touted last week in Obama's State of the Union address, the plan is the latest incarnation of a proposal the president first floated in October. While credit conditions for large businesses have improved over the past year, small companies are still widely reporting problems finding the capital they need to fund their operations.
Since small businesses employ about half of American workers, policymakers worry that the ongoing credit crunch they face is contributing to the nation's high rate of job losses. Improving the job market "must be our No. 1 focus in 2010," Obama said last week.
At a town hall meeting in Nashua, N.H., Obama plans to unveil his proposed new Small Business Lending Fund. The initiative targets banks with assets of under $10 billion, which collectively account for more than half of the nation's small business lending, according to White House estimates. Those banks would be able to borrow money from the Treasury at a dividend rate as low as 1% if they use the cash to make more small business loans this year than they did in 2009.
Lend more, pay less: The first draft of Obama's plan, announced three months ago, involved lending TARP money to community banks to use for local business loans. But community bankers reacted warily to the plan -- they had little interest in taking capital from a program that has drawn so much criticism. TARP's extensive regulatory requirements were also a turn-off.
Obama's new proposal asks Congress to divert TARP funds into an entirely new lending program. The administration hopes that scrapping the TARP taint will make the offering more attractive to bankers.
Banks with less than $1 billion in assets would be able to receive capital infusions of up to 5% of their assets, and banks with assets of $1 billion to $10 billion would be eligible to access investments totaling 3% of assets. More than 8,000 of the country's 8,400 banks would be eligible to participate under these terms, according to government estimates.
The dividend rate for the capital would start at 5% and decrease by 1% for every 2.5% increase in small business lending the bank shows compared to a 2009 baseline. The dividend rate could drop as low as 1% for a community bank that increases its small business lending balance by 10%. That rate would stay frozen for five years, allowing the bank to pay the Treasury back gradually.
"We think this incentive structure will help maximize the best bang for the buck," a senior administration official said during a briefing with reporters. "We give banks an incentive not to hoard or hold their capital, but to increase their lending to get the better rates."
Bank hoarding is a common complaint among small business owners. The nation's 22 largest recipients of TARP capital have cut their outstanding small business lending balance by a total of $12.5 billion since April, shaving 4.6% off their collective portfolio.
With Wall Street banks backing away from Main Street, the administration is hoping community banks will take the lead in funneling dollars to small business customers.
Direct lending a no-go: Wall Street giants, AIG (AIG, Fortune 500) and the Detroit automakers got direct, low-interest loans from the government, but small businesses shouldn't hold out hope for a similar bailout. That's caused grumbling among entrepreneurs frustrated by the freeze-out they've endured from banks.
Steve Gordon, a small manufacturer from Clearwater, Fla., put Obama on the hot seat during a town hall meeting last week in Tampa.
"I appreciate the pledge of $30 billion to small businesses. But lending it to the banks to lend to us is not the answer," Gordon told the president. "You lent directly to the automakers, you lent directly to the banks -- why can't the government make [loans] available directly to us?"
The Small Business Administration doesn't have the staff or infrastructure for a lending program of that magnitude, Obama responded. The nation's banks have to be part of the solution.
"I am absolutely sympathetic to what you're saying because I'm hearing it everywhere I go," he said. "You've got a lot of small business owners who are ready to grow, ready to hire, but they just can't get financing. So we're going to use the SBA as one tool; this $30 billion is going to help."
While the banks helped cause an economic meltdown by lending too freely, now "the pendulum has shifted too far in the other direction," Obama said. "What we're trying to do is to encourage [banks] to get that happy medium where they're not taking such exorbitant risks that they threaten the entire system, but they're also open to enough risk that America's dynamic free enterprise system is actually able to work."
http://money.cnn.com/2010/02/02/smal...fund/index.htm
I would rather that money come back to the tax payer. After all, we paid for the initial bailout of the banks
There must be some reason why banks aren't lending already. If it has anything to do with a dearth of qualified borrowers, I am not sanguine that state subsidized lending will induce banks to lend much more than they do already.
I would rather use the money to pay off debt...
The problem with this thing is the bank commission that's going to be sucked in from each loan... there's no risk to the bank since it's backed by the government...
It didn't work when we tried giving money to the big banks. I don't see why we should expect it to work when we give money to the little ones.
If I thought that the gov. would use it to pay off debt I could wash it down. However, I know that they won't and I would much rather see 1000 in my own hand, as I know what to do with it, then in the hand of a local bank who will end of throwing it away.
http://www.washingtonpost.com/wp-dyn...020103527.htmlThe share of borrowers who are falling seriously behind on loans backed by the Federal Housing Administration jumped by more than a third in the past year, foreshadowing a crush of foreclosures that could further buffet an agency vital to the housing market's recovery.
About 9.1 percent of FHA borrowers had missed at least three payments as of December, up from 6.5 percent a year ago, the agency's figures show.
Although the FHA's default rate has been climbing for months and eating into the agency's cash, the latest figures show that the FHA's woes are getting worse even as the housing market shows signs of improvement. The problems are rooted in FHA mortgages made in 2007 and 2008. Those loans are now maturing into their worst years because failures most often occur two to three years after a mortgage is made.
If the trend continues and the FHA's cash reserves are exhausted, the federal government would automatically use taxpayer money to cover the losses -- a first for the agency, which has always used the fees it charges borrowers to pay for its losses.
If default rates in privately-backed mortgages line up in any way, banks are still hunkered down against further anticipated losses.
Until the price of housing (and therefore the personal wealth of Americans) stabilizes and starts to grow again, the whole notion of economic growth based on any further extension of credit is like pushing on a string.
Commercial r/e loans are defaulting and increasing as r/e operators lose tenants.
The Banksters' Depression continues as a nightmare, fully detached from Wall St rebound.
Banks have the money to lend, there just aren't enough credit-worthy borrowers because of the Bush recession and tighter credit restrictions on borrowers by lenders because of rising default rates..
Then why lend it?
He can want this but there is no way the Congress will pass this.
Is Glenn Beck telling you that? Or someone else?
We'll see. I'm inclined to think it will pass.
Why won't they? The congressional track record on this is pretty well established. Give 'em the money and then about it on camera.
Are the capital infusions spoken of in the OP strictly loans, or are other funds involved? There seems to be a few gaps in the tale.Banks with less than $1 billion in assets would be able to receive capital infusions of up to 5% of their assets, and banks with assets of $1 billion to $10 billion would be eligible to access investments totaling 3% of assets. More than 8,000 of the country's 8,400 banks would be eligible to participate under these terms, according to government estimates.
The dividend rate for the capital would start at 5% and decrease by 1% for every 2.5% increase in small business lending the bank shows compared to a 2009 baseline. The dividend rate could drop as low as 1% for a community bank that increases its small business lending balance by 10%. That rate would stay frozen for five years, allowing the bank to pay the Treasury back gradually.
"We think this incentive structure will help maximize the best bang for the buck," a senior administration official said during a briefing with reporters. "We give banks an incentive not to hoard or hold their capital, but to increase their lending to get the better rates."
Bank hoarding is a common complaint among small business owners. The nation's 22 largest recipients of TARP capital have cut their outstanding small business lending balance by a total of $12.5 billion since April, shaving 4.6% off their collective portfolio
It's the same gig as what Paulson put together with the big banks. Only change that I see is tying the interest rate to how much money they loan out to small businesses.
Not being a banker, I've got no idea what a "typical" dollar amount of small business loans a bank with say $1 billion in assets would make. So I don't know if a 10% increase in small business lending is all that much or not. Someone feel free to give me a better number here, but let's pretend that bank with $1 billion in assets makes $100 million of small business loans a year. So does that bank get to borrow $50 million dollars (5% of $1b) at 1% interest simply by loaning out $10 million more to small businesses (at interest rates much higher than 1%) than they did last year?
Last edited by coyotes_geek; 02-04-2010 at 05:43 PM.
So Paulson will get the same control with the sm banks as he did with the large ones?
And yet your heros in D.C. on the left want to force banks to lend more and more, even knowing the applicants will likely default. Gee, if only we had some history to learn from...
What control did he have with the large ones?
Who please? Are you sure about that?
They're not lending because of capital requirements. Or, if banks were required to recognize their losses on their loan portfolios very few would actually be solvent. For the time being we're pretending they are.
Well then there's that too.
Do ents: Paulson Forced 9 Bank CEOs To Take TARP
Washington Post ^ | May 14, 2009 | SARA LEPRO
Posted on Thu May 14 2009 08:22:16 GMT-0500 (Central Daylight Time) by kellynla
NEW YORK -- The chief executives of the country's nine largest banks had no choice but to accept capital infusions from the Treasury Department in October, government do ents released Wednesday have confirmed.
Obtained and released by Judicial Watch, a nonpartisan educational foundation, the do ents revealed "talking points" used by former Treasury Secretary Henry Paulson during the October 13 meeting between federal officials and the executives that stressed the investments would be required "in any cir stance," whether the banks found them appealing or not.
Paulson also told the bankers it would not be prudent to opt out of the program because doing so "would leave you vulnerable and exposed."
It's no secret that some of the banks had to be pressured to participate in the program, with several bank CEOs saying they had been strongly encouraged to take the funds. But the do ents are the first proof of the government's insistence.
"These do ents show our government exercising unrestrained power over the private sector," said Judicial Watch President Tom Fitton in a statement.
A phone call to the Treasury for comment was not immediately returned Thursday morning.
The outcome of that fateful meeting _ which resulted in the government taking direct stakes in the banks through $125 billion in preferred stock purchases _ marked a shift in the government's strategy to fixing the financial system.
The Treasury had first decided to use a chunk of the $700 billion financial bailout package to pay for taking partial ownership stakes in banks, rather than using the money to buy rotten debts from financial ins utions. The idea was that the investments would instill confidence in the system and get banks to lend again following the freeze of the credit markets.
http://www.freerepublic.com/focus/news/2250732/posts
1) That didn't answer the question.
2) Do you really think Paulson is still the Treasury Secretary?
@SnC:Yes, but you insinuated that Paulson's power survives to this day, and may even be increased. That made me curious about your factual mastery of the situation. The article you posted is from early last year, describing Paulson's actions in late 2008 December and early January 2009.
Before Mr Obama was elected, and Mr. Geithner replaced Paulson as Treasury chief, know what I'm saying?
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