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NYT: Obama Promotes Small-Business Lending Plan


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February 3, 2010

Obama Promotes Small-Business Lending Plan


NASHUA, N.H. — Intensifying his focus on job creation, President Obama flew here on Tuesday to promote his plan to free up $30 billion in lending for small businesses, even as a leading Senate Republican back in Washington said the proposal would only add to sky-high deficits.

Mr. Obama toured a lighting manufacturer and then headed to a town hall meeting in this politically critical state to tout his lending plan, part of a broader effort to encourage the private sector to step up hiring at a time when unemployment remains stuck at 10 percent despite increasing economic growth.

The lending proposal, which would require Congressional approval, would redirect $30 billion in repaid bailout loans from the federal government’s Troubled Asset Relief Program that rescued the nation’s largest financial institutions. The money would form a new Small Business Lending Fund to provide capital to smaller community banks in hopes of making it easier for them to lend to small businesses.

“These are the small, local banks that work most closely with small business — they’re usually the ones that provide them their first loan, and they watch them grow through good times and bad,” Mr. Obama said here. “The more loans these banks provide to creditworthy small businesses, the better deal we’ll give them on capital from this fund that we’ve set up.”

In addition to the new capital, Mr. Obama proposed in December continuing to waive fees and increase guarantees for loans backed by the Small Business Administration. As part of his State of the Union address last week, he also proposed a new set of tax breaks for small businesses that create new jobs or increase hours and wages on existing ones.

“When you look at what’s causing the problem, the problem is that small community banks might lack capital,” Karen Mills, the head of the Small Business Administration, told reporters aboard Air Force One as the president flew here.

Critics disagreed, saying that community banks had sufficient capital but were not lending as much of it as larger banks because they were having a harder time finding worthy borrowers. And some Republicans said the repaid bailout loans were supposed to be used to bring down the federal budget deficit.

“You’re adding to the debt that our kids are going to have to pay back,” Senator Judd Gregg, Republican of New Hampshire, told the White House budget director at a hearing on Tuesday in Washington.

Other Republicans said that the Democratic plans for health care would harm the small businesses the president said he wanted to help by raising their marginal tax rates. “My advice, and this is to the president on down: Listen to what small business is saying,” said Senator Charles E. Grassley of Iowa. “Back off of the marginal rate tax hikes.”

Senator Olympia J. Snowe of Maine added that increasing the Medicare payroll tax and personal income taxes for those making more than $250,000 a year would hurt small business owners. “There is no way they’re going to move forward to job creation,” she said. “Who would take the risk?”

Treasury Secretary Timothy F. Geithner, testifying before lawmakers, said that allowing Bush-era tax cuts to expire for the wealthiest Americans would affect only a fraction of small businesses. “You could say 2 to 3 percent is a lot of small businesses,” he said. “But it’s only 2 to 3 percent.”

The new lending fund would be available to banks with assets under $10 billion, which, according to the White House, account for 50 percent of all small-business loans even though they represent just 20 percent of all bank assets. The community banks would not be subject to the same terms and rules that applied to the troubled asset program, which many larger financial institutions bristled at. The Independent Community Bankers of America issued a statement of support: “Every dollar of capital that goes into a community bank can potentially be leveraged eight to 10 times into loans to small businesses. I.C.B.A. will work closely with both Congress and the administration on these and other initiatives that can benefit community banks and Main Street America.”

Mr. Obama toured the Advanced Renewable Energy Company, or ARC Energy, in Nashua, a business that is pioneering a new manufacturing process for highly efficient LED lights. Then he headed for the town hall meeting at Nashua High School North, where both he and Hillary Rodham Clinton campaigned in the days leading up to their clash in the New Hampshire primary in January 2008.

New Hampshire has not suffered as much from the nation’s economic troubles as many other states. Its unemployment rate was 6.7 percent in December, lower than the national 10 percent rate.

Several dozen protesters greeted the president and the 1,600 expected guests at the town hall meeting with competing signs. On one corner, some held up signs like “Stop the Spending,” “You’ve Run Out of Our Money” and “Joe Wilson Was Right — You Lie and Lie and Lie.” On another, demonstrators from the other side of the political spectrum held up their own signs, like “Healthcare Reform Now” and “Health Care for All.”

Peter Baker reported from Nashua and Sewell Chan from Washington.

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Serious question: The financial crisis, we are told, came from banks taking too much risk, and being unprepared for the consequences should the risks show up. Okay, I buy that.

Why then, are we now encouraging banks to make loans that they find too risky?

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