This afternoon President Barack Obama announced that his administration would shift TARP’s $700 billion bailout fund away from big financial institutions and toward small businesses through small banks.Specifically, the Treasury Department will offer capital from TARP, at a 3% rate, to viable banks with less than $1 billion in assets. These small banks must first submit a plan explaining how the capital will allow them to increase lending to small businesses.
But remember that TARP was originally sold to the American people as a way to protect the economy from the systemic risk posed by the collapse of firms that were too big to fail. Small businesses and small banks are by definition not too big to fail.
First under the Bush administration and now under Obama, TARP has become a slush fund for pet political priorities. And as the New York Times reports, this time it is even being used to influence votes in Congress:
What is striking about the S.B.A. initiatives is not just the size of the increases but whom they appear meant to impress. The new loan limits closely track increases proposed by Olympia Snowe, the senator from Maine who is both the ranking Republican on the Senate Small Business Committee and possibly the only Republican considering voting for Democratic-led health care reform.
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At least one observer was not surprised. “Who is the one senator they need on health care reform?” a lobbyist who has followed the issue asked, rhetorically. “What number do you think they’re going to pick?”
The Obama administration has the authority to extend TARP until next October. But even members of his own party are growing tired of the lawlessness it has created. Rep. Dan Lipinski (D-IL) has called for TARP to be ended this December, telling USA Today: “We don’t even know where the money went.”
The only way to prevent further misuse of the program is to end it.