Obama knows funds meant to help small business and urgently needed for economic growth were instead used by banks to pay off TARP

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The economy cannot possibly improve without small business growth. Obama and the GOP let the country twist in the wind while tax dollars meant to help small business were diverted to other uses.

10/6/11, "Banks Repay TARP Loans With Money Meant for Small Businesses," Wall St. Journal, Emily Maltby and Angus Loten

"More than half of $4 billion in federal funds disbursed this year to spur small business lending by community banks was used to repay bailout funds that the banks received under the government's Troubled Asset Relief Program (TARP), The Wall Street Journal reported Thursday.

The Small Business Lending Fund was meant to raise capital at smaller banks, which tend to lend more heavily to small businesses, in the hopes of jump-starting growth and employment.

• But instead of directly lending to small businesses, many of the
  

• banks used the money to rid themselves
  

• of higher-cost TARP debt and tougher restrictions.

Of 332 banks that received cash through the lending fund, 137 used at least a portion -- totaling $2.2 billion -- to pay off their TARP obligations, Treasury Department data show. The fund began lending to small banks three months ago, and the program concluded last week.

• Of the total $30 billion available in the fund,
  

• only $4 billion in loans to banks were approved.

Under the fund's regulations, the banks were not prohibited from using the money to pay back TARP debt. But the two programs were designed to be separate, a Treasury Department spokeswoman said, adding that unless the banks increased their small business lending, they would not enjoy loan rates lower than what they were paying for TARP money.

The Independent Community Bankers of America successfully pushed for a provision allowing TARP recipients to transfer from one Treasury program to the other. In congressional testimony in May 2010, the lobbying group requested that transferring banks "be subject to the new program rules and released from their existing TARP restrictions."

Politicians and many economists regard the small business sector as a key driver of economic growth, and crucial to helping the nation climb out of the downturn.

But in the three years since the financial crisis hit, small businesses have struggled to get access to bank credit.

• That has hurt their ability to expand and hire more workers.

Some community banks that used the program's fund to pay off TARP obligations argue that paying off higher-interest loans was an equally effective way for them to free up capital that they could use for lending. Indeed, the more the banks used money from the fund for lending, the less interest they would pay on those funds.

Other lenders said it was important to be rid of TARP, which has developed a stigma as public sentiment soured on the notion of financial market bailouts."...

Read more: Wall Street Journal (subscription)

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