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There should be no SBA in TARP
Commentator David Frum.
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TEXT OF COMMENTARY
Kai Ryssdal: The budget for the Small Business Administration this year was $730 million. Not a whole lot of money compared to the federal bailout some really big businesses have gotten. But things may be looking up. The Washington Post reported today that the Treasury Department wants to use $15 billion in TARP money to boost credit markets, in part by buying up SBA loans and increasing the amount businesses can borrow from the SBA. Commentator David Frum says that's a very bad idea.
DAVID FRUM: TARP money for small business? No, no, no.
The one good thing about TARP: It's a program everybody hates. Taxpayers hate it because they hate bailouts. The bailed-out financial institutions hate it because it sets limits on executive pay. The administration hates it because it cannot predict the program's liabilities. Congress hates it because, well, because everybody else hates it.
Merely being hated, however, does not necessarily doom a government program. Everybody hates the mohair subsidy, but it has outlasted every attempt to kill it. Still, a reviled and abused program is a lot less likely to endure than a program that has gained a substantial constituency for itself.
So if we want to see the end of TARP, we must resist to the utmost any effort to entrench and institutionalize it.
But entrenching and institutionalizing is just what will follow if the Obama administration makes good on internal proposals to extend TARP funds to small enterprises through the Small Business Administration.
The SBA lending program has survived 25 years of attacks by good-government reformer types. Any program that lends money to businesses that cannot qualify for commercial loans is just asking for trouble, and the SBA has a long history of getting what it asks for. The latest scandal was exposed only last year: $76 million in fraudulent loans over the previous half-decade.
But scandals do not dent SBA's support on Capitol Hill -- 99 percent of small businesses never get a dime from SBA. But the lucky 1 percent who do get SBA's cheap loans love the program and will fight to the death to defend it.
Let the SBA's supporters sink their pincers into TARP's vast funds, and you will never extricate them -- and never see the end of the TARP program.
You want to help small business? Don't mete out subsidies to a politically wired few. Instead, postpone the tax increases now scheduled to bite in 2010 for a year or two. Or better, forever.
RYSSDAL: David Frum is a resident fellow at the American Enterprise Institute.
Mr. Frum after reading your article on the SBA and TARP, I agree with you in theory but there is one small error in your commentary. (The SBA does not make direct loans.) They only guarantee loans; the actual loans are still maked by both conventional banks and secondary funding sources.
But even with that small oversight your point is well delivered.
Why does marketplace keep having know-nothing, think-nothings from the AEI on? They never actually offer any ideas that are thought out or backed by anything other than their knee jerk 'less taxes, smaller government' reflex. And if you are having them on why not introduce them honestly. "From the people who brought you George W. Bush's economic policies here is AEI's David From"
I typically do not agree with David Frum on very many topics. But I do agree with him on keeping the SBA away from TARP money. I encourage anyone who thinks the SBA should be able to tap into TARP funds also take the time to read David Einhorn's book, "Fooling Some of the People All of the Time".
