• COP May Report: Where is the Credit for Small Business Owners?

    In their May report, members of the Congressional Oversight Panel (COP) check up on Treasury Secretary Timothy Geithner's progress in directing TARP funds toward opening credit for small businesses. So far, they do not see a lot of improvement. From the report: Unfortunately, small business credit remains severely constricted. Data from the Federal Reserve shows that lending plummeted during the 2008 financial crisis and remained sharply restricted throughout 2009. Although Wall Street banks had been increasing their share of small business lending over the last decade, between 2008 and 2009 their small business loan portfolios fell by 9.0 percent, more than double the 4.1 percent decline in their entire lending portfolios. Some borrowers looked to community banks to pick up the slack, but smaller banks remain strained by their exposure to commercial real estate and other liabilities. Unable to find credit, many small businesses have had to shut their doors, and some of the survivors are still struggling to find adequate financing. Treasury has launched several TARP initiatives aimed at restoring health to the financial system, but it is not clear that these programs have had a noticeable effect on small business credit availability. The largest TARP program, the Capital Purchase Program (CPP), provided hundreds of billions of dollars in new capital to banks, but Treasury did not require recipients to use the money to improve credit access. In fact, after receiving the money, most recipients decreased their lending. The Term Asset-Backed Securities Loan Facility helped to restore liquidity to the securitized lending market, but because relatively few small business loans are securitized, the program had little impact on small business lending. Although the Public-Private Investment Partnership program remains in its early stages, it has not targeted and will likely not target the smaller financial institutions that often serve small businesses. Here is COP chair Elizabeth Warren discussing the key findings of the May report: For the full report, click here .

  • Bailout Money for Venture Capital Firms?

    Over the weekend, Thomas Friedman expressed frustration at the prospect of more federal bailout money going to GM and Chrysler, writing, "Bailing out losers is not how we got rich as a country, and it is not how we'll get out of this crisis." Friedman thinks we need to focus on start-ups . You want to spend $20 billion of taxpayer money creating jobs? Fine. Call up the top 20 venture capital firms in America, which are short of cash today because their partners - university endowments and pension funds - are tapped out, and make them this offer: The U.S. Treasury will give you each up to $1 billion to fund the best venture capital ideas that have come your way. If they go bust, we all lose. If any of them turns out to be the next Microsoft or Intel, taxpayers will give you 20 percent of the investors' upside and keep 80 percent for themselves. This talk has Anita Campbell of Small Business Trends nervous. She says "bailing out venture capitalists is a dumb idea." Setting aside for a moment that Campbell's statement seems to misrepresent Friedman's idea (he is saying that federal bailout money would be better spent if we gave it to VC firms. I don't see him arguing that we need to "bail out" those firms), her larger point remains worth exploring. She points out that most small businesses don't get venture capital. Look, venture capitalists play a valuable role. But venture capitalists are simply irrelevant when it comes to the vast majority of small businesses and the economic engine they create. And we definitely shouldn't be subsidizing VCs' high investment returns with taxpayer money, especially not my taxes as a small business owner. Read Anita Campbell's post here . Is she right? Or is there something in Friedman's idea that makes sense for economic growth, and therefore a net gain for small business? Weigh in.