Browse by Tags

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 .

Simon Johnson was chief economist for the International Monetary Fund in 2007 and 2008. Now he is a professor at MIT, is a senior fellow at The Peterson Institute for International Economics , and blogs about the global economic crisis at The Baseline Scenario . For the last several months, he has been among the most vocal public economists warning that the US government's response to the crisis is far from enough. Now, in a new piece for the May issue of The Atlantic , Johnson warns that the very people who lead the way into the financial crisis--the management of America's biggest banks--are being given too much say in how to respond to the crisis. In its depth and suddenness, the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again). In each of those cases, global investors, afraid that the country or its financial sector wouldn’t be able to pay off mountainous debt, suddenly stopped lending. And in each case, that fear became self-fulfilling, as banks that couldn’t roll over their debt did, in fact, become unable to pay. This is precisely what drove Lehman Brothers into bankruptcy on September 15, causing all sources of funding to the U.S. financial sector to dry up overnight. Just as in emerging-market crises, the weakness in the banking system has quickly rippled out into the rest of the economy, causing a severe economic contraction and hardship for millions of people. But there’s a deeper and more disturbing similarity: elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them. Read The Quiet Coup from The Atlantic here . Johnson has been making the rounds today to sound the warning in person. You can watch the five-minute version, from MSNBC: Or for a more extensive, 50-minute version from On Point with Tom Ashbrook , download the podcast or listen here :