Anyone looking for a definitive study of how the federal government can screw up implementation of a straightforward government lending program need look no farther than its handling this year of a fiasco called the Small Business Lending Fund, enacted last September as part of the Small Business Jobs Act of 2010.
What’s that? You’ve never heard of the SBLF? I can’t say that I’m surprised. Through sheer incompetence and foot-dragging, Washington bureaucrats have morphed the plan into an anonymous bureaucratic exercise that will waste money but likely not do much good for the small businesses it was supposed to help.
Some background: the $30 billion SBLF was supposed to provide a low-cost source of capital for community banks (those with less than $10 billion in assets), which the banks would then turn around and use to fund loans to small businesses in need of credit. The plan couldn’t be more uncomplicated. A bank applies its primary regulator, who then passes the application on to the Treasury Department for final approval. Once the application is approved, Treasury then supplies new capital to the bank in the form of preferred stock. The preferred counts as Tier 1 capital; the dividend rate depends on how much new lending the bank then engages in.
Pretty basic, yes? You will have your own view as to how much or little the government should be involved in the lending business. Even so, as federal interventions go, this one isn’t wildly objectionable (though I personally don’t think it’s necessary). The government isn’t doling out money directly to its politically connected cronies, after all. It’s merely providing cheap capital to institutions who will then, presumably, use it to make prudent loans to businesses that need it.
So how have things gone with the program? Well, for rounding purposes-and you can thank our cadres of high-priced bureaucrats in Washington, D.C. for this–they don’t seem to have gone far at all. First, this seems to be one federal program for which there seems to be no particular demand. After the application deadline passed on this spring, just 926 of the country’s 7,000 or so community banks had even bothered to apply for SBLF funding. The total amount of their applications came to just $11.8 billion-just a third what the fund had available.
But what happened next is even worse. In the intervening months since the application deadline, of that $11.8 billion in SBLF applications, the Treasury has managed to approve all of . . . $692 million.
You read that right: less than a billion dollars! These huge delays are threatening to torpedo the plan altogether. By statute, any SBLF funds not doled out by September 27 of this year must go back to Congress. Any application still pending and unapproved after that date will be out of luck. To date, Treasury has approved just 6% of the funds applied for.
You can blame the bureaucrats for the mess. On the one hand, several banks we talked to told us they had no problem getting clearance from their primary regulator to participate in the SBLF. The Treasury, though, is another matter: it’s dragging its heels granting needed waivers to applicants that would allow them to make dividend payments on the SBLF preferreds. “I wish it were different,” Tim Geithner told a House panel last month, in explaining the holdup, “but the reason we are a little behind schedule is because we are being careful and because the regulators are being careful. And that is what you would like us-that is what you want us to be.”
No, Tim. Congress created the fund in the first place because it wanted $30 billion in low-cost capital to be available to community banks for small-business lending. What it did not want-but what is evidently happening anyway, regardless of Congress’s intent-is for Treasury Department regulators to engage in a orgy of preemptive dithering and arse-covering so they won’t have to worry about getting spanked should some SBLF-related preferred stock investment go delinquent. Either that, or the people processing these applications are incompetent.
As I say, you can argue whether or not this program should even exist. But it does. The president and those who voted for the legislation intended that the investment be made quickly so that the banks could lend money to small businesses, who would in turn expand and create jobs! Yet it turns out that this administration (which says it focuses on jobs from first thing until the last thing at night) can’t muster the basic administrative skills needed to ensure that the program is carried out. The legislation was passed and signed almost a year ago! The clock is ticking at Treasury, yet the bureaucrats there seem incapable of getting the job done. What a tremendous waste of government resources. Pathetic!
What do you think? Let me know!