The New Media Journal | Treasury Rethinks TARP as Small Business Lending Fails to Materialize

The New Media Journal | Treasury Rethinks TARP as Small Business Lending Fails to Materialize: "If propping up much of the teetering financial markets was the goal of the government's $700 billion Wall Street rescue, then mission accomplished. But there were other objectives for the Troubled Asset Relief Program, too: greater lending to consumers and businesses, mitigating foreclosures and helping banks shed toxic mortgage-backed assets. On that, it's unfinished business.

A program announced with fanfare four weeks ago that would funnel money to small banks at low rates to increase small business lending is still being designed. Treasury officials are looking at plans that could cost taxpayers between $10 billion and $50 billion but are encountering reluctance from small banks.

'I'm told by banker associations and banks, 'Hey, this is good capital, we'd like to have it, but we don't want to be the only bank in town who takes your capital because the others will advertise against us,'' Herbert Allison Jr., the assistant Treasury secretary in charge of TARP, said in an interview. 'There is a stigma and it's frustrating, frankly.'

Meanwhile, TARP is set to expire Dec. 31. But with about $140 billion still uncommitted (even more, about $300 billion, unspent), the Obama administration is considering extending at least a portion of the huge fund until next October.

'We are winding it down and will close it as soon as we can,' Treasury Secretary Timothy Geithner told a congressional committee. But he stiffly opposed any congressional effort to force the program to end. The struggle facing Treasury is how to continue TARP as insurance against further instability without having Congress use it as a source of new spending.

Officials are keeping a wary eye on smaller banks, which have been failing at the highest rate since 1992 due largely to losses from commercial real estate loans...

Extending TARP as insurance for banks wouldn't be a popular move. Conservatives and liberals object to the direct assistance to big banks and insurance conglomerate American International Group. Republicans have called for the program to end and assigning the unused money to debt reduction. Some liberals want the money for jobs programs.

Overall, the bank infusions alone could end up costing taxpayers about $14 billion, according to estimates by Economy.com. While banks are paying money back, not all of them can be saved. Earlier this month, a San Francisco bank became the first bailed-out institution to fail. More could fall. And two weeks ago small business lender CIT Group, which received $2.3 billion in rescue funds, filed for bankruptcy protection with little hope of repaying taxpayers."