Wednesday, February 10, 2010

The perfect government programs

Jake Tapper tells the tale of a program touted several times by the Obama administration in the past year as part of the stimulus to spend $15 - 30 billion to lend money to small businesses. It turns out that none of that money has been spent yet. So Jake Tapper fished around to find out why this touted program to get money moving towards small businesses hadn't been implemented. He discovered two explanations.
One, almost every potential participant declined to cooperate because they didn't want the stigma of using TARP funds given the tremendous public anger towards Wall Street and resentment about the $700 billion bailout.

Two, the specific purpose of the plan – to get the secondary market moving again for these SBA loans – was largely accomplished.

Once the program was announced, the source said, the market started to recover dramatically, and the activity on these particular markets increased four times compared to January 2009. Many market experts credited the mere announcement of the administration's willingness to be a buyer of last resort as helping to unfreeze that market.
Money has been moving towards small businesses without this additional program that the Obama administration was so proud of last year. Tapper concludes that this demonstrates that simply announcing a program was enough without having to carry through.
Thus the announcement of this program was both a positive and cautionary tale, the source said.

The positive -- that simply announcing a government backstop can have the intended effect without the program being utilized.

The cautionary tale -- by Spring, the TARP stigma had grown so strong that potential participants were only willing to take part in a TARP program unless matters were to become truly dire.
It's not clear that there is a causal link between announcing the program and the increase in small businesses seeking loans. It could be just that the small businesses perked up after the depths of the economic freeze. But even if Tapper is right, this strikes me as the perfect government program. Announce it, get the positive effect, but never have to spend the money. If only more of our government programs were similarly phantom.