Small Talk: Parsing Geithner’s speech to small business

November 19, 2009

It appears the magic number for American small businesses is 10, as in the sudden urgency to help smaller companies after the U.S. unemployment rate jumped over 10 percent last month for the first time in a quarter century. After a year with Wall Street at the top of everyone’s agenda, Main Street is now taking center stage.

Suddenly new lending programs are being announced, town halls are hastily being arranged and political heavyweights from across the financial and ideological spectrums are falling over themselves to propose their plans for how to get small businesses back on track and hiring.

Over the past month, everyone from President Obama, to House Speaker Nancy Pelosi, to Federal Reserve Chairman Ben Bernanke and to billionaire investor Warren Buffett have addressed the issue. Yesterday was Treasury Secretary Tim Geithner’s kick at the can (watch the video of his speech here), when he chaired a forum on small business financing with FDIC head Sheila Bair and SBA chief Karen Mills.

Geithner said the first part of the recovery was to stabilize Wall Street in order to prop up sagging earnings so investment portfolios stop taking such a beating and hard-hit firms stop laying off employees. “That rise in earnings is not simply because banks are particularly smart or clever,” insisted Geithner in front of an audience of small business owners and lenders.

Geithner added that now that the banking sector has been stabilized, the next step is to get banks lending again to small businesses, which he called “the engines of job growth” and which have historically led the country out of recessions. “It’s because the taxpayers of the United States and their elected representatives decided that to save the economy we had to act to stabilize the financial system. All banks – strong and weak – benefited from those actions and banks bear some responsibility for the extent of the damage caused by this crisis and they carry a substantial obligation to help our communities get back on their feet.”


Geithner went on to give a brief, but informative, lesson on credit crisis management, stating:

“The basic cycle of financial crises is that credit is cheap and easy to get for a time. Banks relax their standards too much leading to excess lending and excess leverage and then when the crisis hits, banks tend to slam on the brakes, shift to reverse, banks pull back – not just from companies that are at more risk of failure, but from all companies – and this hurts the prudent and the conservative; those with impeccable credit histories as well as those who simply borrowed more than they could afford. Now although the demand for credit necessarily falls in recessions – particularly a recession following a long period of excess borrowing – the risk is that banks overcorrect, forcing viable businesses to layoff workers, reduce wages, close factories and defer investments and left to the market this process can feed on itself. A credit crunch can amplify a recession, slow recovery, cause more businesses to fail, unemployment to rise, putting more pressure on banks to cut credit lines for fear of higher defaults. And if this seems unfair and unjust, if it seems counterproductive to economic recovery and job creation, it is. And that’s why it’s so important in financial crises for governments to act aggressively to break financial panics, to make sure banks are able to fund at reasonable rates and that the overall banking system has enough capital to provide credit.”

Don’t you just wish Mr. Geithner had been your economics professor in university?

Geithner added that small businesses are more reliant on banks for credit and that that credit takes longer to start flowing again after a recession. As a stat, Geithner said just 30 percent of large businesses get their credit from banks, whereas that figure is closer to 90 percent for small businesses. Combined with the fact that small businesses generally have fewer capital reserves to ride out a downturn – usually a personal credit card or by leveraging personal assets, like a home or retirement savings – and if they were unlucky enough to have those with a bank that made bad loans, then they could find themselves in a very tough position.

“This is a very hard problem to solve. It’s something you can’t fix easily and it takes a co-ordinated mix of different strategies and policies.”

Geithner then broke down the Obama Administration’s plan to help small businesses in 6 steps, which are as follows:

  1. Provide direct support: Recovery Act, which included tax-relief measures and boosted government-backed lending to small businesses through the SBA.
  2. Support small business lenders: New legislation that would provide low-cost capital to community banks, or CDFIs, that serve the hardest-hit areas across the country.
  3. Repair securiturization markets: TALF (Term Asset-Backed Securities Loan Facility) program which has helped lower the interest costs on asset-backed loans.
  4. Provide guidance to lenders: This is the role of the FDIC’s group, led by Bair, of independent bank supervisors and regulators who will take on the added responsibility of making sure bank examiners don’t overcorrect by pulling back too much on lending to small businesses.
  5. Support expanded efforts: Refers to additional programs run by lending agencies like the U.S. Export-Import Bank (EXIM)
  6. Put pressure on banks to start using federal assistance programs: This mainly refers to the top 19 banks that were given taxpayer funds under TARP (Troubled Asset Relief Program) to start participating more in SBA lending programs, or to simply start loaning more directly to small businesses.

With his plan outlined, Geithner emphasized the most important step is to get bipartisan support for The Administration’s measures.

“It’s very important that members of Congress work with us to create the conditions that make it more likely that small banks are willing to come take advantage of these programs,” said Geithner. “That means they have to have confidence that if they take capital from the government they will not have to face a change in the rules of the game tomorrow. They need to be confident that if they participate in these programs they’re not going to face conditions in the future that will lead them to regret participating.”

What do you think of Geithner’s speech and the Obama Administration’s plan to help small business? Post your comments below.


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I for one have lost confidence in Geithner’s ability to do the job. Everything this guy touches falls apart. TARP and Cash4Clunkers have completely backfired (see He should pursue a new career as a magician, because he’s good at making money disappear.

Posted by mike | Report as abusive

Part of the issue is SBA itself. Why does President Obama push to get SBA officials with his administration’s outlook into SBA positions? SBA’s access to capital for instance is still lingering with the last administrations appointtees. SBA should take a long look at it’s mission statement, look at it’s numbers and ask if they are getting the job done for small business, they are not.

Posted by Small Business Advocate | Report as abusive

Prove It!! That’s what I want, solid proof examples they’re serious about helping small business. I don’t need 2 million…I need $150,000.00. I’m afraid to even talk to a bank as they would probably turn me down. We paid off the mortgage on the business three years ago and just need to restructure some debt, a new roof, new equipment. With ten employees, I’ve put off spending any extra funds to keep all of my employees rather than lay them off. We’re lucky, our sales are steady even though down a very small amount. We’ll see if anything comes of all these promises.

Posted by Mary | Report as abusive

The elimination of the dysfunctional bureaucratic culture which has prevented small businesses from participating in government contracting – not only at the federal level, but at the state and local level as well – is one major area the Obama Administration can impact. Below is a link to twelve (12) recommendations from the FPA Think Tank at UNF whose Umbrella Initiative’s goal is “to double the number of small businesses contracting with the government by the year 2020.” ommendations-for-President-Obama-Small-B usiness-Forum

Posted by Raul Espinosa | Report as abusive

The implementation of entrepreneurial out-of-the-box solutions, at the State level, is another good way to benefit small businesses. Below is a link to ten (10) recommendations the FPA Think Tank at UNF have offered the Florida Governor Crist. omendations-for-Governor-Crist

Posted by Raul Espinosa | Report as abusive

Here we go again. Empty words from a so-called financial guru. He is as much an “empty suit” as his boss

Posted by Marvin E. Harris | Report as abusive

I agree with Mary’s post. Even in booming economic times I would be very hesitant to borrow $2 million. I would like to think that the financial institutions would have greater dilligence in lending money to firms that have no concrete plan or ability to pay it back. Easy money to buy real estate was one of the many problems that lead us into the current crisis, I can only hope that we are not repeating this with small businesses. Also, because I am hesitant to throw caution to the wind and borrow as much as I can get (not what I can pay back)I would perfer to see the government to cut taxes across the board to all companies and let all of the tax paying business benefit rather than just a few who can wade through all of the information and forms required to get ”cheap” loans.

Posted by George | Report as abusive

What plan? Geithner doesn’t have the slightest idea about how small business works. The collective voice of this administration has been to say to small business: Drop Dead!

Posted by Paco | Report as abusive

I notice that all of the efforts from these folks is centered on credit. What about demand for our goods? It would apear they know nothing of what we rally need and that is a business enviroment that has need of what we do. The manufacturing sector has been and is being devestated. I see nothing that even recognizes that nor any plans toaddress it. I guess we just go out and borrow all we can squirrel it away. Then go belly up screwing the government out of the money? This is i am dumb and don’t know anything about reigniting the business cycle. The banks and big financial institutions are not needed if there is noone that needs to borrow.

Posted by DL Wright | Report as abusive

What Raul Espinosa said, and thanks for the link.

I’d also like to see more Recovery act construction projects that are smaller in scope – a Recovery construction project that is $50M doesn’t help small companies like the one I work at that cannot bond things that large. Great for big firms, not great for any firm with $10M in annual revenue.

Also, keep the targeting of Recovery Act projects loose – 5000 small projects that are only for specific types of businesses doesn’t help a wide enough range of businesses.

Posted by Mrs. Dalloway | Report as abusive

Obama and his team really don’t have a clue how to rescue this economy as it relates to small businesses. Sure, many need additional financing but a tax break would do so much more good for small businesses than additional debt and interest payments. Wasn’t too much debt the villain that got us in this mess. Wake up liberals and provide some meaninful assistance in tax relief.

Posted by Craig | Report as abusive

A perfect example of the administration’s incompetence. Strategically it was obvious from moment one that it was critical financial support be provided at the ground level, not merely dedicated to attempts to preserving the existing financial structure.

I think it a catastrophic failure of Obama that he has elected to follow the advice of Summers/Geithner and completely ignored the recommendations of Volcker, Stiglitz, Hoenig, Bair, et alia, all of whom argued from the first for providing only emergency aid for Wall Street while also allowing failed firms to in fact fail and be broken up while at the same time directing very significant support to folks on the ground, whether individuals or small businesses, to attempt to keep them afloat through the storm.

Instead, we have the worst of all choices, and now we have the ‘brilliant’ observation over a year after the most massive part of the storm hit, that, oh, by the way, we really need to do something about Main Street.

Summers and Geithner are demonstrably incompetent at the most elementary levels of strategic analysis and judgement, however ‘brilliant’ they and their friends may deem them to be – their actual track records are abysmal.

They need be shown the door.

Obama ought be shown the door as well for demonstrable incompetence and poor judgement in heeding their advice as opposed to the far more sensible and intelligent counsel he was offered in abundance and chose to ignore. Unfortunately his term of office has considerable time yet to run.

Let’s hope that Summers and Geithner are sent packing to peddle their memoirs and dubious advice at a high price elsewhere and the administration is forced to choose another path.

The second wave of the downturn, after all, is clearly looming, and I, for one, am perfectly happy to be on the short side of the equation, biding my time.

There is, if memory serves, a quote attributed to the legendary/mythic figure Sun Tzu to the effect that:

‘Strategy without tactics is the longest path to victory, while tactics without strategy is the noise before defeat.’

Anyone else hear the sound of waves about to break over our heads?

Posted by atomikweasel | Report as abusive

I agree with atomikweasel that the country should only have allowed emergency aid to wall street and let firms fail that have proven their inability to prosper based on the value of their product/service – not their ability to “show” a bookkeeping prosperity. Yes – there would have been pain felt at all levels, but it would have been at all levels – not just the bottom levels. And our country would have gotten back to basics on which we were built.

Posted by ruth | Report as abusive

[…] Small Talk: Parsing Geithner’s speech to small business […]

Posted by Parsing Secretary’s Geithner’s speech to small business // Chamber Notes | Report as abusive

We live in a brutal system. It is simply incomprehensible to me that government is STILL trying to fix this problem by investing citizens tax dollars on the business sector.

Individual citizens are the driving force of the economy. It is from the citizenry that businesses both small and large originate. our elected officials are charged with securing the interests of the individual citizen. Yet they take the money that is supposed to go towards investing in us and give it to the business sector.

Why is the retail market sluggish. BECAUSE PEOPLE HAVE NO MONEY. Who is the small business sector going to hire if they can’t sell their products? Who’s going to buy those products if they have no income?

In the Netherlands if a person looses their job they can receive unemployment benefits as long as they look for work or go to school. They don’t have to worry about loosing their homes, going without food, or going without health care.

This is the kind of social safety net that would have allowed citizens ride out the financial storm. How is it that the business sector can say that it lives by “survival of the fittest”, but then begs for and gets corporate welfare, while citizens that should be able to trust a government of, for, and by the people, are left to fend for themselves? The whole approach is backwards.

It’s as if investing in the citizenry directly is seen as morally reprehensible. But it’s okay for the likes of AIG to defraud the citizenry of billions of dollars and just apologize for it. Meanwhile a citizen that steals fifty dollars out of desperation gets locked up and the key thrown away.

Install a meaningful social safety net for the people and these problems will work themselves out far more easily.

We are not animals and we should not be content to live as such.

Posted by Benny Acosta | Report as abusive

The fact of the matter is, Americans are producing very little of what the rest of the world wants… crappy brainwashy hollywood movies, massive vehicles that always need fixing, and not a lot else export-wise… but we import like crazy. all the money is leaving the country. i repeat, ALL THE MONEY IS LEAVING THE COUNTRY. how the heck are we supposed to get an economy going? I think we need another strategy. If we want to lead the world, we need to get sustainable and self-reliant. it has to happen on the neighborhood level, because lord knows we won’t be getting any help from those jokers at the top.

Posted by robin | Report as abusive

How dissapointing to read so many of these comments. I’m even more deeply saddened by how little folks really know about how our government works, let alone our financial system. And this is supposed to be an “Entrepreneurial” blog? It’s all a bunch of wining and finger pointing devoid of solutions and real dialogue. 20 some odd years of trickle down from Regan, 8 years of RIDICULOUS ‘borrow and spend’ by Bush II in what proved to be one of the most damaging presidencies to ever face America, and now ONE man and his cabinet is expected to just turn it all around in less than a year? The effort to make vilify our public education system and gut civics classes worked.

To paraphrase from an interview with an investigator in Colorado following the “balloon boy” incident that I think just sums it up, “the American public has the emotional depth of an hormonal teenager and the attention span of a 7 year old with ADHD”. And I would add that they have the finanical education of a kindergartner and the civics education of a pre-schooler.

The speech was damn close to exactly wanted to hear, and our President is thus far delivering flawlessly on pretty much everthing from his campaign despite the overt and pathetic attempts to derail his agenda by the Republican Party. He has not changed a lick, but is altering his opinions strategies as new information arises. This is smart policy. All this smack about Geitner and Summers?
Please. They’re not the boss and the boss is quite educated in economics and civics, and very vocal of how he wants it done. Jobs are a lagging indicator, period. Were was all this hatred with Bush frozen like a deer in headlights?

Pathetic. Get educated folks, and then, start providing realistic and rational solutions that don’t just benefit some. Go get’em President Obama.

Posted by jamespdx | Report as abusive

We are blaming Regan and Bush II only ?

The other side of the isle had no hand in this mess what so ever?

There is/was no other contributing factors?

President Obama is going to save the day?

Dose the name Obama make your leg tingle?

Posted by zenlife101 | Report as abusive