[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]






THE STATE OF SMALL BUSINESS ACCESS TO CAPITAL AND CREDIT: THE VIEW FROM 

                           SECRETARY GEITHNER

=======================================================================

                                HEARING

                               before the

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD
                             JUNE 22, 2011

                               __________






            Small Business Committee Document Number 112-023
          Available via the GPO Website: http://www.fdsys.gov


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                   HOUSE COMMITTEE ON SMALL BUSINESS

                     SAM GRAVES, Missouri, Chairman
                       ROSCOE BARTLETT, Maryland
                           STEVE CHABOT, Ohio
                            STEVE KING, Iowa
                         MIKE COFFMAN, Colorado
                     MICK MULVANEY, South Carolina
                         SCOTT TIPTON, Colorado
                         JEFF LANDRY, Louisiana
                   JAIME HERRERA BEUTLER, Washington
                          ALLEN WEST, Florida
                     RENEE ELLMERS, North Carolina
                          JOE WALSH, Illinois
                       LOU BARLETTA, Pennsylvania
                        RICHARD HANNA, New York

               NYDIA VELAZQUEZ, New York, Ranking Member
                         KURT SCHRADER, Oregon
                        MARK CRITZ, Pennsylvania
                      JASON ALTMIRE, Pennsylvania
                        YVETTE CLARKE, New York
                          JUDY CHU, California
                     DAVID CICILLINE, Rhode Island
                       CEDRIC RICHMOND, Louisiana
                         GARY PETERS, Michigan
                          BILL OWENS, New York
                      BILL KEATING, Massachusetts

                      Lori Salley, Staff Director
                    Paul Sass, Deputy Staff Director
                      Barry Pineles, Chief Counsel
                  Michael Day, Minority Staff Director









                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page
Graves, Hon. Sam.................................................     1
Velazquez, Hon. Nydia M..........................................     2

                               WITNESSES

The Honorable Timothy Geithner, Secretary, United States 
  Department of the Treasury, Washington, DC.....................     3

                                APPENDIX

Prepared Statements:
    The Honorable Timothy Geithner, Secretary, United States 
      Department of the Treasury, Washington, DC.................    39
Questions for the Record:
    Graves, Hon. Sam.............................................    50
Additional Materials for the Record:
    The Small Business Agenda, the National Economic Council.....    51
Statements for the Record:
    Governor Rick Snyder.........................................   134
    The Financial Services Roundtable............................   136
    Michigan Credit Union League.................................   139
    Independent Community Bankers of America.....................   140
    Wolverine Metal Stamping, Inc................................   143
    United Metal Products........................................   144
    Michigan Ladder Company......................................   146
    Women Impacting Public Policy................................   147
    Missouri Credit Union Association............................   151

 
THE STATE OF SMALL BUSINESS ACCESS TO CAPITAL AND CREDIT: THE VIEW FROM 
                           SECRETARY GEITHNER

                              ----------                              


                        WEDNESDAY, JUNE 22, 2011

                          House of Representatives,
                               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 10 a.m., in room 
2360, Rayburn House Office Building. Hon. Sam Graves [chairman 
of the Committee] presiding.
    Present: Representatives Graves, Chabot, King, Mulvaney, 
Tipton, Landry, Herrera Beutler, West, Ellmers, Walsh, 
Velazquez, Critz, Altmire, Clarke, Chu, Cicilline, Richmond, 
Peters, Owens.
    Chairman Graves. We will bring this hearing to order. I 
would like to say good morning to everyone. I would also like 
to definitely welcome Secretary Geithner to the Committee. He 
is the first Secretary of the Treasury to testify before this 
Committee, and so we appreciate that. Obviously, we appreciate 
that very much.
    More than two years after the President's inauguration, the 
economy still remains stagnant. Growth is anemic, unemployment 
hovers around nine percent, and that figure excludes those who 
have simply given up looking for a job. No Republican or 
Democrat can be satisfied with those results. However, every 
single member of this Committee truly believes in one thing--
that any recovery will be led by the ingenuity and drive of 
America's entrepreneurs.
    To accomplish that goal, small businesses need capital in 
order to purchase inventory and invest in plants and equipment 
and hire workers. America's entrepreneurs simply will be unable 
to revive the economy without access on reasonable terms to 
debt or equity capital.
    There is little doubt that the environment for obtaining 
debt financing is difficult for small businesses. This 
Committee has heard on multiple occasions that entrepreneurs 
cannot get credit and small businesses face significant cuts to 
their existing lines of credit. Bankers have told this 
Committee that they have capital but are nervous about lending 
because the regulations might question the safety of the loans 
of those small businesses.
    Nor can small businesses easily turn to equity markets. To 
do so they must navigate a complex series of federal and state 
regulations. Those businesses then face significant ongoing 
regulatory costs in order to comply with the securities laws, 
including Dodd-Frank and Sarbanes-Oxley. These are resources 
that could be better spent hiring new employees.
    Today's hearing focuses on the efforts by the Department of 
the Treasury to improve small business access to credit through 
the State Small Business Credit Initiative and the Small 
Business Lending Fund. These programs are designed to bolster 
the capital available to community banks so that they can then 
lend to small businesses.
    I did not support these initiatives and opposition came 
from both sides of the aisle. The opponents did not object to 
the worthy goals of this program; rather, they do not believe 
that the incentives provided will generate sufficient new 
lending to ``small businesses'' as that term is defined by the 
Small Business Act.
    Despite my concerns about these programs, I want to do 
everything possible to help small businesses obtain needed 
capital. And with that in mind, I would like to hear from 
Secretary Geithner about the potential benefits of these two 
programs. I also want to know whether the Secretary believes 
changes to the programs might provide greater capital access to 
small businesses. Finally, I am sure that the Committee would 
like to hear any suggestions on improving the ability of small 
businesses to obtain equity capital.
    I recognize that the programs have not been in full 
operation and the Secretary would be welcome to return and 
discuss these initiatives after the Department has had greater 
operational experience with those programs.
    Before yielding to the Ranking Member for her opening 
statement, it is my understanding that the Secretary has 
obligations that are very vital to all members of this 
Committee and to Congress, which are going to require him to 
leave at noon. So as a result of that I am going to strictly 
enforce the five-minute rule.
    And with that, now I will turn to Ranking Member Velazquez 
for her opening statement.
    Ms. Velazquez. Thank you, Mr. Chairman. Good morning, Mr. 
Secretary. And welcome.
    In early 2007, when the financial crisis began to emerge, 
no one could have predicted the economic damage that would 
follow. For small businesses, the capital markets dried up, 
leaving many unable to find lines of credit. To address this, 
actions were taken, many in fact led by the Small Business 
Committee. These measures were successful. Thanks to these 
policy changes, along with gradual although uneven economic 
improvement, small firms are now better able to secure capital 
than at any time since the heart of the crisis in 2008-2009. 
These more favorable credit conditions have been confirmed by 
both the Federal Reserve and the Thompson Reuters PayNet Small 
Business Lending Index.
    The Fed reported that in net 15 percent of banks eased 
terms while the Thompson Reuters Index rose 17 percent in April 
from a year earlier. This represented the ninth straight 
double-digit rise in the index. Even the NFIB measures of 
credit conditions remains near a two year high. These are very 
positive developments since small firms have been all but 
locked out of capital markets for a long time. Unfortunately, 
while credit conditions have loosened for borrowers, we are not 
seeing corresponding increases in overall commercial lending. 
In fact, lending now is below the level reached in June 2006, 
declining by $15 billion in the most recent quarter. Totals of 
small business loans dropped 2.4 percent from 624 billion in 
December 2010 to 609 billion in March 2011. Small loans of less 
than $100,000 were down by 2.9 percent, while large loans 
outstanding declined by 2.2 percent.
    From the broadest possible view, small businesses are 
getting less capital than they did five years ago. As 
demonstrated by the many hearings this Committee held in the 
last four years, the reasons behind this decline are 
complicated. However, we do know that banks are flushed with 
more cash than any other time in history. Banks are holding 
nearly $1.6 trillion in reserves at the Fed, of which only a 
small portion are required reserves. This is nearly double 
where they stood just two years ago when banks held only $900 
billion at the Fed. Clearly, liquidity is not a problem for 
lenders.
    With that in mind, today we will examine Treasury's SBLF 
program, an initiative designed to increase small business 
lending in one particular way--liquidity. Only 847 banks 
applied for 11.6 billion from the fund by its June 6th 
deadline. Less than half of the $30 billion was made available. 
If liquidity was a problem, there would be a line out the door 
for SBLF funds, rather than the lack of interest we are now 
seeing from lenders.
    There are two areas in particular that I hope to review 
today. The SBLF's lack of requirement that its funds be used by 
banks to make small business loans undermines the supposed 
intent of the program. Instead, the SBLF relies on loose 
incentives and nonbinding plans to channel capital to small 
firms. I do not believe this is enough. You know that, Mr. 
Secretary. Throughout the debate that was an issue and concern 
that I raised. The problem is compounded by the initiative 
relying on an overly broad and vague definition of small 
businesses. So when banks do lend, it will be virtually 
impossible to know if they are lending to true small businesses 
or actually large corporations.
    During the debate to pass the SBLF, the rationale most 
offered by its proponents was that we needed to quickly put a 
policy in place and that the SBLF could be implemented within 
six months. But here we are, more than nine months after 
passage and not one single investment has been made in the nine 
months since enactment. It could be several more months before 
any SBLF dollars made their way through banks and into the 
hands of entrepreneurs. All of these issues are as relevant 
today as they were when the legislation was considered.
    And so with that, Mr. Chairman, I thank and I yield back.
    Chairman Graves. Thank you very much. Secretary Geithner, 
your entire written testimony will be entered into the record. 
And you are now recognized to give your statement.

  STATEMENT OF THE HONORABLE TIMOTHY F. GEITHNER, SECRETARY, 
            UNITED STATES DEPARTMENT OF THE TREASURY

    Secretary Geithner. Thank you. Nice to be here. Mr. 
Chairman, Ranking Member Velazquez, and members of the 
Committee, it is good to come before you today to talk about 
this broader challenge.
    You know, I know we have not always agreed on the best way 
to advance this objective of helping small businesses and we 
have had to make some compromises to get things done, but I 
know we all share that basic objective of looking for ways we 
can make it easier for small businesses to expand and to invest 
and to hire.
    Now, as you both said, this financial crisis took a very 
heavy toll on small businesses and American workers. You know, 
in the month the President took office, job losses peaked at 
about $820,000. The recession ultimately claimed nearly nine 
million jobs.
    Our efforts over the past two and a half years have helped 
restore economic growth. The President righted the ship, put 
out the fire, and we have now seen 15 straight months of 
private sector job growth. More than two million Americans have 
gone back to work over that period, one million within the last 
six months alone.
    But of course, even as economic growth continues, we 
continue to face very substantial economic challenges. And in 
order to help strengthen this recovery, help get more Americans 
back to work, we need to continue to find ways to help small 
businesses. As you all know, half of the workforce of this 
country is employed by companies with fewer than 500 employees.
    Now, the recession hit small businesses especially hard and 
that is for two reasons. The first is that it is because so 
much of the recession was concentrated in construction and 
small businesses, of course, are disproportionately 
concentrated in the construction and real estate areas. The 
second reason is because small banks, small businesses were 
most directly affected by the contraction in credit we saw 
across the financial system.
    Small businesses are more dependent on bank loans than are 
large businesses, and therefore, they were more affected by the 
pressures we saw on small banks across the country. And they 
were more affected by the withdrawal of credit for loans backed 
by real estate. And of course, the broader contraction and 
credit card lending.
    Now, in view of these challenges we worked with Congress 
over the past couple of years to run a series of programs. I 
want to describe briefly and summarize briefly the basic 
elements of that strategy. The first was to provide a 
significant amount of additional tax relief targeted at small 
businesses. We have supported 17 direct specific tax breaks for 
small business, many of them through the Recovery Act. Overall, 
these 17 specific tax breaks are estimated to save small 
businesses more than $50 billion over the 10 years over the 
classic budget window. And this means that the overall tax 
burden for small businesses is lower today than when the 
President took office.
    We propose in the budget some additional long-term tax 
relief for small businesses which I will be happy to describe 
in more detail.
    The second element of our strategy was to help small 
businesses get more access to capital, access to credit on more 
favorable terms. We are now implementing two public-private 
partnerships--the Small Business Lending Fund and the State 
Small Business Credit Initiative--which are designed to 
leverage government resources with the local knowledge of 
community banks and state credit programs. We have already 
approved 10 states for the State Credit Initiative, including 
the announcement today that Kansas will receive funding to spur 
more than $130 million in small business lending.
    Now, these capital programs are one of the most cost 
effective ways we know that Congress can help encourage small 
business lending because every dollar of capital that Congress 
provides can be leveraged to support lending that is many 
multiples of the government's investment. And the bank capital 
programs that were at the center of the government's emergency 
programs that began under the last administration have 
demonstrated the effectiveness of this approach. We have seen 
these broad programs, capital investment banks yield a 
significant positive return to the taxpayer and they were 
decisive, of course, in bringing about the overall improvement 
in credit conditions that the Ranking Member referred to.
    Now, as you know, in addition to these direct--these new 
types of credit programs, we have, with the help of this 
Committee, increased the SBA's 7(a) and 504 loan guarantee 
programs and permanently increased SBA loan limits. The 
Community Development Financial Institutions Fund continues to 
be a critical source for capital to reach underserved 
communities through a variety of programs, including the New 
Market Tax Credit Program and through the Start-Up America 
Initiative and other efforts we are looking at ways to reduce 
barriers to equity capital and the chairman referred to this. 
It is just so important for start-ups and other high growth, 
innovative small businesses.
    The third piece of our strategy is about regulatory reform. 
The President has directed Cass Sunstein at OMB to lead a 
government-wide review of existing regulations so that we can 
eliminate or fix rules that are outdated and unjustifiably 
costly and to make sure that new regulations undergo a more 
rigorous process of review. And of course, as part of this 
effort we are going to take a close look at how we can remove 
unnecessary barriers and burdens to small businesses.
    The fourth piece of our strategy is about federal 
contracting opportunities for small business, which we are 
committed to work to expand. We are very pleased that a third 
of the Recovery Act dollars went to small businesses. We want 
to look for ways to do more. And finally, we are looking at 
ways to improve export opportunities for small businesses. As 
part of the President's broad National Export Initiative, we 
placed a high priority on helping small businesses access 
foreign markets. My testimony lays out in more detail the scope 
of those programs.
    Now, these initiatives, these programs we believe are very 
important to continue to help small businesses expand, hire, 
and invest. We have got a lot of challenges ahead. And I want 
to just end by saying that it is very important that as we work 
towards a bipartisan, comprehensive agreement to reduce our 
long-term deficits, we make sure that we reach agreement on a 
program that is good for the economy, that does not endanger 
the recovery, and it helps make sure that we can retain and 
remain competitive in the long run. If we meet that test, then 
we can help small businesses thrive as we recover.
    Thank you.
    [The statement of Mr. Geithner follows on page 39.]
    Chairman Graves. Thank you, Mr. Secretary.
    And I will start with questions. And I ask that if other 
members have opening statements, please submit them for the 
record so we can get the majority of our questions in.
    And basically my question is fairly simple and I am just 
looking for reasons why we cannot--we seem to have a gap here. 
We hear in testimony every single week from bankers that come 
in here and they tell us they have got money to lend. With the 
fact that I point out and the Ranking Member pointed out, too, 
even with the Small Business Lending Fund that we have only 
seen a portion or at least a few banks applied for it. But 
banks say they have money to lend and yet we have small 
businesses come in here every single week also and tell us they 
cannot get capital. We are trying to find a reason for that. Do 
you have any ideas, thoughts? What is causing the problem here 
or this divide that nobody seems to be able to cross?
    Secretary Geithner. Well, Mr. Chairman, that is the right 
question. And I will give you my sense. And of course, you 
know, like you, I talked to small businesses across the country 
all the time and I hear the same things. People still say it is 
very hard to get credit. We think we deserve it. We should be 
able to have access to it. Banks were throwing money at us 
before the crisis and now it has dried up. We think that is 
unfair. It is hurting our capacity to expand. Many of them say, 
you know, we are just on the verge of being able to--we are 
seeing more demand for our products. We would like to meet that 
demand but we cannot do it unless we have more working capital. 
So I think you are absolutely right about the nature of the 
problem.
    And I think the way to explain why it still feels that bad 
is just to remind people that the crisis caused a huge amount 
of damage. It is going to take years for us to dig our way out 
of that hole. A lot of the damage was concentrated in 
construction where a lot of small businesses operate. And the 
credit damage caused by the crisis hurt a lot of small banks' 
capacity to lend and hurt a lot of the classic lending channels 
that small businesses rely on. So I think those are the best 
explanations for why it still feels so bad.
    It is fair to acknowledge that, you know, examiners across 
our banking industries, state and federal, are trying to be 
more careful. You know, they look back at the experience or the 
judgments they made on the run-up to the crisis. They felt they 
were behind the curve in lots of ways. And they are being very 
careful. Now, maybe too careful in some ways. The typical thing 
you see in recessions, coming out of recessions caused by 
financial crises is that there is a risk that supervising 
examiners overreact. And after a period of maybe being a little 
too loose they tend to overdo it.
    And so I think it is very important as we try to make sure 
these programs reach as many people as we can, that the federal 
banking agencies continue to try to give their examiners more 
balanced guidance so again they do not make these problems 
unnecessarily worse by overdoing it. They should be cautious. 
They should be careful. But they do not need to overdo it.
    Chairman Graves. We hear some of exactly what you said when 
it comes to the examiners. They are either requiring more 
equity for the same line of credit on a business that has never 
missed a payment or they are lowering their line of credit, 
with the same equity--the reverse.
    Do you think that small businesses out there are, one of 
the things that I worry about, too, just sitting on cash that 
they may have? And do you think that the concern over the 
deficit or the concern over the debt is hampering that growth 
or do you think that small businesses are holding back just as 
a result of that alone?
    Secretary Geithner. I think it is a good question. You 
know, we have a bunch of surveys that some of you cited that we 
use as a measure of what small businesses say their main 
challenges are. And I think those surveys have consistently 
said throughout the crisis that the biggest challenge they 
face, the biggest source of uncertainty is over how much growth 
and demand for their products they are going to see. And 
although we have had now about 18 months of positive growth, 
because the crisis was so traumatic and caused so much 
uncertainty, so much damage, you know, this is something that 
most Americans had never experienced before in their lifetime, 
never thought they would experience. And that has lasting 
damage to confidence. And people are a little more tentative of 
giving the shocks caused by the crisis about how strong it is 
going to be in the future. That seems to be the main effect.
    However, having said that, I agree very much that if 
Congress can find a way to reach a bipartisan, comprehensive, 
balanced agreement to bring down the long-term deficits that 
that would help. It would be a sign that Washington works, is 
able to try to come together and solve some problems. And I 
think that would improve overall confidence across the country. 
Of course, how we do that is very important. As I said at the 
end, it is important not just to bring more gravity to our 
fiscal position, demonstrate that we can live within our means, 
but we have to do that in a way that is going to be good for 
growth, good for the economy in the near term and good for the 
economy in the long run. And that is a complicated challenge.
    Chairman Graves. I have a lot more questions. I am going to 
defer to the Ranking member because I want to make sure that 
our other members have the opportunity to ask and I will ask at 
the end if we still have time.
    Ranking member.
    Ms. Velazquez. Thank you, Mr. Chairman.
    Mr. Secretary, I would like to discuss the SBLF program. 
The focus of it basically was liquidity to address the issue of 
the lack of liquidity. Given the fact that only less than 10 
percent of the banks who qualify for these funds have applied, 
why is it that more lenders are not applying?
    Secretary Geithner. It is a good question. And I should say 
that, you know, you referred to our debates and discussions 
about how best to solve this problem. And I very much respect 
not just your record of accomplishment on these issues. I know 
you have had somewhat different views than us and I respect 
those views, so I will give you my sense.
    We have had about roughly almost 850 banks apply. I think 
that is a pretty good, reasonable number of banks. I think it 
suggests a fair amount of interest, although you said, you 
know, we are a country with 9,000 banks, 8,000 banks. So it is 
not a large fraction of banks. But it is a pretty substantial 
number. And not all of them will qualify. And you are right to 
say you cannot be certain what you are going to see in terms of 
the term on those investments. But we think it will be 
positive.
    Ms. Velazquez. You do not think that is because of the TARP 
stigma?
    Secretary Geithner. I think that, and you are right to 
recognize that, you know, we have done this in three stages, 
these broad approaches to credit. We are experimenting a bit. 
And what we found in the first stage of TARP, as you know, is 
we saw hundreds of banks withdraw their applications for the 
program because they were worried about the stigma. And they 
were worried that if they came and took capital from the 
government that they would be penalized in the eyes of their 
competitors and their creditors and their customers. And so 
they withdrew in waves. And therefore, that instrument was not 
as powerful as we thought it would be for small banks. That is 
partly why we tried to design a complimentary program that had 
less stigma.
    Ms. Velazquez. Another reason could be that banks are 
sitting on a record amount of cash.
    Secretary Geithner. Well, I think you are right to say if 
you look across the banking system, the banks today have much 
more capital than they did before the crisis. And you are 
seeing them--they are not facing much loan demand yet, and a 
little tentative to use that in some cases, but what this 
program tries to do is reach a subset of the banking system 
that cannot raise capital on their own but are still viable 
institutions. That is not going to be the bulk of banks but it 
is going to be a meaningful fraction of banks.
    Ms. Velazquez. What will Treasury do with the excess funds 
that will not be used for the SBLF?
    Secretary Geithner. That is a judgment only Congress can 
make. We have no authority to use the funds once we run out of 
time and once we reach the ones we think are eligible.
    Ms. Velazquez. So if you do not use it because banks will 
not apply, will you recommend to Congress to rescind the funds?
    Secretary Geithner. You know what, I have not really 
thought about it yet. We have been focused on trying to get 
this moving but I would be happy to talk to you about what the 
best use of the remaining authority is.
    Ms. Velazquez. Well, you heard the Chairman and in my 
opening statement I also make reference to the fact that time 
and again, businesses are coming here telling us that they are 
having--and these are creditworthy companies--and still are not 
getting any affordable capital. So do you think, do you expect 
that the SBLF fund will change this trend?
    Secretary Geithner. Well, I think it is going to make a 
meaningful difference for the banks that qualify and are 
eligible. And it will make a meaningful difference for their 
customers. Because, again, you know, the central feature of 
this program is that you get a dollar of capital and that means 
that you have between eight and 12 additional dollars of 
lending capacity. If you are short capital, it is less likely 
you have to cut your lending to your credit lines to your 
customers by that magnitude. If you have ample demand for loans 
and capital then you can leverage that money substantially. So 
it will make a meaningful difference for the banks that apply 
and a meaningful difference to their customers. And in a very 
efficient way for the Congress. I think one of the most 
efficient ways we have to use the taxpayers' money to try to 
incent investment and hiring.
    Ms. Velazquez. On a scale of one to 10, one having no 
effect, 10 satisfying the capital needs of small businesses, at 
the end of the day how do you qualify the SBLF fund will lend? 
On a scale of one to 10.
    Secretary Geithner. Well, I think I will repeat what I 
said. It will make a meaningful contribution. We are a $14 
trillion economy. We have 8,000 banks. We have had 850 roughly 
apply. The total capital that they have applied for is about 
$12 billion in authority. So it is meaningful for those who are 
eligible, meaningful for their customers, but of course, you 
are right to say we are a large economy.
    Ms. Velazquez. Mr. Secretary, throughout my discussion with 
Treasury staff I was told that the program will be up and 
running in six months. And I am quite disappointed that still 
not a single money has been disbursed to a small company, a 
small firm. When will the first small business actually see 
this money?
    Secretary Geithner. Very soon. But thank you for asking 
that question again that you said in your opening remarks. And 
let me explain to you why we are here. Because we are a little 
disappointed, too, and a little surprised. It has been a little 
slower than we thought. Let me explain why. In the program 
Congress legislated, there are very strong protections to 
protect the taxpayer as you would expect. Very important that 
those exist.
    And in our system we rely on two safeguards for that. One 
is we require the applications to be reviewed by their primary 
bank supervisor. And we do not consider them unless they get 
recommended by the bank supervisor. That program leaves us 
vulnerable to the time it takes those regulators to be careful 
in a review. But also we have to look independently of them and 
we are trying to be careful. So we are a little slower than we 
thought but we are very close to moving ahead. And again, I am 
very confident you are going to see a very meaningful impact on 
the institutions that are eligible and we are close to being 
able to unleash that capital.
    Ms. Velazquez. I have many more questions but in light of--
what guarantees are we going to have that community banks or 
the banks, financial institutions that will get these funds, 
will provide small business loans?
    Secretary Geithner. Well, you know this debate as well as 
anybody. We do not have the capacity and the program does not 
give us the ability to force banks to lend. We do not think we 
can do that. What we did is something different. We created a 
program structured to provide very powerful incentives for them 
to lend. But you said they are incentives. They are not 
guarantees. They are not compulsory. But if a bank does not 
lend above the baseline of lending that proceeded the enactment 
of the law, then they have to pay a higher dividend. So their 
incentives are pretty strong. But you are right to point out 
that we do not have the power to compel.
    Ms. Velazquez. Thank you, Mr. Chairman.
    Chairman Graves. Ms. Herrera Beutler.
    Ms. Herrera Beutler. Thank you, Mr. Chair. Thank you, Mr. 
Secretary.
    I am going to follow along the same lines of the Small 
Business Lending Fund. I have some real concerns. I mean, I 
have had--whether it has been small businesses who have said, 
hey, look, this is one of the only games in town or I have had 
several community banks and credit unions, creditworthy, right? 
I had a bank fail in my largest county so I am learning the 
difference here. We are talking about creditworthy, financial 
institutions who have come in and said can you help us with 
Treasury? We cannot get a response. That was in my first couple 
of months here. As it has drug on, we are now at six months 
plus. And as we communicate with Treasury we get told we hope 
so. So when I filter through kind of the answer I heard you 
give the Ranking Member, it had to do with, you know, getting 
approval through a primary bank supervisor and then an 
independent review, correct me. I was not here so please do 
correct me if I am wrong. But I thought the whole purpose of 
getting this small bit of cash infusion to those small 
community banks to get out to small businesses in a short term 
was the goal. What is happening with the money? And can you 
give us a time guarantee? Because it should not take this long.
    Secretary Geithner. Well, I wish it were otherwise but we 
are doing what I think you would want us to do and you would 
expect us to do, and you would hold us accountable for, which 
is we are being careful with the taxpayers' money. If you think 
about the U.S. banking system today and community banks today, 
they fall roughly into three categories. There are banks that 
are very strong and were very careful. Can go raise capital and 
therefore can expand their customers on their own. They have no 
interest in coming to the government for help.
    There are a lot of other banks who got themselves way 
underwater, lent too much to commercial real estate or in 
sectors affected by the crisis, innocent victims of the 
recession who may not survive. Do not have enough capital and 
we cannot justify helping keep them alive.
    Ms. Herrera Beutler. Yeah. And----
    Secretary Geithner. But then there are banks in the middle 
who this program can help that are viable, cannot raise capital 
on their own because those markets are still much more 
tentative about lending to banks given the crisis. But we think 
there is a good way, responsible way to reach those banks. But 
they will not protect banks from failing, a lot of banks from 
failing. And there are a lot of banks that would like this 
capital that will not be eligible.
    I wish it were different, but the reason why we are a 
little behind schedule is because we are being careful and 
because the regulators are being careful. And that is what you 
want us to be.
    Ms. Herrera Beutler. With that, I think you are right. 
There are going to be banks who are still teetering. Right? And 
Washington State has had--were fourth or fifth, I think, in 
terms of bank closures. But again, I am not talking about--and 
we had Washington Mutual. I am talking about a big bank that 
made a lot of these risky loans. Right? Got into the subprime 
market. I am talking about community institutions. Heritage 
Bank in Olympia. IQ Credit Union in Vancouver. I am talking 
about financial institutions who have weathered this, continued 
to weather this well and cannot get a response from Treasury.
    Secretary Geithner. Well, again, we will be as responsive 
as we can and we will be as clear with people about if they do 
not meet the test, the regulators' test or our test, we will 
make sure they get a response. But just a little context 
without commenting on the specific banks you mentioned. You are 
right to say that in general this was a crisis not caused by 
small banks. But it is also true that if you look at small 
banks across the country running up to this crisis, a very 
substantial number of those banks got themselves very, very 
exposed to commercial real estate as a share of capital. 
Therefore, very, very vulnerable.
    Ms. Herrera Beutler. Absolutely.
    Secretary Geithner. It is hard for any of us--any of you 
really or even me in this context, to know----
    Ms. Herrera Beutler. Let me reclaim my time really quickly 
because I recognize there are a lot of banks who got out over 
the tip of their skis. That is not what I am talking about. I 
am talking about creditworthy institutions who cannot get a 
response from Treasury, from your office.
    Secretary Geithner. But you----
    Ms. Herrera Beutler. Let me finish. From your office on 
whether or not they are approved or not approved. And we are 
talking six months.
    Secretary Geithner. No, they will get that response. But 
again, the reason why people have not heard from us yet is 
because we depend on the regulators to review these 
applications. We do not even see them until they meet that 
review. When they see them, we look at them. And we will make 
those judgments as quickly as we can. But again, none of you, I 
hate to say it, will be in a position to make a judgment 
independently on your own about whether they are viable or not. 
That is a judgment that you need to leave to and the law is 
designed this way. Leave to the checks and balances we set up.
    Ms. Herrera Beutler. Let me, the last couple of seconds, 
well, then, if this turns out that of the banks that maybe we 
cannot judge as creditworthy or the credit unions, 
institutions, do not meet your criteria, is that money going to 
then be returned? What happens to that money if we are not 
lending it and it is not getting to small businesses?
    Secretary Geithner. The way the law of the land works, if 
there is money leftover, meaning there is not eligible 
institutions come on a scale to use all that money, then that 
money is left to the Congress to choose what it wishes to do 
with that. It cannot be used--we cannot use it. And you can 
make your own judgments. And this Committee should take a look 
at that. What would be a better use of those funds?
    Ms. Herrera Beutler. I yield back. Thank you.
    Chairman Graves. The gentleman from Pennsylvania, Mr. 
Altmire.
    Mr. Altmire. Thank you, Mr. Secretary, for being here. And 
when we confirmed your appearance here I went back to my 
district and talked with some key small business owners and 
asked them what they would like for me to ask you given the 
opportunity. And universally, businesses in my district are 
saying that lenders are focused primarily on real estate--and 
you addressed this in your testimony. Real estate loans--rather 
than on providing the working capital that will enable small 
firms to rehire the people they have had to lay off and expand 
their operations and their employment, which has led lenders to 
state that there is no demand. And businesses are claiming 
there is no supply, the push and pull that you described 
earlier.
    So how can the Treasury ensure that businesses are getting 
the loans that they need in that climate?
    Secretary Geithner. Cannot ensure. You know, we can help 
but we cannot ensure. And you have not given us the authority 
or the power to ensure. And I do not think you could. All we 
can do is through this mix of things. And it is a very 
substantial mix of programs we put in place. The SBA guarantees 
the capital programs, the tax incentives, that we are doing as 
much as we can to help them dig their way out of this as 
quickly as possible. But we cannot ensure.
    And, you know, countries facing these challenges over the 
decades have tried all sorts of different ways to get capital 
directly to companies who need businesses. And those programs 
are littered with failure and waste and distortion and 
politics. It is not a record you want us to emulate. And 
because of that we are left with the tools that we have which 
are to try to work through banks, use the knowledge banks have 
about who is creditworthy, who is not. Not to make those 
judgments independently but try to make it economically, more 
economically attractive for them to lend.
    Mr. Altmire. Right. And for many lenders, when making a 
determination of creditworthiness, the discussion we were 
having earlier, they look at the past year or two. Obviously, 
that was not a good time in the economy and it is difficult for 
any business to have shown a profit in that time period. And 
the Fed, Federal Reserve has encouraged lending to creditworthy 
businesses to aid the recovery. But to date the Fed has yet to 
define what creditworthy means. So the uncertainty further 
compounds the lenders' fears that regulators will penalize them 
for making loans that will later be found to have been made to 
non-creditworthy businesses.
    So what guidance can the Treasury offer or have you offered 
to help define what creditworthy means? And do Treasury's 
lending initiatives allow for a longer term review beyond the 
two years for a business's finances?
    Secretary Geithner. We cannot really make that judgment for 
the regulators or their banks. Not something we can do. But the 
programs we set up do not--would still give the primary 
regulators the discretion to make a judgment about whether 
banks are looking at credit risk in a more balanced, reasonable 
way. And you are right to say that when you have a crisis like 
this, you know, this is something that could have been a second 
grade depression. And you saw a huge amount of business 
failure, a huge loss of wealth, huge trauma to the American 
economy. It has made everybody too tentative. A little too 
tentative, too cautious. And I think a real challenge we all 
face is to try to make sure people look forward and look at the 
earnings capacity of these businesses, recognizing that we will 
be coming out of this over time and you want to make sure they 
give as much weight to the future as they give to the recent 
past.
    Mr. Altmire. Right. And lastly, Mr. Secretary, in Western 
Pennsylvania, venture capital. Something I hear a lot about and 
access has been an issue recently. And it has proven to be a 
critical driver in producing the high-tech, high-growth jobs 
and new businesses can create jobs that would fuel the economy 
in the way that we all hope to see. Do you think that more of a 
focus should have been put on retrospect on this type of equity 
investment rather than solely on debt financing?
    Secretary Geithner. It is a good question. I think you are 
right to say that, you know, one of the great strengths of the 
American financial system before the crisis was we were really 
better than any country in the world at helping small 
businesses get access to equity capital and debt capital, early 
stage. And we have got to make sure we are recreating that 
fundamental strength of our system.
    And you are right that angel investments and early stage 
equity investments are very important to innovate companies. 
And we are looking at a range of ways to help that.
    On the credit side though, our judgment was we have to work 
really with the knowledge of community banks; not try to 
independently make judgments of which companies are 
creditworthy, which ones they are not.
    But we think there are some other things we can do on the 
equity side, and we are working closely with the SEC and the 
SBA and others in that direction. I will be happy to talk to 
your colleagues about how best to do that.
    Thank you.
    Mr. Altmire. Thank you. Thank you for being with us today.
    Chairman Graves. The gentleman from Florida, Mr. West.
    Mr. West. Thank you, Mr. Chairman and Secretary Geithner. 
Great to see you here today.
    Last week, Friday, I had the opportunity to speak to the 
Greater Fort Lauderdale Chamber of Commerce. And of course, 
there were a lot of local community bankers that were there. 
And again, the reoccurring theme always seems to be, you know, 
we want to provide that access to capital but we are seeing an 
increase in regulation. We are seeing more examiners coming 
down. They really do not understand things going on here on the 
ground and that relationship. In the six short months that I 
spent here I have learned that in Washington, D.C., if it is 
worth reacting to, it is worth overreacting to.
    So I am just wondering, is anyone at the Treasury going 
back maybe now and looking at the Dodd-Frank law and looking at 
maybe the potential negative impacts that we could find on 
small businesses and those community banks? The large banks 
have these huge staffs. They can take care of these things, but 
the small banks and that relationship with small business, is 
it a possibility we can go back and review Dodd-Frank?
    Secretary Geithner. Well, I want to, I think, you are 
raising a really important question. And I agree that the main 
challenge in thinking about regulation is how to get the 
balance right. It is obvious looking back at the financial 
crisis, we got a whole bunch of things wrong as a country and 
how much oversight we put over the banking system. And we have 
to fix that. And that is what Dodd-Frank was designed to do. 
But we have to be careful we do not overdo it. I completely 
agree with you.
    I do not believe that--well, let me say it affirmatively. I 
think Dodd-Frank was very carefully designed to make sure that 
small businesses were not the object of a huge increase in 
regulation or meaningful increase in regulation. In fact----
    Mr. West. But there is a little collateral damage that has 
happened.
    Secretary Geithner. Well, it is a good question I think 
that they were largely protected, insulated from the core 
provisions of the act. The act was really designed at the big 
failures by large institutions and markets and that is why I 
just want to read you this quote from Cam Fine when the bill 
was passed. Cam Fine, as you know, chairs the Independent 
Community Bankers Association. He said that Dodd-Frank 
recognizes the two distinct sectors in the financial services 
sector, Main Street community banks and Wall Street Meta Banks. 
Broadly supportive of the act. Does not agree with everything 
in it but it recognizes the efforts of many people on the hill 
to make sure that small banks were not subject to an unfair and 
unnecessary burden as we try to fix the big failures in the 
system.
    But I agree with you that we want to be very careful that 
we do not overdo it. And I think that the bigger challenge, I 
think, apart from just the uncertainty facing banks and 
businesses across the country is that I think examiners, there 
is just some natural tendency. These are human beings. They 
want to make sure they are earning this out of caution now and 
we want to make sure they do not overcorrect.
    Mr. West. Well, but I think that as we go forward, let us 
just make sure, as you just said, that sweet spot, kind of like 
on a baseball bat, we need to find that right position as far 
as this regulation.
    The next question I had is when we look at the Small 
Business Lending Fund, and you just talked about how many 
thousands of banks we have out there, but how many are looking 
toward using this fund? We really have a bottom-up process by 
going out, talking to the SBA, talking to some small business 
leaders, community banks, as far as what would you like to see 
us tailor this fund to be so that it could be a bottom-up 
process and maybe not a top-down driven process?
    Secretary Geithner. Very good question. You know, it took 
nine months for Congress to react to the initial proposal we 
made and reshape them and ultimately legislate them. Nine 
months is a long time with a country facing this degree of 
challenge in the financial sector. And during those nine 
months, not just we but your predecessors and other people on 
the Committee spent a lot of time talking to states with 
experience in these programs to community banks and businesses 
about what would be the most powerful set of packages. And I am 
sure we did not get it perfect but what we all tried to do was 
take the best mix of things that would command the most support 
up here and, you know, we are trying a lot of different things.
    You know, Roosevelt said in the Great Depression, he said, 
you know, if I am not mistaken what the country needs is bold 
experimentation. And we are experimenting with the best mix of 
things we think will help mitigate it. It is not going to make 
it easy for everybody caught up in this mess, but we thought we 
were taking the best mix of ideas that could command the most 
support up here.
    Mr. West. Okay. The last thing I will say is from a lot of 
people down in South Florida where we still have some double 
digit unemployment and incredible foreclosure problems, please 
remember that small businesses operate as S corporations from 
personal income tax rates when you start talking about raising 
taxes.
    Thank you very much. I yield back.
    Secretary Geithner. I absolutely will remember that. And 
you are making a good point.
    Chairman Graves. The gentleman from Rhode Island, Mr. 
Cicilline.
    Mr. Cicilline. Thank you, Mr. Chairman. Thank you, Mr. 
Secretary, for being with us today.
    I have a small business jobs and economy roundtable in my 
state and my district. And when I talk to small business owners 
in that setting they reaffirm how important capital is, the 
lifeblood of small business, as you have said already. In Rhode 
Island, where our economy has been particularly hard hit, small 
businesses, many of our small businesses do not have a strong 
balance sheet. They may be underwater in a building that they 
are in or in their own home and they may have impaired credit 
scores because of credit card debt that they have taken to keep 
their business running and keep their businesses open. And so 
with all those factors in play, even with an SBA guarantee 
getting a capital infusion can become--may be still very, very 
difficult for some small businesses in Rhode Island.
    So when I spoke recently with the president of Coastway 
Community Bank, which is my state's largest dollar lender of 
SBA loans, I was very surprised to learn that his institution 
is not planning to take advantage of the Small Business Loan 
Fund. Coastway is a mutual institution and according to the 
documents that I have had the opportunity to review from 
Treasury, mutuals cannot issue preferred stock to Treasury 
without changing their tax elections, so Treasury will not 
offer mutuals tier one capital. And so here we have instances 
where we have a lender who really is an experienced lender that 
could have borrowed $10 million from Treasury and leveraged 
that between $100 and $150 million in small business loans, but 
instead, because of this complication, they are really forced 
to remain on the sidelines and not participate.
    And so my question is what could we do now at this stage in 
the SBLF program to engage these mutual institutions in this 
program. We know, as you said, 844 banks have submitted 
applications seeking $11.6 billion, so there is $18 billion 
remaining. And if this distinction between tier one and tier 
two capital is keeping these really good, tried and tested and 
secure and successful banks like Coastway in Rhode Island on 
the sidelines, what can we do? What can Treasury do now to get 
them in this game to really get that capital out in places like 
Rhode Island and in places like my congressional district.
    Secretary Geithner. I am not sure we have a solution to 
this problem, just to be honest. But we will be happy to talk 
to you in more detail and to your staff about it. But let me 
explain the way--the nature of this constraint.
    Under the system we have today, it is the banking 
regulators that determine what counts as capital. And in their 
judgment, for those types of institutions, they are not 
willing--I want to say this carefully--to count as capital the 
capital Congress made available to this program. And that gives 
us a problem. And what it does mean is that this has limited 
benefit for certain types of institutions that are structured 
in that form. But I would be happy to talk to you and your 
staff in more detail about it and see if there is anything we 
can do about this. I am not sure there is.
    Mr. Cicilline. I mean, it just strikes me that some of 
these community banks which are best positioned to do this work 
and have the pre-existing relationship with small businesses 
are in the best position to do this kind of lending and they 
are prohibited, which----
    Secretary Geithner. Yeah. I completely understand. The 
whole program is designed to take advantage of the knowledge 
community banks have about who is creditworthy and, you know, 
it has got very good leverage in it because of the public-
private partnership. But we have got this problem, which is 
that bank regulators do not want to or do not feel they can 
count as capital, tier one capital, this type of capital 
investment for those types of institutions. And I am sure they 
would be happy to explain to you why they came to that 
judgment, and we would be happy to be a part of that.
    Mr. Cicilline. Terrific. Thank you. I yield back the 
balance of my time.
    Chairman Graves. The gentleman from Colorado, Mr. Tipton.
    Mr. Tipton. Thank you, Mr. Chairman. Mr. Secretary, thank 
you for joining us here today.
    I would like to go back actually to your opening comment 
when you stated that the President had righted the ship. And 
frankly, I have to tell you in the Third District of Colorado, 
we have not seen the ship righted. We see unemployment at 9.1 
percent. If you go through the Third Congressional District of 
Colorado, we have better than double digit unemployment in many 
of our communities right now. We are seeing great frustration 
in terms of the marketplace. Access to capital, I am a small 
businessman. And let me tell you the problems that I see and my 
counterparts are really seeing right now. It is actually 
uncertainty. You can provide the access to capital, but if we 
do not have sales it does not work. We have to be able to get 
this economy moving and the uncertainty that we are seeing, 
frankly, coming out of the administration is greatly impacting 
a lot of business decisions right now.
    When I read through your entire statement last night, you 
were talking about government-run health care providing 
certainty. It has created uncertainty for a lot of small 
businesses that are out there. When we are talking about the 
tax code that Mr. West had referred to as well, you and the 
President have stated that if you earn $250,000 or more in this 
country you are wealthy. I would invite you to come to Colorado 
with me, sit down with small businesses, LLCs that are working. 
They do not feel that they are rich because in the case of my 
business, and believe me, for the last few years we have not 
had to worry about making those types of profits. We reinvest 
those back into our business to be able to keep our people 
employed. We are facing higher gas prices in this country. So 
in the entire scope of things that we are looking at right now, 
when we are talking about access to capital and we are doing 
everything we can to state, to go to your comments, to make 
sure that we are preserving and standing up for the American 
taxpayer, I guess I would like to know when we look back on 
TARP and ERA, did the government actually stand up for the 
American taxpayer?
    Secretary Geithner. In TARP?
    Mr. Tipton. Yes.
    Secretary Geithner. Let me come back to where you started 
because you are absolutely right that unemployment nationally 
is roughly nine percent but that does not capture much higher 
unemployment rates in many parts of the country. And you are 
absolutely right that this is still a very tough economy and we 
have got a long way to go to dig out of and repair the damage 
caused by the crisis. So I do not disagree with you on that. 
And I absolutely agree that, again, small businesses in many 
parts of the country, parts where unemployment is very high or 
businesses that were in construction and real estate are still 
showing the deep scars caused by the crisis. The question is 
what can we do to help make that better.
    Now, you referred to a tax question. I just want to make 
sure I respond to that because I know that is a broad concern. 
Let me explain to you what our view is about that particular 
question. What we proposed is to allow the tax rates that 
affect individuals and businesses that pay taxes as pass-
throughs, who make more than $250,000, to have those rates 
revert to the level they were at the end of the Clinton 
administration. And we do not do that because we think that we 
want to do it in particular; we do it because we have huge 
fiscal challenges as a country and we have to figure out a way 
to dig out of that mess. And we think the best way to do that 
for the economy is through a broader balanced approach with 
savings matched by some modest changes in revenues.
    Now, you are right that that will change the tax treatment 
of small businesses but only roughly three percent of small 
businesses. And we think that is a reasonable strategy given 
the broad challenges we face. And we are just restoring to the 
rates that prevailed at the end of the Clinton administration, 
which was a period of very good small business performance, 
very strong investment growth, very small income growth, very 
strong employment growth, very strong productivity growth. And 
we think the economy can handle it. And, you know, it is about 
alternatives. If we do not do that, you know, if we extend 
those tax rates for the top two percent, then we have to go out 
and borrow $700 billion over the next 10 years. We cannot 
afford to do that and that is why we proposed that.
    Mr. Tipton. Well, I understand that. I just might throw out 
the suggestion if we get people back to work we are creating 
new taxpayers. And one way I can assure you that we will not be 
getting people back to work is you can dismiss only three 
percent. Those are job creators, people that are creating jobs, 
and we have got struggling people right now that cannot meet 
those mortgages.
    But if we go back a little bit to some of the issues that 
we are really seeing on the banking end of the world, Colorado 
Bankers Association notes that we are going to have 25,000 
pages potentially of new regulations coming out of Dodd-Frank. 
These are going to impact it. And when we look through the five 
Cs in terms of making those actual loans to small businesses in 
this country, banks want to be able to loan this money but the 
regulators, regulations again are coming into play, choking off 
the American economy and our ability to be able to create jobs.
    Secretary Geithner. I do not agree with that. Let me 
explain a little bit why I think it is a fair approach to 
thinking about that. And as I said, again, it is very important 
we get this balance right. And there is no perfect way to get 
that balance right. But remember, look back at what happened 
given the basic failures of oversight in our financial system. 
It caused a huge amount of damage to small businesses. They 
were the innocent victims in many ways of the big mistakes in 
design of regulation, checks and balances of our financial 
system. It was catastrophic. So we have to figure out a way to 
fix that mess. And those regulations are overwhelmingly 
targeted. Not at small banks; at the large institutions, the 
derivatives markets, the complex aspects of our financial 
system where most of the trauma was. And these are complicated 
problems and they require complicated solutions. But the law 
was designed very carefully because of the efforts of many of 
the people in this body to make sure that those burdens did not 
fall on small banks. And we have got to make sure we have a 
system that provides more stability, more stability and access 
to credit, and that is what those rules are designed to do. But 
of course, you are right to say we have got to be careful to 
get the balance right and not overdo it.
    Chairman Graves. The gentlelady from California, Ms. Chu.
    Ms. Chu. Last year, the Congressional Asian-Pacific Caucus 
and the Congressional Black Caucus teamed up to offer an 
amendment to the Small Business Lending Fund legislation that 
would make sure culturally and linguistically appropriate 
services are part of the financial institution's lending plan 
where appropriate. And of course, we did this to ensure that 
there is greater success for the program and that the funds go 
where they are needed. What criteria have you set up to decide 
whether or not businesses will have to institute culturally and 
linguistically appropriate lending plans?
    Secretary Geithner. Congresswoman, I am going to have to 
consult with my staff and come back to you in writing with a 
more detailed response to that. But I know the provision you 
are referring to. The objective is something we share. I think 
it is very important. We have worked very hard to do much more 
extensive outreach across the country to make sure people are 
aware of these programs and can take advantage of them. We are 
committed to continuing that and we are happy to work with you 
on how best to do that. And I will be happy to report on the 
detail and exactly what we are doing with that provision.
    Ms. Chu. I would appreciate that. I am also very interested 
in the establishment of the Office of Minority and Women 
Inclusion at Treasury and at the other federal financial 
regulatory agencies. Minority communities face many cultural 
and linguistic barriers that are often tackled by community-
based organizations or CBOs. The CBOs are the link to these 
communities that often do not know about federal government 
programs or understand how to navigate the federal process. It 
is important that this new Office of Minority and Women Affairs 
overcome these barriers, and without significant expertise in 
community affairs in the office, we are concerned about the 
effectiveness of the outreach program. Can you give me a status 
update on the Office of Minority and Women Inclusion offices in 
the Department of Treasury?
    Secretary Geithner. Absolutely. And I think you are right 
to point out the challenge and you are right to say it requires 
people in these jobs who have a better feel for what is 
happening in those communities. And as I think you know, we 
appointed Dr. Lorraine Cole to take this job at Treasury in 
February of this year. She is excellent, great record of 
accomplishment in this area. And if you have not had a chance, 
I think you should spend some time with her and she will be 
happy to give you an update on exactly where she is, what she 
is doing, where the opportunities are, where the challenges 
are.
    Ms. Chu. To what extent has this office been active in 
reaching out to minority-owned banks or banks where there is a 
high concentration of minority businesses so that they can 
promote the Small Business Lending Fund?
    Secretary Geithner. Well, the entire council and people at 
Treasury responsible for these programs have been doing a huge 
amount of outreach to small banks across the country. And she 
will play a meaningful role in that. But that is a broader 
department-wide priority. It is not just a burden we place on 
her.
    Ms. Chu. Okay. Switching topics, let me ask about the State 
Small Business Credit Initiative. This is a program that is 
building upon successful models of state small business 
programs. And I know California received $169 million through 
this program. How successful has this program been in 
increasing lending to small businesses in California?
    Secretary Geithner. Well, I think to be fair it is a little 
too early to tell. But again, the basic rationale for this 
program is you had across the country a lot of state programs 
with a pretty good record of creative, innovative ways to help 
small business get credit. And we made the judgment with 
Congress that as a complement to what we did directly with 
banks using their expertise, we take advantage of these credit 
programs, and California is one example of that. But we have 
now approved 10 states for funds through this program. We have 
other applications coming. We expect to reach a bunch more, but 
it is going to take us a little bit more time to judge the 
actual results.
    Ms. Chu. Why are not more states applying for these funds?
    Secretary Geithner. Well, as I said, we have had 27 apply. 
We have had many more express interest. And, you know, we leave 
that judgment to them. Many of them may have felt that they did 
not need the additional assistance. Or many may have felt that 
they could not match their programs to the requirements in the 
law. It is hard to know. But we think we will reach a 
significant number of states.
    Ms. Chu. Thank you. I yield back.
    Chairman Graves. The gentleman from Illinois, Mr. Walsh.
    Mr. Walsh. Thank you, Mr. Chairman. Mr. Secretary, thank 
you for being with us today. I know you have got a busy 
schedule.
    I can guarantee you of very few things in life, but I can 
guarantee you--I wish I could guarantee you of more--but I can 
guarantee you that if you and I took a day and we spent the 
afternoon in my Eighth District of Illinois and we randomly, 
just randomly knocked on the doors of 30, 40, 50, 20 small 
businessmen and women in my district, I can guarantee you they 
would all say the same thing. The uncertainty is killing them. 
They see their government pass a piece of health care 
legislation that their government does not even seem to know 
what it will cost. How are they expected to factor it in? They 
are feeling overregulated. And they are feeling--there is huge 
trepidation about regulations they see coming down the pike. I 
can guarantee you if you and I knocked in my district on the 
doors of five small and community banks, or 10, they would all 
say the same thing. Government regulations are tying our hands. 
That is why we are not able to lend.
    I love listening to you. I always learn something when I 
listen to you. But is it at all possible that all of those 
business men and women in my district and those bankers, are 
they all misguided when they say they are overregulated, they 
are scared, there is uncertainty? And everything, and again let 
me just be pointed here as I close, everything they see coming 
out of this administration adds to their uncertainty and their 
fear. To all of them.
    Secretary Geithner. I do not--I think I have a slightly 
different perspective. I will tell you my view. Absolutely, 
businesses, small businesses are more uncertain about the 
future than they would have if you asked them the question in 
2005. Absolutely. And the biggest concern they have and the one 
they talk about the most, and this is what all the surveys say. 
Not our surveys. They say their uncertainty is about how much 
demand for their products is going to grow. They put that at 
the top of the list. That has been true for years now and that 
makes sense. It is sort of a natural thing because they are not 
going to invest or hire unless they have more confidence what 
rate of growth and demand for their products is going to be. 
And even though we have had 18 months of growth, people 
understandably, given the pressure you are seeing in the 
economy today, gas prices, weather, Japan, a little concern 
about Europe, you see a few more headwinds now. So that is 
understandable.
    Now, it is also true that businesses always want less 
regulation. Understandable. And banks would like to operate 
with less regulation. There is nothing unique in that.
    Mr. Walsh. No, but understandable, but is it correct?
    Secretary Geithner. Well, I think what is correct is that 
we have to be very careful given the trauma caused by the 
financial crisis to make sure that we have a financial system 
that is more conservatively managed. And I do not believe there 
is really a meaningful risk for small banks that Dodd-Frank 
itself is going to add to their regulatory burden. I think 
there is some risk, as I said, that examiners are going to do 
it a bit. Maybe a little too cautious, tighten up a bit. And 
that is something that I think the chairman of the Fed, the 
chairman of the FDIC, other bank regulators, are trying to lean 
against carefully so there is more balance in that.
    But where there is concern about people over on the 
regulatory side, we will take a careful look at that. But that 
is the way I would see it. And you know, I have not spent any 
time in your district but I spend a lot of time talking to 
people and they say similar things. They say banks say we are 
not lending because we are regulators, which they often say. 
And we see businesses that were more uncertain. And I do not 
think that is surprising given what this country has just been 
through.
    Mr. Walsh. So how do we give them certainty?
    Secretary Geithner. Well, I think there are a lot of things 
that we can do and I think that just to speak to the issue of 
the day, I think it would be very helpful for Washington to 
come to agreement on a long-term fiscal consolidation plan, you 
know, a reasonable growth fiscal consolidation plan, because I 
think that would demonstrate that the country has the 
capacity--the country leaders in Washington have the capacity 
to try to make some progress in solving a long-term problem 
that is a bit of a cloud on the country. I mean, just to be 
honest about it.
    Mr. Walsh. I hear all the time from folks that, look, this 
recession, this crisis was not the President's. It was there 
when he came into office. This recovery is his. When you look 
at this recovery in historical perspective, and I know I am 
running out of time so you have got to be brief, we are not 
nearly where we need to be at when it comes to this recovery.
    Secretary Geithner. I agree with you about that. But I 
think this is an important question. Mr. Chairman, can I just 
spend a minute on this issue? Because I think it is at the 
center of this big debate we are having about the country and 
it is very important to understand this issue as we think about 
what we can do about it.
    And I think it is important to recognize that you had a 
crisis caused by a country that was living beyond its means. 
Too much leverage in the banking system. People across the 
country borrowing way beyond their means. And when you have a 
crisis caused by that, then recoveries are necessarily 
unavoidably slower. And why is that? When you build too many 
houses, you are going to have a long period where construction 
is weak. When people have to reduce the amount of debt they 
have to feel more secure about the future, they are going to 
spend less, be more cautious when banks have to deliver. So 
those create headwinds for the recovery that consign us to more 
moderate recoveries than we would normally have. Much more 
modest recovery is the reality we face today. The question is 
how can we make it stronger? How can we make it better? And I 
think we can do things on the tax side by expanding exports, by 
doing a sensibly designed long-term fiscal plan. By being 
careful about the balance in regulations, we can improve the 
odds if we get more people back as quickly as we can. But most 
of what we are living today as a country now is the effects of 
those mistakes we made up to and after the crisis.
    And if you look outside construction, you look beyond the 
banking system, you look beyond the sectors most directly 
affected by people being a little more careful about how they 
spend and borrow, the rest of the American economy, if you look 
at export performance, private investment growth, productivity 
growth, agriculture, manufacturing, high tech, this is a very 
resilient, very productive, very innovative economy. And we 
have a very good chance, if we make some sensible judgments 
coming out of this, to emerge from this crisis stronger.
    Mr. Walsh. Thank you, Mr. Chairman. Thank you, Mr. 
Secretary.
    Chairman Graves. The chair recognizes the gentleman from 
Louisiana, Mr. Richmond.
    Mr. Richmond. Thank you, Mr. Chairman. Thank you, Mr. 
Secretary, for being here.
    In anticipation of this hearing I did reach out to my local 
community banks and businesses to just get a sense of what they 
would like to hear and get answers to, one of which I think we 
have talked about for awhile. However, I would like to just ask 
the question again and get as concise an answer as possible so 
I can make notes and give them the answer. Particularly, some 
of the banks applied for the SBLF on the first day and they 
still have yet to hear any type of response. I heard you say 
that there are numerous steps but their question is can you 
give a timeline to the best of your knowledge, or if you have 
to get back to me that is fine, on when these banks should 
start hearing their fate in the program?
    Secretary Geithner. Relatively soon. As I said, we have had 
about 850 banks apply. The first step they have to go through 
is they have to go through their primary regulators. We only 
see the applications or we only look at applications after they 
make it through that process. That process is taking longer 
than I think anybody expected. But we are moving as quickly as 
we can. But remember, we have an obligation to be careful; 
careful with the taxpayers' money. So we will give people as 
quick a response as we can.
    Mr. Richmond. Just to follow up on that, something that may 
help us is to let us know how many have been through that first 
phase of the regulators and are now sitting in Treasury.
    Secretary Geithner. I cannot tell you that now but we are 
not the meaningful source of delay.
    Mr. Richmond. Okay. If you can get me that information that 
would certainly help.
    The second question posted from the bankers was how 
especially in Louisiana we continue to lose our local and 
community-based banks because of mergers and acquisitions by 
larger banks. And following the financial crisis, the bigger 
banks are only getting bigger. Knowing community banks are the 
engines of entrepreneurship in their local communities, what is 
Treasury doing to affirmatively support the local banks and to 
help them grow and sustain themselves?
    Secretary Geithner. A very important question. You are 
right to say that one of the great strengths of our system and 
we intend to preserve it is we have a system with I think more 
than 8,000 banks, community banks, operating alongside the 
large institutions. And that is a great strength of our system 
and it makes the system more stable, more resilient, more 
responsive to the needs of Main Street businesses. We intend to 
preserve that.
    The two most important things we can do about that are, 
one, make sure that we help these programs to provide capital 
to banks, reach as many institutions as possible. And the 
second is to make sure that as we reform our financial system 
we are putting the bulk of the burden for reform on the large 
institutions that took the most risk, whose failure caused the 
most damage. And so just to give you two examples, we are 
putting higher capital requirements on the large institutions 
relative to the risks they take, relative to small banks. And 
we are making sure that large banks, not small banks, bear most 
of the cost of solving future crises. Those are just two 
examples. But again, we are committed, as are you, to try to 
make sure we preserve a system with this great strength of 
thousands of institutions that operate in these communities and 
can better meet the needs of their Main Street customers.
    Mr. Richmond. And in just shifting a little bit from 
community banks, my experience in Louisiana especially and 
watching our small business growth and actually had some very 
good results with the New Market Tax Credit program, part of my 
question would be to maybe gauge the administration's view of 
the success of new markets. What can we expect in the future in 
terms of new market, which is a very creative way to put equity 
investments into communities to create jobs?
    Secretary Geithner. You are right. It is a great program. 
It has had a lot of bipartisan support over a long period of 
time. A very good record everybody can look at for impact. And 
the main thing that we are looking at now is to try to make 
sure we can enhance the program so that more of the incentives 
go directly to small businesses that are not directly in the 
real estate business. And we think we can do that. We have got 
some suggestions on how to do that. I am happy to have my 
colleagues brief you in more detail on what we think is 
possible there.
    Mr. Richmond. And in my last 30 seconds I will just make a 
quick comment, which is to, as best as we can, to continue to 
help those small businesses, especially as the administration 
will come to us and present maybe three trade bills to us, to 
make sure that our small businesses can compete, to make sure 
that they can get their products and their goods to market and 
all of those things so that they can be competitive.
    And I will end with my last plug, as always. We cannot get 
our goods to market unless we dredge the Mississippi River. 
Sixty percent of all grain in this country comes through the 
Mississippi River. There was an 800-foot ship stuck in the 
middle of the Mississippi for two days a couple of weeks ago. 
So we have to do that if we are going to be serious about 
doubling exports and getting our goods to market. So thank you 
again for coming in. Mr. Chairman, thank you.
    Secretary Geithner. I agree. Exports and infrastructure are 
a very important part of our long-term growth strategy.
    Chairman Graves. Thank you, Mr. Richmond.
    Now we have to turn to another member from Louisiana, Mr. 
Landry.
    Mr. Landry. Thank you, Mr. Chair. Mr. Geithner, if I ask 
you a question that you answered already, I apologize. I had to 
go to a committee to vote.
    You know, it is frustrating on our end because I hear your 
comments that, you know, you tried to place the majority of the 
burden on the larger banks because it seems like they were more 
at fault as to this meltdown. But yet I do not hear them crying 
as much as I do the community banks. Why do not we just waive 
the community banks from Dodd-Frank and then if that is the 
case, then we can allow the community banks to go back to being 
community banks because they are crying more than the larger 
banks under this bill? So how can that be if what you are 
saying is we tried to place more burden on the big banks than 
the small banks?
    Secretary Geithner. Dodd-Frank did largely, not completely, 
but did largely leave small banks out of it. But I think if you 
listen carefully, the large banks are complaining much louder. 
They are spending a huge amount of money trying to undo, shift 
the burden, delay the reforms that are targeted at them and 
their risk taking. They are spending a huge amount of money 
trying to block, delay, erode, weaken, walk back. And I think 
it is important to small businesses, to businesses and small 
banks that you guys do not let that happen because again, why 
would you want to put the country through what we went through 
in this crisis where so many innocent victims were left bearing 
the consequences of a lot of mistakes they were not part of?
    Mr. Landry. Look, I am with you. I am trying to protect our 
community banks. And that leads me into the next question. You 
know, I started several businesses. One of them, the first one 
actually using a SBA loan. And I was always under the 
impression that SBA loans were kind of a bridge to help the 
little guy out there when the other banks were not able to or 
did not want to lend to them. But yet my community banks are 
telling me that now, in fact, I had a real life example of 
where there was an application by a business owner to invest in 
a business and he had great credit, he had plenty of 
collateral, but the examiners would not allow the community 
bank to make the loan because they felt that his business 
plan--he could not prove that his business plan could continue 
to pay the note. Well, if that was the case, a lot of us would 
not--I would have never been able to start my business. But yet 
he was able to get a loan through small business. And what 
concerns me is that here we have the private market willing to 
take the risk, but yet we are moving them to the taxpayer who 
is going to take the risk when the private market would gladly 
take the risk. And they are pinning that on the regulators. Why 
would that be? I mean, is that the effect that you guys would 
like?
    Secretary Geithner. I do not think so. And I agree with 
you. And I think that you are right that the challenge in this 
is you have to figure out how to put out a financial fire, make 
sure you open up the credit channels again when they are stuck 
because of the crisis, but do so without creating more 
dependency on the government over the long run or crowding out 
private markets from financing. I think we have actually been 
very, very successful at doing that in the financial system as 
a whole. And the terms of these loans, these programs are 
established in a way where as conditions improve, as people are 
willing to take more risk, as the private markets come back and 
it will not be economically attractive or sensible for banks to 
rely on the government for these programs.
    Mr. Landry. So you are saying that example should not have 
happened?
    Secretary Geithner. Well, I do not, again, in a crisis, for 
a temporary period of time when the markets freeze up and 
private investors pull back----
    Mr. Landry. But this was within the last six months.
    Secretary Geithner. I think now you should see the balance 
shifting. And you are right. I think your point is we should 
not create a system where government programs are crowding out 
private capital from financing that. Absolutely. And I do not 
think that we face a meaningful risk of that. I do not think we 
do.
    Mr. Landry. As long as I have your all commitment that that 
is not what you are trying to do.
    Secretary Geithner. Absolutely not.
    Mr. Landry. Okay. All right. Thank you, Mr. Geithner. I 
yield back.
    Chairman Graves. The chair now recognizes the gentleman 
from Pennsylvania, Mr. Critz.
    Mr. Critz. Thank you, Mr. Chairman. Thank you, Mr. 
Secretary, for being here.
    Talking about the SBLF, launched December 20th of last 
year, as of June 20th of this year you have 869 applications 
for approximately $11.6 billion in funding. There is $30 
billion available. Is it succeeding? Is that where you think it 
ought to be? Or are there issues that we need to review or that 
you can help to get that money into the economy?
    Secretary Geithner. Well, as I said at the beginning 
several times, I think we are a little behind what we thought 
was the realistic schedule at the beginning, and that is 
because it is taking longer to put in place the checks and 
balances to determine eligibility. In our system, those checks 
and balances to protect the taxpayer depend on two steps. One 
is the review by regulators. That is taking longer than we 
thought. But as I said, we think we are going to reach a 
meaningful number of institutions and make a meaningful 
difference in their capacity to lend. And I think we are 
largely going to achieve the basic objectives of the act. You 
cannot be sure at this stage because it is still early days.
    Mr. Critz. So the delay caused--where I am going is I would 
have thought that banks would have been out there. They would 
have seen this impasse and would have been sending applications 
in?
    Secretary Geithner. Oh, yeah. They came and they came in 
numbers, in the hundreds.
    Mr. Critz. Which is not a big number.
    Secretary Geithner. Well, actually, I think it is a pretty 
big number.
    Mr. Critz. Okay.
    Secretary Geithner. I think it is a pretty big number 
because, you know, it is true we have 8,000 banks but many will 
not be eligible. Many of them are fine on their own. So I do 
not think it is a surprisingly small number.
    Mr. Critz. Well, the thing that I find interesting about it 
is that the dividend that the banks will pay the Treasury goes 
down as they lend more to small business. So it is a huge 
incentive. This is not a Democrat or Republican issue. I think 
we all have small businesses that are looking for credit and 
having a hard time finding it. So this program seems so perfect 
for that opportunity.
    Secretary Geithner. I agree. I think it is a well designed 
program, pretty powerful incentive and, you know, again, I 
cannot be sure why it is 800 and not 2,000. But I do not think 
it is that surprising, again, because you have a lot of 
institutions that feel fine on their own and, you know, do not 
want to do business with the government. And frankly, I do 
not--I think that is reasonable. You want people to be 
reluctant to come to the government.
    Mr. Critz. Right.
    Secretary Geithner. And we would like these programs to 
reach as many institutions but we cannot force them to come.
    Mr. Critz. Well, that brings me to my next point, which is 
a statistic, and I am assuming it is accurate, about 38 percent 
or, no, 59 percent of the funds requested are from institutions 
that took TARP money, and they are trying to convert that 
money. Now, are we defeating the process by converting TARP 
money to this? I mean, it really was not to do that.
    Secretary Geithner. Well, no, it actually was designed to 
do that. Congress chewed over that and thought about it a lot 
and decided that was a good thing to do. And the reason why 
they reached that judgment, and I agree with that judgment, is 
there are just two reasons. One is because the reasons you 
said, this is a, we think, pretty well designed way to create 
incentives for more lending. So we think it has more bang for 
the buck in terms of lending than the additional, the original 
capital programs.
    Mr. Critz. Okay.
    Secretary Geithner. So we think that is a good reason you 
should let them refinance. The other reason is just a fairness 
question. You know, why should you penalize institutions that 
took the initiative to apply for the initial capital program? 
Congress issues a new program. It is more economically 
attractive. Why would you penalize them for coming early?
    Mr. Critz. All right. You had mentioned earlier about 
housing, the construction, small businesses and construction 
took a huge hit. I had my staff run some numbers that Home 
Depot's fourth quarter profits were up 72 percent. Lowe's is 
more for a home person. Home Depot does a lot for individuals 
but also a lot for small construction companies. Lowe's was 
down a bit. Then 84 Lumber, which is one in my district. Of 
course, they are much smaller than they were in '05, about a 
third of what they used to be. But it seems like there is some 
activity there, although when calling the halls, the union 
halls back home, I know I got a lot of people that are still 
laid off and we are in prime construction season. So you know, 
this housing issue is going to drag on our economy for quite 
some time. Are there things that we should be reviewing as a 
Committee that we can help jumpstart or help get that housing 
inventory off the market?
    Secretary Geithner. I think you are right. Housing is still 
very tough. There are some signs of light in some parts of the 
country but you know, with unemployment so high it is not that 
surprising. You still have such a large imbalance between homes 
out there and demand for new homes. And that is going to take 
realistically several more years to work through.
    We think the three most promising things you can do about 
that are first, and this is overwhelmingly the most important 
one, is to make sure growth is stronger. More people back to 
work, more incomes growing again. That is the most important 
thing we can do. And everything we do here and you do in 
Congress should be governed by that basic simple objective.
    Housing specifically, we are trying to make sure that we 
bring this broader global settlement effort to improve the 
foreclosure process down to earth on sensible terms to reduce 
some uncertainty. And we are trying very hard to make sure 
through the full complement of housing programs we have through 
HUD, FHA and the ones authorized by Congress for the Treasury, 
that they reach as many people as they can. They have helped 
set a new standard for modifications that have helped two to 
three million Americans stay in their homes who can afford to 
stay in their homes, but they cannot reach everybody. But we 
want to make sure they reach as many people as possible.
    Mr. Critz. Thank you, Mr. Chairman.
    Chairman Graves. The gentlelady from North Carolina, Ms. 
Ellmers.
    Ms. Ellmers. Thank you, Mr. Chairman. And thank you, 
Secretary Geithner, for being here today.
    Mr. Secretary, I have listened to all of your testimony and 
especially your last few statements there. Obviously, the 
answer to our economic problem here in this country is jobs. We 
have got to get businesses hiring again.
    Now, you, in your initial comments, kind of painted a 
pretty rosy picture, certainly much rosier than what we see 
back in North Carolina or in the Second District of North 
Carolina. You said 15 straight months of economic growth with 
about a million jobs created over the last six months. And yet 
we are sustained at above nine percent unemployment for over 23 
months. Overwhelmingly, the businesses back home and across the 
country continue to tell us that regulation, lack of access to 
capital, taxation, fear of taxation, and just the overwhelming 
uncertainty that our businesses face is what is keeping them 
from hiring. They just simply cannot. They have cut everything 
they can cut. Our households have cut everything that we can 
cut. And yet we are talking about doing some things in the 
future. Right now we are at a standstill with the lending. We 
have no guarantee, and as you have stated, you have no ability 
to tell us when that will occur, especially with the small 
business loan program.
    Looking into the future, you are supporting the idea of 
taxation, increasing taxes on those who make $250,000 or more. 
Those are our business owners. Those are----
    Secretary Geithner. They are three percent of your business 
owners.
    Ms. Ellmers. Three percent.
    Secretary Geithner. Three percent of your small businesses.
    Ms. Ellmers. Sixty-four percent of small businesses. Sixty-
four percent of jobs created in this country are for the small 
businesses.
    Secretary Geithner. No, that is right. I agree with that. 
But just to put it in perspective, it is important to recognize 
why are we doing this? You know, our deficits are 10 percent of 
GDP, higher than they have been since any time in the post-war 
period really. We have a big hole to dig out of and we have to 
figure out how to do that in a way that is balanced, good for 
growth, fair to people as a whole. We are not doing it because 
we want to do it. We are doing it because if we do not do it 
then again I have to go out and borrow a trillion dollars over 
the next 10 years to finance those tax benefits for the top two 
percent and I do not think I can justify doing that. And if we 
were to cut spending by that amount to do it, you would be 
putting a huge additional burden on the economy, probably a 
greater negative economic impact than that modest change in 
revenues. So that is why.
    Ms. Ellmers. Then what is the goal? You stated it is only 
three percent. What is----
    Secretary Geithner. Of small businesses.
    Ms. Ellmers. What is the goal then in increasing the taxes?
    Secretary Geithner. Well, no, the goal is that, and I know 
you and your colleagues understand this and you care about it 
deeply, we are living with unsustainable deficits.
    Ms. Ellmers. Yes.
    Secretary Geithner. If we do not address them, they will 
hurt economic growth and investment in the United States.
    Ms. Ellmers. But if, as you stated, only three percent of 
small businesses will be affected, how can that increase in 
taxation be that significant to turn that around?
    Secretary Geithner. Well, you are making our case in the 
sense that----
    Ms. Ellmers. The point is we need jobs.
    Secretary Geithner. We are not doing it because we want to 
do it. We are doing it because we see no alternative to a 
balanced approach to reduce our fiscal deficits. And again, if 
you do not--I think the House past demonstrates this, if you do 
not touch revenues and you leave in place the tax cuts for the 
top two percent that were put in place by President Bush, if 
you leave those in place and you are trying to bring our 
deficits down over time, then you have to do exceptionally deep 
cuts in benefits for middle class Americans and you have to 
shrink the overall size of government programs and things like 
education to levels that we could not accept as a country. And 
so to do a balanced approach to reduce our deficits you have to 
make modest changes in revenues. There is no realistic 
opportunity alternative to doing that. But, you know, we have 
to be careful how we do it.
    Ms. Ellmers. Okay. I would like to reclaim my time for a 
moment. You, we all agree jobs are the answer. And yet you are 
willing and more than capable of putting that excessive burden, 
which we already know from our small business owners is the 
issue, why would we go and--why would we do more? Why would we 
harm them more? Why would we create more uncertainty in the 
private sector?
    Secretary Geithner. I am not sure we disagree 
fundamentally. The economy needs to grow to create jobs. Our 
basic challenge is to try to figure out how to make growth 
faster, more sustainable, and translate into more jobs. Part of 
that is expanding exports. Part of it is making sure that we 
are investing in infrastructure, education, things that matter 
to our strength. And part of it is a balanced growth-friendly 
approach to deficit reduction over time because if we do not 
fix that problem, you will leave a broader cloud in the economy 
longer term. But we have to be careful how we do it so we do 
not hurt the economy.
    Ms. Ellmers. Well, Mr. Secretary, I would just like to 
close by saying that on behalf of the business owners in North 
Carolina and across this country, you are wrong.
    Chairman Graves. The gentleman from Michigan, Mr. Peters.
    Mr. Peters. Thank you, Mr. Chairman. Thank you, Secretary 
Geithner for being here. And I want to take a moment before I 
ask a couple of questions to tell you where you are right. In 
fact, I had the opportunity yesterday before I flew into 
Washington to be at a groundbreaking for a new Chrysler 
facility. I represent Michigan. In fact, Chrysler is 
headquartered in my district but I was at a groundbreaking for 
a new factory, a new paint shop, an $850 million investment in 
that plant, which is about 2,200 jobs just in that plant. And 
as you know as well as anybody, those 2,200 jobs translate into 
a lot of other jobs throughout the economy, not just the auto 
suppliers but all of the small businesses that are located 
through there. And I am a relatively new member of Congress. I 
came in in 2009 at the height of the financial crisis. I 
remember sitting in the boardroom with Mr. Nardelli, who was 
the CEO of Chrysler at the time who said in very explicit terms 
that if there is any assistance for Chrysler as they go through 
bankruptcy because of the credit markets that had basically 
seized up because of what had happened, the fiasco on Wall 
Street, there simply was not money available for a company the 
size of Chrysler or General Motors to get through bankruptcy. 
They needed access to funds. He said very clearly that they 
would go into liquidation. This company would just close, 
liquidate, sell everything off.
    And I was sitting in Chrysler headquarters, which is the 
second largest building in the country next to the Pentagon. 
And that building would have been shuttered. Thousands of 
people would have been laid off. Grass would have been growing 
in the parking lot. That money was necessary. The President did 
a very courageous thing. Took a lot of heat from a lot of 
people around this country. You took a lot of heat from people 
around the country. Made that investment.
    And now fast-forward two years. That building actually has 
run out of space. They are going to be hiring an additional 
thousand engineers. They cannot put them all in that building. 
They are looking for additional real estate, additional jobs in 
the community. And Chrysler has announced, as you know, paid 
off the money from the taxpayers with interest. It is an 
incredible success story.
    Thank you for doing that. Thank you for believing in 
American workers. Thank you for believing in the American 
middle class because those are jobs that we are seeing, not 
just in Michigan. Those are jobs throughout the country, 
through suppliers all through the country, through auto 
dealers. Our auto dealers, many of them would have been closed. 
They would have been closed had that company liquidated. And 
those are important small businesses in every one of our 
congressional districts that would have disappeared. So that 
was a courageous thing to do. Thank you for doing that. It is a 
great success story. Now we need to continue to build on that 
success, continue to build on those jobs.
    And as you know, it is certainly something that I have 
worked a great deal on with small business lending in 
particular with my work on the financial services committee. 
And one area that I worked in particular with was with Gene 
Sperling, who is now with the White House Economic Council and 
that is on the State Small Business Credit Initiative, which we 
have heard. You have had some questions from folks on that.
    And I wanted to just put in the record some of the 
successes with that State Small Business Credit Initiative. Mr. 
Chairman, you should have a letter that was submitted by our 
governor in Michigan, Governor Snyder. I would like to have 
that letter entered into the permanent record.
    The Small Business Credit Initiative was really modeled 
after what we are doing in Michigan, what we have been doing in 
Michigan for a number of years, which is a collateral support 
program that has been particularly helpful right now to those 
smaller auto suppliers as the auto industry is recovering. And 
yet a lot of those smaller auto suppliers are in a situation 
where their factors are worth considerably less so they cannot 
get loans that they needed. But this program, which was a 
bipartisan effort, it was started by Governor Granholm, a 
Democrat, and it has now continued to be supported by Governor 
Rick Snyder, who is a Republican. In the letter that I have 
entered into the record, he talks about the very successful 
experience that we have had in the state of Michigan. Michigan 
has not experienced since they started the program in 2009, not 
a single loss. And I am quoting here, ``while generating nearly 
$200 million in private loans with a very small public 
investment. It is a good investment that has leveraged 
considerably.''
    Now, I know these programs are starting to get these 
applications and you are approving them, but I would expect 
because of the success we have had in Michigan and other 
states, that this is something that should gear up fairly 
quickly because of the experiences we have had. What is your 
expectation? Now that that is occurring, applications are 
continuing to come in. Is this a program where we are going to 
get fairly quick results, particularly relative to other 
components of the act?
    Secretary Geithner. I think so. It depends, of course, on 
how quickly the states are able to put the money to work. But I 
think in California and North Carolina they are already making 
loans. Missouri's fund has already been oversubscribed with 55 
applications. So I think the speed will depend on how quickly 
the states can put the money to work. But I think you are right 
to point out the benefits of it. Again, the basic insight we 
adopted with the support of you and many others is to work with 
the grain of established programs that have a good record of 
doing these things carefully. And that is the promise of the 
program.
    Mr. Peters. And I appreciate the effort. And Mr. Chairman, 
I have another letter just in closing from the Michigan Credit 
Union League. We also had credit unions and other institutions 
that have participated and have seen this program as a success 
in the past and are looking forward for the additional 
resources. But thank you for your work, Mr. Secretary.
    Secretary Geithner. Thank you.
    Chairman Graves. The gentleman from Iowa, Mr. King.
    Mr. King. Thank you, Mr. Chairman. I would just comment in 
listening to the last presentation that an additional 1,000 
engineers and the success of Chrysler, I bet the security 
creditors that had their assets confiscated in the Chapter 11 
filings have also been made whole and who had their assets 
restored and received their dividend checks and that the shares 
that have been handed to the unions have been handed over to 
their rightful owners. I don't think any of that happened. And 
that is the other side of the story from the gentleman's 
comments.
    But Mr. Secretary, aside from those disagreements we might 
have here on the panel, I am curious about some things to lay 
down a foundation. And when I listen to you speak and I 
appreciate your testimony, I do not hear things I disagree 
with. And often your analysis is accurate within at least the 
scope of what you are talking about. So just a couple of 
questions to help me illuminate your philosophy. On a scale of 
one to 10, how would you rank Milton Friedman?
    Secretary Geithner. That is an interesting question. I am 
not an economist. I am not a trained, credentialed economist. 
So I would say I probably agree on a lot of his things but not 
everything.
    Mr. King. You would not put a number to that?
    Secretary Geithner. No, I would not do that.
    Mr. King. Would you put a number to John Maynard Keynes?
    Secretary Geithner. No, I would not do that either. I would 
say sort of the same thing which is no perfect guide in either 
to the challenges facing the country but things we can draw 
from both.
    Mr. King. Adam Smith?
    Secretary Geithner. I am not going to give you a number. I 
will say the same thing to you no matter what.
    Mr. King. I am a little surprised because I would look at 
you and I think this is a man that is a complete expert on all 
three of these individuals who has a----
    Secretary Geithner. You have got the wrong guy.
    Mr. King [continuing]. An intuitive and an intellect and a 
gut understanding of the flow of market capitalism globally and 
historically going back a couple of hundred years plus. I do 
expect you to have that basis of knowledge.
    Secretary Geithner. I am a student of financial crises, 
unfortunately, but not a credentialed economist. You know, the 
philosophy I bring is a much more pragmatic test. What is going 
to work? Ultimately, that is what matters.
    Mr. King. Then I am interested in what is going to work as 
well. And we discussed the burdens of regulation on business, 
in here primarily small business, and there are a few things 
that stick in my mind having founded and operated a small 
business for not quite 29 years and it is a second generation 
business today. And I would list three of the top regulation 
burdens which we discussed as a small businessman by trade. And 
I would list them IRS, Obama Care, Dodd-Frank. Can you come up 
with any regulations or any proposals that are heavier, a 
heavier burden on small business than those three?
    Secretary Geithner. That is an interesting way of framing 
your question. But I take a different approach. The tax burden 
on small businesses, as I said in the beginning, is lower today 
than when the President took office. Now, you are right. 
Congress is now debating what should happen to tax policy in 
the country as we try to dig out of our deficits. And we are 
going to have to figure out a way to do that that is fair to 
the American people, that can be passed by the Congress, that 
is good for future growth. And people disagree on that. The 
country is very divided on that. But the tax burden today is 
lower than when the President took office. We have already 
discussed the financial system at some length. I know a fair 
amount about that. And again, I would say how good was it for 
small businesses across the country that they were left with 
this amount of damage caused by a failed financial system, 
something we have to fix. And again, the bulk of that law is 
not directed at raising burdens on small banks. That is a point 
to avoid.
    Mr. King. Mr. Secretary, let me just inject in this. And in 
your earlier testimony you talked about the crisis was caused, 
at least in part, by a country living beyond its means. And I 
agree with that. And we have overbuilt in housing. And I agree 
with that. And I would ask though that the solution for that 
appeared to be TARP, economic stimulus plan, increasing a lot 
of government spending. And now we have a government that is 
living beyond its means. It seems as though from sitting here 
as a member of Congress and a small businessman, that the 
solution for the problem is to apply to the Federal government 
the same problem that small business had. In other words, we 
overspent with government. We lived beyond its means. Now, I 
believe I heard some reference to you in that if you have that 
kind of a solution it delays the recovery because we have to 
pay interest and principal, some concept along that line. Not 
your words, certainly.
    Secretary Geithner. Well, let me tell you how I approach 
this. You know, again, we have unsustainable deficits, long-
term, short-term. They are a product of a bunch of decisions 
made in the last decade, the product of the recession. And the 
principle driver over the long run is that Americans are living 
longer, aging, health care is very expensive. Now, if we do not 
address that then investment will be lower, growth will be 
weaker, interest rates will be higher. The economy will be 
burdened by that.
    Mr. King. We do agree with that. I agree with that. But 
when you apply the Federal government's debt, is it the same 
concept of the equation as a business that is overleveraged?
    Secretary Geithner. A little different in the sense that, 
you know, governments are not a business, not a family. And in 
financial crises and recessions, the lesson of history is that 
when the markets pull back, the government has to step in 
temporarily. But only temporarily, and it is very important to 
make sure that the government pulls back as it is now doing. 
And the government is starting to pull back now. That is 
slowing growth a little bit so you want to be careful not to 
overdo it. But the key lessons should be for us is the 
composition of these reforms on the budget side have to be 
designed in a way that they do not hurt growth short-term and 
long run. That is why we believe you have to have some balance.
    Mr. King. If I could ask unanimous consent for just an 
additional question. Thank you, Mr. Chairman.
    I just, and again, your testimony is interesting to me, Mr. 
Secretary. And one of the things you said was Roosevelt said 
that one thing we need is bold experimentation. And I recall a 
statement made to us by the President and that date was 
February 10, 2009, in speaking to a Republican Conference when 
he said that Franklin Delano Roosevelt's New Deal actually did 
work. And that the problem was that he lost his nerve in the 
second half of the `30s and got concerned about spending too 
much money. And he pulled back, which brought about a recession 
within a depression. Unemployment went up and then along came 
World War II, the largest economic stimulus plan ever. That is 
almost verbatim. It is conceptually exact. And so I am 
wondering what you think of this bold experiment of President 
Obama's. It seems to be committed to be substantially more bold 
than that of Franklin Delano Roosevelt.
    Secretary Geithner. I, of course, work for this President 
and I believe in everything he is doing but I would not quite 
compare it that way. I was using that phrase to refer to the 
range of things we had to do to fix the financial system, put 
out the financial fire, and you know, we did exceptional things 
no one would ever want to do and would never want to do again 
ever. And the things we are doing on the credit side, capital 
side are very creative, no precedent for it. And they require 
new approaches. That is what I was referring to.
    Mr. King. Well, I like audacity when you are right. Thank 
you, Mr. Secretary. Thank you, Mr. Chairman.
    Chairman Graves. The gentleman from New York, Mr. Owens.
    Mr. Owens. Thank you, Mr. Chairman. Thank you, Mr. 
Geithner, for coming today.
    As I listened to your testimony and listened to the 
questions from the floor, one thing seems to reach out to us 
and that is the demand is really the key, both in terms of 
product, that is sales. It is also generating demand for bank 
loans. The critical issue then really is how do we generate 
demand which will then flow through the economy and essentially 
bring us out of this recession? I assume you agree that demand 
is the key?
    And one of the things that it appears to me that we have 
not done here in Congress is really developed a real jobs 
creation program. And I have to say that from my perspective it 
does not appear that the administration has done that either. 
You may disagree but that----
    Secretary Geithner. I do.
    Mr. Owens [continuing]. My perspective.
    One of the things that we have on our plate that I think we 
could do that would stimulate demand, and I hear this from my 
small business owners back in my community, from my bankers, is 
get the transportation bill passed which would push dollars 
into infrastructure. Do you agree with that?
    Secretary Geithner. I do. I am a very strong supporter of 
the need for a very large, much more substantial level of 
investment over the long term in improving the nation's 
infrastructure. I think it is important for businesses. We have 
underinvested in those. That raises the cost of doing business, 
taking goods to market. There is a very strong economic 
rationale for doing it. It would help get employment up, people 
back to work in the parts of the economy most affected by the 
crisis. Very strong economic case for doing it.
    Mr. Owens. So then you would urge us as one of the positive 
things we might do to stimulate demand is to make sure we pass 
a transportation bill as quickly as possible?
    Secretary Geithner. I would absolutely say that, you know, 
we have to make sure we can pay for it, we do it responsibly, 
but it is one of the most effective things we could do to help 
improve the strength of recovery, breadth of recovery, job 
creation.
    Mr. Owens. Thank you. Just two other points. You also 
mentioned during your testimony the Clinton era tax rates. 
During that period of time, I believe if we look back 
historically we also saw significant GDP growth in those years.
    Secretary Geithner. We did. I think if you, again, if you 
just compare most measures of economic success, if you compare 
the record of growth, private investment, job creation, income 
growth, productivity growth between those two periods, 
employment growth, job growth, the period of the second half of 
the '90s and the decade that followed, very good evidence for 
the type of growth strategies that we are promoting today.
    Mr. Owens. And so it would appear, one could also conclude, 
that those tax rates did not impede either job growth nor GDP 
growth.
    Secretary Geithner. Absolutely. In fact, I think you can 
say that the economy did very well during that period of time 
by all the measures we choose to judge economic performance by.
    Mr. Owens. And the final question I have for you goes to 
working capital. Just by way of background, I spent 14 years on 
a bank board and 10 of those years as a permanent member of the 
loan committee. So I think I have----
    Secretary Geithner. My condolences to you for that.
    Mr. Owens. When we talk about working capital, there is 
some confusion I think that goes on in the conversation. In my 
view, the strain on the working capital issue is because 
normally working capital is pegged to inventory and accounts 
receivable. And because you have declines in working capital, 
it is because you do not have AR and you do not have inventory. 
And there is really not much that I can see that government can 
do about that directly. That has to come as the result of 
increased demand.
    Secretary Geithner. I agree with you completely. I mean, 
again, it is important to step back and remember what we have 
been through. We had an economy frankly with too much debt, 
economy was falling at a rate of about five to six percent a 
year when the President took office. That was going to come 
with it a substantial fall in demand for lending. That was 
going to be magnified as the country pulled back and went to 
living within its means. No surprise. You saw demand for loans 
fall very, very sharply over that period of time. But that 
decline would have been much, much worse if we let the 
financial system burn and collapse. And the case for capital, 
the case for the programs you put in the emergency is to make 
sure you did not see the capacity of the system to support 
lending contract unnecessarily. And we were very successful, 
not just in putting out the fire at a very low cost to the 
taxpayer, but in bringing rates of cost of lending down very 
dramatically, opening up the credit pipes very quickly. And I 
am very confident that this financial system today is now in a 
position where it can finance a growing recovery within concern 
that there will be a very substantial meaningful capital 
constraint on the capacity of the system to lend. There will be 
pockets of constraints and weakness, but for the system 
overall, our financial system will be able to support a growing 
recovery.
    Mr. Owens. Thank you very much, Mr. Secretary. Thank you, 
Mr. Chairman.
    Chairman Graves. The chair recognizes the gentleman from 
Ohio, Mr. Chabot.
    Mr. Chabot. Thank you, Mr. Chairman. Mr. Secretary, I think 
we are now only beginning to comprehend the extent of the 
compliance costs that will result from the passage of last 
year's, what I would consider to be pro-bureaucracy, Dodd-Frank 
bill. As with any regulation, the smallest firms are going to 
have the most difficult time complying. They have the least 
resources to deal with so it will take up a disproportionate 
share of their available resources in that compliance, while 
many of the larger financial institutions may be able to 
weather the increased burden of complying with the act's 
existing and proposed regulations. Small and community banks 
are already scrambling to survive. How can the administration 
claim to promote access to capital for small businesses when it 
is smothering the very community banks that are the lifeblood 
for small business entrepreneurs across this nation?
    Secretary Geithner. Well, Congressman, I think you 
understand my views on this. My view is, no surprise to you, 
that a law was appropriately and carefully designed to reduce 
the risk that it was putting an unnecessary burden on small 
banks who were not the principle source of the problem and we 
rely on a lot to be a source of lending to small businesses 
going forward. Now, they were not left untouched by the law but 
overwhelmingly the thrust of the reforms in the law are 
targeted at parts of the system they are not part of. At 
derivatives, at the complicated risk management challenges 
facing large firms. And if we had not done that we would be 
leaving this economy vulnerable to another crisis like this. 
And again, this was a crisis exceptionally damaging to the 
innocent victims among small businesses.
    Mr. Chabot. I have only got limited time so let me just say 
that I am hearing still from especially small community-type 
banks and small business entrepreneurs and you have heard the 
uncertainty that this is causing, et cetera. But let me move on 
to----
    Secretary Geithner. Can I just say I will try to be very 
quick.
    Mr. Chabot. Let me move on, if I can. Last year the 
administrations' major initiative and its so-called jobs bill 
towards increasing lending to small businesses was to push more 
government spending. In this case, to create a $30 billion 
mini-TARP, the Small Business Lending Fund out of remaining 
TARP funds. Now, your Treasury is warning us that we are on the 
brink of financial catastrophe unless we raise the debt 
ceiling. In fact, you said in May that a ``default would not 
only increase borrowing costs for the Federal government but 
also for families, businesses, and local governments.'' If we 
are indeed close to disaster that would severely jeopardize 
lending, would you be willing to return the remainder of the 
$30 billion in mini-TARPs so we can move towards paying down 
the debt and therefore averting this disaster?
    Secretary Geithner. Well, of course. The loans that we 
cannot spend, the resources we cannot spend because we do not 
have eligible banks for it go back to the Congress. But 
unfortunately, they will not make a meaningful contribution to 
reducing our long-term fiscal problems. But those funds, if not 
used, go back to you. You can choose what to do with them. I 
would recommend you put them to deficit reduction.
    Mr. Chabot. All right. And I am for deficit reduction, too, 
so we certainly agree on that. But let me ask you about that, 
again, the debt ceiling question. The business about that we 
are going to default, our nation is going to default, the 
actual----
    Secretary Geithner. We are not going to default because 
Congress is going to do what they need to do.
    Mr. Chabot. Yeah, we are not going to default. I would 
agree with that. Let me ask you this. How much of the actual 
expenditures goes towards paying down this so-called debt? Is 
it 15 percent or thereabouts?
    Secretary Geithner. Do you mean the interest costs?
    Mr. Chabot. Yes.
    Secretary Geithner. Well, you know, we borrow roughly 40 
cents for every dollar Congress has authorized us to spend.
    Mr. Chabot. I have heard up to 43 cents on a dollar.
    Secretary Geithner. Roughly. Interest costs are a much 
smaller fraction of it. But here is the basic problem. And I 
think the best analogy is to use the business analogy or small 
families' analogy which is if you stop paying your utility 
bill, your credit card and just pay your mortgage, who is going 
to lend you money? And if you had to refinance your mortgage 
every month, like we effectively have to do, who would lend you 
a dollar? So there is no responsible path that avoids default, 
avoids cash offered to the economy that has us decide as a 
country we are going to stop paying all our obligations so we 
can pay interest. It does not work. It is not workable. And it 
will not relieve Congress of the obligation of raising the 
limit.
    Mr. Chabot. I certainly agree that we should not default. 
And I would just argue that a lot of the sky is going to fall, 
we need to be careful about what is being said. And also it is 
not only yours but Congress's determination.
    Can I have an additional minute, Mr. Chairman?
    The determination, you can prioritize where the money is 
spent. You can say the debt continues to get paid, the Social 
Security checks continue to go out. Perhaps our troops continue 
to get paid. But other things, we are going to make substantial 
cuts.
    Let me move off that for one last quick question. It was 
raised here a couple of times the 9.1 percent unemployment. It 
went from 8.6 to 9.1, which is most unfortunate. We are heading 
in the wrong direction. But it is really a lot worse than that 
9.1, is it not? I mean, we are talking about the fact that 
people who used to be full-time, some are now working part-
time. People are underemployed and they have a college 
education and they are now perhaps working in the fast food 
industry flipping burgers, although lots of people do that. It 
is respectable work. But perhaps they did not need a four-year 
college degree to do that. And the people are just--a 
significant group has stopped looking altogether. And those 
ones I just mentioned are not even included in that 9.1 
percent, so really it is worse than that. Would you agree?
    Secretary Geithner. My quick response. First, you are 
asking whether my judgment is right about the consequences of 
default. But what I would just ask you to quickly ask your 
staff to show you are letters written by every President, every 
Secretary of the Treasury, who has faced this problem over the 
last several decades and you will see in Ronald Reagan and Jim 
Baker and others, eloquent testimony to the risks of 
contemplating what you are proposing. There is no responsible 
path for making that work. On-the-job stuff----
    Mr. Chabot. Let me just interrupt you for a second. And you 
know your boss said that it was irresponsible to vote to 
increase the debt ceiling and voted against it as well. And I 
am referring to President Obama.
    Secretary Geithner. He also said that that was a mistake. 
As many people have said, it was a mistake.
    Mr. Chabot. He said it was a mistake.
    Secretary Geithner. But on the specific question you are 
suggesting is go back and look at my republican predecessors. 
You will see they have made the same judgment.
    On the jobs front, again, I would say this. You are 
absolutely right that, you know, the national averages mask a 
lot of differences across country. Unemployment is much higher 
in many ways. But remember, it is two million private sector 
jobs since job growth started. Hours worked have increased more 
than that. And incomes are growing because the economy is 
growing as a whole. But we have a long way to go to dig out of 
it. Our collective task responsibility is to figure out how 
best to do that.
    Mr. Chabot. And the population has increased as well. So we 
have to put on jobs just to tread water.
    Secretary Geithner. You do. You are exactly right about 
that.
    Mr. Chabot. Okay. And thank you, Mr. Secretary. We 
appreciate you being here. Thank you, Mr. Chairman.
    Chairman Graves. Thank you, Mr. Secretary. On behalf of the 
Ranking member, and I might point out that the only reason for 
her absence, she was managing amendments on another committee, 
which was completely unavoidable. And so on behalf of the 
Ranking member and myself, we appreciate very much you being 
here and your testimony. And we are going to get you out of 
here on time.
    I would ask unanimous consent that all members have five 
legislative days to extend and revise their remarks. And I 
would also ask unanimous consent that the record for this 
hearing be left open for 14 days in order to have members 
submit questions and the Secretary respond. Without objection, 
that is so ordered. And with that this hearing is adjourned. 
Thank you very much.
    [Whereupon, at 11:53 a.m., the Committee hearing was 
adjourned.]



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