[Senate Hearing 112-488]
[From the U.S. Government Publishing Office]






                                                        S. Hrg. 112-488

          THE SMALL BUSINESS JOBS ACT OF 2010, ONE YEAR LATER

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

                                HEARING

                               BEFORE THE

            COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP
                          UNITED STATES SENATE

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 18, 2011

                               __________

    Printed for the Committee on Small Business and Entrepreneurship








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            COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP

                      ONE HUNDRED TWELFTH CONGRESS

                              ----------                              
                   MARY L. LANDRIEU, Louisiana, Chair
                OLYMPIA J. SNOWE, Maine, Ranking Member
CARL LEVIN, Michigan                 DAVID VITTER, Louisiana
TOM HARKIN, Iowa                     JAMES E. RISCH, Idaho
JOHN F. KERRY, Massachusetts         MARCO RUBIO, Florida
JOSEPH I. LIEBERMAN, Connecticut     RAND PAUL, Kentucky
MARIA CANTWELL, Washington           KELLY AYOTTE, New Hampshire
MARK L. PRYOR, Arkansas              MICHAEL B. ENZI, Wyoming
BENJAMIN L. CARDIN, Maryland         SCOTT P. BROWN, Massachusetts
JEANNE SHAHEEN, New Hampshire        JERRY MORAN, Kansas
KAY R. HAGAN, North Carolina
  Donald R. Cravins, Jr., Democratic Staff Director and Chief Counsel
              Wallace K. Hsueh, Republican Staff Director















                            C O N T E N T S

                              ----------                              

                           Opening Statements

                                                                   Page

Landrieu, Hon. Mary L., Chair, and a U.S. Senator from Louisiana.     1
Snowe, Hon. Olympia J., Ranking Member, and a U.S. Senator from 
  Maine..........................................................    10

                                Witness

Geithner, Hon. Timothy F., Secretary, U.S. Department of Treasury    14

          Alphabetical Listing and Appendix Material Submitted

Baris, David
    Prepared statement...........................................   100
Bill Summary and Status of H.R. 5297.............................    48
Brown, Paul
    Prepared statement...........................................   104
Geithner, Hon. Timothy F.
    Testimony....................................................    14
    Prepared statement...........................................    17
    Response to post-hearing questions from Senator Snowe........    86
    Response to post-hearing questions from Senator Whitehouse...    97
Landrieu, Hon. Mary L.
    Testimony....................................................     1
    Letter from Emclaire Financial Corp..........................     4
    Letter from Heartland Financial USA, Inc.....................     5
    Letter from The Peoples Bank of Talbotton....................     6
    Letter from Leader Bank......................................     7
    Letter from the Wisconsin Women's Business Initiative 
      Corporation................................................     8
    Chart: Small Business Lending Potential for 2011.............     9
    Small Business Lending Fund Timeline.........................    46
    Letter from Heartland Financial USA, Inc. regarding Wall 
      Street Journal article.....................................    57
Michigan Bankers Association
    Letter.......................................................   102
Nicolet National Bank
    Letter.......................................................   114
Snowe, Hon. Olympia J.
    Testimony....................................................    10
    Chart: (In)Appropriate Use of Taxpayers Funds?...............    13
    Timeline for the Small Business Jobs Act of 2010 (H.R. 5297).    47
    Chart: Total Civilian Employment.............................    99

 
          THE SMALL BUSINESS JOBS ACT OF 2010, ONE YEAR LATER

                              ----------                              


                       TUESDAY, OCTOBER 18, 2011

                      United States Senate,
                        Committee on Small Business
                                      and Entrepreneurship,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:05 a.m., in 
Room 192, Dirksen Senate Office Building, Hon. Mary L. 
Landrieu, Chair of the Committee, presiding.
    Present: Senators Landrieu, Levin, Cantwell, Pryor, Cardin, 
Shaheen, Hagan, Snowe, Vitter, Rubio, Paul, Ayotte, Brown and 
Moran.

 OPENING STATEMENT OF HON. MARY L. LANDRIEU, CHAIR, AND A U.S. 
                     SENATOR FROM LOUISIANA

    Chair Landrieu. Good morning. Let me thank all of you for 
joining us this morning for this important hearing and a very 
special welcome to Secretary Geithner who has potentially the 
toughest job in Washington, and we thank him for being with us 
this morning.
    A year ago, Senate Democrats and two of our Republican 
colleagues battled for months to pass the Small Business Jobs 
Act of 2010. It has been called the most significant piece of 
legislation to help small business in over a decade by the 
National Economic Council.
    Today we will review the results of portions of the Act and 
will attempt to ascertain what our next steps should be, 
keeping in mind the important goal of providing capital to 
small businesses on Main Streets throughout America, an 
essential component of job creation and economic recovery.
    What is clear today is that SBA lending has exceeded pre-
recession levels in the final three quarters of 2011. The Jobs 
Act loan initiatives led to an all-time high SBA loan approval 
level for 7(a) and 504 loans supporting over $30 billion in 
small business lending, making 2011 the most successful year in 
the history of SBA loan programs as a result of some of the 
provisions that we included in the Small Business Jobs Act.
    As of September 22nd this year, the U.S. Department of 
Treasury had approved more than $1.2 billion of the 1.5 
available for Small Business Credit Initiative programs. Under 
the State Small Business Credit Initiative, led in large 
measure by Senator Levin and others, states can leverage 
Federal funds to support a variety of state programs that help 
small business access credit. To date, 50 states and 
territories--we have 55 including the District of Columbia--
have been approved, with 4 states pending.
    The SSBCI programs include capital access programs, loan 
guarantee programs, venture capital programs, among others, 
that help private lenders extend more credit to small 
businesses.
    These businesses are not in the Beltway here in Washington. 
They are not on Wall Street in New York. They are in rural, 
suburban and urban areas on Main Streets throughout America 
that have been starved for capital because of this tough 
recession.
    Many of these programs have just recently received funding 
from Treasury, so a complete picture will have to wait. We will 
get some initial data from Secretary Geithner, and I intend to 
have a hearing early in the second quarter of next year to 
receive testimony from a variety of state programs.
    The Small Business Lending Fund, a new and bold initiative, 
was a key element of the Small Business Jobs Act. Under a 
barrage of criticisms and publically declared obstructionism by 
the Senate Minority Leader, amidst confusing and false charges 
of TARP II, this lending program was born. It is a wonder it 
survived at all.
    While some of my colleagues today, no doubt, will be quick 
to point out the gap between initial expectations and actual 
lending, I would like to read into the record just a few 
letters received by this Committee from community banks 
throughout the country that are participating in this lending 
program.
    The first--and I am not going to read the entire letters, 
but I will submit them for the record--Emclaire Financial 
Corporation from Emlenton, Pennsylvania, 612 Main Street is 
their address:
    Dear Mrs. Landrieu, our wholly owned subsidiary bank, the 
Farmers National Bank of Emlenton, headquartered in Venango 
County, Pennsylvania, serves 8 counties in western Pennsylvania 
through 13 offices. With nearly $500 million in total assets, 
we are a rural community bank founded in 1900, serving 
businesses and individual interests.
    Our commercial bank employs 120 professionals and is the 
bank of choice for more than 40,000 local customers. Four of 
our banking offices are the only bank in town in markets where 
they are located.
    While we do not view government-sponsored funding as an 
optimal form of capital for our company and bank, both the SBLF 
program and TARP Capital Purchase program have provided capital 
support during a difficult economic period, and both programs 
have supported recent growth and, in turn, the local economy 
where we operate. Specifically, since receipt of Treasury SBLF 
investments in August 2011, less than 2 months ago, we have 
funded and closed, or will fund and close, more than $700,000 
in qualified loans under the program.
    Our commercial lending efforts built around traditional, 
sound asset quality standards, as planned in the coming years, 
have been organized around the program to ensure optimal 
utilization of the funding from the programs and the best 
return for our constituents.
    From, literally, the name of the next bank is Heartland, 
1398 Central Avenue in Iowa:
    Dear Senators Landrieu and Snowe, I am privileged to write 
you on behalf of Heartland Financial USA, Inc. concerning our 
participation in the Small Business Loan Fund. We are a $4.0 
billion multi-bank holding company headquartered in Iowa, with 
operations in midwest and western States. Let me begin by 
expressing appreciation for the opportunity to participate in 
the program.
    Our company traces its roots to the year 1935 when our 
flagship bank was founded in the depths of the Great 
Depression. Our purpose then, as now, was to make credit 
available to businesses in our community and serve as an 
economic engine for growth.
    The SBLP provides added incentive for us to reach out 
within our community to enhance job creation and economic 
growth. Fueled by the lower cost of funding, we provide 
affordable credit to small commercial agricultural clients 
which will, in turn, increase employment and sustain economic 
recovery in the communities we serve.
    Just two more, the Peoples Bank of Talbotton from Georgia:
    The Peoples Bank of Talbotton was founded in 1890. It is a 
$30 million state chartered bank located in west central 
Georgia halfway between Columbus and Macon. We are only one of 
two banks located in Talbot County and the only community bank 
headquartered in the county or the two adjacent counties.
    Funding from SBLP boosted the bank's capital by 30 percent 
and will allow us to meet our plans to grow 10 percent annually 
for the foreseeable future.
    Thank you so much.
    Henry Persons, President.
    Finally, Leader Bank out of Arlington, Massachusetts:
    Leader Bank is proud to be a participant in the SBL, Small 
Business Lending Fund.
    In September of 2011, Leader Bank Corp. raised 
approximately $12.9 million from the U.S. Treasury to support 
additional lending. Using the allocated funds, Leader Bank has 
loaned over $4 million to qualifying businesses under this 
program and has supported the creation of approximately 113 new 
jobs. A variety of businesses have borrowed funds from SBLF, 
including firms in the biotech industry as well as a frozen 
yogurt franchise, neighborhood convenience stores and fuel 
companies.
    Just one more letter that I will not read but from a 
women's business initiative in Wisconsin that is not a bank, 
but because of my insistence and others the lending 
corporations called CDFIs were included, and she goes on to say 
what a tremendous shot in the arm it has been for her and the 
women-owned businesses that she represents in Wisconsin.
    [The information follows:]





    Chair Landrieu. Today, we will hear with very tight time 
constraints by Congress that Treasury was able to distribute 
$4.2 billion of the $30 billion available. It is important to 
note, however, Treasury estimates that $4 billion invested in 
community banks will lead to small business lending ranging 
from $9 billion to $16 billion over the next two years.
    To put this into context, I call your attention to the 
chart that shows just how the large banks average their own 
lending, and you can see from J.P. Morgan, Citigroup and Bank 
of America--J.P. Morgan, $9.5 billion last year, Citigroup, 
$5.8 billion and $5 billion from Bank of America. SBLF over two 
years, even at the lower rates of lending because it took so 
much time to get this program up and running and there was so 
much opposition to it initially, has done not too badly in 
comparison.
    [The information follows.]






    
    Today, we will hear that 137 of 332 SBLF borrowers were 
also TARP recipients and used some of the money they received 
to repay these loans. There is nothing here that is 
controversial. There is a reason we included TARP recipients in 
this program. The independent community bankers of America 
requested that we do so. They requested this provision in their 
testimony in front of the House Financial Services Committee on 
May 18th, 2010.
    The bottom line is this: All Small Business Lending Fund 
banks, whether they receive TARP or not, must increase loans to 
small business to keep their rates low. In fact, if they do not 
keep their small business lending, they will be paying Treasury 
back at higher interest rates. So despite TARP repayment 
provisions, we will see more lending to small business.
    Today, we will hear the process took too long to get loans 
out of the door, and I agree; but I will remind everyone this 
was an entirely unique program. The Treasury did not have a 
readily available road map sitting on the shelf to take down 
and steer. It took time to develop.
    Despite the difficulties, the program was launched. As 
Federal Reserve Chairman Bernanke once said, community banks 
are creative, committed, stubborn and resilient, precisely the 
type of people who we need to help our economy grow.
    I am pleased that during this recession America's 
legislators came together to pass an innovative idea to help 
turn the tide when it came to access to capital for America's 
small business, and I am pleased to report through this single 
fund we could potentially increase the amount of small business 
lending by many billions of dollars. While we did not release 
as much as we had hoped, we had a degree of success 
nonetheless.
    I intend to take the testimony given today, as well as 
input from banks and small businesses, to begin to develop a 
Small Business Lending Fund II. Until this recession is at a 
distance in the rearview mirror, I believe that this Committee 
has an obligation to turn out time-tested, as well as new and 
innovative, programs to get capital into the hands of the only 
people that can bring this recession to an end, and that is 
small businesses throughout our country.
    Today, I welcome Secretary Geithner. I look forward to 
hearing about these programs that we created through this 
extraordinary act, and I thank you for your time.
    I would like now to turn it over to Ranking Member Snowe, 
and then we will take questions, or hear the testimony and then 
take questions from our members.
    Thank you.

OPENING STATEMENT OF HON. OLYMPIA J. SNOWE, RANKING MEMBER, AND 
                   A U.S. SENATOR FROM MAINE

    Senator Snowe. Thank you, Chair Landrieu, for calling this 
critical hearing to examine the Small Business Jobs Act and its 
implementation one year later, at a time of economic crisis of 
epic proportion, indisputably.
    Mr. Secretary, we welcome you here today.
    It is important to explore the issues of job creation and 
the lack of economic growth, the lack of job creation overall 
and what has gone wrong, frankly. I know your primary mission 
is to craft the economic policy of this country, and at this 
point it simply is not working. There is no doubt that nothing 
is more urgent than creating jobs for the American people 
because our nation has been plagued by a staggering 
unemployment rate for nearly three years.
    According to the Bureau of Labor Statistics the average 
annual unemployment rate for 2010 was 9.6 percent, which 
translates into 14.8 million Americans unemployed. For 27 of 
the last 32 months the unemployment rate has been at 9 percent 
or higher. About 45 percent of the unemployed have been out of 
work for at least 6 months, a level previously unseen since 
World War II.
    What is especially frustrating, and I think ever more so 
for those Americans who are unemployed or underemployed, this 
is not a new issue. As I said, it has been out there for three 
years. It is something that we have known.
    This catastrophe did not happen overnight. In fact, I know 
when you appeared before the Senate Finance Committee back in 
early February I was describing to you the scenario and what I 
was hearing on Main Street in my state as well as in my 
capacity here as Ranking Member of the Small Business Committee 
and as a member of the Finance Committee, and you said that my 
view of the economy was dark and pessimistic.
    What I was relating to you, Mr. Secretary, is what I had 
been hearing because I think listening is a key ingredient of 
leadership and understanding what exactly is imperiling the 
ability of small businesses to create jobs, the people that we 
depend on to create those jobs for hardworking and deserving 
Americans, because America has always provided the promise of 
the dignity of a job, so people can support their families. 
Millions of Americans right now are missing out on that 
opportunity, and that is what we have to restore.
    Seven months later, since early February, look at the time 
that has passed. In February, the unemployment rate was about 9 
percent. Today, it is 9.1 percent while the number of long-
termed unemployed actually rose 6.2 million from 6 million in 
August--the first time since World War II that no new net jobs 
were created in a single month, in August.
    According to the Bureau of Labor Statistics, total civilian 
employment was 142.2 million when the President took office in 
January 2009 and 140 million in September of this year. So it 
is a decline of 2.2 million jobs.
    I think that is what it is all about, Mr. Secretary, 
looking at these dark numbers and asking who represents those 
numbers.
    As you well know, in order to restore any stability into 
our economy, we need 100,000 new jobs every month just to 
remain static, but to go back to the pre-recession levels of 
2007 with 6 percent unemployment, it would require more than 
280,000 new jobs every month for 5 consecutive years.
    A former colleague of ours, Senator Phil Gramm from Texas, 
noted in a recent column in the Wall Street Journal, had the 
U.S. economy recovered from the current recession the way it 
bounced back from the other 10 recessions since World War II, 
our per capita GDP would be $3,553 higher than it is today and 
11.9 million more Americans would be employed. Instead, we have 
14 million Americans still unemployed and have been so for the 
longest period since we started keeping records in 1948.
    We are facing the worst post-recession recovery in the 
history of our country. It requires a sense of urgency in 
addressing those issues.
    If we matched the recovery during the Reagan years, we 
would have had approximately 16 million jobs created, according 
to Senator Gramm.
    When one remedy after another fails to solve the crisis 
that has mushroomed into what is now a state of emergency, it 
is long past time for the alarm bells to sound. When you miss 
the target in a systemic and serial fashion, one has to dig 
deeper to unearth the underlying causes.
    In my view, the culprit has been a failure to focus on the 
main engine of economic growth, and that is, of course, the 
private sector and the small businesses upon whom we depend to 
create those jobs.
    Now if you listen to those businesses as I do on my Main 
Street tours and at roundtables, and the numerous business 
people that I meet here and everywhere, they will tell you loud 
and clear that the two main issues are tax reform and fewer 
regulations.
    That is what is driving the problems that we are facing in 
America now, Mr. Secretary. It cannot be temporary solutions, 
and there is no reflection of that urgency or the need or the 
impetus to move in a direction to reform our tax code and 
overhaul our regulatory system.
    I know you said recently, in early October, that the idea 
that regulations are affecting our economy is without 
foundation. But when you talk to business after business, they 
cite the regulatory impact. Businesses have to comply with 
3,000 Federal regulations every year. We have had 50,000 
regulations since 1996. We have had more than 407 regulations 
coming out of the Administration this year to cost an 
additional $68 billion to $1.7 trillion in compliance.
    We depend on these businesses because they have driven past 
economic recoveries. Now they are asking the government to make 
the environment conducive enough to expand the private sector, 
not to simply grow our government. Therein lies the problem 
because the jobs that have been created have been created in 
the government sector, not in the private sector.
    The Lending Fund in the Jobs Act is a case in point. The 
time the Jobs Act was discussed on the Senate floor more than a 
year ago--in fact, we started it a year ago July--I warned at 
that time that the Lending Fund, the massive Lending Fund of 
$30 billion, was a new and expansive Federal program that 
closely resembled TARP. I reminded everyone the Special 
Inspector General for TARP, Mr. Barofsky, stated that in terms 
of its design, participants and the application process it 
would essentially be an extension of TARP.
    I know proponents of the legislation did not share that 
view. They did not heed the warnings and certainly not of the 
Special Inspector General. They claimed repeatedly that the 
program would be immensely popular with the 7,000 community 
lenders across our nation, requiring a full $30 billion.
    In reality, we wasted an entire 9 months on this program, 9 
months before a single dollar was distributed, only to have $4 
billion utilized by a mere 332 banks, 137 of which are using 
$2.2 billion to refinance their outstanding TARP obligations 
with only $1.8 billion remaining for actual small business 
lending.
    The Wall Street Journal pointed out, and it shows, and it 
is depicted in this chart, the program's failures, on October 
6th, to explain the problems.
    [The information follows:]






    So where is the disconnect?
    I mean $30 billion a year ago, and I know how urgent it 
was, and everybody said we had to have the $30 billion. 
Clearly, the problems were anticipated. They were foreseen. And 
here we are today--$1.8 billion out of the entire $30 billion 
went for small business lending.
    Prior to even receiving the lending funds, a full 51 
percent of recipients had already increased small business 
lending to initially qualify for a low interest rate of 2 
percent or less because the baseline for increased lending was 
purposely set so well in the legislation. The program's 
incentive structure program is seriously flawed.
    So not surprisingly, the banks saw a great deal, and they 
refinanced. This can be expected when a program encourages 
paying off one taxpayer-funded credit card, which was TARP, 
with another, the Lending Fund, to obtain lower interest rates 
and fewer restrictions.
    But is that a wise, appropriate use of taxpayers' dollars? 
It certainly was not effective in addressing the unemployment 
crisis we are facing in America.
    We should contrast that experience with the other 
initiatives that were extended in the Jobs Bill last September, 
which I authored or supported, and that were authored by 
others--increasing SBA loan limits, reducing SBA fees 
temporarily, increasing SBA loan guarantees--which resulted in 
SBA lending reaching an all-time high of $30 billion in 2011.
    The bottom line is I am deeply concerned that this 
Administration failed to create the kind of conditions that are 
warranted in these urgent times, Mr. Secretary. Something has 
gone terribly wrong. What I hear over and over again is that 
there is no tempo, a tempo of urgency, that there is an 
emergency out there.
    If you are proposing more tax incentives that are only for 
a year, that is the problem. We have got temporary solutions. 
One-year, temporary solutions are not going to be sufficient to 
extricate ourselves from the worst post-recession recovery in 
the history of this country. That is why we need fundamental 
and structural reform, both on taxes and on regulations, so 
that they have stability beyond one-year tax extenders.
    We have 150 tax extenders expiring at the end of this year. 
We have 11 out of the 12 in the Jobs Bill that are going to 
expire at the end of the year. They are all expiring. That is 
the point, and small businesses recognize that.
    Beyond one year, there is nothing. That is why we need 
fundamental reform right now, and it requires the presidential 
leadership to join the congressional leadership to get it done 
now.
    Chair Landrieu. Secretary Geithner.

STATEMENT OF THE HONORABLE TIMOTHY F. GEITHNER, SECRETARY, U.S. 
                     DEPARTMENT OF TREASURY

    Secretary Geithner. Thank you, Madam Chair and Ranking 
Member Snowe. Thanks for giving me a chance to come talk to you 
about the challenges facing small businesses and how we can 
best address them.
    The biggest challenge facing small business today is that 
demand for the goods and services they produce is not growing 
fast enough, and the most important thing we can do for small 
businesses is to strengthen the overall rate of economic 
growth.
    We have proposed, as you know, to the Congress a very 
strong set of tax incentives and investments to increase 
economic growth and help put more Americans back to work. These 
proposals, according to independent estimates, not ours, would 
increase economic growth by between 1 and 2 percent and add 
more than 1.5 million jobs.
    If Congress does not act on these measures, then taxes will 
go up for virtually all working Americans, taxes will rise for 
most businesses, businesses large and small, unemployment rates 
will rise, not fall, there will be fewer jobs for veterans and 
the long-term unemployed, the housing market will be weaker, 
our damaged infrastructure will leave America's businesses with 
growing costs, and cities and States will have to cut back 
further on critical services, laying off more teachers and 
first responders.
    Now enacting the proposals in the American Jobs Act will 
not, of course, solve all the problems we face as a nation. We 
need, as Senator Snowe said, comprehensive tax reform that 
lowers rates, reduces tax preferences and loopholes, and 
improves incentives for investing in the United States. We need 
a sustained and very substantial program of investments to 
rebuild America's infrastructure. We need our education system 
to produce better results. We need to expand exports, building 
on the trade agreements Congress passed last week. And, we need 
to get our deficits back down to earth as the economy recovers 
to make sure we are living within our means.
    But as we work on those long-term challenges, we need to 
get the economy growing more rapidly. And to do that, we need 
Congress to act, and that means Democrats and Republicans 
working together.
    We cannot pass tax cuts for working Americans and for 
businesses; we cannot rebuild America's infrastructure; we 
cannot get critical help to save local governments, without the 
support of Republicans alongside Democrats.
    And I provide in my written testimony an update on the full 
range of tax incentives and credit programs we put in place 
over the past two and a half years to help small businesses. 
Because of these programs, the tax burden on small businesses 
in America today is lower than when the President took office. 
Among the range of specific tax cuts enacted over the past two 
and a half years, we made it possible for businesses to fully 
write off investments in capital equipment. We have cut to zero 
capital gains rates on investments in small businesses.
    Because of these small business credit programs, the cost 
of credit is lower and credit terms have eased for businesses. 
Small banks that are in solid shape but have been unable to 
raise capital from the private markets have been able to take 
investments from the Treasury so they can increase lending to 
small businesses. We provided $15.5 billion in capital in 
total, including roughly $4 billion under the SBLF, to a total 
713 community banks across the country
    Now we are a $14 trillion economy. We are a very large 
economy. These numbers may not seem small, but that is roughly 
10 percent of community banks, which is a very substantial 
number of banks, assisted through these programs.
    Of course, they are not designed to help banks. They are 
designed to help banks get the capital they need to extend 
credit.
    Community Development Financial Institutions, CDFIs have 
been able to get support from the Treasury to expand lending in 
communities, urban and rural, across the country, some of the 
communities most hardest hit by the recession.
    Republican and Democratic governors across the country have 
been able to access support from Treasury to put more resources 
in a range of innovative small business credit programs.
    Businesses have been able to access loans through the SBA's 
guarantee programs, in larger amounts and for lower cost, and 
these programs have been among the most cost effective programs 
we have available to us to help economic growth. They work 
alongside the private sector, mobilizing substantial amounts of 
private capital alongside modest investments of taxpayer 
resources.
    The CBO now estimates that the investments we made in banks 
under the original TARP programs will produce billions of 
dollars of gains for the American taxpayer. Those investments 
provided the oxygen that is essential for economic growth. They 
were a critical reason why the economy started growing again in 
the Spring of 2009 after the worst recession, the deepest 
recession since the Great Depression.
    Now these small business programs were not large enough to 
insulate small businesses from the full damage caused by the 
crisis, but they made a major difference and they are a very 
good model of how to combine tax incentives with innovative 
credit programs to ease some of the burden on businesses.
    Now I appreciate the support many of you have provided to 
these programs, and I hope we continue to work together on new 
steps to help small business access the credit and the capital 
they need to meet the needs of their business customers.
    Thank you. I would be happy to respond to your questions, 
and I am grateful for the chance to do so.
    [The prepared statement of Secretary Geithner follows:]





    Chair Landrieu. Thank you, Mr. Secretary.
    Let me begin. I would like for you to reiterate the 
initiatives the Administration has taken in reducing the tax 
burden to small business, because I think that is important.
    I do agree with Senator Snowe, although we disagree about 
other aspects of the bill before us, that giving some long-term 
stability and relief in the tax code is important. Of course, 
we do not have this in the Small Business Committee 
jurisdiction. That is a finance issue, but we have provided 
ideas along those lines.
    I would like for you to reiterate again some of the 
accomplishments of lowering tax rates to businesses and what 
you intend to continue to do in that regard.
    Secretary Geithner. Well, let me just say that I completely 
agree that the tax system we have today for businesses, where 
you have tremendous uncertainty year by year about what the 
basic tax rates you are going to pay, and a system which is 
riddled with special preferences, is a system that needs 
reform.
    And it is very important as we focus on these short-term 
things, temporary things to help get the economy going more 
rapidly, we keep our eye on the long-term reform imperatives 
for exactly the reasons Senator Snowe said and you said. We 
need a little more clarity and certainty about the basic 
environment businesses face on the tax side, and we want a 
system that creates better incentives for investment in the 
United States.
    But we are not going to do--even if the Super Committee is 
tremendously effective in beginning this process, we are not 
going to do fundamental tax reform in two months. And so, our 
general view is as we start to lay the foundation for a broader 
political consensus on comprehensive tax reform that lowers the 
corporate rate, broadens the base, makes investment in the 
United States more competitive, we need to be doing some things 
now to help get the economy growing more rapidly.
    In my testimony, I listed the full array of temporary--and 
Senator Snowe is right to say they were temporary, or short-
term, tax incentives, but they are a very powerful set of tax 
incentives.
    Again, the two that I think are most powerful, two types, 
are zero capital gains for investments in small businesses. 
That is good for startups, a very compelling case for that, and 
that has very broad bipartisan support. But we did a whole 
range of other things to make expensing more generous, 
temporarily, and that helps pull forward capital investment, 
makes it much more likely that businesses are investing today 
to meet the demand that will come later.
    This is the broadest, most sweeping, and I think pretty 
creative mix of tax incentives that Congress has ever 
considered, I think for small businesses, in a very short 
period of time. But again, I wanted to emphasize again that we 
should think about this is a bridge to fundamental long-term 
tax reform, not as a substitute for it.
    Chair Landrieu. Let me ask you about regulatory relief, and 
then my last question will be actually about this program 
because I want to remind everyone that the hearing is really 
focused on the jurisdiction of our business and the small 
business lending. Since it has been raised, I do also hear a 
lot of criticism about over-regulation. Could you comment on 
the actions you are taking with other members of the 
Administration to review that and what some of your initial 
findings are in terms of trying to reduce regulations on small 
business?
    Secretary Geithner. Well, the President has been--the 
President and Cass Sunstein, who runs this effort at OMB, have 
undertaken a comprehensive review of the existing body of 
regulation and announced a series of changes to regulations 
that are designed to get regulations smarter, reduce the burden 
where we can. And I am completely supportive of that, and I am 
sure there is a whole range of work we could do in that area.
    And it is absolutely true that because of health care 
reform, financial reform, the changes we are making to 
encourage Americans to use energy more efficiently, we are 
changing the basic protections that Americans depend on and 
businesses depend on across the economy. And that is, the 
change in that context is, things people have to adjust to.
    In our judgment, if you look at the evidence--and Senator 
Snowe, when you quoted me last week, I was quoting a Republican 
economist, Bruce Bartlett, who concluded, looking at the 
evidence, that it is very hard to find evidence across the 
economy today that regulation is having a material effect on 
growth at all.
    And the evidence he cited is the following: It is worth 
looking at this. If you look at profitability, if you look at 
employment in the sectors of the economy where there has been 
the most reform in prospect, and I mentioned three of those 
areas, there is no evidence that suggests that profitability is 
lower in those cases. In fact, if you look across the American 
economy today, the level of profitability across the business 
sector, as you know, is at historically high levels.
    Now again, having said that, I think it is very important 
that we put a much greater burden on all of us to make sure 
that as we are changing the rules, designing stronger 
protections, we do so in ways that are sensible, that we get 
regulations smarter, not just more of it, and we are going to 
continue to look for ways of doing that.
    But the biggest problem facing the economy today, and if 
you look at every poll of what businesses say today, what they 
say is their overwhelming challenge is they do not see enough 
growth in demand for their products. Now they have other 
concerns too, but they list those all way, way down the list of 
issues of concern. And a much smaller fraction of businesses, 
if you look at broad surveys, would put regulations as a 
meaningful challenge relative to those broader challenges of 
economic growth.
    Again, I am very sympathetic to the argument you want to be 
careful to get the rules better and smarter, but I do not think 
there is good evidence in support of the proposition that it is 
regulatory burden or uncertainty that is what is causing the 
economy to grow more slowly than any of us would like.
    Chair Landrieu. Okay. One final question, and I will extend 
equal time to Senator Snowe. One of the criticisms of the SBLF 
program, despite the fact that we are going to get between $4 
billion and $9 billion in lending out, is that it was too TARP-
like. Could you comment briefly on that and explain despite all 
the criticism of TARP, that it looks like from the lending from 
TARP, as well as this, the taxpayers will actually make money?
    Secretary Geithner. Well, again, you have to look at the 
independent assessments of the CBO and others, and the 
conclusions they reached--and it is what the mass supports--is 
that those programs will earn a substantial positive return to 
the taxpayer.
    Chair Landrieu. So you are testifying----
    Secretary Geithner. The current estimates are over $10 
billion in positive return to the American taxpayer, but that 
is not the most important benefit they had.
    The most important benefit those investments had for banks 
is they helped take an economy that was falling off the cliff 
when the President took office and economic growth began again 
in the second quarter of 2009, just 3 months after the 
President took office, because of the scope of the measures 
that Congress helped the President enact, including the 
programs put in place to make sure banks were more stable, 
people's deposits in banks were more stable, their savings were 
protected and we did not face the kind of broader catastrophic 
collapse we saw in the Great Depression.
    Now these capital programs--and it is true for the SBLF, 
the CDFI fund--the TARP-related investments in banks are, by 
any measure, one of the most efficient uses of taxpayers money 
we have because every dollar of capital you make available to a 
bank who cannot get capital from other sources, is worth 
somewhere between $8 and $10 of lending capacity, meaning if 
you have that dollar of capital you have less need to cut 
lending to your business customers if you are under pressure 
and you have more capacity to expand lending.
    So again, these are very effective, very successful 
programs, and where--and I would like to talk about this in 
more detail when I want to get to your concerns about speed in 
this context. Where they have been slower to get off the ground 
it is because we have been very careful to make sure that these 
investments came with strong protections to protect the 
taxpayers' interest.
    Chair Landrieu. Thank you.
    I am going to allow seven and a half minutes to Senator 
Snowe and five minutes on the first round.
    Senator Snowe. I guess the point on that question is the 
fact that many of the recipients would have made those 
investments in small business lending anyway because it was de 
minimus level of lending they were doing anyway, 51 percent of 
the recipients.
    Secretary Geithner. Well----
    Senator Snowe. That is the point here.
    It was all recognized at the time. It was identified as one 
of the major issues, that they did not need that incentive. We 
are talking about a 1 percent or 2 percent interest rate. That 
is what it was, if they increased their lending, and that was 
sort of the minimum level of lending----
    Secretary Geithner. Well, Senator, I know that----
    Senator Snowe [continuing]. That banks would have done in 
the normal course of business.
    Secretary Geithner. Senator, I respect and understand fully 
your concerns with the original design of this program, but I 
do not agree with you about them. I think what we tried to do, 
and what your colleagues in the Congress were very successful 
in doing, is to try to combine investments in banks with an 
incentive designed to improve the odds they use that to lend.
    Now you cannot force banks to lend, but for every bank that 
got capital in this program they have more capacity to lend 
than they otherwise would have had. And I am not aware of a 
more effective way than this, alongside all the other things we 
did on the tax side more generally, that can help get more 
credit to small businesses.
    I am very supportive, as you are, of the SBA guarantees. I 
think there is a very good case for those things, but those 
were not enough, and we had to complement those with ways to 
make sure banks had access to capital.
    Now not all banks needed capital. Some banks can go on 
their own. And not all banks deserve capital or are eligible 
for capital, but there is a significant universe, as I said, 10 
percent of community banks across the country, where there was 
a very good economic case for giving them an investment with a 
return to the taxpayer. And as I said, the evidence shows very 
good return to the taxpayer.
    Senator Snowe. We are talking $1.8 billion out of $30 
billion went to increase small business lending.
    Secretary Geithner. Well----
    Senator Snowe. I am just telling you those are the facts. 
Fifty-one percent of the recipients have already increased 
their lending. They have already met that lower level.
    Secretary Geithner. Can I respond to those concerns because 
I think those are important?
    Senator Snowe. You can very quickly because I want to move 
on. Those are the facts.
    Secretary Geithner. What Congress authorized was a $30 
billion program. Okay?
    Now banks applied for only one-third of the capital in the 
program. We cannot force banks to come. We made a major effort 
alongside many of you to make sure banks were aware of it, but 
banks came for only one-third of the program, and only half 
were eligible.
    Now why were only half eligible? They were only eligible 
because we had to be careful to make sure that the taxpayers' 
resources were going to banks that were viable. And we were not 
going to take too much risk. We are going to take some risk but 
not too much risk so the resources were wasted.
    So the reason why it is 4 is because banks only applied for 
one-third of 30 and only roughly half of those banks were 
eligible in the eyes of the supervisors.
    Senator Snowe. But Mr. Secretary, you should have known 
that to begin with----
    Secretary Geithner. No, but we----
    Senator Snowe [continuing]. Who would have been eligible. 
And they did not even get responses to why they were 
ineligible.
    Secretary Geithner. No, that is--now, Senator, we never----
    Senator Snowe. It is true. You know that is true.
    Secretary Geithner. Senator, we--I think you are aware of 
this. We cannot force banks to come, and we cannot----
    Senator Snowe. I did not say you force them to come. I am 
saying that you should have known in advance how this program 
would work.
    We have a $30 billion program and an urgent employment 
issue in America, and we predicated putting our eggs in that 
basket, and you were already forewarned about it. So that is 
the issue here.
    Secretary Geithner. Senator, CBO scored this. CBO scored 
this initially as making money for the taxpayer. So the idea 
that we put resources at risk in this program we could have 
used for something else is not true.
    Senator Snowe. I am talking job creation. Okay? There was a 
whole issue as to whether or not it would ultimately do that, 
given the impetus for these banks to turn over from TARP to a 
Lending Fund, Mr. Secretary.
    The Special Inspector General for TARP anticipated and 
indicated it. Those are the facts, and we can continue to argue 
it, but unfortunately if that is true----
    Secretary Geithner. No, we do not disagree on that. Of 
course, we do not disagree that the facts are that banks were 
allowed by Congress to refinance their TARP money. They were 
allowed. That was Congress's intent, and there was no mystery 
that was going to happen. But there is a good case for that 
because the capital they got under this program comes with a 
better incentive to lend.
    Now Congress made that judgment, knowing that people would 
say you should not have allowed them to refinance, but they did 
that knowingly and they did it for good reasons.
    Senator Snowe. No, just under the Inspector General, 
Department of Treasury, it says in this report, May 13th, for 
some of the TARP banks, the Small Business Lending Fund 
investment will simply replace the amount of funds invested 
under TARP.
    Secretary Geithner. That is right. You are exactly right. 
And he is right, but there is no insight in his observation 
because that was Congress's intent.
    Senator Snowe. Yes. Well, Mr. Secretary, the point is $1.8 
billion out of $30 billion went to increase small business 
lending.
    I know you are saying in your testimony that we are going 
to do lending up until we leverage the law in 2014 and 2016. 
People cannot wait. There have been too many faulty assumptions 
and miscalculations, and regrettably, the burden of which has 
now been borne by so many unemployed people.
    I would suggest whoever, whichever economist you are 
talking to, I would suggest they go down on Main Street because 
74 percent of the American people think we are moving in the 
wrong direction.
    I would love to take you on a street tour. I have invited 
you before. I really do think you need to listen to an average 
American and what they are facing right now on Main Street, 
which is a decimation.
    When you talk about all those tax provisions and you know 
they are all temporary, that is the point. A one year tax 
policy is not going to make a major difference. Some of those 
initiatives are worthwhile, but the bottom line, given the 
mixed message coming out of this Administration on tax and 
regulatory policy, they do not dare.
    I am hearing from everybody, regardless of size, and that 
is all I am indicating to you, Mr. Secretary. I am not making 
it up. I did not make it up in February. I did not make it up 
last year. And I have been trying to get the Administration to 
concentrate on jobs, jobs, jobs.
    I do not know who you are talking to. I do not know who the 
President is talking to. But you need to talk to the average 
person, unfettered, unfiltered.
    Go down to Main Street and ask them what they are talking 
about. What they are talking about is we do not dare make a 
move because after one year then what, given the dynamics of 
this economy?
    Even Jeffrey Immelt, the CEO of GE and Chair of the 
President's Jobs Council, said in an article in Dayton, Ohio 
back on May 13th, the final priority is improving collaboration 
between government and business with regard to regulation. 
Decades of overlapping and uncoordinated regulations create 
unnecessary hurdles, increased burdens for entrepreneurs and 
businesses, large and small, across this country.
    The point is that is what is happening--tax reform and 
regulatory reform.
    I was on a tax reform panel with you back in February of 
2009 at the White House, and we talked about it. We all agreed 
we needed it.
    And you say well, we cannot do it in two months. Why not?
    It cannot be done by Congress alone. It should be the 
President and the Congress working together, both branches.
    I was here when President Reagan was elected, and we were 
facing very severe circumstances, and we had 10.6, 10.8 percent 
unemployment. And guess what? You had a Democratic House and 
Republican Senate, and we worked hand-in-glove to get it done 
for the American people.
    Rome is burning, and we are facing the decimation of our 
communities. They want help, and they feel that they are not 
getting any, any deference from the Administration and yes, in 
Congress, for that matter, to work together.
    You are talking about policies in 2014, 2015, 2016, but we 
have had 3 years of virtually the same unemployment numbers as 
we do today, Mr. Secretary. That is the point.
    This is nothing new, and we need to get ahead of the curve 
at some point and make long-term, fundamental, predictable 
changes in our tax and regulatory policies.
    I am hearing it from everybody, from Fortune 500s to 
companies of 3 or 1. Everybody is saying the same thing. They 
need certainty and stability because uncertainty has a huge 
price tag, and that price tag is being borne right now by 
unemployed Americans. And that is what we have to correct.
    I am not here to find blame. I am here to get the job done 
for the American people.
    Secretary Geithner. Well, we are on your side on tax 
reform, and the Super Committee has a chance to begin that 
process now.
    The only thing I would say is I would encourage you again, 
as we are working together on these long-term challenges, do 
not lose sight of the near-term imperative that we have an 
economy not growing fast enough. And realistically, we are 
going to have focus on things that are a matter now, have 
traction right now, not just the long-term reforms that we all 
think are important.
    But I agree with you about the tax reform, and I hope we 
have a chance now given the parliamentary procedural advantages 
the Super Committee has to do it more quickly than otherwise 
might be the case.
    Chair Landrieu. Okay. I know that everybody has strong 
feelings about this, and the Secretary has been wonderful to 
give us his time.
    We are going to go in order of appearance--Senator Levin.
    And again, remember our hearing is about the SBLF program 
and credit. Our Committee does not have jurisdiction over many 
of these issues. I am going to try to provide leeway for 
everyone, because I know these are very important issues and 
they are very important to small business.
    Senator Levin.
    Senator Levin. Thank you very much, Madam Chairman. Thank 
you for calling the hearing.
    Thank you for your extraordinary leadership in getting this 
bill passed. It took your laser-like determination to get it 
passed. You had to overcome a filibuster.
    Now I hear a complaint that it is not being implemented 
fast enough? A filibuster against this bill which was so 
desperately needed by small business, supported by community 
bankers, still supported very strongly by Main Street bankers?
    We have lots of Main Streets in Michigan too, and when I 
talk to community bankers and small businesses what they talk 
about are two things--number one, lack of demand, the economic 
situation generally, and they also talk about the availability 
of credit.
    And this bill is aimed at providing credit, and it was 
filibustered by the Republicans. It is amazing to me now to 
hear the complaint that one part of this bill at least is not 
being implemented fast enough because if the Republicans had 
their way it would not have been in the books at all.
    The Chamber of Commerce tells us that lack of demand, the 
economic situation, is the number one problem for businesses; 
the U.S. debt comes second. Regulation is not at the top. Taxes 
are not at the top. And as the Secretary of the Treasury just 
pointed out, the small business taxes have actually gone down 
under this Administration.
    What we are desperately trying to do is to provide support 
for small businesses. We are trying to get collateral support 
for small businesses.
    One part of this bill which has not yet been talked about 
but which I want to focus on is something called the State 
Small Business Credit Initiative. Forty-four states and a 
number of territories, as our Chairman mentioned, have made use 
of this initiative. I do not know whether every member of this 
Committee's state has made use, but the odds are that all or 
almost all of us come from states which have used the State 
Small Business Credit Initiative. It is a way of giving support 
to the collateral which small business provide.
    The problem with the recession, and I hear this from small 
businesses, probably more than anything last year by the way, 
more than anything, was the lack of availability of credit 
because the value of their collateral had gone down because the 
value of all of our collateral has gone done.
    Almost all of our homes are worth less now because of this 
recession than they were before the recession. Well, the same 
thing is true with assets of small businesses. The same thing 
is true with inventory value, with the building and equipment 
value. They have gone down because of the recession. So when 
small businesses go to take out a loan, the value of their 
collateral is less.
    That does not mean less customers necessarily, by the way, 
and it does not mean they have not paid their bills at all.
    In fact, the complaint I got more than any other complaint, 
far surpassing anything about regulation or taxes, that we get 
from small business at least last year was this collateral 
support problem, this collateral issue. The banks, community 
banks that have given them loans all their lives, now could not 
give them loans because the requirement of the regulators is 
that the collateral be a certain percentage of the wealth, and 
if the value of the collateral went down it was more difficult 
to take out a loan.
    So the community bankers came to us, folks. These are Main 
Street bankers. These are not the big banks that came to us. 
These are community bankers that came to us to support a bill 
to help them lend to small businesses.
    We have to overcome a filibuster, get it done. Part of it, 
we are all frustrated that it is not moving more quickly by the 
way. We understand that, and I share Senator Snowe's 
frustration in that part. But to attribute that, to suggest 
that this bill is a failure because part of it is being 
implemented too slowly when if the Republicans had their way it 
would not have been there at all, that is not ironic. That is 
kind of counterintuitive.
    Now I want to talk, if I have any time left, and I do not 
think I do, about the Small Business Credit Initiative. And I 
just want to ask the Secretary basically two questions.
    Is it a fact that this initiative is producing the intended 
effect? This is the collateral support program which the 
states, by the way--and this is something where we are using 
the states, and Michigan led the way in this, where we are 
using the states' funds, adding to them, offering them support 
that almost all of our states and our territories are taking 
advantage of this fund, and in their view this is a success.
    Secretary Geithner. I agree, and you are exactly right. As 
a complement to the Federal programs we put in place, we 
thought we would work with a whole range of existing state 
programs, not just in Michigan but across the country. We 
thought we would be quicker if we work through the states, and 
we thought that at the state level sometimes there is a better 
feel with what type of programs.
    But you state the case for it very well. Fifty-four states 
and territories submitted a notice of intent to apply.
    Forty-seven states, five territories and D.C. submitted 
applications, five municipalities too.
    Forty-six states, three territories and Washington, D.C. 
have been approved for nearly $1.35 billion in funds. And we 
are well on the way to getting that money out the door, and 
once we get it out the door it will work quickly because we are 
working with the grain of existing state programs.
    Senator Levin. And in conclusion, I would just suggest to 
our members, whether they are here or not on this Committee, 
that to test the value of this bill they talk to two people.
    Number one, they talk to their states, their economic 
development people, that they talk to their states to see 
whether or not they have applied. They all have, but a few. And 
if so, why they have applied. Talk to your state governors and 
your economic development people to test the value of that part 
of this bill.
    And the other test would be talk to your community bankers. 
They will say they either got some support. In some cases, they 
did, not enough, but where they did not get support, that they 
sure would have liked it.
    They wish that we would take a look at these regs to see if 
we cannot modify these regs, by the way, in order to make it 
available to more banks. And that is the complaint we get is 
that not more banks got it, not that it is a bad program, but 
that it was implemented in a very conservative way, as you put 
it, Secretary, to protect the taxpayers, that that made it less 
available to more banks.
    That is the complaint I get, not that it is a bad program, 
but boy, we wish we could even have more banks get the benefit 
of this program. And that is what I think we all ought to focus 
on.
    Thank you.
    Chair Landrieu. Thank you.
    I am going to recognize Senator Vitter in a minute, but we 
are going to submit to the record the timing on this bill. We 
received the bill from the House in early June. We were on the 
floor all July, could not overcome a filibuster. It is true 
that the Republican members did not support the bill in the 
Senate. We came back in September and passed it. The President 
signed it September 27th.
    There was a lot of resistance to bringing this with the 
Small Business lending fund, but we will get it for the record 
and put in the----
    Senator Levin. Well, then I want to correct my statement if 
that is inaccurate.
    Chair Landrieu. We will get it in the record to see, but it 
was some time that it took us to pass this with the Small 
Business Lending program in it.
    Senator Snowe. Well, it came to the floor in July, and we 
had an August recess, and it passed September 16th in the 
Senate and became law September 27th.
    Senator Levin. It still had to overcome a filibuster.
    Senator Snowe. That is pretty good for----
    Senator Levin. Well, I think it still had to overcome a 
filibuster.
    Chair Landrieu. Yes, we needed 60 votes to do it.
    Senator Levin. It was a matter of months that it was 
filibustered and required 60 votes.
    Senator Snowe. It was not a matter of months. It was not a 
matter of months.
    Senator Levin. Well, it was a matter of 60 votes.
    Chair Landrieu. We are not going to argue about that now.
    Senator Snowe. Very big difference.
    Chair Landrieu. We are going to go back and look at the 
record, not just the discussion on the Senate floor but when 
this idea came before the Small Business Committee as well.
    Senator Snowe. Okay.
    Chair Landrieu. But we will get it in the record. Okay?
    [The information follows:]






    Senator Vitter.
    Senator Vitter. Thank you, Mr. Secretary. Thanks for being 
here.
    I want to focus first on the Small Business Lending Fund. 
You said a few minutes ago every bank that received that money 
had more capital and was in a better position to lend. But if 
they traded out that money dollar-for-dollar for TARP money, 
they did not have more capital, correct?
    Secretary Geithner. That is a good point, but the SBLF was 
designed so that the capital they got through the SBLF, even if 
they used it to replace TARP capital, as Congress intended, it 
is structured in a way that makes it more likely that they are 
going to use that capital. That was the purpose of the design 
feature.
    But you know, as you know, we cannot force banks to come 
get capital, and we cannot force them to lend. What we can do 
is try to make it more compelling for them to lend.
    Senator Vitter. Right, but again, I just want to underscore 
over half of all the money that went out was used to repay TARP 
money.
    Secretary Geithner. That is what we expected.
    Chair Landrieu. That is the way it was designed.
    Senator Vitter. In fact, in dollar terms, that amount did 
not increase.
    Secretary Geithner. No, I would not say it that way 
because, again, that is roughly what we expected at the design 
phase, no surprise in that.
    Senator Vitter. In dollar terms, did that amount; did that 
$2.2 billion increase capital in the small banking sector?
    Secretary Geithner. It is a more effective way. It is a 
more valuable form of capital for the purpose of the Act, which 
is to expand lending.
    Senator Vitter. Okay. One of those folks who supported the 
program, who took advantage of it, was Heartland Financial USA. 
Their chief operating officer is quoted in this Wall Street 
Journal article Senator Snowe has mentioned as saying ``It is a 
bit of a shell game.'' They took 81.7 million and used every 
penny to repay TARP money?
    Do you disagree with that quote?
    Secretary Geithner. Well, again, the architects of this 
bill intended it to be available to repay TARP money for the 
reasons I said because the capital was designed in a way there 
was a stronger incentive for lending. So we expected roughly 
that amount of refinancing. We never claimed otherwise. That 
was the intent of the architects of the bill. There is no 
surprise in those numbers.
    It still, on its merits, is a very cost effective way to 
help mitigate some of the credit pressures businesses still 
face.
    Senator Vitter. Well, I understand. I am not suggesting it 
was a surprise. I am suggesting it has very limited impact when 
the majority of the money is used to repay TARP.
    Another proponent of the bill, the Vice President for Small 
Business Policy at the Chamber--the Chamber supported the 
bill--said ``It was basically a bailout for 100 plus banks.''
    Secretary Geithner. Well, can I just say in this----
    Senator Vitter. Do you disagree with that?
    Secretary Geithner. The associations and businesses that 
supported this bill, including the Chamber and the Community 
Bankers Association, supported this provision, this specific 
provision saying you can refinance.
    Senator Vitter. I am sure they did. I am sure the small 
banks loved this provision.
    Secretary Geithner. But I guess you could ask the question 
this way, why are you concerned about this, because if you look 
at estimates of the cost to the taxpayer and the return to the 
taxpayer this is going to look very good against almost any 
comparable we have had. In fact, I think, Senator, if you hold 
it up against the SBA, I think you are going to say it is 
pretty good on return too.
    Now you know nothing is certain in life. We have got a 
tough economy still. We have to see ultimately how it comes 
out. But I am not sure why you are so concerned about this 
because, again, the bankers and business people that supported 
this bill, and the architects in the Congress who created this 
bill, designed it so that part of it could be used to refinance 
TARP, not because they wanted to refinance TARP but because 
they thought it would be a better incentive for lending.
    Senator Vitter. Well, let me go to that point of taxpayer 
return and how it looks. First of all, let me just point out a 
lot of folks have noted that the small banks were all for this 
provision. Of course, they were. Yes, absolutely, if they can 
repay TARP money, if it is cheap money, they were, just like 
the big banks were all for TARP.
    I do not know what that proves. It certainly does not prove 
on its face that it had a significant impact in the actual 
small business sector. It did have an impact that the small 
banks liked.
    But let's go to your comment about taxpayer return. When 
this taxpayer money is used dollar-for-dollar to repay TARP, on 
the TARP accounting side, is that accounted for in a different 
way than the banks repaying out of their own funds, TARP money?
    Secretary Geithner. Of course. When we describe, as we do 
regularly to Congress, what the overall estimates are of return 
to the taxpayer for these programs, we take into consideration 
the net effects of this program vis-a-vis TARP. We do not 
double-count it. We make it clear in that context.
    But again, the----
    Senator Vitter. So on the TARP accounting side, that is not 
counted as repayment of taxpayer dollars.
    Secretary Geithner. We try to show everybody both numbers 
in full transparency.
    Again, the basic bottom line is these investments you call 
in, all the programs that allowed banks to come to the Treasury 
and get capital, overwhelming positive return to the American 
taxpayer north today of $10 billion in total.
    Senator Vitter. So again, I just want to be clear. When you 
talk about a total number of TARP repayment, this is not 
included.
    Secretary Geithner. What we do is we show both numbers. We 
show the TARP numbers alone, and we footnote, or we account 
for, and we show a separate number to show what the estimates 
are. But you will see when we do our next accounting.
    Senator Vitter. So it is a footnote. So it is counted, and 
then you have a footnote.
    Secretary Geithner. Well, we try to lay it all out, but you 
know when you see our new numbers after this program. You know, 
this program just closed on September 28th.
    So now we know how many banks came and what they did with 
it. Now we have exactly the numbers. You will see when we next 
show it, the full picture. But again, you will see when we show 
that that the overall return to the American taxpayer of these 
investments in banks was overwhelmingly positive to a very 
substantial degree.
    Chair Landrieu. Thank you, Senator Vitter.
    I just want to submit to the record, and we are going to 
get this clear from the gentleman from the Heartland. You have 
a quote from him that appeared in the Wall Street Journal. I 
have a letter with his signature on it saying the exact 
opposite.
    That is what this hearing is for, to get the truth on the 
record. I am instructing the staff to call this gentleman, and 
ask--does he want to go by this letter or does he want to go by 
his quote in the Wall Street paper?
    I will give you a copy of the Heartland letter which is 
supported.
    [The information follows:]





    
    Secondly, I want the record to reflect what the truth is. 
It was not a dollar-for-dollar swap to TARP. Only one-third of 
the SBLF banks were TARP refinancings. It should be of no shock 
to anyone that this was done, as we designed SBLF with input 
from banks.
    TARP was primarily a program to bail big banks out of bad 
investments they made.
    This program was designed differently--to help small 
banks--and while the numbers were not as high as we would have 
liked, it seems to have worked for the banks that stepped up 
and managed to use it.
    Senator Cantwell.
    Senator Cantwell. Thank you, Madam Chair. Thanks for 
holding this hearing.
    Secretary Geithner, thank you for being here.
    Mr. Secretary, could you comment on what you think about 
Occupy Wall Street?
    Secretary Geithner. Senator, thanks for asking that 
question. I have been asked it a lot over the last two weeks, 
as many of you have, I am sure.
    And my general view, if you look at the challenges the 
country faces today--very high unemployment, a huge increase in 
inequality, alarming rise in poverty, deep sense of economic 
insecurity, loss in confidence and faith in public 
institutions--there is a huge amount of frustration and concern 
across the country today about the challenges we face, and that 
is why we are trying to work so hard with the Congress to get 
more things in place to make the economy stronger and put in 
place stronger protections over the financial system, heal the 
damage caused by this crisis. And by any measure, we have a lot 
more work to do.
    Senator Cantwell. Well, Mr. Secretary, I think a lot of 
people are frustrated that they think that the big banks 
basically got access to capital in about 10 seconds and it has 
taken nearly 10 months for these small businesses to get access 
through community banks.
    So I know in my state the banks that got access to capital 
have proven that they have increased lending to small 
businesses. So it was a success.
    So people are frustrated still that Main Street cannot get 
access to capital. So are you for reinstating a program like 
this to get more capital to small business through community 
banks?
    Secretary Geithner. I am a big supporter of these programs. 
I said that from the beginning. We have been constantly 
refining them, designing more of them, trying to improve them. 
And I am completely willing to continue to work with you and 
your colleagues on new ways to do that, going forward. 
Absolutely, happy to do that.
    Senator Cantwell. And you would provide some level of 
transparency about why MOUs were signed between Treasury and 
the banking regulators on why certain banks were denied access 
to capital and yet they were not given reasons for that? You 
would clean up the transparency problems?
    Secretary Geithner. Let me respond to that basic concern. 
First, on the question about why did this take so long. Okay? I 
want to address this because we are all frustrated by the fact 
it took so long.
    We designed a system, and I do not know a different way to 
do it, that required the bank supervisors to make a judgment to 
us that they were viable and eligible, and it took them a long 
time to do that.
    Now, one other thing--in the laws of the land, we have 
legal protections with criminal sanctions for disclosure of 
confidential supervisory information, and we were prohibited 
under those laws and by agreements with the banks for sharing 
information with banks about reasons for denial. But I can tell 
you today that we have worked out an arrangement with the 
supervisors, and banks are now getting concrete communications 
approved by the regulators about the reasons why they did not 
meet the standards in the law.
    But the reason why this took so long was because we were 
careful and we relied on the regulators to approve 
applications. And the reason why we were unable immediately to 
inform institutions about the reasons for denial was because of 
the criminal sanctions in place under the laws of the land for 
sharing confidential supervisory information. But I think we 
fixed that now, and banks are hearing about it now.
    Senator Cantwell. Okay. Well, I just do not even know that 
you could capture the level of frustration that America feels 
in the fact that big banks did not jump through any of those 
hoops and yet got access to capital. And the small banks who 
are seeking to loan to businesses have been frustrated with not 
knowing answers, not having their questions about the program 
out there, just a continued line of frustration, 
nonresponsiveness. So it is very, very frustrating.
    I wanted to clear up one last point is that you stated the 
reasons of things that the Administration is looking at doing 
to try to change this economic equation, and you talk about a 
demand for goods and services. That was your number one issue.
    Do you think, Mr. Secretary, there are small businesses out 
there today that have demand?
    Secretary Geithner. Well, you know, the economy now is 
growing. Most economists think now roughly 2 percent, maybe a 
little stronger, a little weaker. And 2 percent growth is not 
strong enough to bring the unemployment rate down.
    Now some businesses are growing much faster than that. Some 
businesses are growing less than that. If you are a small 
business in the construction industry or in retail, growth is 
still very weak for you. But those are the averages, and they 
are just not strong enough.
    Senator Cantwell. Well, I would beg to differ with you on 
this point, that there is demand out there by some small 
businesses. Okay? It may not be as voluminous as, you know, the 
resources given to the large banks, but these small businesses 
can create jobs. They need access to capital.
    Secretary Geithner. Well, I agree with you. I agree 
completely with you on that.
    Senator Cantwell. Okay.
    Secretary Geithner. A hundred percent agree with you on 
that.
    Senator Cantwell. So I would hope that the Administration 
would instead of just saying we need to create demand would say 
we also have to give capital to Main Street where demand has 
been seen and get those businesses growing because they are 75 
percent of the job creation in America.
    Secretary Geithner. A hundred percent agree with you. 
Completely agree with you.
    Senator Cantwell. All right.
    Thank you, Madam Chair.
    Chair Landrieu. Okay. Thank you.
    Senator Paul.
    Senator Paul. Thank you, Secretary Geithner, for coming.
    You mentioned in your remarks that lowering marginal tax 
rates is good for economic growth, and I could not agree more. 
Under Kennedy and Reagan, when we significantly lowered 
marginal tax rates, we did significantly lower unemployment. 
Unemployment seems to be rising under the current 
Administration's policies.
    Your statement though that saying that lowering rates would 
encourage economic growth seems to conflict a little bit with 
the policy of your Administration and the current majority 
party in the Senate. For one, the President's budget would have 
increased marginal tax rates. Second, the Democrat jobs plan, a 
variation of your jobs plan, would also increase marginal tax 
rates.
    I do not know if you have had a chance to read the 
Republican jobs plan yet, but the Republican jobs plan would 
actually lower tax rates and simplify the tax code by getting 
rid of loopholes and evening out the tax code. So I am 
wondering if I can assume today that your testimony is here 
today in support of the Republican jobs plan.
    Secretary Geithner. No risk of that. Sorry to disappoint 
you.
    But I will tell you that on the broad strategy of how you 
think about fundamental tax reform we are going to disagree on 
fundamental pieces of it, but on the general strategy of 
lowering rates by broadening the base and creating better 
incentives to invest that is what will guide our basic 
strategy.
    Senator Paul. It is part of our plan. If you will go back 
and tell the President today my office is open, I am happy to 
meet with him anytime today to go over this. It is part of the 
Republican plan--lower rates, broaden the base, get rid of 
loopholes.
    What do you think caused the housing crisis, and I guess to 
begin with, what do you think caused the housing bubble from 
2001 to 2007?
    Secretary Geithner. Oh, without being too technical about 
it, we had a long period of very low rates, and we had a 
terrible erosion in underwriting standards. And those two 
things together caused a huge overinvestment in housing, and 
Americans were allowed to borrow a huge amount relative to 
income in their housing value. And when the storm hit, you 
know, things came crashing.
    Senator Paul. I agree. Who do you think in the country had 
more influence over interest rates than anybody else? Can you 
think of a body, maybe in New York?
    Secretary Geithner. You want me just to----
    Senator Paul. It sort of has a lot of bankers involved with 
it. It is a central bank.
    Secretary Geithner. You want me to say the New York Federal 
Reserve?
    Senator Paul. Yes, maybe. Maybe the New York Fed. Maybe the 
Open Market Committee.
    Secretary Geithner. You are right that I was Vice Chairman 
of FOMC, and I was President of the New York Fed for a five-
year period, and I started in the Fall of 2003.
    Senator Paul. But I guess here is my point, and I hate to 
interrupt you, but I have got a real short time. You know, 
interest rates I see as sort of the price of money, and they 
should fluctuate somewhat based on the demand for the money.
    If government controls the interest rates and you obscure 
the market forces, as an economy heats up, people are bidding 
for money, the price of the money goes up, and you get a 
blockage effect and a slowing down of the economy.
    If you do not do that, if interest rates are not allowed to 
rise, the economy keeps going, but it is an illusion. That 
illusion is a bubble, and it bursts. That is bad policy.
    But that is still what we are in today is that we still 
want to have no interest rates and we want to spur growth out 
of nothing. We want to create this illusion, but the illusion 
is gone. That is why you cannot get the economy growing again.
    Secretary Geithner. Well, do you want loan rates to be 
higher today?
    Senator Paul. I want the market to control what rates are. 
The Soviet Union failed because they could not determine the 
price of bread. We are in a failure as a country because now we 
are trying to determine the price of money and we should not 
have individual central bankers determining the price of money 
because when they do they make mistakes because they are 
fallible and they are human.
    And as Hayek said, it is this pretense of knowledge that 
you think are--and I do not mean this as an insult to you, but 
people think they are smart enough somehow to tell us what the 
price of money should be.
    Secretary Geithner. You and I may have more in common than 
you fear, but on this basic question the Fed does not have the 
ability to affect all interest rates across the economy. What 
they only do is affect--but I am commenting about monetary 
policy now which I am not supposed to do--the short-term 
interest rate.
    So they cannot control the long rate. They can have some 
effect in terms of crisis about those basic things, but they 
cannot do what you fear they are trying to do.
    Senator Paul. So why do you think interest rates were low? 
It was a market force that kept interest rates low for seven or 
eight years and it had nothing to do with the Federal Reserve 
Open Market Committee?
    Secretary Geithner. Well, again, I am commenting on 
monetary policy which I generally try not to do as Secretary of 
the Treasury, just to protect the independence of the Fed, 
but--and this will take us a longer period of time.
    But I think most economists who look at back over that 
period would say that because in 2001 and 2002 we had a 
recession, rates were low coming out of that recession. And as 
you know, you had a huge set of global forces that caused a 
huge amount of investment in the United States over that period 
of time, and that helped keep long-term rates over that period 
of time.
    But as I said, the reason why we had that boom in housing 
and elsewhere was because we had a long period of low rates and 
we had a terrible erosion in underwriting centers across the 
financial system, complete breakdown of basic controls on risk 
and safeguards, and those two things together were very 
damaging.
    Senator Paul. I want to thank you for coming and 
congratulate you for inadvertently, or maybe advertently, 
supporting part of the Republican jobs plan. Thank you.
    Secretary Geithner. I do not think there is much in there I 
would support except I agree that fundamental tax reform is 
coming.
    Senator Paul. Lowering marginal tax rates, that is what we 
are all about. Lowering, simplifying, getting rid of 
loopholes--it is in the Republican jobs plan.
    We can agree to some of your plan. You guys can agree to 
some of our plan. I think we could move forward, but we have 
got to talk.
    Secretary Geithner. You are going to have to be willing to 
raise some revenues though because you cannot balance the 
budget, you cannot get the budget back under control, unless 
you are willing to as part of tax reform to see some modest 
increase in revenues.
    Now of course, we may disagree on that and who should bear 
that burden, but we think the most fortunate Americans can 
afford to bear that burden.
    Senator Paul. Well, revenue may well go up with lower 
rates, with less loopholes and less tax credits.
    Chair Landrieu. Time has expired. Thank you.
    Senator Hagan and then Senator Brown.
    Senator Hagan. Thank you, Madam Chairman. I, too, 
appreciate your holding this hearing.
    And Secretary Geithner, thanks for participating.
    I know we are here to talk about the Small Business Lending 
Fund.
    Chair Landrieu. Thank you, Senator.
    Senator Hagan. In North Carolina, I know that 8 banks have 
received over $155 million in capital to lend to small 
business. So there is no doubt that is helpful and positive, 
but I think that the hopes for this program were much, much 
higher than that. And while those banks that were approved to 
participate, obviously, they are ultimately pleased with the 
program and they have started lending.
    More were also frustrated with the communications from the 
department, and I heard from community banks that said that 
after they applied to the program they did not hear back for 
weeks. And I have also heard from others that there was little 
explanation of why they were not approved.
    So if you can comment on that, was there a standardized 
process for the department to respond to applicants about the 
Small Lending Fund application?
    Was there any formal way to the banks to appeal or to seek 
some sort of review from the Treasury's decision not to approve 
their application?
    And I think the timing of it was obviously very late in the 
game, or in the process, and that there has been an incredible 
amount of frustration on their part.
    Secretary Geithner. I share their frustration, and let me 
just go through it.
    First, why did it take so long to approve applications, 
because we put in place, to protect the taxpayer resources, a 
system where we relied on the primary supervisors and a 
committee of bank supervisors to make the judgment for us, 
primarily about whether banks were viable enough to benefit 
from this program.
    Now that took them some time. It took up more time than 
they estimated. It took more time than we hoped.
    Senator Hagan. Nine months, was it?
    Secretary Geithner. Well, it took nine months to legislate 
the bill, and we did not get the first approved applications, 
or recommendations--they were not called recommendations, but 
approvals--until really early June. So the time frame between 
when we started to get approvals from the regulators to when we 
actually approved them was actually very, very short.
    I would have loved to accelerate that process, but we were 
not in a position to design a program where we made the 
individual judgments for how to look at applications from 
hundreds and hundreds of small community banks. We had to rely 
on the primary supervisors to do that.
    The second frustration people raised is why did you not 
tell us we were not eligible. As I said earlier in response to 
Senator Cantwell's question, we have legal protections with 
criminal penalties on sharing of confidential information in 
this country for lots of good reasons, to protect the system as 
a whole. So we were not in a position as the Treasury to tell 
banks why.
    And it has taken us now four weeks to work out with the 
bank supervisors a system whereby we could let them know, and 
that is happening right now as we speak. We have finally 
approved a way consistent with the law and protecting the 
system to let them understand why they did not meet the 
requirements in the program. I wish it could have been 
different, but it is because we are being careful with the 
taxpayers' resources.
    Now again, we cannot force banks to come apply for credit, 
and we cannot lower the eligibility standards to the point 
where we risk putting an undue level of risk, of taxpayer money 
exposed to risk. We are taking risk in this program as it is, 
but we are trying to be careful because we want to make sure it 
has the maximum possible effect and we want to preserve the 
capacity for you on this Committee and your colleagues in the 
Senate to look for ways to support these programs in the 
future.
    And if we had taken--if we got that balance wrong in this 
program, we would have undermined dramatically the support for 
these programs in the future.
    Senator Hagan. But there is no opportunity to appeal from a 
decision or from the information that might have been 
interpreted in a different way.
    Secretary Geithner. That is not quite true, and let me 
describe the process that applies. You apply. Treasury gives 
your application to the primary supervisor. The primary 
supervisor looks at that application.
    Senator Hagan. And the primary supervisor is?
    Secretary Geithner. In this case, it would be the Federal 
Reserve or the OCC or the FDIC. They pass--they provide an 
assessment of that application to a committee of supervisors. 
So we want to have checks and balances so that if an individual 
supervisor were being too tough or too soft there is some check 
and balance in that context.
    Now that allowed for a pretty careful review, and where 
supervisors had new information from their banks they were able 
to reflect that in the process.
    Now I do not know how we could design a process where they 
could have appealed to somebody besides me a judgment by the 
supervisor. And if you were in my shoes, I do not think you 
would have wanted to be in a position where we had to 
substitute our judgment for a judgment of not just an 
individual supervisor but a committee of their peers, again, to 
make sure that they were not being either too tough or too soft 
in evaluating the merits of the application.
    But Senator, I agree with your frustration, and we share 
it, about the fact that only banks only applied for one-third 
of the money and it took us this long to put in place these 
safeguards and approve. But once we started getting assessments 
from the regulators, we actually moved very quickly.
    Senator Hagan. And is there any opportunity, since only $4 
billion was allocated, to apply for more?
    Secretary Geithner. Well, that is in the hands of the 
Congress, not without changes in the law.
    Senator Hagan. I guess what--so the fact that it took so 
long that now the timing is the way it is now, that there is 
sort of Catch 22.
    Secretary Geithner. No, I do not think that had any effect 
on--I think banks had a long time, as you can tell. Too long, 
frankly, in my view. They had a long time to get exposure to 
this program and decide whether they wanted to apply.
    And you know, it is possible if you were to do this again 
or extend the time frame, you might see a few more. But there 
was a huge national effort by members of the Congress and by 
the Administration to get the word, and I do not think it was a 
secret that this was out there as a program.
    Senator Hagan. I guess I was meaning the people who did not 
receive the funding, the entities.
    Secretary Geithner. Well, again----
    Senator Hagan. Go ahead. Just----
    Secretary Geithner. It is true, you know, roughly half of 
the banks who applied did not meet the standards in the 
program, and it is understandable that they are frustrated and 
concerned about that. It is probably not fundamentally a 
surprise to them because they have relations with their 
supervisors and it was the supervisors' judgment to determine 
whether they were going to be eligible or not.
    And I do not know realistically whether more time would 
have increased the number that have been approved for that 
context because we cannot change the fundamentals of their 
eligibility.
    Chair Landrieu. Thank you, Senator.
    Senator Hagan. Thank you, Madam Chairman.
    Chair Landrieu. Thank you.
    Senator Brown and then Senator Shaheen, Rubio, Pryor and 
Moran.
    Senator Brown. Thank you, Madam Chair, for holding this 
hearing, and I want to thank you also for correcting the 
record. Some of the misinformation usually does not start the 
cooperation going the right way. So I appreciate your 
correcting the record that it was weeks, not a year, to push 
this through.
    And I remember this very clearly. We checked our files, 
checked on this. I know that there was basically guidance from 
Treasury saying hey, 30 billion is the number. We are 
anticipating about 7,000 banks coming forward. Nine hundred and 
thirty applied, but only a fraction were approved.
    In listening to the conversation, you asked Senator Vitter, 
well, why is he concerned. He is concerned because basically 
the banks that qualified were able to use additional money to 
refinance their TARP debt and very little actually went out to 
Main Street, as Senator Cantwell is concerned.
    With the big banks, you know, it was really a slam dunk, 
pretty easily done, and they got the money. They are okay.
    But with the smaller banks, and ultimately the Main Street 
borrower, there is nothing. It is very little money out there 
in the street.
    Secretary Geithner. Well, Senator, $15.5 billion in capital 
total over these programs for banks since the Fall of 2008, 
when it went out to community banks across the country to, as I 
said, more than 700 banks.
    Now you are slightly mistaken in your numbers you said. 
This was designed to be up to $30 billion in potential.
    Senator Brown. Right.
    Secretary Geithner. That was good. That was abundance of 
caution. But again, we cannot force the banks to apply. Banks 
only applied for a third of that money.
    Senator Brown. Well, one of the reasons the banks did not 
apply is because there was a tremendous amount of red tape, 
from what we have heard, in many banks and actually applying, 
and then the declination process and not having any idea why. 
And I know you have addressed that pretty thoroughly.
    Secretary Geithner. But Senator, again, I know I can say 
this one comment. If you were in my shoes, okay, you would want 
to be very careful that we are using the taxpayers' money 
carefully in this context.
    Judging the health of a bank is a complicated judgment. We 
were not in a position to do that. We had to rely on the 
supervisors to do that. You would have done the same if you 
were in my shoes.
    Now the fact that not all banks were eligible should be no 
surprise because, again, we have an economy, still facing a 
really tough economy, coming out of the worst financial crisis 
since the Great Depression. We have 7,000 community banks 
across the country, and a lot of those banks are still under 
pressure and were not going to meet the test of eligibility. 
But the reason why you have had a smaller yield than expected 
and the reason why this took some time is because we were 
careful to protect the taxpayers' resources.
    Senator Brown. I know. You said that. Thank you.
    And with all due respect, I do not think you could guess 
what I would do if I was in your shoes.
    Secretary Geithner. I did not mean to say I could.
    Senator Brown. And because as I travel around my State and 
the country, contrary to what you said earlier, the number one 
thing that I find, yes, demand is a problem, but it is the lack 
of regulatory certainty intact for every business in 
Massachusetts. That is the number one thing going away.
    That is this wet blanket over their efforts to create jobs 
because in the last year we have had 488--sorry, last couple of 
months--488 regulations seemed significant by the 
Administration, cost of $80.7 billion imposed by new rules for 
the 64,000 pages of new regulations in the Federal Register, 
88.9 million hours of annual paperwork burden.
    I tell you what; the number one thing that I hear not only 
from banks, as a result of passing the new fin reg bill, but 
individuals and businesses, is the lack of certainty and 
stability. They do not know what is next, and they are very 
scared.
    And as a result, the banks, they do not want to go in and 
take advantage of these programs because of the over-
regulation. The people who are borrowing do not want to go 
borrow because of the strings attached to it.
    There is a complete disconnect really between, as Senator 
Cantwell said, between getting the money out the door in a 
quick and effective and timely manner.
    Secretary Geithner. Senator, can I just offer two contrary 
explanations----
    Senator Brown. Sure.
    Secretary Geithner [continuing]. To your concern about the 
regulators?
    Again, I think if you look at the evidence, I will just 
cite a couple things. One is if you look at the body of 
regulation proposed by this Administration compared to the 
average in the Bush Administration, it is roughly in line--no 
material increase in intensity of rules proposed relative to 
the standard in the Bush Administration. So I think it is 
unfair to say or to suggest there have been dramatic, sweeping 
changes that could account for what is weaker growth across the 
country.
    Now I know banks, businesses always complain about 
regulation. They want less of it. They want lower taxes.
    Senator Brown. No, they do not want less. They just want 
regulations that they can understand----
    Secretary Geithner. Well, usually----
    Senator Brown [continuing]. That are streamlined and 
consolidated and that are not overlapping.
    Secretary Geithner. Usually, they want less too or they 
want more favorable ones. Nothing, no mystery----
    Senator Brown. No, they just want to know what the game 
plan is. They want to know that they can walk in the door, get 
a sheet of paper, whether they are dealing with the FDA, the 
EPA. They want to understand what the process is.
    And I do not want--I only have time for one more question. 
It is something that has been really bugging me and many other 
people in businesses in Massachusetts. It is a little off, but 
it is the 3 percent withholding tax issue.
    I mean you have put off--you have extended the deadline. 
Clearly, it costs more to implement than we are ultimately 
going to get back. So why is not the President, or you through 
recommending to him--why do you not just get rid of it so we 
can move on to something more important and not have 
businesses--once again, face that uncertainty, that lack of 
predictability.
    Here they are, all the people that do work with the 
government, saying oh, geez, we are not going to hire because 
we have got to pay 3 percent withholding come January 1st.
    Secretary Geithner. Well, Senator, we are willing to work 
with you and any of your colleagues on any idea that is going 
to help strengthen the economy. Happy to do that. Again, happy 
to take any ideas.
    We have a very substantial body of proposals before the 
Senate today, and they are a pretty powerful set of incentives 
for growth and job creation. If there are other ideas that 
would help reinforce that, we are open to them.
    Senator Brown. Yes, there is plenty of ideas we have all 
made in the Gang of Six, in the Simpson-Bowles. Everybody has 
made them, but quite frankly, there is no Republican or 
Democrat bill that is going to pass. It needs to be a 
bipartisan, bicameral bill.
    And to have people--you know, the Administration and you--
going around the country saying, oh, pass this bill, pass this 
bill, with all due respect, it is not going to pass unless we 
work together to get it done.
    And I appreciate your saying that earlier, but in reality 
we need to take the best of both bills, whether the 
repatriation issue which I know there, Senator Hagan is talking 
regularly about, whether you are talking about the 3 percent 
issue and employer tax deductions for employers and employees, 
the Hire a Hero. Those are things we all agree on. Why can we 
not just get them done, with your leadership and the President 
talking about those good things?
    Secretary Geithner. Well, I agree with you. You cannot 
legislate now without Republicans and Democrats. There is no 
doubt. You have to find bipartisan consensus on that, and I see 
that is a challenge in such a divided country.
    But the proposals we put before the Senate on the tax side, 
on the infrastructure side are proposals that have had 
overwhelming bipartisan support in the past. Now it is not the 
answer to all our problems, as I have said. There are things we 
can do beyond that, but it is a pretty good start.
    Senator Brown. You have to start somewhere. Yes, you have 
got to start somewhere.
    Chair Landrieu. Thank you. Thank you, Senator Brown.
    I just want to remind this Committee, and I know everyone 
is frustrated about regulatory reform, but we do not have 
oversight of regulatory reform. The Homeland Security Committee 
does. We are going to do our part. But I thank the Secretary 
for his patience, and I thank Senator Brown for expressing his 
views.
    Senator Shaheen.
    Senator Shaheen. Thank you, Madam Chair, and thank you to 
you and Ranking Member Snowe for holding the hearing and to 
Secretary Geithner for being here.
    Like my colleagues on this Committee, and you have 
expressed this, I share the frustration for how long it has 
taken to get the Small Business Lending Fund up and running, 
the disappointment with the number of banks in New Hampshire 
that have participated. But having said that, I support the 
program. I think it means that there is now $9 billion out 
there to lend to small business that would not have been there 
before, and so I do think it has helped the situation.
    I continue to hear from small businesses in New Hampshire 
not so much that banks do not have money to lend but it is more 
that they have been reluctant to take risks. And when I talk to 
some of my friends in the banking community, their response is 
they are reluctant to take those risks because of what they are 
hearing from the regulators. So I wonder if you could comment 
on that and the challenge that presents as we are trying to get 
this lending going.
    Secretary Geithner. Well, I think you are exactly right, 
and I think if you talk to banks across the country they--let's 
talk about the small banks. What they still is that they feel 
under tremendous pressure from their examiners to tighten 
lending standards more than they think is necessary.
    And if you look at lending standards, they are much looser 
than they were 6 months ago, 12 months ago, 18 months ago, 2 
years ago. But banks across the country still say that they 
think their examiners are being a little too tough on them.
    It is very hard to know whether that is justified or not, 
but you are right to say that they say that. And they cite that 
more than--the banks do--than the concerns with the forthcoming 
reforms because most of the reforms in Dodd-Frank really do not 
touch community banks. They mostly touch the big banks, as they 
should.
    So you are right about that concern.
    I know the Chairman of the Fed and the head of the OCC and 
the Chairman of the FDIC have been looking at ways. They put 
out a series of guidance to examiners to try to temper that 
risk of excess caution, but I suspect there is more to do.
    You know what always happens in the aftermath of a big 
credit boom is that standards were too loose and then they 
overcorrect. The market can overcorrect sometimes, and 
sometimes supervisors can reinforce that. And we want to work 
against that. That is partly why these capital programs are so 
important--because if banks have capital then their supervisor 
is going to be much more comfortable with them in taking the 
risks they can take.
    Senator Shaheen. The other issue, and this is a little off-
topic, so--but I think it is so important to the underlying 
concern that we all have, which is how we get this economy 
moving again, and that is we still have a housing market that 
is not functioning. The number one constituent concern that I 
have had since I got elected has been hearing from people in 
New Hampshire who are facing foreclosure, and the difficulty 
not with our community banks but with the big banks that are 
still not willing in any real way to engage with homeowners on 
modifications and looking at how we can keep people in their 
homes.
    Now some people are not able to do that for a variety of 
reasons, but there are a lot of people who are. And I find that 
when we have gotten involved with them that very often we can 
get some of those big banks' attention and they are willing to 
look at the mortgages and make modifications. But it should not 
take calling your Congressman's or your Senator's office to do 
that, and I just wonder if the Administration has any other 
efforts or initiatives that you expect to take to help address 
this situation because we need to get somebody's attention to 
this.
    Secretary Geithner. I completely agree with you. It is 
still terrible out there. And there is no other way to say it 
than the major servicers who, I think, built this mortgage 
business are still doing an unacceptably bad job at meeting the 
needs of their customers.
    Now if you look at the total number of modifications that 
have happened across the economy over the last two and a half 
years, it is between 3 and 4 million. It is a pretty reasonable 
number of people that are getting the advantage of much lower 
interest rates are now in their homes today because of these 
broad programs--the ones we support directly and the ones we 
support indirectly--but there are still millions more Americans 
out there who are at risk of losing their home, that if given a 
chance they would be able to keep their house, at least for a 
period of time. So we want to do as much as we can to reach as 
many people as we can.
    But we are also--as you have been reading and as the 
President said in his statement to the Congress two months ago, 
we are in the process of working with the FHFA, which is the 
oversight body of Fannie and Freddie, to put in place a program 
that will allow many more Americans to refinance, to take 
advantage of lower interest rates, even if they have very high 
loan-to-value ratios and are even somewhat underwater. And our 
hope is in the coming days we are going to be able to lay out 
the details. Ed DeMarco will lay out the details of a program 
to make that possible.
    That is one thing that would help to because if you can 
lower your interest rate you can lower your monthly payment, 
make it much more likely your house is affordable, and that is 
a good complement to these mortgage modification programs that 
have been disappointing to us as well but have still directly 
or indirectly reached three to four million Americans.
    Senator Shaheen. Thank you.
    Chair Landrieu. Thank you.
    Senator Rubio. Thank you, Madam Chair.
    Good morning, Mr. Secretary.
    All these issues that we are talking about, whether it is 
the housing crisis, the lack of revenue to local, State and 
Federal governments, at the root of all this is joblessness. Is 
that right?
    Secretary Geithner. And weak economic growth, I would say, 
because you do not have jobs without growth. And if the economy 
is not growing fast enough it puts an----
    Senator Rubio. But ultimately, not enough people are 
working.
    Secretary Geithner. That is right.
    Senator Rubio. I mean if someone does not have a job it is 
hard for them to make their mortgage payment.
    So I think you would agree, and I think most of us would, 
that in this country if you went out and left this building and 
asked people what is the number one issue facing our country, 
they would say the lack of jobs or jobs that do not pay what 
they used to, that the employment issues are really at the root 
of everything we are facing. You would agree?
    Secretary Geithner. I would say for the 90 percent of 
Americans that have a job they would say it is the fear they 
lose their job and their income is not going to go up.
    Senator Rubio. Jobs.
    Secretary Geithner. If you do not have job, your main 
concern is are you going to be able to get a job soon enough.
    Senator Rubio. Right, jobs, so the issue of jobs then.
    Let me ask you. I think you would agree that it is going to 
be very difficult, quite frankly, impossible to turn around the 
joblessness issue, the 9.2 percent or the 9.1 percent 
unemployment rate in the States, without robust, significant 
and sustained private sector growth.
    Secretary Geithner. Absolutely.
    Senator Rubio. So any jobs plan or any plan, whether it is 
this bill we are talking about today or the one the President 
is proposing, any bill that purports to be a jobs plan has to 
be judged by--primarily has to be looked by--what effect it 
will have on private sector behavior and private sector job 
creation.
    Secretary Geithner. I agree with that although there is a 
very good case, as a complement to that but not as a 
substitute, for public investments, with two basic effects. One 
is to help rebuild America's infrastructure. That can help 
leverage private capital too.
    Senator Rubio. Sure.
    Secretary Geithner. And the other is to reduce some of the 
pressure on States and cities across the country to reduce 
first responders and teachers further.
    With that exception, overwhelmingly growth is going to come 
from the private sector, and our job is to improve the 
conditions for----
    Senator Rubio. But even like infrastructure, whether it is 
human capital, all of it is designed to what government can do 
to make it easier----
    Secretary Geithner. That is right.
    Senator Rubio [continuing]. For the private sector to 
create jobs and grow.
    Secretary Geithner. That is right.
    Senator Rubio. As you aware, both the President's plan and 
Senator Reid's plan call for a so-called surtax on 
millionaires, which is to generate revenue. Obviously, you are 
aware that surtax would hit about 30-some odd percent of small 
business income.
    Secretary Geithner. No, that is not--well, let me say it 
slightly differently. Under the tax proposals we have suggested 
the Congress enact, it is true that we have suggested to allow 
the marginal tax rates on the top 2 percent of Americans, which 
affect about 3 percent of small businesses, to revert back to 
the level they were before the Bush Administration. In addition 
to that, we have proposed to raise the burden further on the 
most fortunate Americans.
    But I think if you look at the growth effects of that they 
are likely to be very, very small, and what we are all trying 
to do is balance very difficult pressures. We want to do more 
to help the economy now, and we want to make sure we are 
restoring fiscal responsibility.
    Senator Rubio. But if you add--you talked about the 
marginal rates. I mean the marginal rates are going to up in 
2013, the top rate, about 35 to 39.6 percent. Right? And then, 
you are going to add under the President's plan, was it a 5.6 
surtax? So that would put the top marginal rate at 45.2.
    Secretary Geithner. For a very tiny fraction of Americans 
though.
    Senator Rubio. But at the top marginal rate, okay.
    And then, you add to that an addition I guess the health 
care law has, but let's just leave that one out and say the top 
rate would be about 45.
    And your testimony is that you think the top marginal rate 
being at 45 when you add the surtax would have no impact on job 
creation?
    Secretary Geithner. Very, very--very, very--I mean 
economists, you know, do not agree on anything. But if you ask 
economists what they think, it depends on where they sit in the 
political spectrum.
    But I think if you look at CBO's judgment, look at them as 
an independent arbiter of the economics for the Congress, you 
will find that that set of tax proposals would have very, very 
small impact on growth. You have to look at them relative to 
the alternatives.
    And if you leave the economy with unsustainable fiscal 
deficits as far as the eye can see, or if you are cutting 
spending further to support those low tax rates for upper 
income Americans, that would, I think, over time be more 
damaging to economic growth and less fair.
    Senator Rubio. Well, I think CBO is great and economists 
are great.
    What about the people that create jobs? For example, NFIB, 
the National Federation of Independent Business says the surtax 
is a job killer. Are they wrong?
    Secretary Geithner. Yes, because what they are suggesting 
is that--again, you know we have got difficult choices, and we 
have to govern and make sure----
    Senator Rubio. But their opinion of the surtax--the 
manufacturers say the same thing, the National Association of 
Manufacturers says it is a job killer. They are wrong as well?
    Secretary Geithner. Any business that faces a proposal from 
Congress to raise taxes will oppose that proposal and say it 
will kill jobs.
    Senator Rubio. Right.
    Secretary Geithner. That is their job, and that is what the 
job of the association is.
    Senator Rubio. What about this? This is a quote from the 
President. He said the last thing you want to do is raise taxes 
in the middle of a recession because that would just suck up. 
That would take more demand out of the economy and put business 
in a further hole.
    Secretary Geithner. That is right.
    Senator Rubio. What has changed?
    Secretary Geithner. One of the reasons why this Jobs Act 
before Congress is so important is because if you do not act on 
these proposals then taxes will go up not in 2013; they will go 
up in the end of 2011. So in three months----
    Senator Rubio. Yes, but the President stood behind the 
concept that raising taxes in the middle of a recession hurts 
business and hurts job creation.
    Secretary Geithner. No, but what the President has 
proposed----
    Senator Rubio. I have the quote. So what has changed since 
he said that?
    Secretary Geithner. Good question, but let me give you--
give me a chance to respond.
    The proposals before the Congress today would lower taxes 
on all Americans that have a job and virtually all businesses 
across the country. If you do not enact those proposals, taxes 
will be higher in the beginning of 2012 than they otherwise 
would be. Now the proposals we made to raise taxes would only 
take effect at the end of 2012, and they would only apply to a 
tiny fraction of Americans.
    Now we are open to other ways to think about how we make 
sure we pay for things governments have to do, but we are not 
going to be able to dig our way out of these deficits without 
thinking about tax changes that raise revenue over time.
    Senator Rubio. Well, two quick things, and I am over time.
    Chair Landrieu. One more question.
    Senator Rubio. This statement that the President made and 
when he made it was made in the context of an interview where 
he was bragging about the fact we were not raising taxes on 
anybody.
    Secretary Geithner. Well, we have lowered taxes. We have 
lowered taxes for everybody and proposing lowering them 
further.
    Senator Rubio. But he made that statement in the context of 
we are not raising taxes on anybody. What has changed?
    And that is what he was bragging about when he said this.
    Secretary Geithner. No.
    Senator Rubio. When he said this, the unemployment rate was 
at 9.7. Now it is at 9.1. So are we now doing so much better 
economically that we can afford tax increases--
    Secretary Geithner. No. It is a very tough economy, and I 
would differ not at all from how you characterize how hard this 
economy is right now, no difference. The difference is what 
should we do about it. That is what we are debating.
    The President has always proposed, and I would fully 
support, that at the end of 2012 we allow what are pretty 
modest changes that apply to a tiny fraction of Americans to go 
into effect because without that you are going to ask me to go 
out and borrow a trillion dollars over 10 years to finance 
unstable tax rates, which I cannot do. So that is why we 
proposed that.
    But the proposed----
    Senator Rubio. The bottom line is the surcharge will have 
no negative impact on job creation. Is that your testimony?
    Secretary Geithner. No material impact, and you have to 
look at it relative to the alternatives. If you do not, through 
tax reform, figure out ways to get modest amounts of additional 
revenue through the most fortunate Americans, then you are 
either going to confine us to unsustainable deficits for a long 
period of time, which will hurt growth, or you are going to ask 
us to cut spending in ways that would do more damage to the 
economy. That is our judgment.
    Chair Landrieu. I am sorry. This line of questioning has to 
be over. I have been very, very liberal and given a lot of 
latitude. This hearing is about the Small Business Lending 
Program; however, this is all important, and I thank Senator 
Rubio.
    As a supporter of raising the surcharge I want to get one 
thing straight for the record. I do not--and the members of the 
Senate that are supporting raising taxes on families or 
individuals making over a million dollars is not the same, 
Senator, as raising taxes on millionaires. Millionaires are 
people that have a million dollars worth of assets. Many people 
have a million dollars worth of assets. Their income is only 
$100,000 or $200,000 or $50,000.
    It is not millionaires. It is individuals and families that 
have income of over a million dollars. I just want to get that 
straight for the record.
    I think it is important not to confuse the two because 
many, many Americans are millionaires. Many. And many of them 
have made their own millions. Contrary to belief, they have not 
inherited it, as you and I know. We represent a lot of people 
who, through hard work, have assets over a million dollars.
    One of the proposals is to raise taxes on income over a 
million dollars. The marginal rate at 45 percent, you could 
argue that, but it is a portion over the first million. So the 
first million, they pay a certain rate; over a million, they 
would pay a second rate.
    Is that your understanding?
    Senator Rubio. Yes. I just want to be clear that the 
millionaire's tax is not my terminology. It is what I have 
heard the President say--millionaires and billionaires. I did 
not make up the slogan.
    Chair Landrieu. Well, the President has a different view. 
Maybe you have a different view. But for those of us supporting 
the tax, the one I am speaking about, it is not a tax on 
millionaires.
    Senator Rubio. No. I understand. I just----
    Chair Landrieu. It is actually a tax on income over a 
million, and I just want to get that straight.
    Secretary Geithner. Could I add one thing on this, Madam 
Chair?
    Senator Snowe. Oh, go ahead.
    Chair Landrieu. Okay, I have one more Senator, and then----
    Senator Snowe. I just wanted to add something to what you 
said----
    Chair Landrieu. To what I said?
    Senator Snowe [continuing]. But I will let him finish, to 
what you said.
    Chair Landrieu. Okay, go ahead.
    Secretary Geithner. Can I just offer one other way to think 
about this, Senator?
    If you want to keep those tax rates low, where they are 
today, for the most fortunate 1 or 2 percent of Americans, then 
you either have to ask me to go out and borrow a trillion 
dollars over 10 years to finance it, which I cannot do, or you 
have to figure out a way to find a trillion dollars in savings 
from Medicare and Medicaid to do it, unless you want to assume 
peace breaks out around the world. It is just not--you know, 
you have to make choices in this context.
    We do not relish the prospect of letting those tax cuts 
expire. We do not like the choice we have to face by reducing 
tax expenditures for the top 1 or 2 percent of Americans. But 
we are looking at choices about how to restore fiscal 
sustainability and still preserve core functions of government. 
That is the tradeoff we face.
    Senator Rubio. Well, I am not arguing for protecting 
anybody. I just do not want to support anything that will hurt 
job creation.
    Chair Landrieu. Okay.
    Senator Rubio. It is not about protecting anybody. This is 
about not doing anything that would hurt job creation.
    Chair Landrieu. Okay. Thank you so much.
    Senator Moran.
    Senator Moran. Madam Chairman, thank you.
    Mr. Secretary, thank you for being here.
    I want to follow up on Senator Hagan's, at least initially, 
line of questioning. She generally addressed what I wanted to 
address in regard to the Small Business Lending Program, the 
inability for bankers to know the reason for the outcome.
    I just would tell you, Mr. Secretary, that at least in 
visiting with our bankers they were told by their regulators, 
their primary regulators, they qualified, that their 
application would be supported, and the regulators then--when 
the denial occurred, you were the one delivering the denial, 
not the regulator, and they could not get any answers from the 
folks who told them that they were going to receive these 
funds.
    My understanding as of this morning is that you have--you, 
the Treasury Department has--now notified those who were 
rejected to have an opportunity now to sit down and have a 
conversation with a person. I assume at Treasury, but maybe it 
is a regulator, to explain the denial.
    And I suppose the other complicating factor is that at the 
stage at which the denial occurred, so close to the end of the 
program, that there was no effective way to appeal even if you 
could have sat down to talk to your regulator and say what did 
I do wrong, let me tell you what we did differently, or you do 
not have the facts right. At this point, it is just too late 
because the statutory conclusion of the program.
    Am I missing something?
    Secretary Geithner. No. I think you have it basically 
right, and you are right that as of today we are informing 
under communications approved by the primary supervisor the 
reasons why banks were denied.
    But let me just come back to the basic safeguards. Again, 
we did not rely just on the judgment of the primary supervisor, 
bank supervisor. We relied on the judgment of a committee of 
their peers because we wanted to protect banks from the risks 
that individual supervisors were too tough or too soft.
    And you know, the balance is not perfect, but you know we 
were trying to be careful, and I think we got the balance 
broadly as good as we could have.
    Senator Moran. I want to--I have a couple of other 
questions semi-related to the topic of the day, and I will not 
wander as far as my other colleagues have gone.
    The President said something about the Consumer Financial 
Protection Bureau that caught my attention and was troublesome 
to me in regard to if the CFPB was in existence Bank of America 
would not have been able to raise the charges, raise the 
charges upon its customers, as has been so prevalent in the 
news in recent weeks. Is there something in the Consumer 
Protection Financial Bureau that allows a regulator to make a 
determination in regard to the fees charged by a bank?
    Secretary Geithner. I draw your attention carefully to the 
statements that the CFPB, the Consumer Financial Protection 
Bureau, made about that basic issue, and let me tell you what 
our objectives are and what the President's objectives are.
    Again, we want to take a system where there was terrible 
protection for consumers, very uneven, poorly enforced, people 
very vulnerable to fraud and abuse, and try to make sure that 
they have a much better understanding about what they are 
paying for financial services, what is a credit or a payment 
service, and that requires much more transparency and 
simplicity in their basic fees. And we are making some progress 
in that direction, but we have got a ways to go.
    So the basic approach we are trying to do is to give 
consumers better capacity to choose and to try to encourage 
banks to be more explicit and clear and simple about the basic 
charges that accompany a mortgage loan or a credit card loan or 
an automobile loan or a checking account or a debit account.
    Senator Moran. Well, does the CFPB, is it granted authority 
in its tool box? Does it have the ability to determine what a 
reasonable fee is to charge for----
    Secretary Geithner. I do not believe so. I do not believe 
so, and that was not the intent of the law, but I would be 
happy to ask my lawyers to tell you in more detail.
    Senator Moran. Okay. You know, in part that statement 
bothered me because it seems like a threat to banks: You did 
not do what we wanted you to do, so we will get you on the 
regulatory side.
    And it also bothered me to suggest that we are again 
creating another opportunity for a regulatory agency to be, in 
my view, price-fixing between the relationship between the bank 
and its customer.
    The final topic I wanted to raise is I have worked at 
opening markets to Cuba since the year of 2000--food, medicine, 
agriculture commodities. And the result, at least in part, of 
those efforts has been the passage of TSRA. The Treasury 
Department at OFAC has the ability to develop regulations, and 
generally we have had some success in those markets.
    This is related to job creation in the sense that it goes 
back to the Administration's support, for example, for trade 
agreements with South Korea, Panama, Colombia. The more we 
export in many instances the greater opportunity we have for 
job creation.
    I have always thought we had a silly policy in regard to 
Cuba, a unilateral sanction, particularly when it comes to food 
and medicine and agriculture commodities. If we are the only 
one implementing the sanction or enforcing the sanction, they 
are going to buy from somebody else.
    So we have worked to get the law changed. We were 
successful. Regulations were put in a prior Administration that 
made those sales more difficult. There was retrenchment. Twenty 
percent less sales occurred to Cuba after that. Again, I would 
highlight this is sales for cash up front.
    And most recently, we were successful in adding to the 
financial services and general government, fiscal year 2012, an 
amendment that allows for direct payments--again, payments, 
cash up front, but to get rid of the letters of credit that 
current Treasury regulations require.
    The challenge now is, among other things, the politics is 
that of this issue is always challenging. But the 
Administration has a SAP in regard to this bill, including 
objections to this amendment as written.
    And all I am looking for you this morning, Mr. Secretary--
and we are working very closely in trying to modify the 
language that perhaps will ultimately be satisfactory with the 
Department of Treasury. And I am just wanting to highlight this 
issue with you and ask for your continued commitment to work 
with me to find the right technical terminology that may be 
something that the Administration would not include in their 
SAP in opposition.
    Secretary Geithner. I am happy to give you that commitment 
to work with you on that.
    Senator Moran. Thank you very much.
    Thank you, Madam Chair.
    Chair Landrieu. Thank you.
    Senator Cardin. Thank you, Madam Chair.
    And thank you, Secretary Geithner, for your work.
    We are all frustrated that the $30 billion program did not 
generate more interest, and I think Senator Levin's point about 
the Republican delay is very much on point. There was a 
significant delay in considering the legislation when we should 
have moved in a faster manner.
    But we are also concerned that we had anticipated a much 
larger interest. In reality, there was not the interest that we 
thought even though I agree with Senator Snowe. The need is out 
there, and it is a matter of trying to generate jobs. So we 
need to anticipate the realities of the banking system in this 
country.
    It is interesting that we put out a lot less money for the 
State programs. I think it was $1.5 billion.
    And I can speak for Maryland. I cannot speak for the rest 
of the country. But that program, those funds were put out 
quicker and leveraged very well and have produced concrete 
results in our State and I am sure in other States around the 
nation so that I was pleased that we included that and the 
Administration supported those funds being used for State 
programs.
    And I think we can be proud of the manner in which that was 
used, and I really do applaud Governor O'Malley for the manner 
in which Maryland stepped up and handled those funds.
    There was another suggestion that was made by me and some 
other members that did not receive the same enthusiasm from the 
Administration, and that was direct loans. Rather than going 
through the banks, let's try a direct loan program. We pointed 
out that for emergency circumstances there has been some 
capacity by the Federal government to make direct loans. There 
was a concern as to whether you could gear up for that and make 
the proper evaluations.
    I mention that because the results on the $30 billion 
program were less than we had anticipated.
    Should we be reconsidering the use of direct loans as a way 
in which we can generate the type of activity that we want, 
recognizing full well that the evaluations of loan guarantees 
in many respects give you the same risk factors as if we made 
direct loans, when you are guaranteeing 90 percent of loans?
    Secretary Geithner. Senator, we have had a chance to talk 
about this in private, I think, and I think you know my views 
on this.
    I am--I would be very concerned about the capacity of the 
Federal government to design a national program for direct 
lending both because of the time it would take and because of 
the risk that government officials are not the best people to 
make judgments about credit risk. But I understand the merits 
of that, of going around banks in this context, and I think 
there are special cases where it makes sense to do that. And I 
would be happy to talk to you in more detail about this.
    But based on the experience I have looked at across lots of 
other countries I think that there is a risk that in those 
programs you get less good results and it is much harder to get 
the balance of care for the taxpayer aligned with the amount of 
risk you want the government to take in a crisis.
    Senator Cardin. Let me just--I expected that reply. That 
did not surprise me.
    Let me just urge us to perhaps rethink this based upon the 
experience that we had on the bank participation program, based 
upon the fact that we currently evaluate loans for risk because 
the government is guaranteeing effectively the entire loan, or 
90 percent of the loans, and third, the competition factor of 
having this source available might intrigue the banks to get 
more aggressively involved in the basic program itself.
    So I would urge us to perhaps rethink this because it might 
help us to exactly what Senator Snowe and Senator Landrieu and 
this Committee want to be done, and that is to create activity 
and create jobs.
    Secretary Geithner. I am always happy to take another look 
at this kind of things and happy to talk to you about how we 
could it.
    Senator Cardin. Thank you.
    Thank you, Madam Chair.
    Chair Landrieu. Thank you so much for your leadership on 
that issue, Senator Cardin.
    The final questions will go to Senator Snowe, and then I 
will do a quick wrap-up.
    Thank you for your patience, Mr. Secretary.
    Senator Snowe. Thank you, Chair Landrieu, again for holding 
this very important hearing.
    And I would comment on the parameters of this hearing that 
our discussion is well within the realm given your testimony, 
Mr. Secretary. I know you ranged on a number of issues 
including the President's jobs proposal because it all affects 
small business and the bottom line. So taxes, regulation, all 
these issues enter into the fray in terms of how we are going 
to reconcile major impediments to job creation, which gets back 
to the whole issue of job creation because that is what it is 
really all about.
    We have to focus like a laser, but we have got to get it 
right. We are 24 months into a recovery, and we have spent $800 
billion in a stimulus. We have had $700 billion in TARP, 
quantitative easing of $600 billion. So we have had the maximum 
when you consider all the stimulus and monetary policy 
initiatives.
    And here we are, if you think about it and the calculations 
that I have read, 40 months since the start of the recession. 
Generally, in a post-recession, you get an average 7.6 percent 
GDP growth. That has generally been the case in the four 
greatest recessions since World War II. And here we are, since 
the start of the recession in December 2007 at 0.1 percent in 
GDP growth.
    So the trial and error era has to be over now because we 
are in this new norm that we cannot accept, of a 9 percent or 
higher unemployment rate. It really is disturbing and 
disconcerting. That is the message I want to impart here today.
    If there is one message I can give to you is that current 
policies are not working and people are hurting, and we hear 
the same things over and over again. So I wish we could tackle 
tax reform and regulatory reform.
    Now you mention the Small Business Lending Fund. I do not 
know how you measure it as a success, given the limited amount 
of money that has been utilized out of the $30 billion 
authorized, if you are talking about that.
    But more than that, do we know how many jobs have been 
created with this program?
    You also mention in your testimony that the President's 
Jobs Act would create 1.9 million new jobs. So where did that 
number come from?
    Secretary Geithner. That is an average range used by 
independent economists. We have not given our own estimates 
about what the job effects would be of the Jobs Act, but what 
we try to do is to give Congress a range of independent 
estimates.
    But could I respond to your central point because I think 
it is a very important point?
    Senator Snowe. Yes.
    Secretary Geithner. I just want to offer two concluding 
things.
    The economy is much weaker than any of us would like. It is 
slower today than it was in the early quarters of the recovery 
for the following reasons, and it is important to understand 
the reasons because we are trying to figure out what we can 
fix: It is slower because oil--we had a very damaging shock to 
oil prices. We had a disaster in Japan that slowed growth 
around the world, globally. We have a crisis in Europe that is 
having a huge negative impact on growth, globally. And we have 
an economy still healing from a long period where we took on 
too much debt, we built too many homes and there was too much 
risk-taking and leverage in the financial sector. Those factors 
give us a weaker economy growing more slowly than any of us 
would like.
    The question is what can we do about it, and I think the 
question I would offer back is apart from tax reform, which I 
share your views--we should not be living with a tax system 
with this much uncertainty in it. It makes no sense for us as a 
country.
    And apart of regulatory reform where we are going to 
disagree on where the balance is, but we completely agree there 
are areas where we can get regulatory burden lighter without 
undermining the core safety intentions.
    Apart from that though, what can you join us in supporting 
because those things alone--tax reform and even where we can 
agree on regulatory reform--they are not going to get the 
economy growing fast enough, given the pressures we face 
globally and the other headwinds coming our way, digging our 
way out of this crisis.
    And that is why we are focused on long-term infrastructure 
investments to help rebuild the economy, and that is why we are 
focused on a set of--I agree they are temporary, but temporary 
tax measures can be very powerful in a recession--things that 
will help make sure that going ahead, through the end of this 
year and for an addition 15 months or so, the average American 
has a lower tax burden than they do today and the average 
business has a lower tax burden than they do today. And without 
Congress acting on that front then the economy will be weaker.
    So I agree with you about tax reform. I agree there are 
things we can do on the regulatory burden, broadly. I am not 
sure how much we can do. But that is not going to be enough to 
help the economy. We need to do more things now, and that 
requires Congress to legislate.
    Senator Snowe. But the President is calling for 
comprehensive tax reform, as you are obviously reiterating, in 
one breath and at the same time he is calling for tax 
increases. So you have got it in a package of temporary 
incentives for business for one year, and then you have got tax 
increases that will affect small businesses. There is no 
question about it.
    The point is they are putting the cart before the horse. 
Why can we not do tax reform right now?
    Secretary Geithner. Well, because----
    Senator Snowe. Our committee on finance has had the 
hearings.
    Secretary Geithner. Right.
    Senator Snowe. We could do that.
    I mean right now. We need the ``now'' part of it.
    Secretary Geithner. Because if we do not the economy will 
be weaker. That is the simple way to do it. Because if we do 
not, if you do not do these things now----
    Senator Snowe. But we did that on the stimulus. We need a 
bridge to the private sector, and we need a permanency with it.
    Secretary Geithner. Right.
    Senator Snowe. Consistency and predictability and 
certainty.
    One year is not going to create the certainty. That is the 
problem. You can do some of those things, but you need the 
larger picture now.
    And I am talking to everybody, Mr. Secretary, a lot of 
people that you talk to.
    Secretary Geithner. Well, let me try it. Let me try it 
slightly different this way.
    Senator Snowe. Okay. I mean just--you know.
    And I have talked across a range in the private sector. We 
do not need to be growing our government. We need to be growing 
the private sector.
    And they are not going to take those risks. I mean the 
Chamber of Commerce has their recent outlook, and it is not 
getting better. In fact, they were asking their members if they 
are going to add more employees the next year. Seventeen 
percent said they would, down from 19 percent in July. So it is 
going in the wrong direction.
    You could make a fundamental change; the President could, 
if we work together as a team on the key issues. If everybody 
is talking about it, then I think we cannot shift the 
conversation. We have got to talk about those things they care 
about. And they are the job generators.
    Secretary Geithner. I think we have a chance.
    Senator Snowe. It matters to them. That is what counts now. 
You have got to work with them because they are the ones that 
we depend on.
    And if it is taxes and regulation, let's do it now. I have 
been arguing regulatory reform since March in the other small 
business bill that was on the floor. And we kept saying we are 
going to get it on the floor, but that we did not have 
hearings.
    We had hearings since then. It is now what? October. It 
will be November. We have not done anything.
    Secretary Geithner. Senator, again, I agree with you on 
comprehensive tax reform, but again, I would just offer the 
following. Just think about the following thing: If you do not 
do anything now in the next three months, then taxes for 
everybody who has a job in this country go up substantially. 
They go up for every business.
    So the reason why in a situation like this where growth is 
weaker, why you need to extend temporary tax measures, is 
because if you do not the economy will be weaker. They are not 
a substitute for long-term tax reform, but they are a necessary 
complement.
    So I agree with you that there are some fundamental long-
term things we have to get right. We should not take forever to 
do them. We are happy to move as quickly as possible, and maybe 
the Super Committee is going to help us in the context.
    Senator Snowe. Well, why can we not do it in tandem with 
other committees? Why does the President not work with Congress 
and get it done?
    Secretary Geithner. Well, of course, we will do that.
    Senator Snowe. Now let's just have conversations and get 
this done. I just do not understand it, frankly.
    Secretary Geithner. Well, again, we are happy to do that, 
but we have got to get the near-term stuff done too, not just 
the long-term stuff.
    Chair Landrieu. Okay, Senator Pryor.
    Senator Pryor. Thank you, and Madam Chairman and Senator 
Snowe, thank you for holding this hearing. I really appreciate 
your focus on this.
    And Secretary, thank you for being here. I just have a few 
questions. I am sorry I had to step out of the room. I had a 
meeting in my office, but thank you for hanging around and 
taking my questions here.
    First, I have a letter from Liberty Bank Shares in 
Arkansas, and I just want to share this with the Committee and 
with you, Mr. Secretary.
    It says: Liberty Bank of Arkansas has a strategic goal of 
providing for the needs of small and medium-size businesses in 
our geographical lending area. The Small Business Lending Fund 
allows us to have additional capital to better to serve the 
needs of small and medium-size businesses in our communities.
    Liberty Bank continues in its commitment to serve the needs 
of small businesses. Thus far, in 2011, we are experiencing an 
increase in the volume of loans to small businesses. We are 
hopeful of continuing to see increases in future months.
    And then he says: We compliment the U.S. Treasury on its 
handling of the application, approval and consummation process 
of SBLF. For our organization, the process was completed with 
minimal difficulties, which we view as quite an achievement 
given that SBLF program was new and was being initiated for the 
first time.
    And that is from Wallace Fowler, the Chairman and CEO.
    So some people are happy with some of what you are doing at 
least.
    Let me ask you a few small business questions, if I may.
    I have a bill with Senator Scott Brown, and I know he had 
to step out, and it is called the Small Business Savings 
Account Act. I do not know if you are familiar with it, but if 
you are not, I would love for you to look at it.
    But basically, what it allows people to do is--who are 
dreaming about starting a small business--to set aside their 
own money, tax-free, almost like a 401K or something like that, 
where they could set it aside tax-free. The numbers are I think 
it costs about $80,000 or so to start a new business.
    And to me, it seems that that is a good approach because 
people are using their own money. They probably will go to a 
local lender and say: Hey, I have already saved $25,000, 
$30,000. Can you help me out and let's do this?
    So do you have any comments on that legislation?
    Secretary Geithner. Well, again, I am happy to look at 
that, and you have another bill too that looks at a creative 
way to try to improve the incentives for small businesses. I am 
happy to work with you on both those two things.
    Again, I think there is a very good case, given the fact 
that we need growth stronger now, to look at a mix of both 
temporary things and permanent things we can do in this 
context. And again, we are open to ideas and happy to work with 
you on those.
    Senator Pryor. Thank you.
    I think the second one you are probably talking about is 
the American Opportunity Act, and that is a 25 percent tax 
credit for angel investors. That could really get us over the 
hump, and we know all the positive stories there. So I would 
love to continue to work with you on that.
    And the other question I had is--and I just read this 
letter from Liberty Bank, or part of the letter from Liberty 
Bank Shares in Arkansas. It is a great financial institution, 
locally owned, locally operated. They are doing well. Even 
though it has been a very difficult time, they still continue 
to be strong.
    But when I talk to banks in Arkansas, sometimes what they 
say is that there is a lack of demand for small business loans. 
And when I talk to small businesses, what they say is you know, 
the banks are not lending to them. And then, it seems like when 
I talk to both of them sometimes they say that the regulators 
have made it more difficult on borrowers and lenders.
    So could you help the Committee through that and tell us 
how that, from your standpoint, how that is really working and 
also what we can do to get this part of our economy out of 
neutral?
    Secretary Geithner. I think they are all right. Lending 
demand has been--you know, fell a lot in the recession, and it 
is still very slow to recover because economic growth is 
relatively slow and because many people borrowed too much. So 
by any measure, overall demand for loans has been--was very 
weak early in the recovery and has been slow to sort of pick 
up.
    If you look at the broad measures of credit availability, 
they are dramatically improved since the crisis. The cost of 
credit is much, much lower, and lending terms have come back 
down to more normal in this context.
    But still, some businesses have a hard time getting access 
to credit, and that is because they are overwhelmingly 
dependent on banks or on their credit card or borrowing 
against, as Senator Levin said earlier, against the value of 
their real estate asset. And with value that has hurt so much, 
it has been harder for them in that context.
    And if you were unlucky in your bank and your bank was 
under a lot of pressure, the bank may have cut your credit off 
and you might find it hard to find a new bank in a recession 
where people are having a hard time judging credit risk.
    And as I said earlier, there is obviously some risk that 
examiners are being pretty tough, and maybe for some banks in 
some parts of the country, some businesses being conservative, 
very conservative in a way that adds to those pressures.
    I think the best thing we can do to mitigate that is to 
continue doing what we are doing, which is to make sure banks 
that are reasonably strong, in financial shape, have access to 
capital. That will make it more likely they can lend. And there 
is a whole range of things in that area that we can continue to 
do and happy to work with you on it.
    Senator Pryor. That would be great.
    Madam Chair, one last thing.
    Chair Landrieu. Go ahead.
    Senator Pryor. And this actually is from Homeland Security. 
Remember, I have been working with this FEMA issue?
    Chair Landrieu. Yes.
    Senator Pryor. One of the cases that I have been working 
with has now been turned over to the IRS, and so we actually 
called someone at Treasury last week to have a meeting on this 
with you, and we have not heard back.
    So my only request would be if you could talk to the right 
person and make sure that we get a meeting this week, if 
possible----
    Secretary Geithner. Okay.
    Senator Pryor [continuing]. With the right person there, 
the appropriate person. We would love to do that this week.
    Thank you.
    Chair Landrieu. Thank you, Mr. Secretary. You have been 
very patient, but you are also a very popular witness, as you 
can tell from the turnout.
    Secretary Geithner. I do not think popular is quite the 
word you were looking for.
    Chair Landrieu. A well sought after witness, shall I say.
    I really want to thank the members both on the Republican 
and Democratic sides for coming and participating this morning.
    I would only say that in addition to the testimony that you 
submitted for this hearing: I would really like for you and 
your staff, as we consider what our next step might be on the 
SBLF, to tell us the five or six or seven, or three, or 
whatever the number is, of recommendations for improvements. If 
we were to go to SBLF II, what would they be, et cetera?
    I have a few suggestions myself, and I have learned a lot 
today.
    Secondly, I want to underscore the points made about banks 
reassessing the collateral against small business loans 
because, Mr. Secretary, if we do not come up with a way to 
address that--and I do not have all the answers. I have some I 
want to suggest--we may go through another round of devaluation 
and a very softening of lending. You know the extent of that, 
and many of those loans are coming due.
    We are going to submit some ideas.
    And finally, the positive thing I will say is given that we 
have discussed trade with Cuba today, tax reform relief, 
regulatory reform and the price of bread, we now have all the 
arguments we need to ask for more money and our Committee and 
the staff to cover all these issues.
    God bless you all. Thank you so much.
    Thank you, Mr. Secretary.
    [Whereupon, at 12:15 p.m., the hearing was adjourned.]
                      APPENDIX MATERIAL SUBMITTED





                                  
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