CQ Transcripts Wire
Monday, March 16, 2009 12:11 PM
TREASURY SECRETARY TIMOTHY GEITHNER: Mr. President, I want to join you in welcoming to the White House the leaders of America's small businesses, the community bankers who serve them, and the members of Congress who play such a leadership role on small-business issues.
Small businesses are the engine of America's dynamism. You create and sustain most of the jobs in the country. You are the anchor of our communities. And you are ever more closely linked to the global economy.
When you prosper, the nation prospers. And when the national economy is hurting, you bear that burden heavily, but you will lead us out of this.
We are now more than a year into a very tough recession. The national numbers are stark, but they cannot capture the damage to a community when a factory has to cut jobs or defer investment or close its doors, leaving families in that town with dreams deferred and less to spend.
The national numbers cannot capture the dashed hopes of the innovator who has thrown everything into an enterprise, only to watch it fail for lack of orders or credit.
The president understands the crucial role that small business plays in America, and that's why we are moving with exceptional speed to put in place the largest program of investments and tax cuts since the Second World War to get Americans back to work and get our economy growing again.
That's why we've launched a very substantial program to get credit flowing again and to address the nation's housing crisis. That's why the recovery plan and the president's budget includes additional targeted programs for small businesses.
These programs include a provision that nearly doubles, to $250,000, the amount of new capital investment you can write off on your taxes. It includes provision that reduce and then altogether eliminate capital gains taxes on the sale of stock in small businesses; a commitment to make health insurance more affordable for small businesses by providing refundable tax credits.
And today the IRS will announce that small businesses will now be able to carry back their operating losses five instead of the usual two years in order to increase your cash flow...
... in order to increase your cash flow as we come out of this period and allow you to invest more in your operations.
Now, the president is going to outline a program of additional actions in a few minutes, but before he does that, and before I introduce our speakers, I want to deliver a clear message to our nation's banks.
Across this country, thousands of small businesses are finding it harder to get the credit necessary to stay in business. Credit is essential to an economic recovery, and we need our nation's banks to go the extra mile in keeping credit lines in place on reasonable terms for viable businesses.
When banks individually pull back, out of a sense of prudence and caution, the collective impact of those actions will make the economy weaker and make each individual bank worse off, because by pulling back on credit, you push businesses to pull back, and this dynamic can feed on itself.
GEITHNER: The government of the United States has put in place extraordinary protections for the banking system so that banks can continue to benefit from low-cost funds, so that they have access to the liquidity and capital they need. And we need you to put that assistance to work for the American economy.
Many banks in this country took too much risk, but the risk, now, to the economy is that you will take too little risk.
As part of the president's commitment to increased transparency and accountability, I'm asking for new reporting requirements on small-business lending.
We will require the top 21 banks, the largest 21 banks in the country that are receiving financial assistance from the government, to include small-business loans in their monthly reports.
And today, I am asking our bank regulators to call for quarterly reporting of small-business loans, so that we can carefully monitor the degree of credit that is flowing to our nation's enterprises and small-business owners.
We need every bank in the country to do everything in their power to provide the credit that small business needs to operate and to expand.
You need -- you need -- you banks need to make the extra effort to make sure that good loans are getting to credit-worthy small businesses, in order to serve the larger public good of moving this nation to recovery.
And given that role that many banks played in causing this crisis, you bear a special responsibility for helping America get out of it.
Now I want to introduce Cynthia Blankenship, the president of the Bank of the West. And I want you to hear from her what it's going to take to address the challenges to community banks and small businesses, not just in Grapevine, Texas, but in communities across the country.
CYNTHIA BLANKENSHIP: Good afternoon. My name is Cynthia Blankenship, and I'm vice chairman of Bank of the West in Grapevine, Texas, and chairman of the Independent Community Bankers of America.
I believe in community banking and the vital role they play in providing small business credits in their market.
BLANKENSHIP: We are so very pleased and grateful to the administration for recognizing the important role that the SBA programs play in optimizing the extension of credit to the American entrepreneurs. When my husband Gary and I started our bank in 1986, we decided to develop our niche in the small-business market.
We found the SBA program a valuable tool in providing the credit terms complementary to small-business needs. Our bank has been a user of the SBA program for decades, from being a top producer to a minimum user.
We were the first preferred lender in the north Texas area, and used the program extensively for many years. We are proud to use the SBA program as a tool to provide capital to small business, for start up and expansion. We witnessed first hand how the SBA program contributed to the creation of jobs and opportunities in our market.
However, in recent years, the program became onerous and unaffordable to the borrower. As a bank, we have not been able to sell the guaranteed portions of the loans in the secondary market. Consequently, we are now holding an inventory -- $11 million in loans -- that could be used as extensions of credit if we could sell those loans and have those dollars available.
There must be demand in those markets to maximize this process. We are proud of the positive changes to the SBA program. All community bankers will be encouraged about the opportunities the new program will afford to leverage credit, lending dollars, and give the small businesses an affordable way to finance future growth.
We look forward to putting a new program into effect immediately. And commend the administration and the Treasury to encourage our borrowers by making the program more affordable. This is an incredible tool for community banks nation-wide to help jump-start the economy and the credit markets. Thank you.
MARCO LENTINI: Good afternoon. My name is Marco Lentini. And I'm here today to share with you my story. It's a story similar to many Americans, hardworking people across this country, a story made possible by the American dream.
LENTINI: I am the son of two immigrant parents. I was raised in inner-city south Philadelphia. With the support of my family and a lot of hard work, I was able to attend an Ivy League school, pursue a master's at the Wharton Business School, and ultimately launch my dream of starting an all-natural, wholesome foods company in Philadelphia, Pennsylvania.
Because of SBA lending, Susquehanna Bank was able to get my first Gia Pronto restaurant six years ago. Today, SBA lending is allowing me to grow my business with the expansion and opening of a fourth Gia Pronto location in Philadelphia.
Each new restaurant we open employs approximately 20 people. These are people who in turn buy houses, make car payments and shop at our malls.
President Obama's new economic stimulus plan, including specific measures waiving small business loan fees, will provide a direct, measurable impact on our business by allowing us to invest in training our people, providing additional working capital, and also help fund future expansions.
So it is now with great honor and pride that I introduce to you our president of the United States of America, someone who is truly and unquestionably a president of the people, President Barack Obama.
PRESIDENT BARACK OBAMA: Thank you. Thank you. Thank you so much much. Thank you. Thank you so much.
OBAMA: Please, everybody. Have a seat.
Thank you very much.
First of all, Marco, thank you for the wonderful introduction. I don't know if people heard properly here, but this is an all-natural, health food restaurant in Philly.
So -- so I asked him, what was the equivalent, at his shop, for a cheese steak.
And he described for me -- what was it -- a chicken...
LENTINI: It's our Chicken (inaudible)
It's a chicken cutlet, spinach Florentine, sharp provolone, all on an Italian ciabatta bread.
So I wanted to know if there was whiz on that.
And he said no.
But Marco is an example of what small business is all about. And I think Cynthia is an example of what community banks are doing all across the country, partnering with small businesses in order to create jobs and opportunity and entrepreneurship that's been the driving force in our economy for so very long.
So I thank all of you, particularly the small businesses and community bankers who are here today. And I thank the two of you, as well as some of the other entrepreneurs that we met, and bankers that we met before this public event. Thank you for sharing your stories.
I want to thank them publicly for being here, but also so much of the good work that our proposals today are building on has to do with the vigilance that they've shown on their committees.
OBAMA: So we very much appreciate that. Now, before I talk about the new steps that we're taking to get credit flowing to small businesses across our country, I do want to comment on the news about executive bonuses at <AIG>.
I think some of you have heard a little bit about this over the last few days. This is a corporation that finds itself in financial distress due to recklessness and greed. Under these circumstances, it's hard to understand how derivative traders at <AIG> warranted any bonuses, much less $165 million in extra pay. I mean, how do they justify this outrage to the taxpayers who are keeping the company afloat?
In the last six months, <AIG has received substantial sums from the U.S. Treasury. And I've asked Secretary Geithner to use that leverage and pursue every single legal avenue to block these bonuses and make the American taxpayers whole.
I want everybody to be clear that Secretary Geithner's been on the case. He's working to resolve this matter with the new CEO, Edward Liddy, who, by the way -- everybody needs to understand -- came onboard after the contracts that led to these bonuses were agreed to, last year.
But I think Mr. Liddy and certainly everybody involved needs to understand. This is not just a matter of dollars and cents. It's about our fundamental values. All across the country, there are people who are working hard and meeting their responsibilities every single day without the benefit of government bailouts or multimillion dollar bonuses.
You've got a bunch of small business people here, who are struggling just to keep their credit line open; that they are foregoing pay, as one of our entrepreneurs talked about. They are, in some cases, mortgaging their homes; doing a whole host of things just in order to keep things afloat.
All they ask is that everyone, from Main Street to Wall Street to Washington, play by the same rules. And that is an ethic that we have to demand. And what this situation also underscores is the need for overall financial regulatory reform. So we don't find ourselves in this position again. And for some form of resolution mechanism in dealing with troubled financial institutions so that we've got greater authority to protect American taxpayers and our financial system in cases such as this.
OBAMA: You know, we already have resolution authority -- excuse me, I'm choked up with anger here.
We always -- already have some of that resolution authority when it comes to a traditional bank. But when you start getting into AIGs and some of these other operations that have a whole bunch of different financial instruments, then we don't have all the regulatory power that we need. And this is something that I expect to work with Congress to deal with in the weeks and months to come.
Well, we're here today to talk about how my administration can help the millions of small businesses bearing the brunt of this credit crisis. And Secretary Geithner and I just met with not only Marco and Cynthia, but a number of other small-business owners and community lenders who shared with us experiences that are familiar to so many.
Small businesses are the heart of the American economy. They're responsible for half of all private sector jobs, and they create roughly 70 percent of all new jobs in the past decade.
So small businesses are not only job generators, they're also at the heart of the American dream. After all, these are businesses born in family meetings around kitchen tables. They're born when a worker takes a chance on her desire to be her own boss. They're born when a part-time inventor becomes a full-time entrepreneur or when somebody sees a product that could be better, or a service that could be smarter, and they think, "Why not me? Let me try it. Let me take my shot."
That's Marco's story, which he just shared with us. That's Brian Conrad's (ph) story. When Brian's (ph) company eliminated his department -- Brian's (ph) sitting right there, so I don't want to embarrass him here, but it's a great story.
He lost his job, but he found his calling and started, you know, doing all kinds of work on a restaurant called the -- the Blue Monkey, which now employs some 40 people in Pennsylvania's Lehigh Valley.
OBAMA: That's Carmen Jones' story. Carmen sits over there. Carmen was disabled in an accident a few years ago. And in facing personal trial, she discovered a reservoir of strength and an untapped market.
So today she helps companies advertise and sell their services to people living with disabilities.
You know, this is America's story. A place where we believe all things are possible. Where we are limited only by our willingness to take a chance and work hard to achieve our dreams.
But today, too many entrepreneurs can't access the capital to start, operate or grow their business. Too many dreams are being deferred or denied by a form letter canceling a line of credit.
And this is the consequence of the credit crisis, which began when some banks bundled and sold mortgages in complex ways to hide risk and avoid responsibility.
The collapse of these mortgage-backed securities and other complex financial instruments froze the credit markets, including the markets that helped small businesses access loans to cover payroll, to purchase supplies, or to expand in ways that create new jobs.
And I think it's important just to take a moment to understand here's how these markets work: A community bank, like the one run by Cynthia, offers an entrepreneur, like Marco, a loan to open up a restaurant.
Before this crisis, Cynthia had two options. Her bank could hold the loan and receive regular payments from Marco as he pays back the amount that he borrowed plus interest. But another option was the bank could also sell part of the loan as an asset to a larger bank or to an investor. And that means that her bank could then use these new funds for more business loans and auto loans and home loans and student loans.
That's why this secondary market, Cynthia's ability to resell loans, is so important. It means banks can offer small businesses and families more credit because the bank has more money on hand.
OBAMA: If Cynthia could get that $11 million of SBA loans that she currently holds in her portfolio, if she can get that into the secondary market, that's now $11 million that she can make work back in her community.
Today, unfortunately, there aren't nearly as many secondary buyers for these kinds of loans, even when they're guaranteed by the Small Business Administration. so community banks cannot bring in the funds necessary to provide as many loans, and as a result we've seen a precipitous drop in lending to small business.
The SBA typically guarantees $20 billion in loans annually, but this year lending may fall below $10 billion. Even businesses with impeccable credit can't access loans. So entrepreneurs and their employees pay an enormous price, but the whole country pays a price as well because less lending leads to fewer jobs and lower spending, which leads to less lending -- a vicious cycle that delays our recovery.
And small businesses don't just provide jobs, they provide the innovations that help us lead in the global economy. Smaller companies produce 13 times more patents per employee than large companies. Now, think about it. Hewlett-Package began in a garage. It was a small business. Google began as a research project -- a small business. The first Apple computers were built by hand one at a time -- a small business. McDonald's started with one restaurant. Marco, I know you've got ideas.
A small business.
Our recovery in the present and our prosperity in the future depend on the success of America's small businesses and entrepreneurs. And that's why my administration has always taken aggressive action on their behalf.
OBAMA: My recovery plan, as already been noted, raises the guarantees on SBA loans to 90 percent and eliminates costly fees for borrowers and lenders that can be too costly in a recession. And these changes are being implemented now, fulfilling a campaign promise that I made.
The recovery plan also includes a series of tax cuts for small businesses and tax incentives to encourage investments in small business. And the Treasury Department has launched the Consumer and Business Lending Initiative to help unfreeze the credit markets.
I've also proposed, as part of my budget, that we reduce to zero the capital gains tax for investments in small or start-up business, expanding and making permanent one of the tax cuts in the recovery plan. And my budget, as part of our health-care reform efforts, calls for tax credits and other assistance to help small businesses offer coverage to their workers.
So we've already done a lot, but we've got to do more. And none of these steps will be effective unless we unlock the credit markets that are denying small businesses the loans they need in order to grow. Therefore, as part of my financial stability plan, the Treasury Department will begin purchasing up to $15 billion of SBA loans through the Troubled Asset Relief Program, or TARP.
We will immediately unfreeze the secondary market for SBA loans and increase the liquidity of community banks. Cynthia's bank is going to be able to sell those $11 million in loans so that she's got more money to lend.
So with this action, any lender that provides SBA small business loans will have a buyer for those loans. And in turn, community banks will no longer have to choose between providing loans to credit-worthy small businesses and maintaining the required capital and liquidity. Now, this plan is the latest step, but by no means the last step, in our ongoing efforts to stabilize the financial markets on behalf of businesses and consumers.
OBAMA: We'll be outlining further steps on behalf of small businesses in the weeks and months ahead. And we will continue to do whatever is necessary to lead this economy out of recession and lay the foundation for long-term prosperity.
That's what the small-business owners in this room expect us to do. They're folks like John Wilson (ph), the president and part owner of a small business in Raleigh, North Carolina. He wrote to me a few weeks ago and participated in the meeting we just held.
And John's (ph) business, N.C. Design Group (ph), sells cabinets and interior design services, and not surprisingly, it's been a tough year. Sales have fallen by half.
And keep in mind, John (ph) had previously doubled what had started off as a very small business to the point where he's providing a living for -- it was up to 40 -- 48 people.
And John (ph) did all that he could to save loans. The owners, including John (ph), have taken no compensation. But they had to reduce the size of their company from 48 employees to 34.
And John (ph) just told the group of us that, you know, he personally took the time to speak to each and every person that he had to lay off. And I don't think he minds me sharing that he cried each time he did it, because it's a hard thing when somebody's working hard and committed to helping you build your business, you having to lay them off.
And now, even though they've never been late on a payment to the bank, they're having trouble keeping a credit line. It's putting his small business and the 34 jobs left in jeopardy.
Now, John's (ph) not looking for a handout. He's looking for the opportunity to succeed.
And he said it best himself in his letter, and I'm quoting from the letter here.
"Small-business people are incredibly resilient and resourceful, given half a chance," he said. "But we need the chance."
Well, I want to say to John (ph) and to every American running a small business or hoping to run a small business one day, you deserve a chance. America needs you to have that chance. And as president, I will continue to do everything in my power to ensure that you have the opportunity to contribute to your community, to our economy, and to the future of the United States of America.
Thank you, everybody.