Geithner Says Credit Constraits Aren't a Big Deal. Wanna Bet?
Treasury Secretary Tim Geithner said today that credit constraints are no longer holding back economic growth. Would that it were so.
With considerable overstatement, Geithner argued that limitations on credit "no longer post an obstacle to growth" in testimony before the congressional committee charged with overseeing the TARP, the unloved bank bailout fund. Laying aside the fact that easier credit is cold comfort to people facing a serious unemployment situation, contentions that the financial system has recovered to the point where we needn't worry about a credit crunch are much exaggerated. Geithner made much in his testimony of the cash piles that "corporations" have accumulated since they have been able to raise money in private markets. I stress that word, corporations, because businesses that wouldn't typically use that noun are in much worse shape. As has been well-documented, small businesses still face serious credit constraints in this country because they can't float bonds in international capital markets the way an Intel (INTC), ExxonMobil (XOM) or Caterpillar (CAT) can. They rely on bank loans, and banks are not giving them the satisfaction they deserve. Since they account for most job creation in the United States, we have -- you guessed it -- serious unemployment.
Elizabeth Warren, the special inspector general for the TARP, said she worries that "thousands of small banks could capsize" on account of losses linked to the commercial real estate market. So, if you're a small business that uses a small bank, you could very well be in for an even tougher ride.
The director of policy and special counsel at the AFL-CIO, Damon Silvers, took on Geithner directly. Silvers, who is a member of the oversight panel, insisted that the TARP needed to be held to a higher standard than its success in making it easier for corporations to raise money:
[I]s TARP working to achieve its economic goals -- reviving credit markets, stabilizing the financial system, and providing meaningful relief to homeowners facing foreclosure. Projections of long term double digit unemployment and continued high rates of foreclosure suggest we may have not really repaired our business credit system or our housing markets.So why does Geithner defend the TARP's honor in this manner? Well, I suspect the Obama administration is looking for some arguments in support of the TARP with a little recency. Saying the TARP (along with its European counterparts) pulled the western financial system back from the brink when it was announced in September 2008 is true enough, but that was ages ago in political time. Right now, Geithner needs to make the case that it is helping the recovery in the here and now by solving the credit problems linked to the worst financial crisis since the Great Depression.
The problem is, credit is still a problem.
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