President Barack Obama opened the federal treasury Monday to small businesses with plans for billions of dollars in government loans for the struggling sector that employs an estimated 70 percent of American workers.
The program represents the next step in the administration's massive spending aimed at braking the economy's plunge, and it could blunt opposition Republican complaints that Mr. Obama was doing to little to ease the pain of small businesses.
In one step, Mr. Obama announced that the U.S. will buy up to $15 billion in small business loans from banks, using a portion of the Troubled Asset Relief Program funds. This will free up more credit for the banks to extend to small businesses, the president said.
Mr. Obama also said the 21 largest banks receiving government money must report monthly on how much lending they do to small businesses.
All other banks getting taxpayer help are being asked to report quarterly on small business loans. Even banks that are not taking government funds are being told by the administration to "make an extra effort" to increase small business lending.
Mr. Obama was moving on that front as outrage was building in the United States over insurance giant American International Group's decision forto executives even as it has taken $170 billion from the government to prevent the company's collapse.
"It's hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay," Obama said at the outset of an appearance to announce help for small businesses hurt by the deep recession.
"How do they justify this outrage to the taxpayers who are keeping the company afloat," the president said. (Click here to read President Obama's full remarks)
The Obama administration is looking intoused for bonuses, reports CBS News correspondent Peter Maer.
In brief comments Monday morning with Treasury Secretary Timothy Geithner in the Roosevelt Room, Mr. Obama called small businesses "one of the biggest drivers of employment that we have." He said he had pressed his economic team to specifically help owners of small businesses and get credit flowing to them again, and he called the newest initiatives only a first step.
The plan Mr. Obama and Geithner announced is a broad package that includes $730 million from the stimulus plan, with reduced small-business lending fees and an increase on the guarantee for some Small Business Administration (SBA) loans to 90 percent.
He said he had pressed his economic team to specifically help owners of small businesses and get credit flowing to them again, and he called the newest initiatives only a first step.
Often primary bank lenders will seek to sell the SBA loans in the secondary market, allowing them to use the proceeds of the sale to make new loans to other small business owners, but skittish investors have been staying away. Under the administration's initiative, the government will step in to buy these loans to help unlock the frozen credit market.
While the SBA typically guarantees $20 billion in loans annually, new lending this year is on track to fall below $10 billion, according to the administration.
On 60 Minutes Sunday, Federal Reserve chairman Ben Bernanke said the economy wasby the end of this year if the government's program to boost the ailing banking sector succeeds.
He, too, leveled heavy criticism over AIG.
"It makes me angry. I slammed the phone more than a few times on discussing AIG," Bernanke said. "It's - it's just absolutely - I understand why the American people are angry," he said.
Mr. Obama, for his part, has embraced the role of "confidence-builder in chief," as one business leader asked him to become. One week after his budget director declared "fundamentally, the economy is weak," Obama's economic advisers offered up a buoyant assessment.
Larry Summers, the director of the National Economic Council and an Obama adviser, quoted the president: "It's never as good as people say it is when they say it's good and it's never as bad as people say it is when they say it's bad."
Mark Zandi, chief economist at Moody's Economy.com, sees the administration's actions as a step in the right direction as far as keeping the public confident.
"People don't believe they're running for the bunker, that they're panicking.
They're working hard. They've got good policies coming into place. I think people will see that," Zandi said of the Obama administration.
Dealing with a severe recession, Mr. Obama has turned to a public face that emphasizes the potential for recovery instead of its limits.
The focus on help to small businesses was being announced as Republicans seek political gain from some bipartisan misgivings about Mr. Obama's ambitious spending blueprint. In particular, Republicans say, Mr. Obama's budget proposal to raise taxes, starting in 2011, on individuals earning more than $200,000 and on households earning more than $250,000 will hurt small businesses.
"We've got to do something to help these small-business people. We know that they're the job creators in this economy," the House Republicans' No. 2 official, Rep. Eric Cantor, said Sunday. "And the problem ... I think we're seeing out of the Obama administration is a lack of focus on how to get things going again."
The new measures taking effect Monday focus on opening up small-business lending, seen as critical to growth.