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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 

( 

Available via the World Wide Web: http://www.fdsys.gov 
(II) 

COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP 

ONE HUNDRED TWELFTH CONGRESS 

MARY L. LANDRIEU, Louisiana, Chair 

OLYMPIA J. SNOWE, Maine, Ranking Member 

CARL LEVIN, Michigan 

TOM HARKIN, Iowa 

JOHN F. KERRY, Massachusetts 

JOSEPH I. LIEBERMAN, Connecticut 

MARIA CANTWELL, Washington 

MARK L. PRYOR, Arkansas 

BENJAMIN L. CARDIN, Maryland 

JEANNE SHAHEEN, New Hampshire 

KAY R. HAGAN, North Carolina 

DAVID VITTER, Louisiana 

JAMES E. RISCH, Idaho 

MARCO RUBIO, Florida 

RAND PAUL, Kentucky 

KELLY AYOTTE, New Hampshire 

MICHAEL B. ENZI, Wyoming 

SCOTT P. BROWN, Massachusetts 

JERRY MORAN, Kansas 

DONALD R. CRAVINS, JR., Democratic Staff Director and Chief Counsel 

WALLACE K. HSUEH, Republican Staff Director 
(III) 

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 

(1) 

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 Treas- ury 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, 
2 

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: 
3 

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:] 
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Chair LANDRIEU. Today, we will hear with very tight time con- straints 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.] 
10 

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 
11 

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 
12 

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. 
13 

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:] 
14 

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 alltime 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. 
15 

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 longterm 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 
16 

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:] 
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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 
38 

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 criti-
39 

cism 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 
40 

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. Fiftyone 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 onethird 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—— 
41 

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. 
42 

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 
43 

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. 
44 

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. 
45 

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. 
46 

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:] 
47 
48 
49 
50 
51 
52 
53 
54 

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? 
55 

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. 
56 

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:] 
57 
58 

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 
59 

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. 
60 

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. 
61 

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 
62 

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? 
63 

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 applica-
64 

tion 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. 
65 

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 
66 

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—— 
67 

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 
68 

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 
69 

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. 
70 

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 
71 

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 
72 

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—— 
73 

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. 
74 

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 su-
75 

pervisor. 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. 
76 

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 
77 

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. 
78 

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 rea-
79 

sons 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. 
80 

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. 
81 

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 longterm 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, taxfree, 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. 
82 

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. 
83 

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.] 

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