It is time to consider creating a public option bank. It is better for taxpayers to support small business if banks refuse, but if banks continue to wage war against small business and consumer customers, every dollar spent by taxpayers will be negated by 10 dollars of punitive actions by banks, and the program will have limited (if any) impact.
Even worse, banks attack small business through extreme interest-rate increases, fees and cuts in credit lines, even to the most creditworthy small business.
The president, his Treasury secretary and Democrats in Congress have been feeble and ineffective in protecting small businesses from abuses by banks. While using TARP money is desirable, traditional lending to small business is infinitely more important. The current abuses are dramatically more harmful than any government program would be helpful.
A public option bank would serve three vital purposes:
1. It would provide loans to highly creditworthy small-business owners who seek loans that would create jobs, promote economic growth and offer sound and detailed business plans in the same manner they would for private banks.
2. It would work with venture capital leaders serving on its board of directors to take investment positions in the high-growth, high-tech sectors that will create the next great jobs wave and serve strategic national goals such as energy independence, environmental protection and job creation.
3. It would be able to offer robust public option health insurance policies either directly or through insurers the public bank invests in, who agree to offer policies that dramatically and demonstrably lower insurance premiums, which the pending healthcare bill will not do. In fact, premiums will rise significantly under current law, and rise significantly under healthcare reform, an absurd situation that grandiose claims will not change.
This public option bank, which could be an entirely federal venture, or a joint venture with interested state governments that choose to participate, would operate using the same principles, strategies and duties of private enterprise.
To participate as borrowers, small businesses would have to provide the same detailed business plans they would for purely private firms. They would be required to have long demonstrated credit histories and credit ratings that are well above average, posing little risk to lenders based on their past performance and business plans.
The small business and venture capital investments would operate with the same fiduciary standards of due diligence, strategic planning and operational implementation of traditionally successful ventures in the private sector.
Based on the historical performance of such ventures, the public option bank should reap significant profits, half of which could capitalize new investments; the other half would be used to reduce the short-, medium- and long-term deficit and national debt.
This public option bank is an idea rooted in Alexander Hamilton’s original vision of a national bank for the new nation, incorporating Hamiltonian financial strategy with Thomas Jefferson’s notion of a nation that grows best from the bottom up.
For Democrats, properly structured, this public option bank would be as popular with small businesses, venture investors with the option to participate, workers hungry for jobs and insurance consumers hungry for lower premiums as the public option in the healthcare debate.
This is the kind of program that great Democratic presidents once offered. For those who believe this is too bold, I reply: Everyone who believes the status quo is working, raise your hand.
Those who believe a little TARP money will make a big difference have learned nothing from the financial crisis that continues to decimate American families and small businesses across the nation. While we should use the TARP money, far bolder action is needed. Either those entrusted to lend should lend or a public option bank should help the country grow while reducing our deficit and debt.
Budowsky was an aide to former Sen. Lloyd Bentsen and Bill Alexander, then chief deputy majority whip of the House. He holds an LL.M. degree in international financial law from the London School of Economics. He can be read on The Hill’s Pundits Blog and reached at firstname.lastname@example.org.