Bailout Payment Shuffle Redux

About this time last year, General Motors and President Obama’s Treasury Department launched a public relations campaign, claiming the company paid back its $6.7 billion government bailout, with interest, ahead of schedule.

The hype left out a key fact:  G.M. “repaid” the taxpayers not with the company’s own cash, but with other funds controlled by the Treasury Department.  The money came from taxpayer dollars; the Treasury Department approved the transaction. I pressed the Treasury Department to come clean and officials had to admit that G.M. did, in fact, use a taxpayer account to repay its bailout loan.

Given that debacle, it was disappointing to see the Obama administration going down the same road again, this time with banks.  Media reports have trickled out, quoting bankers saying they hope to use taxpayer funds received through a small business lending fund to repay their federal bailouts.  I wrote to the Treasury secretary, saying that using one federal program to repay another would be “an egregious example of budget gimmickry.”

This week, my fears were realized when a top Treasury official confirmed to a reporter that  Treasury hasn’t yet granted approval to any banks seeking to use money from the small business lending fund to repay their bailouts, “but they will.”  A top economist for a bankers’ association confirmed the banks’ position, calling it “almost a no-brainer.”

Supporters of creating the small business lending fund last year sold it as a necessary means of getting small businesses the capital they need to invest in their businesses and create jobs.  Instead, it’s in danger of becoming the source for another government bailout money shuffle, as we saw last year with G.M. 

Replacing one form of government subsidy with another wasn’t a repayment when G.M. did it and it still isn’t.  The Treasury Department has an obligation to put the brakes on any tricky bookkeeping that misleads the American taxpayer and subverts what this program was supposed to do.

I’ve asked the Treasury secretary for assurances that a repayment shuffle will not take place, including a description of Treasury’s oversight plans to prevent such a use of the small business funds and for information including a list of banks that have applied for loans under the small business program.  It’s time to end the bailout money shuffle.