Main Street

A Bigger, Bolder Plan for TARP Repayments

The Obama administration this week announced a new plan to use remaining TARP funds to boost lending by community and other smaller banks. The idea is to make more credit available for small businesses, to help them grow and create more jobs — and do that with funds still available under the Troubled Asset Relief Program.

This is one good step, and hopefully will be joined by many more good steps to begin to generate real recovery on Main Street.

But to seriously address the devastating employment crisis nationwide, and the weight of the recession on our still-fragile economy and neglected infrastructure, something bigger and bolder must be done.

Here is such a plan in a nutshell:

Direct TARP repayments to help capitalize a new National Infrastructure Development Bank.

Here’s how it might work:

Congress and the Obama administration could work to amend the TARP-authorization legislation to include two types of provisions. One would be to systematically schedule stepped up TARP repayments where and when they are institutionally feasible. The other would be to direct the repayments toward the ongoing and continued capitalization of a National Infrastructure Development Bank, which itself would be created under separate legislation.

The idea for such an Infrastructure Bank is not new. New York Times columnist Bob Herbert promosed it in his May 25 piece this year titled Our Crumbling Foundation

I’m not sure that the catastrophic job losses of this recession, the worst since the Great Depression, have really sunk into the public’s consciousness. And that would mean that the ground has not been prepared for the kind of high-powered remedies needed to get the economy back into some kind of reasonable shape.

America has become self-destructively shortsighted in recent decades. That has kept us from acknowledging the awful long-term consequences of the tidal wave of joblessness that has swept over the nation since the start of the recession in December 2007. And it is keeping us from understanding how important the maintenance and development of the infrastructure is to the nation’s long-term social and economic prospects.

It’s not just about roads and bridges, although they are important. It’s also about schools, and the electrical grid, and environmental and technological innovation. It’s about establishing a world-class industrial and economic platform for a nation that is speeding toward second-class status on a range of important fronts.

The infrastructure bank would be authorized to issue bonds, provide loans and offer loan guarantees to finance large-scale projects. The idea would be to leverage substantial amounts of private capital in support of such projects, and to make more prudent decisions about which projects move ahead.

If the U.S. is to have any hope of getting its economic act together over the next few years, there will have to be a much greater focus on putting people back to work. Rebuilding the infrastructure is the place to start.

Senate Banking Committee chairman Sen. Chris Dodd (D-CT) has long been an advocate of a new National Infrastructure Bank and earlier this year noted:

“President Obama co-sponsored our infrastructure bank legislation as a senator and endorsed the idea during his campaign. So, I’m hopeful to see action on the bill this year.”

Democratic Congresswoman Rosa DeLauro (CT-3) has already introduced legislation this year to launch the National Infrastructure Development Bank, along with colleagues including Representatives Anthony Weiner (NY-9), Keith Ellison (MN-5) and Steve Israel (NY-2), and the proposal has attracted broad support from labor, economists and business.

The National Infrastructure Development Bank Act would fund and create a bank that would direct public and private dollars toward infrastructure projects of national or regional significance – a proposal included in the Obama Administration’s budget, as well as the Budget Resolution.

The National Infrastructure Development Bank, modeled after the European Investment Bank, would leverage private sector dollars to invest in transportation, environmental, energy and telecommunications infrastructure projects. It would objectively consider the economic, environmental, social benefits and costs of infrastructure projects, as well as other specific criteria, and fund projects of significance. The Bank would provide investment opportunities that would supplement current federal programs creating jobs, spurring economic growth and rebuilding an infrastructure system for the 21st century.

Initial capitalizations from stepped up TARP repayments could also be supplemented by the Federal Reserve as well as reinvestments of TARP profits where they exist. Public-private partnerships could be brought together to boost the bank’s lending.

Now, there will be those who would say we must immediately use repaid TARP funds to reduce the deficit, and that redirecting TARP repayments in this way would extend those deficits.

But the problem is you can’t simply move paper around to reduce the deficits in any sustained way. And we are simply not going to be able to do that unless we generate sustained economic growth. Sustained deficit reduction requires sustained economic growth. It was, after all, the relatively sustained growth of the 1950s that allowed us to pay down the debts necessarily incurred by first fighting to offset the Great Depression, and then fighting World War II.

And with the real economy stuck in a liquidity trap with both high unemployment and little traction for growth, a bigger, bolder plan like this one is needed.

Tags: recovery, TARP