Representative Tom McClintock  delivered the following remarks in the House of Representatives in opposition to H.R. 5297.  The bill will be voted on by the House.

House Chamber, Washington, D.C.  M. Speaker:

The proponents tell us that this bill will increase lending to small businesses.  To do so they are creating a $30 billion slush fund to make loans to smaller banks, therefore encouraging smaller banks to make loans to small businesses.  Or so they say.

It is a splendid example of what I like to call McClintock’s Second Law of Political Physics: the more we invest in our mistakes, the less willing we are to correct them.

It’s apparently escaped the proponents’ attention that we are already doing precisely what the proposed new small business lending fund would do through the TARP’s existing Capital Purchase Program.

That’s the conclusion of the Special Inspector General of TARP, Neil Barofsky. He wrote to the Financial Services Committee on May 17th and said: “in terms of its basic design, its participants, its application process, and perhaps, its funding source from an oversight perspective, the (Small Business Lending Fund) would essentially be an extension of TARP’s (Capital Purchase Program).”

So if this scheme actually worked, we wouldn’t need this bill – banks would already be lending like crazy.  The problem is, it doesn’t work.  But some members can’t bear to face the American people and admit that they’ve squandered billions of dollars of working families’ hard-earned money.  So instead they bring us more of the same.

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A recent Pew survey revealed the nation’s big banks are drawing the most ire from the American public, and now that the Federal Reserve is poised to hand them another victory, it’s easy to see why Main Street’s anger burns deep.

Wednesday, Federal Reserve Chairman Ben Bernanke released a statement to the House Committee on Financial Services which detailed the accommodative policy the Fed implemented as a result of the Great Recession and outlined its exit strategy from that policy.

The objective of the Fed’s intervention was to alleviate the pressure on the balance sheets of the banks, which would provide them with the financial flexibility necessary to begin lending to consumers and businesses once again. To meet such an end, the Fed increased the size of its balance sheet through purchases of securities and real-estate loans from the banks, and decreased the interest-rate for interbank lending to nearly zero percent.

The banks’ first ‘Win’ came as a result of those sales to the Fed which produced billions of dollars in revenue. Afterwards, many of us were wondering why the banks weren’t lending again, despite raking in record profits, but the answer was simple. They quickly realized they had found themselves with a can’t lose proposition, as they could make guaranteed money instead of taking on more risk from lending to consumers and businesses during a period of economic uncertainty.

How could they do that?

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The definition of insanity is to keep doing the same thing over and over again and expect different outcomes.  The different versions of the jobs bills circulating in Washington DC these days are perfect example of that point.

See for instance, the  jobs tax credit for hiring new workers idea. What a brilliant example of bipartisan nonsense that is. Pushed by President Obama during his State of the Union address earlier this month and most recently picked up by Senators Schumer and Hatch.

Still no one seems to wonder, why would employers pay a new worker $40,000 to earn a $5,000 credit unless that worker generates at least $35,000 of revenue? Even when the advice comes from economists at the National Federation of Independent Businesses, the largest association of small business owners in the country, it is ignored by the President and Congress.

This about it this way:

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