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Plan to Boost Small Businesses; Interview With Business Owner Monique Hayward; Iranian Drone Shot Down in Iraq
Aired March 16, 2009 - 12:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
TONY HARRIS, CNN ANCHOR: Hello again, everyone. I'm Tony Harris in the CNN NEWSROOM.
Special issue #1, economic coverage all week, "The Road to Rescue."
Here are the headlines from CNN for this Monday, March 16th.
President Obama, minutes from now outlining a plan to help small business owners. I'll get reaction from a woman who runs a dessert bistro.
Phoenix, boom town until the roof fell in. We will see how the city is surviving the housing collapse.
How to eat healthy on a budget. It is hard when you are on food stamps. But it can -- can be done.
"The Road to Rescue." All this week we are using the unparalleled resources of CNN to bring you a survival guide for these tough economic times. We are going beyond the jargon and partisanship, behind the numbers to explain the financial crisis and the search for solutions. And we're keeping you updated on stories affecting the economy and your finances.
This hour, live reports from White House Correspondent Suzanne Malveaux on the Obama administration's plan to help small businesses. Elaine Quijano is covering new taxpayer outrage over AIG. And Susan Lisovicz is watching to see if the markets can make it five winning days in a row.
Let's get going.
We expect to hear any minute now from President Obama and Treasury Secretary Timothy Geithner. They're outlining a plan to boost lending to small businesses, and we will bring you their comments live.
A reminder, you can see the entire news conference on helping small businesses on our Web site. Just go to CNN.com/live.
When you think of a small business, you may think of the mom-and-pop store in your neighborhood. But what does the government consider a small business? The Small Business Administration defines it's as a company with fewer than 500 employees. By that definition, more than 99 percent of companies in the United States are small businesses, and they account for about half of the private sector jobs in the country.
Lets bring in our White House Correspondent Suzanne Malveaux for a preview of the president's announcement.
And Suzanne, good to see you again.
SUZANNE MALVEAUX, CNN WHITE HOUSE CORRESPONDENT: Good to see you.
HARRIS: What do we expect the president to say in just minutes?
MALVEAUX: Well, Tony, really, the president, out of the gate, is really going to go very hard after AIG for the billions and billions of dollars, bailout money that went to them in the fall, and the millions of dollars that they paid out, these executive bonuses. Really outrage from a lot of taxpayers.
Well, we expect that the president is also going to express outrage as well. I talked to one of his top economic advisers, Austan Goolsbee, just moments ago, and he said this is really like the face of evil here. Those are, you know, his words describing these executives here, kind of the gall, the audacity they had to abuse this money, taxpayer money.
But what the president has to do, Tony, is really walk a fine line here. It's a balancing act.
He has to say, yes, I'm angry, I'm outraged just like you. I understand the problem, but that we are going to hold them accountable, despite the fact this happened before his watch. But he is going to say that they're going to use every legal means possible to either make sure that these executives don't get their bonuses, that it's delayed, or that it doesn't happen again -- Tony.
HARRIS: Yes. And then the president is going to turn to this assistance for small businesses. And let's do it this way -- I am a lender and I'm listening to what the president has to say. What is he going to announce that will make it easier, from a business standpoint, for me as the bank to lend to a small business owner?
MALVEAUX: Well, let's say you're a bank and you're going to lend out like $150,000 essentially to the Small Business Administration to one of these small businesses.
HARRIS: Great.
MALVEAUX: Well, as it stands now, if it totally defaulted, the government would be able to pay back -- back up 85 percent of that loan, get that money back as a bank. Well, now they're saying they're going to increase that to 90 percent. So, essentially, it's a less risky loan. You can go ahead, loan that money to the small business, thinking, I'm not going to lose as much if they end up defaulting on that loan. I'll get 90 percent of it back, not a bad deal.
And that's what they're hoping the banks will do, there will be incentives, and they'll decide, OK, I'll let go of this money here, because they're not doing that right now. And that's what's really hurting those small businesses. They're not getting the money they need to actually operate. HARRIS: But you know what's killing me right now, Suzanne, as a business owner? These fees attached to borrowing right now, and I suppose it's the same if you're a lender as well.
Anything in what the president is about to announce that will sort of mitigate all these crazy fees?
MALVEAUX: There are fees on both sides, to the banks, as well as to those who are borrowing the money. And essentially what this will do, if you're a small business and you are borrowing that money, you would be charged, and it could be as high as close to four percent.
You're talking about tens of thousands of dollars that would simply not be charged, it would be wiped away. But that's a temporary exemption here. We don't know how long that's actually going to last, but for now, if you're a small business, you could see tens of thousands of dollars in savings because those fees would be wiped out.
HARRIS: Wow. Our White House Correspondent Suzanne Malveaux.
Terrific. Suzanne, thank you.
Monique Hayward owns a restaurant in the Portland, Oregon, area. We have talked with Monique before about the recession's impact on small businesses like hers.
Monique, good to see you. I should see you in a second here.
Oh, Monique, you're on the phone with us.
Good to talk to you, Monique.
MONIQUE HAYWARD, BUSINESS OWNER: Yes. Hi there, Tony. Good to talk to you.
HARRIS: How are you? First of all, let's get a quick update. How's the business?
HAYWARD: Business is a little bit down for the first couple of months this year, over 2008. But I'm optimistic.
HARRIS: Is that on the heels of a bad fourth quarter?
HAYWARD: Yes, it is.
HARRIS: When is this going to turn around for you?
HAYWARD: Well, I'm hoping that it's going to turn around some time pretty soon here. I had a pretty good Valentine's Day coming out of mid-February. We're entering into our seasonally slow period right now with springtime and spring break and tax season and all that. But I'm anticipating that we're going to see some improvement in the next several weeks here.
HARRIS: Are you tapping into reserves? Are you able to get the loans that you need right now to keep the business going, to keep employees paid?
HAYWARD: Well, right now it is all about tapping into reserves, because as you were just discussing with Suzanne, it has been really difficult in terms of the lending environment with the banks and trying to continue to fund the business through bank financing.
HARRIS: And talk me through this. So you go for, what, an extension to your line of credit? And with are you being told?
HAYWARD: Well, I'm being told a couple of different things. One, that I have a lot of credit lines that I have open, and there's just too much money, if you will, that I've already got that's in flight.
And then the second thing is, is that it's just sort of not possible to really do a new deal with the bank right now. I think they're just not having a lot of faith and a lot of confidence in the economy, and it's just sort of wait and see for them.
HARRIS: What do you want to hear from the president in just a couple of minutes?
HAYWARD: Well, I would like to hear from the president two things. One, about how he is going to encourage the banks to open up the lending to small businesses.
HARRIS: Right.
HAYWARD: And the second thing that I want to hear from the president is how we're going to continue to spend (ph) in the direction of stimulating the economy, because right now the biggest problem that we have is that people are just not confident, and they're not feeling enthusiastic about going out and spending their money.
HARRIS: Right. Hey, Monique, what's the name of your company again?
HAYWARD: The name of my business is Dessert Noir Cafe & Bar in Beaverton, Oregon.
HARRIS: Wait a minute, because you've got a Web site, too, right?
HAYWARD: Yes, www.dessertnoir.com.
HARRIS: All right, because we're going to talk to you again after the president makes his announcement and get your reaction to it, but I want to pull up the Web site, because as I recall, we've got some pretty good pictures of your business online, correct?
HAYWARD: Yes, exactly.
HARRIS: Yes. All right. Well, let's do that and let's get you in front of a camera, can we please, Monique?
Good to talk to you.
HAYWARD: Thank you.
HARRIS: And we'll talk to you in just a couple of minutes.
All right.
Outrage today over AIG. Congressman Barney Frank says the company needs new management so that taxpayers aren't rewarding incompetence. He is talking about $160 million or so AIG paid out in bonuses over the weekend.
Taxpayers have paid out AIG four times now, totaling $170 billion. The bonuses went to the financial products unit. Ah, that is the very unit that led to the company's downfall.
Well, what do you think about those bonuses? An iReporter from Sparks, Nevada, had a few choice words for AIG Chairman Edward Liddy and other company executives.
(BEGIN VIDEO CLIP)
GARY KUHRY, IREPORTER: To put it in perspective for the upper echelon, OK, that means 18 holes of golf. Average par is 72. You guys had 504 strokes to finish that 18 holes.
Damn. You failed. OK?
And you don't give raises for failure. OK? You don't give bonuses and raises for failure.
I'd like an answer from Mr. Liddy on these facts in this commentary. Thank you.
(END VIDEO CLIP)
HARRIS: Wow.
So lets bring in CNN's Elaine Quijano. She's in Washington.
Well, how about that, Elaine? Can't the government stop giving bonuses for failure? Why can't the government just take back the bonuses?
ELAINE QUIJANO, CNN WHITE HOUSE CORRESPONDENT: Well, you know, Tony, it is a legal matter. This all boils down to contracts.
Basically, before it got government money, AIG agreed to pay these bonuses. This was laid out in legally-binding contracts. And now AIG has to fulfill its obligations or risk being sued and driven out of business most likely. And if that were to happen, Tony, that $170 billion government bailout on the backs of the American taxpayer, that all will have been for nothing -- Tony.
HARRIS: OK. So the president's not happy about this. What about Congress? The president is going to speak in just moments, and we understand he's going to top his remarks about opening up lending for small businesses, with some comments about the bonuses that AIG paid out over the weekend.
What about members of Congress? What are they saying, and potentially what might they do about this?
QUIJANO: Well, House Speaker Nancy Pelosi says this move by AIG is unconscionable. She wants Congressman Barney Frank, who heads up the House Financial Services Committee, to take a look at what legal options are available to recover taxpayer money.
So, still a lot of unanswered questions right now, Tony. But obviously, here in Washington, they feel that Main Street outrage -- Tony.
HARRIS: Yes.
All right. CNN's Elaine Quijano for us.
Elaine, appreciate it. Thank you.
(STOCK MARKET REPORT)
HARRIS: And this just in to CNN. We are just learning now of an Iranian drone that was actually shot down over Iraq. The shoot-down taking place last month. Very few other details available to us right now.
Our Senior International Correspondent Nic Robertson is working this story, and I see him in my preview monitor.
Is Nic available to us right now?
OK. Great. Terrific.
Nic, if you would, we're just getting this information now of this Iranian drone shot down over Iraq last month. What else can you add to the story?
NIC ROBERTSON, CNN SR. INTERNATIONAL CORRESPONDENT: Well, what we know is that it flew into Iraqi air space, was picked up by radar, coalition aircraft, fighter aircraft was scrambled to take a look at it. They ascertained that it wasn't a coalition drone. They were then tracking it, and when it was over an area where it was safe for them to destroy it, where there would be no collateral damage, it was then destroyed.
Now, U.S. military spokesmen that we're talking to say that this was no accident, that this drone, this unmanned aerial reconnaissance vehicle, had been flying in Iraqi air space for about an hour and 10 minutes. The incident took place about 60 miles northeast of Baghdad.
They say that this particular drone, they believe, is an Iranian Ababil 3 model, and research on that model shows that it has a wing span of about 10 feet, that it's launched from a truck, that it has a range of just under about 100 miles. So what we are hearing is that this incident took place just over two and a half weeks ago. It's not been determined what the unmanned surveillance aircraft was tracking on the ground, but it was shot down because it wasn't a coalition aircraft, and it did come from Iran. HARRIS: Well, you just mentioned that you've been in contact with U.S. military sources. I'm curious, are you getting any reaction to the shoot-down from Iranian officials?
ROBERTSON: Well, we're trying to reach them here in Baghdad at the moment, and we'll continue to do that, but nothing yet. And equally, obviously with Iraqi officials as well, who one would imagine would also be concerned about this as well.
HARRIS: Good point. OK.
Our Senior International Correspondent Nic Robertson for us.
Nic, appreciate it. Thank you.
Thousands without jobs, unemployment numbers in double digits in some states. We will take you to the places hardest hit by this recession.
(COMMERCIAL BREAK)
HARRIS: OK. We expect to hear any minute now from President Obama and Treasury Secretary Timothy Geithner. They're outlining a plan to boost lending to small businesses, and we will bring you those comments live, right here in the CNN NEWSROOM.
OK. A couple of shots from that room.
We know the economy is still issue # 1, and worries about your job top the list of concerns these days. In our CNN/Opinion Research Corporation poll, 36 percent of you say unemployment it is the most important economic issue facing the country today. That figure has nearly tripled since last spring. Jobs outranked inflation, the mortgage crisis and the stock market.
So which states are being hit the hardest by unemployment? Here's a look at them.
Michigan at 11 percent; Rhode Island, 10.3 percent for the month of January. California and South Carolina at 10 percent. But things are really tough in rural South Carolina.
Allendale County has the highest unemployment rate in the nation, at a staggering 23 percent. Unemployment went up when a nearby plant shut down, wiping out more than 200 jobs. The mayor of Allendale says the county has trouble attracting new industry, but he says he doesn't think joblessness is out of control.
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: We all have problems, but I don't think it's got up to be 23 percent. And I'll admit that we've got some problems, but I don't think it's that high.
(END VIDEO CLIP)
HARRIS: Selling your stuff to survive -- a look at what some people are unloading in order to make it through these difficult times.
(COMMERCIAL BREAK)
HARRIS: All right. East Room of the White House now, President Obama and Treasury Secretary Timothy Geithner outlining a plan to boost lending to small businesses.
Let's listen to the treasury secretary.
(JOINED IN PROGRESS)
TIMOTHY GEITHNER, TREASURY SECRETARY: ... for lack of orders or credit.
The president understands the crucial role that small business plays in America, and that's why we are moving with exceptional speed to put in place the largest program of investments and tax cuts since the Second World War to get Americans back to work and get our economy growing again. That's why we've launched a very substantial program to get credit flowing again and to address the nation's housing crisis.
That's why the recovery plan and the president's budget includes additional targeted programs for small businesses. These programs include a provision that nearly doubles to $250,000, the amount of new capital investment you can write off on your taxes. It includes provisions that reduce and then all together eliminate capital gains taxes on the sale of stock in small businesses, a commitment to make health insurance more affordable for small businesses by providing refundable tax credits. And today, the IRS will announce that small businesses will now be able to carry back their operating losses five, instead of the usual two years, in order to increase your cash flow...
(APPLAUSE)
... in order to increase your cash flow as we come out of this period and allow you to invest more in your operations.
Now, the president is going to outline a program of additional actions in a few minutes, but before he does that, and before I introduce our speakers, I want to deliver a clear message to our nation's banks.
Across this country, thousands of small businesses are finding it harder to get the credit necessary to stay in business. Credit is essential to an economic recovery, and we need our nation's banks to go the extra mile in keeping credit lines in place on reasonable terms for viable businesses. When banks individually pull back out of a sense of prudence and caution, the collective impact of those actions will make the economy weaker and make each individual bank worse off, because by pulling back on credit, you push businesses to pull back, and this dynamic can feed on itself.
The government of the United States has put in place extraordinary protections for the banking system so that banks can continue to benefit from low-cost funds, so that they have access to the liquidity and capital they need. And we need you to put that assistance to work for the American economy. Many banks in this country took too much risk, but the risk now to the economy is that you will take too little risk.
As part of the president's commitment to increase transparency and accountability, I'm asking for new reporting requirements on small business lending. We will require the top 21 banks, the largest 21 banks in the country that are receiving financial assistance from the government, to include small business loans in their monthly reports. And today, I am asking our bank regulators to call for quarterly reporting of small business loans so that we can carefully monitor the degree of credit that is flowing to our nation's enterprises and small business owners.
(APPLAUSE)
We need every bank in the country to do everything in their power to provide the credit that small business needs to operate and to expand. You need -- you banks need to make the extra effort to make sure that good loans are getting to creditworthy small businesses in order to serve the larger public good of moving this nation to recovery. And given the role that many banks played in causing this crisis, you bear a special responsibility for helping America get out of it.
Now I want to introduce Cynthia Blankenship, the president of Bank of the West, and I want you to hear from her what it's going to take to address the challenges to community banks and small businesses, not just in Grapevine, Texas, but in communities across the country.
Thank you.
CYNTHIA BLANKENSHIP, FOUNDER, BANK OF THE WEST: Thank you.
(APPLAUSE)
Good afternoon. My name is Cynthia Blankenship, and I'm vice chairman of Bank of the West in Grapevine, Texas, and chairman of the Independent Community Bankers of America.
I believe in community banking and the vital role they play in providing small business credits in their market. We are so very pleased and grateful to the administration for recognizing the important role that the SBA programs play in optimizing the extension of credit to the American entrepreneurs.
When my husband Gary and I started our bank in 1986, we decided to develop our niche in the small business market. We found the SBA program a valuable tool in providing the credit terms complementary to small business needs.
Our bank has been a user of the SBA program for decades, from being a top producer to a minimum user. We were the first preferred lender in the north Texas area and used the program extensively for many years.
We are proud to use the SBA program as a tool to provide capital to small business for startups and expansion. We witnessed firsthand how the SBA programs contributed to the creation of jobs and opportunities in our market.
However, in recent years, the program became onerous and unaffordable to the borrower. As a bank, we have not been able to sell the guaranteed portions of the loans in the secondary market. Consequently, we are now holding in inventory $11 million in loans that could be used as extensions of credit if we could sell those loans and have those dollars available. There must be demand in those markets to maximize this process.
We are proud of the positive changes to the SBA program. All community bankers will be encouraged about the opportunities the new program will afford to leverage credit lending dollars and give the small businesses an affordable way to finance future growth.
We look forward to putting a new program into effect immediately and commend the administration and the Treasury to encourage our borrowers by making the program more affordable. This is an incredible tool for community banks nationwide to help jump-start the economy and the credit markets.
Thank you.
GEITHNER: Thank you.
(APPLAUSE)
MARCO LENTINI, FOUNDER, GIA PRONTO RESTAURANTS: Good afternoon. My name is Marco Lentini, and I'm here today to share with you my story. It's a story similar to many Americans, hard-working people across this country, a story made possible by the American dream.
I am the son of two immigrant parents. I was raised in inner city south Philadelphia. With the support of my family and a lot of hard work, I was able to attend an Ivy League school, pursue a Masters at the Wharton Business School, and ultimately launch my dream of starting an all-natural, wholesome foods company in Philadelphia, Pennsylvania.
Because of SBA lending, Susquehanna Bank was able to get my first Gia Pronto restaurant six years ago. Today, SBA lending is allowing me to grow my business with the expansion and opening of a fourth location in Gia Pronto Philadelphia.
Each new restaurant we open employs approximately 20 people. These are people who, in turn, buy houses, make car payments and shop at our malls.
President Obama's new economic stimulus plan, including specific measures waiving small business loan fees, will provide a direct, measurable impact on our business by allowing us to invest in training our people, providing additional working capital, and also help fund future expansions.
So it is now with great honor and pride that I introduce to you our president of the United States of America, someone who is truly and unquestionably a president of the people, President Barack Obama. Thank you, Mr. President.
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Thank you. Thank you. Thank you so much. Thank you. Thank you so much. Please, everybody, have a seat. Thank you very much.
First of all, Marco, thank you for the wonderful introduction. I don't know if people heard properly here, but this is an all-natural, health food restaurant in Philly. So I asked him, what was the equivalent at his shop for a cheesesteak. And he described for me -- what was it, a chicken?
LENTINI: It's our chicken italiano (ph). It's a chicken (INAUDIBLE), spinach Florentine, short (ph) provolone, all on an Italian Ciabatta bread.
OBAMA: Right. So I wanted to know if there was whiz on that. And he said, no. But Marco is an example of what small business is all about. And I think Cynthia is an example of what community banks are doing all across the country, partnering with small businesses in order to create jobs and opportunity and entrepreneurship that's been the driving force in our economy for so very long.
So I thank all of you, particularly the small businesses and community bankers who are here today. And I thank the two of you, as well as some of the other entrepreneurs that we met and banker that we met before this public event. Thank you for sharing your stories.
I also want to thank the chair and ranking member of the Senate committee on Small Business and Entrepreneurship. Senators Mary Landrieu and Olympia Snowe. Please give them a big round of applause. As well as the chair and ranking members of the House Committee on Small Business, Congresswoman Nydia Velazquez and Congressman Sam Graves who are here as well. I want to thank them publicly for being here, but also so many of the good work that our proposals today are building on has to do with the vigilance that they've shown on their committee. So we very much appreciate that.
Now, before I talk about the new steps that we're taking to get credit flowing to small businesses across our country, I do want to comment on the news about executive bonuses at AIG. I think some of you have heard a little bit about this over the last few days.
This is a corporation that finds itself in financial distress due to recklessness and greed. Under these circumstances, it's hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay. I mean how do they justify this outrage to the taxpayers who are keeping the company afloat?
In the last six months, AIG has received substantial sums from the U.S. Treasury. And I've asked Secretary Geithner to use that leverage and pursue every single legal avenue to block these bonus and make the American taxpayers whole.
I want everybody to be clear that Secretary Geithner's been on the case. He's working to resolve this matter with the new CEO, Edward Liddy, who, by the way, everybody needs to understand, came on board after the contracts that led to these bonuses were agreed to last year.
But I think Mr. Liddy, and certainly everybody involved, needs to understand, this is not just a matter of dollars and cents. It's about our fundamental values. All across the country, there are people who are working hard and meeting the responsibilities every single day, without the benefit of government bailouts or multi- million-dollar bonuses.
We've got a bunch of small business people here who are struggling just to keep their credit line open, that they are foregoing pay, as one of our entrepreneurs talked about. They are in some cases mortgaging their homes and doing a whole host of things just in order to keep things afloat. All they ask is that everyone, from main street to Wall Street to Washington, play by the same rules. And that is an ethic that we have to demand.
And what this situation also underscores is the need for overall financial regulatory reform so we don't find ourselves in this position again. And for some form of resolution mechanism in dealing with troubled financial institutions so that we've got greater authority to protect American taxpayers and our financial system in cases such as this.
You know, we already have resolution authority -- excuse me. I'm choked up with anger here. We already have some of that resolution authority when it comes to a traditional bank. But when you start getting into AIGs and some of these other operations that have a whole bunch of different financial instruments, then we don't have all the regulatory power that we need. And this is something that I expect to work with Congress to deal with in the weeks and months to come.
Well, we're here today to talk about how my administration can help the millions of small businesses bearing the brunt of this credit crisis. And Secretary Geithner and I just met with not only Marco and Cynthia, but a number of other small business owners and community lenders who shared with us experiences that are familiar to so many.
Small businesses are the heart of the American economy. They're responsible for half of all private sector jobs. And they create roughly 70 percent of all new jobs in the past decade. So small businesses are not only job generators, they're also at the heart of the American dream. After all, these are businesses born in family meetings around kitchen tables.
They're born when a worker takes a chance on her desire to be her own boss. They're born when a part-time inventor becomes a full time entrepreneur or when somebody sees a product that could be better, or a service that could be smarter and they think, well, why not me? Let me try it. Let me take my shot. That's Marco's story, which he just shared with us.
That's Brian Conrad's story. When Brian's company eliminated his department, Brian's sitting right there, so I don't want to embarrass him here, but it's a great story. He lost his job, but he found his calling and started, you know, doing all kinds of work on a restaurant called the -- The Blue Monkey, which now employs some 40 people in Pennsylvania's Lehigh Valley.
That's Carmen Jones' story. Carmen's over there. Carmen was disabled in an accident a few years ago. And in facing personal trial, she discovered a reservoir of strength and an untapped market. So today she helps companies advertise and sell their services to people living with disabilities.
You know, this is America's story. A place where we believe all things are possible. Where we are limited only by our willingness to take a chance and work hard to achieve our dreams. But today, too many entrepreneurs can't access the capital to start, operate or grow their business. Too many dreams are being deferred or denied by a form letter canceling a line of credit.
And this is a consequence of the credit crisis, which began when some banks bundled and sold mortgages in complex ways to hide risk and avoid responsibility. The collapse of these mortgage-backed securities and other complex financial instruments froze the credit markets, including the markets that helped small business access loans to cover payroll, to purchase supplies, or to expand in ways that create new jobs.
And I think it's important just to take a moment to understand, here's how these markets work. A community bank, like the one run by Cynthia, offers an entrepreneur, like Marco, a loan to open up a restaurant. Before this crisis, Cynthia had two options. Her bank could hold the loan and receive regular payments from Marco as he pays back the amount that he borrowed, plus interest.
But another option was the bank could also sell part of the loan as an asset to a larger bank or to an investor. And that means that her bank could then use these new funds for more business loans and auto loans and home loans and student loans.
That's why this secondary market, Cynthia's ability to resell loans, is so important. It means banks can offer small businesses and families more credit because the bank has more money on hand. If Cynthia could get that $11 million that -- of SBA loans that she currently holds in her portfolio, if she could get that into the secondary market, that's now $11 million that she can make work back in her community.
Today, unfortunately, there aren't nearly as many secondary buyers for these kinds of loans. Even when they're guaranteed by the Small Business Administration. So community banks can not bring in the funds necessary to provide as many loans. And as a result, we've seen a precipitous drop in lending to small business.
The SBA typically guarantees $20 billion in loans annually. But this year, lending may fall below $10 billion. Even businesses with impeccable credit can't access loans. So entrepreneurs and their employees pay an enormous price. But the whole country pays a price as well because less lending leads to fewer jobs and lower spending, which leads to less lending. A vicious cycle that delays our recovery.
And small businesses don't just provide jobs, they provide the innovations that help us lead in the global economy. Smaller companies produce 13 times more patents per employee than large companies.
Now, think about it. Hewlett-Packard began in a garage. It was a small business. Google began as a research project. Small business. The first Apple computers were built by hand one at a time. Small business. McDonald's started with one restaurant.
Marco, I know you've got ideas.
Small business.
Our recovery in the present and our prosperity in the future depend on the success of America's small business and entrepreneurs. And that's why my administration has already taken aggressive action on their behalf. My recovery plan, as already been noted, raises the guarantees on SBA loans to 90 percent and eliminates costly fees for borrowers and lenders that can be too costly in a recession. And these changes are being implemented now, fulfilling a campaign promise that I made.
And the recovery plan also includes a series of tax cuts for small businesses and tax incentives to encourage investments in small business. And the Treasury Department has launched the Consumer and Business Lending Initiative to help unfreeze the credit markets.
I've also proposed, as part of my budget, that we reduce to zero the capital gains tax for investments in small or start-up business. Expanding and making permanent one of the tax cuts in the recovery plan. And my budget, as part of our health care reform efforts, calls for tax credits and other assistance to help small businesses offer coverage to their workers.
So we've already done a lot, but we've got to do more. And none of these steps will be effective unless we unlock the credit markets that are denying small businesses the loans they need to grow. Therefore, as part of my financial stability plan, the Treasury Department will begin purchasing up to $15 billion of SBA loans through the Troubled Asset Relief Program, or TARP. We will immediately unfreeze the secondary market for SBA loans and increase the liquidity of community banks. Cynthia's bank is going to be able to sell those $11 million in loans so that she's got more money to lend.
So with this action, any lender that provides SBA small business loans will have a buyer for those loans. And, in turn, community banks will no longer have to choose between providing loans to credit-worthy small businesses and maintaining the required capital and liquidity.
Now, this plan is the latest step, but by no means the last step, in our ongoing efforts to stabilize the financial markets on behalf of businesses and consumers. We'll be outlining further steps on behalf of small businesses in the weeks and months ahead. And we will continue to do whatever is necessary to lead this economy out of recession and lay the foundation for long-term prosperity.
That's what the small business owners in this room expect us to do. They're folks like John Wilson. The president and part owner of a small business in Raleigh, North Carolina. He wrote to me a few weeks ago and participated in the meeting we just held. And John's business, NC Design Group, sells cabinets and interior design services.
And, not surprisingly, it's been a tough year. Sales have fallen by half. And keep in mind, John had previously doubled what had started off as a very small business to the point where he's providing a living for -- it was up to 40 -- 48 people. And John did all that he could to save loans. The owners, including John, have taken no compensation. But they had to reduce the size of their company from 48 employees to 34.
And John just told the group of us that, you know, he personally took the time to speak to each and every person that he had to lay off. And I don't think he minds me sharing that he cried each time he did it, because it's a hard thing when somebody's working hard and committed to helping you build your business, you having to lay them off. And now, even though they've never been late on a payment to the bank, they're having trouble keeping a credit line. It's putting his small business and the 34 jobs left in jeopardy.
Now, John's not looking for a handout. He's looking for the opportunity to succeed. And he said it best himself in his letter. And I'm quoting from the letter here. "Small business people are incredibly resilient and resourceful, given half a chance," he said. "But we need the chance."
Well, I want to say to John and to every American running a small business or hoping to run a small business one day, you deserve a chance. America needs you to have that chance. And as president, I will continue to do everything in my power to ensure that you have the opportunity to contribute to your community, to our economy, and to the future of the United States of America.
Thank you, everybody. Thank you.
TONY HARRIS, CNN ANCHOR: All right, there you have it. President Obama announcing new steps, along with his Treasury Secretary Timothy Geithner, to loosen up the credit markets, particularly for small businesses who drive so much of this economy in creating jobs.
We want to get to Christine Romans in New York.
And, Christine, there is a lot, and I apologize for this, because I'm trying to make notes as we go along here. There is a lot for us to take on here. Maybe we start with the outrage expressed by the president over the bonuses handed out by AIG. The president said, this is a corporation that finds itself in financial distress due to recklessness and greed. Under these circumstances -- and the circumstances being receiving $173 billion in U.S. government bailouts over the past six months -- under these circumstances, it's hard to understand how derivative traders at AIG warranted any bonuses. All right. So let's break this down. What is he talking about when he's talking about derivative traders. And apparently this is the area of the business that caused all the problems for AIG.
CHRISTINE ROMANS, CNN CORRESPONDENT: That's right, financial products part of the business. That's right. He's talking about the people who crafted and sold these complex derivative instruments that were essentially insurance for the big banks and hedge funds. Insurance against, you know, the underlying mortgage securities going sour. We know that housing prices fell. We know that those things went sour and now AIG is stuck paying the bill. The very people who crafted those things and sold them are getting millions and millions of dollars in bonuses.
HARRIS: Right. How about this . . .
ROMANS: You heard an angry president today. This is a president who's going to try to block it. And we know that -- we're told, Tony, that legally those contracts are binding. Those are legal employment contracts and compensation contracts that can't be broken. But this president has said that he's going to do everything in his power to try to block them.
HARRIS: So we're talking about $165 million or so in extra pay and you think it's going to be difficult to retrieve any of that.
ROMANS: Well, a lot of people are saying that contractually and legally it's going to be difficult -- it's going to be difficult to do that. But the public is outraged. And this is a president who has just said he's going to do everything he can to try to -- to try to block that. We've been told, though, frankly by the Treasury Department and others, even in Congress have been saying that they don't see legally how they can get the money back.
HARRIS: OK. And let's stay with AIG for a moment here, because there's more going on, on this story. We just received an e-mail, an alert or something. New York's attorney general, Andrew Cuomo, is requesting a list of individuals receiving AIG bonuses and he wants that list by 4:00 p.m. This sounds like a familiar strategy.
ROMANS: That's right. Three hours and 10 minutes to turn in your list of all of the people there, those derivative traders, and how much money they got and all their executives. It wasn't just the derivatives traders, frankly, but it was a lot of different people. They want to know who is getting the money and how much money.
Remember, this is a company that lost $62 billion for the last quarter last year. A couple of e-mail and voicemail viewers that we've had -- callers have said, wait a second, how would those people even get that money if they didn't get a bailout from the government, which is a very good point.
HARRIS: Yes. Yes.
ROMANS: But it's a very sticky situation and Cuomo in New York, he wants to know who those people are. HARRIS: Right. So when I say it's sounds like a familiar approach, it's because . . .
ROMANS: That's right, Bank of America and Merrill.
HARRIS: That's right, isn't it? It's the same approach.
ROMANS: It is definitely the same approach. And I don't know if it -- legally what he's trying to do there. If it's a little bit of public shaming. I mean it won't be long now before there will be a list on the Internet of all those people and how much money they got.
HARRIS: Well, maybe not. I mean Bank of America, at least to this point, has successfully fought back, correct?
ROMANS: Oh, that's right. You're right. That's right. Now we know the numbers of people and how much money they got. You know the top 14 at Merrill and how much money they got, you're right. But the breakdown of the names is not something that I have seen yet.
HARRIS: And one other point, and everybody's trying to move me along here, but let me just get to one other point here. Capital gains. You sent me a note back.
ROMANS: Yes.
HARRIS: What was that little chestnut there from the Treasury secretary?
ROMANS: I know that caught your attention.
HARRIS: Yes.
ROMANS: What they want to do is they want to dramatically reduce the capital gains taxes for small businesses a lot, Tony. I mean this is something that's in the president's budget as well. Think of that for small businesses to be able to reduce dramatically the capital gains tax. The president would like to eliminate it altogether. There's also a writeoff in there for investment of up to $250,000 for investment for small business. So they're trying to do whatever they can to jump-start things.
Still, we haven't heard the details of that $35,000 emergency stabilization fund that's in the stimulus as well. A lot of small business owners want to know more about that.
HARRIS: The idea of reducing the liability for small businesses on capital gains, that will have a lot of appeal to Republicans, I would think, because that's an area of contention, it seems to me, that I've heard over and over and over again.
ROMANS: Yes, a lot of little nuggets in here that add up to an awful lot of money, frankly, that hopefully will be real relief for small business. As the president pointed out, this is the primary driver of jobs in this country.
HARRIS: You are awesome. Christine, appreciate it. Thank you.
So, obviously, much of the focus this hour is on saving small businesses. Let's get back to restaurant owner Monique Hayward and she joins us now from Portland.
There you are in front of a camera.
MONIQUE HAYWARD, SMALL BUSINESS OWNER: Hello, there. Yes, I'm here.
HARRIS: All right, Monique, good to see you again.
HAYWARD: Yes.
HARRIS: And what did you hear -- first of all, your impression of the president's remarks and the remarks from Treasury Secretary Geithner.
HAYWARD: Well, I thought that the Treasury secretary's remarks, as well as the president's remarks, were really dead on. I think we have been waiting for months and months for some direction and some indication of where the administration is going with small businesses and what the focus is going to be.
I like the combination of, as you were just describing, tax incentives and relief on that side of the equation, as well as what we're trying to do on the lending side to free up capital and to ease the pain in the credit markets.
HARRIS: Do you believe the idea of creating or better capitalizing these community banks will ultimately make it easier for you, if you need a loan, to get that loan?
HAYWARD: Well, yes. I think that the details remain to be seen, right?
HARRIS: Yes. Yes.
HAYWARD: I think -- I would like to be able to go to one of my community banks this afternoon and say, OK, the president said it's time to start lending. What are you going to do?
HARRIS: You are -- you are so good. You're always putting it right on . . .
HAYWARD: Right. Well, because, you know, as we talked about before the press conference started, that I've essentially been hustling and doing it on my own, as the president was describing about many small businesses.
HARRIS: Yes.
HAYWARD: So I'd like to be able to go to somebody like the bank of the west, instead of having to go to the bank of grandma, right?
HARRIS: Right. You always put it right on the head of that needle. Very good.
All right, Monique . . .
HAYWARD: And, oh, by the way, my grandmother has been extremely supportive of me and my small business and I thank her for that.
HARRIS: And generous.
HAYWARD: Yes, absolutely.
HARRIS: That is awesome. Monique, thanks for getting up this morning. We apologize for calling you so late, but you're always a great help to us.
HAYWARD: Sure. Thank you.
HARRIS: Thank you, Monique. Good to see you too.
HAYWARD: Thank you. Good to see you too.
HARRIS: Let's get your business crack-a-lacking here. All right. We'll take you live to ground zero of the foreclosure crisis in just a moment.
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HARRIS: Now to ground zero of the foreclosure crisis. The state of Arizona. It has the third highest rate of foreclosure filings in the nation. Most of them in the area of Phoenix. Morgan Loew of affiliate KPHO has been following this crisis and he joins us live from Phoenix.
And, Morgan, we know that one of the issues in Phoenix has been the bottom literally falling out of the housing market. Talk us through how much housing stock is on the market now.
MORGAN LOEW: Normal for the Phoenix area is considered about six months of housing stock. Right now we're at eight and a half months. But over a few months ago was as high as 12 months. So we're going in the right direction, but we still have about half the houses sold here every month are foreclosed houses.
HARRIS: Yes. And, Morgan, all these foreclosures have had, obviously, a trickle-down effect. What impact -- what areas of the economy have been impacted the most?
LOEW: Well, the worst, there are three biggest job sectors, construction, no housing going on, no construction workers employed. The tourism business. We're in spring training right now. We're seeing a 20 percent decrease in attendance. And in the service sector. Everybody from restaurant owners and restaurant workers to contractors.
HARRIS: Is that the real impact here? You get this kind of a bottom falling out of the housing market and you get the trickle-in, in all of these other sectors. And maybe you could talk to us about the real impact on people everyday in the Phoenix area. LOEW: Anybody who owns a house in the Phoenix area over the last 10 years was able to capitalize on the increase in housing values. They took out home equity line of credit. That added tens of thousands of dollars every year that they could spend on, you know, getting their house redone, getting a pool, getting lawn furniture. That's money that is no longer in the economy and those were jobs, people that worked in those sectors, that don't have work right now. So it really is widespread.
HARRIS: First indication that things are starting to turn around in Phoenix will be what?
LOEW: The foreclosed houses coming off the market and some promising news about housing starts.
HARRIS: Morgan, appreciate it. Morgan Loew with our affiliate there in Phoenix, KPHO. Good to see you, sir.
"Road to Rescue" continues next hour with CNN NEWSROOM and Kyra Phillips.
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KYRA PHILLIPS, CNN ANCHOR: Pushing forward on the "Road to Rescue." It's the number one economic fear in America, our focus today, unemployment. This hour, Gerri Willis and surviving that dreaded pink slip.
It will also show you where your next job might be. We'll tell you as we speak.
Hello, everyone. I'm Kyra Phillips, live at the CNN world headquarters in Atlanta. You're live in the CNN NEWSROOM.
Well, desperate times call for unprecedented coverage. All week long, CNN is covering the economic meltdown as only CNN can. The "Road to Rescue" begins with a simple idea, knowledge is power.
