Unsanitized: The Fight to Learn Who the Fed Will Bail Out

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A.Gross/Creative Commons

The Federal Reserve will be lending out slightly more than this stack of dollar bills.

First Response

Yesterday we found out that two luxury hotel companies made off with $46 million in PPP forgivable small business loans, for such high-end brand locations as Ritz-Carlton, Marriott and Sofitel. The companies paid a combined $13 million to top executives last year. We know this because Braemar Hotels and Ashford Hospitalty Trust were required to disclose the loans in SEC filings.

Disclosure, in other words, brought these distortions in PPP lending to light. But those are relatively small sums compared to what the Federal Reserve’s money cannon is about to shoot out. And if the Fed gets its way, there won’t be any way to discover hundreds of billions if not trillions of dollars put into the hands of companies.

The Fed has not committed to releasing detailed, transaction-level information about its lending. It has interpreted the CARES Act disclosure requirements to mean that they only need to give aggregate disclosure of the terms and rules of the various lending facilities they set up, not the names of the individual companies getting the loans. And then every 30 days, they have to supply the total amount lent out and the interest received.

This is being driven by the business community, which doesn’t want “bailout stigma” after receiving support from the Fed. I’m not sure why they think it won’t arouse suspicions if a travel company or some other large firm suddenly starts expanding out of nowhere after months without revenue.

Read all of our Unsanitized reports

The airline bailout in the CARES Act had very different disclosure rules: the Treasury Secretary had to post the amounts, interest rate, conditions, and even the term sheet for each recipient. But when it came to the Fed, the disclosure reverted back to the central bank’s Section 13(3) emergency lending authority. Somebody changed the rules, a mystery that ought to be unraveled. It may have come from the Fed writing the language itself, along with the CARES Act provision freeing it from open meetings laws.

Austan Goolsbee, of all people, explained pretty clearly to Politico why the Fed doesn’t want to disclose company names. “The reason they’re not releasing the list… people will start holding them accountable for who’s getting the money,” Goolsbee said. [I]t’s kind of the flashbacks of 2008 2009 that it's going to matter for the credibility of this program and whether we the American people think it is working and want to keep engaging in it.”

Bharat Ramamurti, one of four members of the bailout oversight panel, has been among the few calling for detailed transparency around who is getting a piece of what could be as much as $4.5 trillion in loans. For all we know, some of that money has already been released, without any information about who got what. After pressure from Bharat and Americans for Financial Reform, the Fed has only committed to “information regarding participants” in the corporate credit facilities, without any details about what that information will be (will it even be the identity of the participants?), or what they will do in its numerous other lending facilities. It could mean industry-level aggregates, or a raw number of borrowers, or anything.

It’s true that, like with the hotel chains, public companies might have to file something with the SEC. But the beneficiaries of Fed lending may not all be public companies. Private equity portfolio companies could use Fed resources, for example. The press will be vital, and have already ferreted out some information. But there’s no substitute for systematic, transaction-level transparency.

There aren’t many conditions being placed on this money to begin with, to ensure it stabilizes the real economy, rather than flowing up to executives and investors. But transparency can help raise the pressure. Once you see that Company X received several billion in low-cost loans, you can tie it to what we already know about Company X: its executive compensation, use of financial engineering to reward investors, average worker pay. If conditions will ever be placed, they will happen because of the “name and shame” possibilities that accompany disclosure.

Relying on the Fed so heavily to save the economy already will shuttle the relief through large corporations and Wall Street banks. That’s how the Fed operates as an institution, and it colors our pandemic response. Operating in the dark is even worse.

We’ve already had this fight during the last bailout. The Fed claimed they were only giving banks “liquidity assistance” in the short-term to deal with a credit crunch. But this bailout will go to companies throughout the economy, with loans up to four years. Knowing this information is vital to knowing whether the taxpayer has been ripped off, on a galactic scale compared to the penny-ante small business loan schemes.

Eventually, Bloomberg sued the Fed and got some information about the 2008-2009 bailout. It may take that again. But career staff inside the Fed making the decision on what to disclose should know: they will lose credibility as an institution if they once again opt for secrecy. The public has a right to learn what’s being done in their name.

Odds and Sods

Over at the Prospect, we had several great environmental pieces around Earth Day: Gabrielle Gurley on the changes in our shuttered world and what they could mean for the environment; Graham Steele on why an oil bailout is a Wall Street bailout; and Donny Shaw on Democrats seeking that oil bailout, and the big money behind that decision.

Also today, we have a great piece from Rebecca Burns on how tenants across the country are being evicted from properties that are supposed to be protected from eviction under the CARES Act.

I also have a piece today on the website, about how the pandemic has shifted national politics outside of Washington, where people are re-discovering that governors have a lot of power to make policy.

All of our coronavirus coverage is at prospect.org/coronavirus.

What Makes Donna Run?

Our old friend Donna Shalala is feeling a bit of pressure to abandon her post on the bailout oversight panel. Yesterday, the Revolving Door Project and Demand Progress formally called on House leadership to encourage Shalala to step down. The Project on Government Oversight joined them, after Shalala admitted to violating the STOCK Act by failing to disclose stock transactions. “It’s unacceptable for a member who is apparently unfamiliar with the basic reporting requirements in the STOCK Act to serve on a congressional committee tasked with overseeing the federal government’s spending related to the current coronavirus crisis,” wrote Danielle Brian, executive director at POGO.

This is way too easy to explain: you have a member of an oversight panel who has admitted to being ignorant of oversight rules. The near-term fight, as written above, is about disclosure, and she didn’t disclose. Shalala has twisted into knots trying to explain this; in an interview with her local CBS affiliate, she said “I knew what the law was” but yet didn’t follow it multiple times.

For now, Nancy Pelosi is sticking by her friend, declining to withdraw the nomination. Spokesperson Drew Hammill said Shalala “has the Speaker’s complete confidence,” saying she’s “taken responsibility for her mistakes… and has been working with the Ethics Committee to address this issue since she became aware of it.” To be clear, she blew off STOCK Act reporting for a year and four months, until Tuesday.

We’ll see if the pressure rises, but it would be good to have someone in that position trying to get the Fed to release the names of the companies it will bail out instead of scrambling to explain why she broke the law.

No Remote Control

The House was all set to allow proxy voting until yesterday, when it was unceremoniously yanked from the floor. There was significant—maybe unanimous—Republican opposition to the idea. Now there will be a bipartisan study commission on the idea, which is what Washington does when they don’t want anything to happen.

It’s possible that the Democrats couldn’t get enough colleagues to Washington to win a vote on proxy voting. But at a real level, this is disenfranchisement of hundreds of millions of constituents and their representatives. Nancy Pelosi has been running a one-woman House for a month, without those meddling elected representatives and their concerns to deal with. Close to $3 trillion and counting has flown out the door with one person seeing the bill and signing off. No remote voting keeps that in place.

Pelosi must be feeling a little heat, because she adopted a fighting tone in an E.J. Dionne column this morning, vowing to originate the next response bill in the House and add all the things liberals wanted three bills ago. The column has a “just you wait until next time!” quality to it, but for weeks Pelosi has been insisting on the excellence of all the prior legislation, not its insufficiency.

Little of this matters without remote voting in place, however. This top-down approach is not tenable. Pelosi is a lame duck; she has vowed to step down in 2022, and a small number of Democrats could right now refuse to vote for her for Speaker after 2020 if the one-woman Congress continues. More pressure needs to bear on her to end the dynamic.

Today I Learned

• “Down” to 4.4 million first-time jobless claimants last week. Some of this is the backlog from previous weeks. (Calculated Risk)
• Dean Baker is right, we’re at 47,000 deaths and hovering around the peak, we’re going to blow past that incorrect 60,000 estimate soon. It should no longer be used as a benchmark. (Dean Baker)
• The “lucky duckie” low-wage worker on unemployment coverage is appalling. (The New Republic)
• Here’s an example of debt collectors coming for the stimulus checks. (Pro Publica)
• I’m truly appalled by this joint letter from banking groups and consumer advocates I respect, calling to stop private debt collector garnishment but with no mention of banks taking the payments. How could consumer advocates participate in this spin? (American Bankers Association)
• I’m sure you’ve seen Vic DiBitetto by now, but just in case. (Reddit)