Alex Brandon/AP Photo
We have a planned economy, and the man pictured above mostly runs it.
First Response
On the same day that Congress added $321 billion for Paycheck Protection Program forgivable small business loans, the PPP got another cash infusion, from companies giving back their loans. The much-maligned Ruth’s Chris Steakhouse returned $20 million on Thursday, as did salad chain Sweetgreen, the Kura Sushi family of restaurants, and several other relatively large public companies.
It wasn’t Congressional action that led to this exodus; all these firms were technically eligible for PPP under the rules. But Steve Mnuchin and the Treasury Department reset the program. In new guidance, Treasury emphasized that PPP recipients must certify that the loan is “necessary to support the ongoing operations of the Applicant,” and that publicly traded companies with access to capital markets would be “unlikely” to meet that standard. They could return the money by May 7 and face no sanction, a clear signal that failure to return it would trigger investigation. Mnuchin said that out loud on Thursday, in fact.
So Treasury, by essentially threatening bigger companies that they would be in legal and financial trouble if they kept the loan money, dictated this response. Public outcry at Ruth’s Chris and others necessitated this response, but Treasury had to pull the trigger and preserve the reputation of the program.
You can see the emphasis on the individual firms as a way to protect big banks, which clearly gave special treatment to high-level business clients. With $10 billion in fees at stake and no real difference between processing a $100,000 PPP loan and a $10 million one, it was obvious that big banks would structure the order of the loans in favorable ways. But though Congressional leaders have questioned bank CEOs about this activity, Mnuchin has remained quiet on that program abuse. You’ll remember that Treasury doubled the interest rate on PPP loans before the program got started.
Read all of our Unsanitized reports
Meanwhile, let’s point out the guidance Treasury has yet to make: protecting the $1,200 CARES Act payments from banks and private debt collectors grabbing them to cover outstanding debts. The last we heard was that Treasury was “reviewing” the situation on Monday. We’ve since heard more real-world examples of payments being taken by banks and debt collectors. Some states have stepped up, but Treasury hasn’t budged. Congress callously wasted the opportunity to fix this by protecting the payments from private debt collection in the legislation that passed yesterday. But that doesn’t get Treasury off the hook. A Treasury spokesperson told me they have not yet come to any decision on the matter.
Because we have effectively a planned economy, planned by mostly one man named Steve Mnuchin, his whims form the basis for how our economy works. If he wants an oil bailout, as he hinted at yesterday, we’ll get an oil bailout. If he wants equity stakes from bailed-out companies, we’ll get equity stakes. Whatever Mnuchin wants, Mnuchin gets. Sometimes that’s accidentally good, as you can argue in the case of kicking public companies out of the PPP loans (they’re sure to have a safety net in the Federal Reserve’s so-called Main Street lending program, so I wouldn’t worry about them). Sometimes it’s not.
Mnuchin’s life experience plays into this decision-making. Mnuchin bought a failed subprime lender and turned it into one of the worst banks during the foreclosure crisis; so now he looks away when they structure PPP loans and grab checks meant for desperate people to survive. I’d expect special treatment for Hollywood producers and Wall Street friends of he Treasury Secretary. As Mnuchin is a Trump loyalist, there should be a lot of concern about how he manages bailout terms for cronies and affiliates of the president. Power has been handed over to an transactional mediocrity making monumental decisions seemingly based on personal relationships. Welcome to Mnuchin-mnomics.
Check This Out
I was on The Young Turks discussing the “banks steal the checks scandal.” Watch here.
I was on the BradCast with Brad Friedman discussing Donna Shalala. Listen here.
I was on Democracy Now today talking about the just-passed coronavirus response bill and the possibilities for the next one. Here’s a quick hit of it here, and the rest will be on the Democracy Now website.
Sometimes You Win One
Yesterday, I told you about a major fight over Federal Reserve transparency, as the central had not clarified whether it would disclose the names of companies receiving bailout funds. Later that day the Fed announced that it would release monthly reports about which companies received bailouts, at what size, and with what interest rate. Bharat Ramamurti, who had been urging this step, called it “a significant victory for the public.”
This mostly complies with existing law. The Dodd-Frank Act required the Fed to disclose this kind of information in all emergency lending programs under Section 13(3). There was some wiggle room in that language that the Fed could have fought on, but that would have defied reality. Matt Stoller of the American Economic Liberties Project authored that Fed transparency piece of Dodd-Frank. As he told me, “In 2010 the Fed told everyone that the world would collapse if there were any disclosure. It didn't collapse. And the Fed knows it.”
We’ll know how meaningful the Fed’s promise is later, when it releases the first set of disclosures. The Fed has also yet to explain whether it will apply this standard to other programs that don’t involve CARES Act funds. And for programs like the Term Asset-Backed Securities Loan Facility, used to purchase securitizations, will we get a list of the securities, or the underlying business loans inside?
Plus, it should be said, beyond just disclosure, the Fed could also police its programs on the front end, by attaching real conditions to the bailouts and mandates for the banks it oversees to serve the real economy rather than themselves. Nobody finds this a likely outcome, but the Fed took the hint that passing off trillions of dollars in secret would look bad. So would enabling extreme corporate concentration through virtually unlimited support for the biggest businesses in America, particularly if they use the proceeds to reward investors and attack workers. The Fed has alternative means to support economic recovery than propping up Wall Street. We’ll be watching to see what they do.
Sometimes You Don’t
Sadly, the reason why anyone who wants to see a semblance of an equitable recovery has to beg the Federal Reserve to protect its reputation is that Congress has ceded so much control. Yesterday’s passage of an interim bill includes necessary support for small business and surging testing. It doesn’t fix any of the problems with the existing programs, however, and leaves on the table numerous priorities like rent relief, vote by mail guarantees, a postal service rescue, workplace safety standards, direct payroll support, food stamp increases, state and local government support, and automatic triggers to keep help flowing. I don’t know why anyone thinks Republicans who got their corporate bailout and now assistance to smaller businesses will have any incentive to give on these priorities.
“We go into the next round in an even weaker position,” said Angel Padilla, national policy director for Indivisible. The coalition of district-based membership group is asking House Democrats to “make clear now that you will oppose any bill in the next round that does not put the majority of focus on the People’s agenda that Americans desperately need.” Left-wing members of the Squad have asked for a specific timeline of what that next bill will come, and the Congressional Progressive Caucus co-chairs gave Speaker Pelosi a laundry list of ideas.
The undercurrent of all this, however, is a recognition that the leverage is just about gone. Pelosi played one-woman Congress, pushing off liberal priorities to the next bill and the next bill and the next. Such priorities are difficult to advance with Republicans in the White House and the Senate; only a crisis can do the job. With the business bailout, the GOP sees the crisis as lifted.
Unified opposition from progressive groups didn’t stop anyone from voting for the bill yesterday except for Alexandria Ocasio-Cortez. “Up until now, Speaker Pelosi has not felt any pressure from members of Congress or the public,” Padilla said, outlining Indivisible’s strategy. “If you have enough members saying they would not play ball, that would change the dynamic. The only way to do that is if they’re hearing from the public that they’re not happy with the outcome.”
Today I Learned
- RIP to Don Herring, Elizabeth Warren’s oldest brother, from the coronavirus. (Boston Globe)
- Seen as a promising potential treatment, the remdesivir trial appears to flame out. (Politico)
- Voter registration is way down during the pandemic. (The Guardian)
- Online consumer loans experience massive defaults. (Forbes)
- Over 3.4 million homeowners in mortgage forbearance plans. What happens when the balloon payments come due? (Calculated Risk)
- Lottery sales way up, as a magnet for desperation. (Houston Chronicle)
- Parks and Rec reunion coming for COVID-19 relief charity. (Twitter)
