JL/Sipa USA via AP Images
Unsanitized-061820
Small businesses like Juana's Latin Sports Bar & Grill in Miramar, Florida, are still hurting, yet applications for small business relief are closing.
First Response
One thing I’ve been on about around here is that you cannot call the CARES Act a success when so much of its features for ordinary people are temporary, contrasted with the limitless funds available to the largest corporations in America. I thought I knew about all the time limits in the bill: for boosted unemployment, eviction and foreclosure moratoria, federal student loan payments, one-time stimulus checks. But there’s another deadline in there, apparently, and it’s absolutely confounding.
Small businesses have a deadline of June 30 to apply for the Paycheck Protection Program, and in advance of that some banks have already closed their application process. This deadline is not anywhere in the text of the bill that replenished the PPP with $322 billion in new funds. But Senators had asked the Small Business Administration to “clarify” the end date of the application process, and they set it to less than two weeks from now.
The latest numbers as of Wednesday afternoon show that $513.4 billion out of the $669 billion kitty for PPP loans has been used. So there’s $156 billion left available in the program, with less than two weeks to go. Even if you take out the roughly $15 billion in lender fees (they get between 1 and 5 percent of each loan), you’re still at over $140 billion left.
For the past few weeks, applications have slowed to a trickle, as small businesses waited for new guidelines that would give additional flexibility on the timeline to spend PPP funds and how the money could be used. Congress just passed the “flexibility” bill a week ago, and the guidance came out only yesterday. And we’re going to cut off this program in 12 days with $140 billion still out there?
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To be clear, creating a deadline for this program (kind of out of thin air) just deprives the $150 billion authorized by Congress to circulate into the economy. As PPP is largely a pass-through to workers at small businesses, pulling back that $140 billion will almost certainly lead to layoffs. Maybe you think that’s preferable for low-wage workers, who get boosted unemployment checks that could exceed their salaries. But of course, that cuts off at the end of July, which is fast approaching. Would you rather have a bit larger check for 5 weeks and no job at the end, or a smaller check for 8 weeks, and health insurance if you get it, and maybe keep your job after?
If this deadline holds and SBA just leaves all that Congressionally-appropriated money unspent, it makes the witch hunt by “accountability” groups seeking “undeserving” companies (the Shake Shacks of the world) getting PPP funds all the more ridiculous. If that money was merely shifting from undeserving to deserving businesses, maybe there was some justice being served. But if all that money given back just never gets spent, all these groups did was get people at Shake Shack and elsewhere fired. The nature of the program moved the money out of those companies and to its workers. Congratulations, accountability groups, you destroyed a bunch of jobs in the name of righteousness!
Amazingly, this is the main thing Democrats appear to be worried about with PPP, with under two weeks in the application process. House Democrats wrote to SBA yesterday, not to get her to extend the absurd deadline, but to comply with GAO transparency requests on who got the money. Pressure is building on this front. The only reason to focus on this is to call out the “undeserving” companies, and frankly, we have better things to do when $140 billion in Congressionally appropriated funds about to lie fallow.
PPP was not a well-designed program, a too-small bridge over a chasm. Restaurants trying to re-open right now are so tied up with paying debts to suppliers that they can’t afford the food they need to sell to get revenue. A new paper out finds that PPP didn’t even do that much for employment.
But $140 billion is $140 billion, and it’s insane that it would be cut off from those who might need it because of some arbitrary deadline. Fed chair Jerome Powell keeps warning Congress that more stimulus will be needed to prop up the economy. Here we have SBA actively scheming to reduce the stimulus already provided. Why is nobody speaking out about this?
I’ll just add that the Fed has yet to spend hardly any of its $4.5 trillion money cannon, but there’s no deadline for that. Deadlines are for the little people.
Odds and Sods
There’s a lot you don’t want to miss at the Prospect main site. It’s been an amazing week. We have Nathan Tankus on riots and economic policy; Stan Greenberg on the Tea Party’s last stand; me on Big Tech’s dwindling defenders; Eli Clifton on foreign policy think tanks failing to disclose foreign money sources; Mehrsa Baradaran’s great essay on the racial wealth gap and Adam Levitin with a simple step for how to begin closing it; Gabrielle Gurley on D.C. Mayor Muriel Bowser’s bloated police budget proposal; Zephyr Teachout and Shaoul Sussman on a new Amazon patent that would give them panopticon-like power over third-party sellers; and Robin Kaiser-Schatzlein on private equity getting into 401(k) plans, poised to rob $13.7 billion a year from retirement savers for no better returns. (We even got Joe Biden to call out that.)
While I’m holding down the coronavirus coverage, our team is all over the rest of the news and politics landscape. Check out our latest.
Public Program Deemed Too Popular
Fed chair Jerome Powell testified before the House Financial Services Committee yesterday, and there were a couple amazing moments. First, watch Guam Congressman Michael San Nicolas show up Powell’s bloodless way of denying ordinary Americans help in U.S. territories. As Amanda Fischer explains, the Fed is misusing an old rule about solvency to deny territories that are not insolvent money, while not putting the same screen on the insolvent oil and gas exploration sector, for example. Creative solutions don’t get applied to the little guy, only the big boys.
This exchange with Stephen Lynch is even crazier. For background, one of the problems in the crisis has been actually reaching individuals and getting them money. Some stimulus checks are still delayed. The simple solution to this, building the infrastructure to provide individuals relief instantly when needed, was devised by Morgan Ricks, John Crawford, and Lev Menand. It’s called the FedAccount; essentially everyone gets a bank account at the Fed, making benefit distribution simple. Maxine Waters, chair of the House Financial Services Committee, has championed it. Banks can get accounts at the Fed; why not everyone?
When Lynch asked Powell about the FedAccount, Powell responded, “I would worry what would happen to the rest of our private banking system, because an awful lot of people would opt to keep their personal money at the Fed. And then who would do the lending?”
Josh Mason has this right: Powell really said that the Fed doesn’t want to offer accounts to people because people would like them too much. “This is [a] widespread argument against public goods, but you don't usually hear it so explicitly,” Mason tweeted. As for “who would do the lending,” the answer is that banks could get cheap discount window loans from the Fed. The Fed could outsource deposits to banks to lend, essentially. Or the Fed could do the lending. “Powell has laid the marker down for advocates of public banking,” Mason concludes. “You all need to make the case that we don't need to grant private banks a monopoly on deposit-taking in order to subsidize socially desirable lending.”
See also this great Steven Pearlstein piece on the Fed bailout.
Days Without a Bailout Oversight Chair
83.
Today I Learned
- Essentially flat on first-time jobless claims, with another 1.5 million last week. Continued claims, including gig and freelance workers, at around 30 million. (Calculated Risk)
- U.S. stuck with 63 million doses of hydroxychloroquine, in case there’s a malaria attack. (CNN)
- More coronavirus cases are simply going to produce an economic stall-out, and investors don’t seem to be reckoning with that. (The Week)
- Great Rick Perlstein big-picture piece on the pandemic and market logic. (In These Times)
- Sutter Health broke antitrust law and settled with the state of California. Now it’s invoking the “pandemic made us broke and we can’t pay” defense. (Kaiser Health News)
- Native tribes had to sue the Treasury Department to hand over CARES Act funds specifically appropriated to them. (HuffPost)
- The SEC halted the Hertz stock sale, which Hertz told would-be investors would amount to throwing money in the garbage. (CBS Marketwatch)
- Google allowing scammers to run ads targeting desperate people seeing their stimulus money. (Tech Transparency Project)
