The Washington Post - USA (2020-10-20)

A20 EZ RE THE WASHINGTON POST.TUESDAY, OCTOBER 20 , 2020

“I have over $200 billion of money that was allocated for the Federal Reserve facilities with the Treasury. I’m not going to need that,” Mnuchin said Wednesday on Fox Business. Meanwhile, the Treasury De- partment and Federal Reserve have faced increasing pressure to make their borrowing facilities more attractive to private companies and local governments, with or without Congress. Some economists warn that businesses and local governments, whose budg- ets have been wrecked by the pandemic’s fallout, still urgently need help. Those are the exact areas that two of the Fed’s lending programs are intended to address. But those programs have seen meager uptake and little participation from big banks, and critics say that the programs’ onerous terms significantly limit the amount of money that can get out the door. The Fed’s “Main Street” lending program has the capacity to issue up to $600 billion in loans to midsize businesses. But for months, businesses and banks have said that the program’s rules are so restrictive that companies desperately in need of a lifeline are being turned away. The on- going question is whether the Fed and Treasury can agree on a new set of rules to significantly expand the reach of the program, although the Treasury Depart- ment has favored a more con- servative approach in the past.

In a letter to Trump on Thurs- day, the chief executives of several leading national hotels urged Trump to approve an executive order to make it easier for firms to borrow from the Main Street lending program (MSLP). “We believe you have the power to call for immediate modifica- tions to the MSLP to increase participation and help thousands of businesses,” said the letter, which was signed by the CEOs of Hilton, Marriott International and Hyatt Hotels, among other leading hotel firms. Opening the program to riskier loans could prove difficult, because any losses are ultimately covered by taxpayer dollars. But even now, of the $195 billion that has already been committed by the Treasury Department to support the Fed’s programs, $75 billion has been set aside to cover any losses from the Main Street program. As of Wednesday, the program had a total of $3 billion in loans on the balance sheet. Back in the spring, the Fed also announced a program that could issue up to $500 billion in loans to states and municipalities. But the Fed’s program has issued only two loans — to the state of Illinois and New York’s Metropolitan Transportation Authority — for a total of $1.6 billion. Of the $195 billion committed from the Treasury Department to support the Fed’s program, $35 billion was set aside to cover any losses from the municipal lending program.

As financial relief remains idle, cities and states have begun ex- ploring budget cuts to make up for revenue shortfalls, with Chi- cago and New York City contem- plating dramatic cuts to their workforces. Fed leaders say it is a good sign that the municipal lending program has seen little uptake, as the municipal bond market perked up once the Fed announced the program. That market has almost

entirely healed, allowing governments to borrow at cheaper rates and with longer timelines. But economists and local gov- ernment officials say that the Fed should extend the amount of time localities have to pay back their loans under the central bank’s program, or that the Fed should lower the interest rate on its loans. In a statement, a Treasury rep- resentative said that since March, the department has “remained flexible and responsive to both public feedback and economic conditions.” “The Federal Reserve, in con- sultation with Treasury, has mod- ified the terms of the lending

programs since they were announced to expand and enhance these programs and ensure broad access to credit and liquidity. We will continue to monitor the im- pact of these programs and will not hesitate to act as needed to support the economy,” the repre- sentative said. The stakes are high for Carme- la Roth and her 13-year-old company specializing in meeting and event planning, plus promotional items and apparel. The pandemic has wiped her California-based business clean of bookings, ex- cept for some virtual ones. Roth has laid off seven people from a staff of 25. Roth’s company received about $330,000 from the PPP program and another $150,000 from the Economic Injury Disaster Loans program. Roth has contacted more than 15 banks hoping to get a loan through the Fed’s Main Street program. Every one turned her away. Under the program, banks have flexibility to set their own terms. In some cases, Roth was told she didn’t qualify because she didn’t own commercial real estate, which could be used as collateral. One bank told Roth to take out a loan against her house — and then offered to pray for her. “They need to scrap [the Main Street lending program],” Roth said. “It’s a failure. No matter how much they improve it, it allows banks to use their lending guide- lines. Therefore, no small busi-

BY RACHEL SIEGEL AND JEFF STEIN

The White House and Congress
are fighting over an economic
relief bill, and odds appear low
they will reach a deal before the
November election. Yet hundreds
of billions of dollars already set
aside by lawmakers to support
the Federal Reserve’s emergency
aid programs may never be
touched, illustrating the uneven-
ness of Congress’s bailout deci-
sions from earlier this year.
In March, Congress allotted
$454 billion to the Treasury De-
partment to support the central
bank’s emergency lending pro-
grams, including those for strug-
gling businesses and local gov-
ernments. Of that pot, $195 bil-
lion has been specifically commit-
ted to cover any losses the Fed
might take, including through
loans that companies fail to repay.
Seven months into the crisis, the
remaining $259 billion still has
not been committed to any of the
Fed’s specific programs or for any
other purpose, and it is unlikely
that it will be anytime soon.
The fate of this money — and
its inability to address remaining
cracks in the economy — shows
the surprising limits of the nearly
$3 trillion in emergency aid Con-
gress approved early in the pan-
demic. Federal Reserve and
Treasury Department officials say
there are ways the money could
be repurposed to more directly
reach businesses and workers but
say they cannot do so without
congressional approval. White
House officials tried redirecting
the money without congressional
approval but were told by admin-
istration attorneys that they
could not do so legally, according
to two people who spoke on the
condition of anonymity to de-
scribe internal conversations.
“It’s a total mismatch of re-
sources,” said Ernie Tedeschi, a
former Treasury Department
economist and head of fiscal
analysis at Evercore ISI, an in-
vestment banking advisory firm.
Now, as many companies con-
tinue to lay off workers or close
altogether, the fate of these funds
looms large while millions of
Americans are barely getting by
and are holding out hope for
Congress and the White House to
cut a deal. Treasury Secretary
Steven Mnuchin and House
Speaker Nancy Pelosi (D-Calif.)
have been in talks for days, but
President Trump keeps changing
the terms of what he is willing to
offer.
Republican lawmakers have
expressed openness to pass legis-
lation to immediately repurpose
these funds, but Pelosi has reject-
ed that approach in favor of a
more comprehensive bill.

ness in this economy will ever be considered a ‘good risk.’ The money will just sit there... What they need to do is take that money and do additional rounds of PPP.” White House officials have ex- plored whether the leftover money can be reallocated to other purposes without approval from Congress. They have looked into using the money for another round of $1,200 stimulus checks, or small-business relief through the Paycheck Protection Pro- gram, but have been told by attorneys at the Treasury Department that they cannot do so legally because Congress has power over spending decisions under the Constitution, according to two people who spoke on the condition of anonymity to disclose internal administration delibera- tions. Federal Reserve Board Chair Jerome H. Powell and Mnuchin have repeatedly called for more targeted aid from Congress, saying the Fed’s programs aren’t designed to meet the needs of many businesses and local governments, particularly those that can’t afford to go into more debt. Testifying before the House Fi- nancial Services Committee last month, Mnuchin said he would reallocate $200 billion of the overall $454 billion pot to support children — perhaps through money to schools — and protect jobs in hard-hit industries. Asked by the committee’s chairwoman, Rep. Maxine Waters (D-Calif.), whether the Treasury Department could further enhance the existing programs, Mnuchin said, “I unfortunately think there’s not more we can do.” “Almost every single one of the facilities has extra capacity,” Mnuchin said, adding that the money could be reallocated “to better use.” Powell said last month that he expects the Main Street lending program could cover up to $30 billion in loans by the end of

Fed leaders often warn that
a second wave in coronavirus cas-
es, or a persistent slowing in the
economic recovery, could spur
more demand for Main Street
loans over the coming months.
Still, the Fed can only lend
money, and Powell has acknowl-
edged that many businesses can’t
afford to go into more debt and
would instead benefit from direct
grants, similar to those from the
Paycheck Protection Program. At
a hearing last month before the
House Financial Services Com-
mittee, Powell said the program
was seeing little demand for loans
under $1 million, and that a facili-
ty geared toward relatively small
loan amounts “would have to be a
different kind of facility” than
Main Street.
“Trying to underwrite the cred-
it of hundreds of thousands of
small businesses would be very
difficult,” Powell said. “I think
PPP is a better way to address that
space in the market.”
[email protected]
[email protected]

Amid s cramble for new aid, the Fed is sitting on billions

TONI L. SANDYS/THE WASHINGTON POST Federal Reserve Board Chair Jerome H. Powell, right, during a Senate committee hearing examining the quarterly Cares Act report to Congress on Sept. 24 in Washington. The Fed’s emergency lending programs have $259 billion that still has not been committed.

Officials say funds can’t be repurposed without Congress’s approval

“It’s a total mismatch

of resources.” Ernie Tedeschi, a former Treasury Department economist

on health care and testing provisions, with Energy and Com- merce Chairman F rank Pallone Jr. (D-N.J.) saying Democrats could not sign off on what would amount to a “slush fund” for the administration. There also were still disagree- ments over small business funding and a variety of other issues. Meanwhile, Senate Majority Leader Mitch McConnell (R-Ky.) — who has rejected spending the enormous sums Pelosi and

Mnuchin are discussing — announced the Senate will be vot- ing Tuesday and Wednesday on much more targeted bills. On Wednesday, the Senate will take up a bill to replenish the small- business Paycheck Protection Program and McConnell will try to advance an approximately $500 billion bill that includes money for schools, vaccines, some new unemployment insur- ance and more. Senate Democrats blocked the

same legislation last month, saying it’s insufficient because it leaves out multiple priorities, including $1,200 stimulus checks for individuals that are part of the package under discus- sion by Pelosi and Mnuchin. It appears destined to meet the same fate this week. Senate Minority Leader Charles E. Schumer (D-N.Y.) blasted the legislation Monday as “emaciated” and said: “The Republican proposal was unac-

BY ERICA WERNER AND JEFF STEIN

House Democrats and the
Trump administration remained
far apart Monday in economic
relief negotiations, and a resolu-
tion looked unlikely ahead of the
Tuesday night deadline set by
House Speaker Nancy Pelosi for a
deal that could pass before the
election.
President Trump seemed to
downplay chances for an out-
come, telling reporters that
“Nancy Pelosi, at this moment,
does not want to do anything
that’s going to affect the election.
And I think it will affect the
election negatively for her. So
we’ll see what happens.”
But Pelosi insisted in a call
with Democratic colleagues that
she did want to pass legislation
before the election, saying she
didn’t want to carry “the drop-
pings of this grotesque elephant
into the next presidency,” accord-
ing to a person on the call who
spoke on the condition of ano-
nymity to discuss it. The el-
ephant comment was first re-
ported by Politico.
She spoke by phone for nearly
an hour Monday afternoon with
Treasury Secretary Steven
Mnuchin, with whom she’s been
holding regular negotiating ses-
sions over a bill between $1.8 tril-
lion and $2.2 trillion. The two

“continued to narrow their dif- ferences” and “the speaker con- tinues to hope that, by the end of the day Tuesday, we will have clarity on whether we will be able to pass a bill before the election,” Pelosi spokesman Drew Hammill said on Twitter. Pelosi set the Tuesday deadline in an appearance on a Sun- day talk show, indicating that if no agreement was reached by Tuesday night, it would not be possible to get legislation passed before the Nov. 3 election. It was unclear precisely what Hammill meant by “clarity,” and he de- clined to elaborate. Hammill said staff would be working around-the-clock, but the divisions appeared signifi- cant. The stock market slid Monday as hopes faded for a deal. The Dow Jones industrial average fell 411 points, or 1.4 percent. Before speaking with Mnuchin, Pelosi had joined a conference call with House Dem- ocrats where she and senior Democrats detailed multiple areas where the two sides remain at odds, including liability pro- tections sought by the administration for businesses. “There isn’t a single Democrat who could vote for a bill with those provisions,” Rep. Diana DeGette (D-Colo.) said on the call, according to several people listening in, who spoke on the condition of anonymity to describe it. Pelosi said there still was not agreement for funding levels for state and local governments, a key Democratic demand. And the two sides continued to wran- gle over language for spending

ceptable a month ago. It remains unacceptable.” He also said it was designed only to give the Republicans political cover. McConnell, however, accused Democrats of taking an “all-or- nothing approach,” and said, “The speaker’s Marie Antoinette act needs to end.” Congress has not passed any new economic or health care relief since an unprecedented $ trillion burst of spending when the epidemic started in the spring. Many of those programs have since run their course, the economy is weakening and coronavirus cases are spiking around the country. A number of House Democrats have been pressuring Pelosi to make a deal now, before the election — a viewpoint expressed on Monday’s call by Rep. Susie Lee (D-Nev.), according to people on the call. But with Trump making a series of erratic pronounce- ments, including ending the talks altogether only to restart them and saying he wanted to spend even more than the Demo- crats, Pelosi has been holding out for more. It’s not clear that any deal struck by Mnuchin and Pelosi could even pass the Senate. Mc- Connell said over the weekend that if Mnuchin and Pelosi come to an agreement, “the Senate would of course consider it.” Trump told reporters Monday that if a deal is reached, “Repub- licans will come along,” declining to say if he’d spoken with McCon- nell. [email protected] [email protected]

Pelosi and Mnuchin continue stimulus negotiations but remain far apart

SARAH SILBIGER/GETTY IMAGES House Speaker Nancy Pelosi (D-Calif.) has set a Tuesday night deadline to reach a deal on a new coronavirus aid package that could pass before the election, but a resolution is looking unlikely.

Meanwhile, McConnell says Senate will vote Tuesday on targeted bills

The Washington Post - USA (2020-10-20)

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