When both parties in Congress came together in March to pass the CARES Act, which was signed into law by President Trump on March 27, the clear intention of the legislation was for the U.S. Treasury to hand over $454 billion of taxpayers’ money to the Federal Reserve. The Fed, in turn, was to leverage the money by 10 times to approximately $4.54 trillion to deploy to keep the economy moving, credit flowing, workers employed and businesses alive until the pandemic had been brought under control.
Fed Chairman Jerome Powell made an unprecedented appearance on the Today show on March 26 and explained the plan like this:
“In certain circumstances like the present, we do have the ability to essentially use our emergency lending authorities and the only limit on that will be how much backstop we get from the Treasury Department. We’re required to get full security for our loans so that we don’t lose money. So the Treasury puts up money as we estimate what the losses might be…Effectively $1 of loss absorption of backstop from Treasury is enough to support $10 of loans.”
But according to the latest H.4.1 release from the Federal Reserve (and backed up by recent Senate Testimony), six months after the CARES Act was signed into law, U.S. Treasury Secretary Steve Mnuchin has handed only $114 billion of the $454 billion over to the Fed. That leaves $340 billion allocated by Congress unaccounted for. (See Paragraph 5 (Liabilities) and the related footnote 14 at this link on the Fed’s H.4.1 release.)
The Federal Reserve’s H.4.1 release shows that the $114 billion it has received thus far from the Treasury has been allocated as follows: $10 billion to the Commercial Paper Funding Facility (CPFF); $37.5 billion to the Corporate Credit Facilities; $37.5 billion to the Main Street Facilities; $17.5 billion to the Municipal Liquidity Facility; $10 billion to the Term Asset-Backed Securities Loan Facility (TALF II); and $1.5 billion to the Money Market Mutual Fund Liquidity Facility.
The bulk of those programs are helping Wall Street, not Main Street. The one program actually called the “Main Street Facilities,” bears little resemblance to the kind of help actual Main Street businesses need right now. Minimum loan amounts in the Fed’s Main Street program are set at $250,000 while many businesses on real Main Streets in America would be highly reluctant to take a loan of that size, given the likely prospect right now that their business won’t make it.
What these businesses need more of are Paycheck Protection Plan (PPP) loans where the loan will be forgiven if they keep their workers on payroll. That would allow workers to avoid eviction and help small apartment building landlords stay out of foreclosure. The PPP program, run through the Small Business Administration, ended on August 8. Despite the desperate need, Congress can’t get its act together and pass a new PPP program.
A September 16 Local Economic Impact Report from Yelp indicates that while the Fed and Treasury have stonewalled Congress on what is happening with that $340 billion, 97,966 businesses have permanently closed.
The devastation has been particularly felt among restaurants, bars and clothing and home décor retailers. According to the Yelp study, as of August 31, there had been 32,109 restaurant closures with 19,590 of those indicated as permanent, or 61 percent. In the same time frame, 6,451 bars had closed with 3,499 reported as permanent (54 percent).
Among retailers, since the end of August, there has been 30,374 business closures with 17,503 (58 percent) of those indicated as permanent. And the trend is going in the wrong direction. Yelp reports that permanent closures among retailers have increased by 10 percent since July.
Another problem that Congress needs to remedy immediately is that despite regular promises from the Fed Chairman that the Fed will be transparent about its lending programs, there are four programs for which the Fed has yet to provide transaction level data – meaning the names of the borrowers and how much they borrowed. Those programs include: the Primary Dealer Credit Facility; the Commercial Paper Funding Facility; the Money Market Mutual Fund Liquidity Facility; and the Fed’s Repo Loan facility that sluiced over $9 trillion cumulatively to the trading houses on Wall Street beginning on September 17, 2019 – months before the first case of COVID-19 appeared anywhere in the world.
At a May 19 Senate Banking hearing — more than four months ago — Fed Chairman Jerome Powell stated this: “We have committed to disclose all of the borrowers and the amounts in a timely way.”
The Fed Chairman is increasingly running the risk of losing credibility with the American people.