Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell were pressed by senators Tuesday about their management of the government’s emergency relief programs deployed to ease the pandemic hit to American families and businesses.
“The CARES Act is the biggest rescue package in the history of Congress, and we need to make sure the dollars and program quickly find their mark,” Senate Banking Committee Chairman Mike Crapo (R-Idaho) said at the beginning of the hearing, held remotely.
Treasury and the Fed have set up roughly a dozen programs designed to keep American families and businesses afloat during the outbreak of COVID-19, the disease caused by the Chinese Communist Party (CCP) virus, commonly known as the novel coronavirus. The CARES Act requires Mnuchin and Powell to give quarterly testimony on Capitol Hill about how the programs are working.
Mnuchin began his remote testimony to the Senate Banking Committee by “acknowledging the unprecedented challenges the American people are experiencing due to the COVID-19 pandemic,” adding that Treasury was busy implementing the $2 trillion CARES Act, which includes the embattled Payroll Protection Program (PPP) for small businesses, administered by the Small Business Association.
Initially slated to provide $349 billion in small business loans, the PPP funds were quickly depleted, with some businesses complaining they were left out. The program was later topped up via an emergency funding bill, with roughly a third of the $310 billion from round two still available, according to Connecticut State Rep. Tom Delnicki (R), a ranking member of the legislature’s banking committee.
While reported to be going more smoothly than round one, the second round of PPP loans faced computer processing delays and a number of publicly-traded companies ended up receiving money that Mnuchin demanded be paid back to the government.
“The purpose of this program was not social welfare for big business,” Mnuchin told CNBC. “The purpose of this program was to help small businesses.”
The PPP program extends loans of up to $10 million, which are forgiven if firms spend the money mostly on paying workers, who must be kept on the payroll for eight weeks. The idea was to encourage companies not to lay off staff amid the outbreak and so minimize the social impact of the pandemic. Also, because firms would spend less time on rehiring workers and rebooting their businesses once stay-at-home orders are lifted, the policy would support a robust economic rebound.
As more states reopen businesses, the government is closing in on the end of the eight-week PPP program, prompting calls to extend it, which President Donald Trump said on Monday “should be easy.”
Mnuchin said that so far, the paycheck program has processed more than 4.2 million loans for over $530 billion “to keep tens of millions of hardworking Americans on the payroll.”
In a bid to get funds to small businesses more effectively, Mnuchin said in prepared remarks many smaller financial institutions were taking part in the program, including nearly 400 Community Development Financial Institutions and non-bank lenders.
“I am proud to have worked with all of you, on a bipartisan basis, to get relief into the hands of hardworking Americans and businesses as quickly as possible,” Mnuchin said, adding that the relief programs “are making a positive impact on people.”
Sen. Elizabeth Warren (D-Mass.), who called the backdrop of Tuesday’s hearing “the worst economic crisis in our lifetimes,” criticized Mnuchin for not including stronger requirements to keep workers on the payroll for businesses borrowing from the Fed under a separate $500 billion set of programs, dubbed “13(3) facilities.”
“We’re in a situation where 35 million Americans have filed for unemployment,” Warren said. “You’re in charge of half a trillion dollars. You’re boosting your Wall Street buddies and you are leaving Americans behind.”
Mnuchin disputed Warren’s characterization and said the conditions attached to the Fed programs were negotiated “on a bipartisan basis” with Congress.
“It is our intent in the 13(3) facilities to fulfill both the spirit and the details of the law,” Mnuchin said, adding, “different facilities have different requirements.”
Sen. Crapo pressed Mnuchin and Powell about the disbursement of the 13(3) facilities, set up to provide loans and loan guarantees to ailing businesses and local governments, asking, “most of that has not yet played out, correct?” The senator’s question followed a separate congressional oversight panel report, which found the 13(3) facility programs have disbursed very little of the $500 billion, which includes $46 billion in loans and loan guarantees to the airline industry.
Mnuchin said around half the remaining $454 billion had been allocated, leaving the rest to create or expand programs as required. He said that the delay with committing the full amount was due to some of the programs still getting up and running, adding that Treasury was “fully prepared to take losses in certain scenarios” on that capital.
Clarifying the Treasury’s preparedness to take on some lending risk, Mnuchin said in a separate exchange with Sen. Mark Warner (D-Va.) that “there are scenarios within [the business lending programs] where we could lose all of our capital, and we’re prepared to do that. And there are scenarios where the world gets better, and we could actually make a small amount of money.”
“Our intention is that we expect to take some losses on these facilities. That’s our base case scenario,” Mnuchin said.
Mnuchin also said the administration had sent out over 140 million stimulus checks, officially known as Economic Impact Payments, amounting to over $240 billion in direct relief to American families.
“We are sympathetic to hardworking Americans and businesses enduring tremendous challenges due to the COVID-19 pandemic,” he said.
“We have had to take unprecedented steps to shut down significant parts of the economy in the interest of public health,” Mnuchin added. “As a result, in the second quarter of this year, we are continuing to see large unemployment and other negative indicators.”
The outbreak of the CCP virus has battered economies worldwide.
In the United States, the virus-related lockdowns and plummeting demand destroyed a record 20.5 million jobs in April, according to Labor Department figures released May 8, and pushed the unemployment rate to 14.7 percent, both post-World War II records.
“This precipitous drop in economic activity has caused a level of pain that is hard to capture in words, as lives are upended amid great uncertainty about the future,” Powell said in prepared remarks ahead of the hearing. “In addition to the economic disruptions, the virus has created tremendous strains in some essential financial markets and impaired the flow of credit in the economy.”
“This is a time of great suffering and difficulty,” Powell told CBS in an interview aired on “60 Minutes” on May 17, during which he estimated that second-quarter economic activity, as measured by gross domestic product (GDP), could fall by an annualized rate of more than 30 percent.
“The numbers are going to be very high. And it’s hard to be precise. I wouldn’t want to guess,” he said. “[It] could easily be in the 20s or 30s.”
Still, Powell said the Fed is “not out of ammunition by a long shot,” referring to the range of crisis response tools the central bank has deployed to shield businesses and families from the worst of the outbreak.
“Together we will destroy the COVID-19 virus, and our country will emerge from the pandemic stronger than ever,” Mnuchin said in his testimony.
The Associated Press contributed to this report.