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.
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 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.”
“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.”
“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.”
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.
“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.
