Bi­den team slams Trea­sury de­ci­sion on lend­ing pro­grams

Calls cur­tail­ing of Fed emer­gency pow­ers ‘deeply ir­re­spon­si­ble’

The Washington Post - - ECONOMY & BUSINESS - BY JEFF STEIN AND RACHEL SIEGEL jef­frey.stein@wash­ rachel.siegel@wash­

Pres­i­dent-elect Joe Bi­den’s tran­si­tion team con­demned the Trump ad­min­is­tra­tion’s de­ci­sion to end sev­eral emer­gency lend­ing pro­grams, blast­ing the move Fri­day as “deeply ir­re­spon­si­ble” given the on­go­ing eco­nomic threats posed by the pan­demic.

Bi­den’s team has not been in com­mu­ni­ca­tion with the Trea­sury De­part­ment and had no ad­vance no­tice that Trea­sury Sec­re­tary Steven Mnuchin would pull the plug on sev­eral emer­gency lend­ing pro­grams run jointly by the Trea­sury and Fed­eral Re­serve, ac­cord­ing to Bi­den pol­icy ad­vis­ers.

Aides to the pres­i­dent-elect have looked at the unspent aid as one of many po­ten­tial tools to boost the flag­ging econ­omy Bi­den is set to in­herit on Jan. 20, the ad­vis­ers said. Some of the lend­ing fa­cil­i­ties, such as the trou­bled Main Street Lend­ing Pro­gram, have is­sued few loans and could be re­vamped to of­fer more-gen­er­ous as­sis­tance to small busi­nesses. In a let­ter re­leased Thurs­day, Mnuchin re­quested that unspent money be re­al­lo­cated, a de­ci­sion that would re­quire co­op­er­a­tion from the Fed.

“The Trea­sury De­part­ment’s at­tempt to pre­ma­turely end sup­port that could be used for small busi­nesses across the coun­try when they are fac­ing the prospect of new shut­downs is deeply ir­re­spon­si­ble,” Kate Bed­ing­field, a Bi­den spokes­woman, said in a state­ment. “At this frag­ile mo­ment, as the COVID and eco­nomic crises are re-ac­cel­er­at­ing, we should be re­in­forc­ing the gov­ern­ment’s abil­ity to re­spond and sup­port the econ­omy.”

Bed­ing­field’s com­ments come amid grow­ing com­plaints that the Trump ad­min­is­tra­tion is im­ped­ing the in­com­ing Bi­den ad­min­is­tra­tion’s tran­si­tion to power early next year. Dur­ing the Great Re­ces­sion, the out­go­ing Ge­orge W. Bush ad­min­is­tra­tion worked closely with the in­com­ing Obama ad­min­is­tra­tion on eco­nomic plans so as to give it max­i­mum flex­i­bil­ity on pol­i­cy­mak­ing de­ci­sions.

On Thurs­day, the Fed re­sponded to Mnuchin’s de­ci­sion with an ex­tra­or­di­nary re­buke, say­ing the cen­tral bank “would pre­fer that the full suite of emer­gency fa­cil­i­ties es­tab­lished dur­ing the coro­n­avirus pan­demic con­tinue to serve their im­por­tant role as a back­stop.” The rare pub­lic state­ment re­vealed a rift be­tween Mnuchin and Fed­eral Re­serve Chair Jerome H. Pow­ell, who have worked closely to­gether to sta­bi­lize the econ­omy since the pan­demic be­gan.

While the Trea­sury De­part­ment has the abil­ity to end the pro­grams, it does not have the sole au­thor­ity to re­al­lo­cate the fund­ing for those pro­grams and needed to se­cure Fed agree­ment.

On Fri­day, Pow­ell struck a more col­lab­o­ra­tive tone in a let­ter to Mnuchin, point­ing to the pro­grams’ suc­cess in calm­ing the fi­nan­cial sys­tem and say­ing the un­used funds would be re­turned.

“We will work out ar­range­ments with you for re­turn­ing the un­used por­tions of the funds al­lo­cated to the CARES Act fa­cil­i­ties in con­nec­tion with their year-end ter­mi­na­tion,” Pow­ell wrote.

Still, Pow­ell noted that am­ple re­sources re­main in a non- Cares Act Trea­sury fund that could be tapped for the Fed’s lend­ing fa­cil­i­ties if the econ­omy falls un­der fur­ther strain.

Mnuchin has de­fended his de­ci­sion to end the pro­grams, in­clud­ing the Main Street Lend­ing Pro­gram and the mu­nic­i­pal liq­uid­ity fa­cil­ity, ar­gu­ing that the fund­ing should be redi­rected to­ward more-dis­tressed parts of the U.S. econ­omy. A spokes­woman for the trea­sury sec­re­tary did not have any im­me­di­ate re­sponse to Bed­ing­field’s com­ment.

Mnuchin said Fri­day that Congress in­tended the pro­grams to ex­pire at the end of the year and that the cen­tral bank’s in­ter­pre­ta­tion was mis­taken. Asked by CNBC about the Fed­eral Re­serve’s crit­i­cism, Mnuchin fired back: “They weren’t in the room. That’s not their job.”

Mnuchin also said that the pro­grams were no longer nec­es­sary given the re­cov­ery in U.S. credit mar­kets and rel­a­tive sta­bi­liza­tion of the Amer­i­can econ­omy. Bi­den’s pol­icy ad­vis­ers strongly dis­puted that view of the eco­nomic out­look, cit­ing ex­treme risks posed by the ris­ing num­ber of coro­n­avirus cases and the ex­pi­ra­tion of fed­eral pro­tec­tions, such as a mora­to­rium on evic­tions, at the end of the year.

The split be­tween the out­go­ing and in­com­ing ad­min­is­tra­tion on a key eco­nomic pol­icy mat­ter comes at a per­ilous mo­ment for the coun­try, with coro­n­avirus cases surg­ing and fears mount­ing of eco­nomic head winds for busi­nesses.

Mnuchin has em­pha­sized that most of the aid in the ex­pir­ing pro­grams has not been used and could be bet­ter spent to help un­em­ployed Amer­i­cans and small busi­nesses hit hard by the pan­demic. Bi­den of­fi­cials have looked at re­vamp­ing the ex­ist­ing lend­ing fa­cil­i­ties so that they are more at­trac­tive to strug­gling small busi­nesses and mu­nic­i­pal­i­ties seek­ing av­enues for eco­nomic re­lief, the ad­vis­ers said. Congress could ap­prove more aid for small busi­nesses to sup­ple­ment the ex­ist­ing Fed fa­cil­i­ties, the Bi­den ad­vis­ers said.

“The peo­ple who re­ally need this sup­port right now are not the rich cor­po­ra­tions — it’s the small busi­nesses, the peo­ple that are un­em­ployed. Those are the peo­ple we need to help the next few months,” Mnuchin said, call­ing on Congress to reap­pro­pri­ate the fund­ing. “Let’s go use this money in parts of the econ­omy that need it.”

Crit­ics of the move say that Mnuchin could have asked the Fed for some of its un­tapped money from the Cares Act while leav­ing the emer­gency lend­ing pro­grams in­tact. For ex­am­ple, of the $454 bil­lion pot al­lot­ted from the Trea­sury De­part­ment un­der the Cares Act, only $195 bil­lion has been specif­i­cally com­mit­ted to cover the Fed’s pro­grams, leav­ing $259 bil­lion that has not.

Mnuchin said he and White House Chief of Staff Mark Mead­ows would meet Fri­day with Se­nate Ma­jor­ity Leader Mitch Mccon­nell (R-KY.) and House Mi­nor­ity Leader Kevin Mccarthy (R- Calif.) to de­sign a plan to ne­go­ti­ate a stim­u­lus deal with con­gres­sional Democrats.

On Fri­day, Mccon­nell is­sued a state­ment say­ing that Congress should re­pur­pose the money and that there “is an ob­vi­ous right use for these hun­dreds of bil­lions of dol­lars of al­ready-al­lo­cated but un­used funds.”

“Amer­i­can work­ers should not lose their jobs need­lessly when a sec­ond round of the job-sav­ing Pay­check Pro­tec­tion Pro­gram for the hard­est-hit small busi­nesses would make a huge dif­fer­ence,” Mccon­nell said.

Yet the de­ci­sion con­tin­ued to re­ceive broad push­back Fri­day. Charles Evans, Chicago Fed pres­i­dent, called the de­ci­sion “dis­ap­point­ing” on CNBC. Mary­land Gov. Larry Ho­gan (R) also con­demned the move.

“They need flex­i­bil­ity to do lend­ing on an emer­gency ba­sis,” Ho­gan said Fri­day on CNBC. “I don’t re­ally un­der­stand the mo­ti­va­tion be­hind it; I think it’s a mis­take.”

The cen­tral bank and the Trump ad­min­is­tra­tion ap­pear to be of­fer­ing dif­fer­ent views of the on­go­ing risks to the U.S. econ­omy. The state­ment Thurs­day from the Fed­eral Re­serve, which called for main­tain­ing the “full suite” of emer­gency fa­cil­i­ties, em­pha­sized the need to back­stop “our still-strained and vul­ner­a­ble econ­omy.”

On Fri­day, Mnuchin struck a dif­fer­ent tone, say­ing: “The med­i­cal emer­gency may not be over, but I think we’d agree the fi­nan­cial con­di­tions . . . are in great shape. Cor­po­rate bonds have come in; mort­gages have come in; the stock mar­ket has re­bounded.”

Mnuchin said he and Pow­ell had dis­cussed the is­sue “ex­ten­sively,” and he strongly re­jected crit­i­cisms that the de­ci­sion was de­signed to hand­i­cap Bi­den. He added of Pow­ell: “I’ ll let him speak for him­self and clar­ify his re­marks. . . . We’re try­ing to fol­low the law as we’re sup­posed to.”


Fed Chair Jerome H. Pow­ell, shown dur­ing a Se­nate hear­ing in Septem­ber, noted on Fri­day the lend­ing pro­grams’ suc­cess in calm­ing the fi­nan­cial sys­tem and said un­used funds would be re­turned to Trea­sury. That was af­ter the Fed on Thurs­day crit­i­cized Trea­sury’s de­ci­sion.

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