How to spend $2.2 trillion ... fast
The Associated Press
Josh Boak and Jill Colvin
WASHINGTON (AP) — President Donald Trump aims to shovel $2.2 trillion into the U.S. economy over the next few weeks to try to cushion its free fall. But that means putting his fate in the hands of banks, profit-minded businesses and government bureaucrats he has frequently derided, along with a man who has emerged as arguably the biggest power broker to business in Washington: Treasury Secretary Steven Mnuchin.
The massive bailout package, which includes direct cash payments, $349 billion in loans for small businesses and a $500 billion corporate rescue fund, is the biggest ever in U.S. history. It's an attempt to keep the economy afloat as Trump warns Americans to brace for a "hell of a bad two weeks," with 100,000 to 240,000 coronavirus deaths now — projected in the U.S. even if current social distancing guidelines are followed. At the same time, the country is hemorrhaging more than 3 million jobs a week, with economic forecasters warning of a deep recession that could compromise the president's reelection chances.
At the center is Mnuchin, a former hedge fund manager and movie producer who helped to write the package and shepherd it through Congress and now has enormous discretion over which industries are most in need and how to dole cash out accordingly.
And then there is the matter of the president — and questions about whether he'll want to meddle.
Trump has already made clear he is more inclined to work with those who earn his favor, including returning the calls of governors who praise him and prioritizing requests for equipment and vital supplies in states that will be crucial to his reelection, like Florida.
Neil Barofsky, a partner at Jenner & Block who served as the first special inspector general of the 2008 Troubled Asset Relief Program or TARP program, said the package gives the administration "a ton of discretion," but it's too soon to know exactly how much because the programs for distributing funds have yet to be set up.
"I think it's unlikely the Treasury Secretary's going to call up Bank of America and say, 'Hey, you've got to give a loan to this guy,'" Barofsky said, "so the opportunities are more in the design of the program that tilts it toward a particular industry or a subset of an industry."
Still, Peter Henning, a law professor at Wayne State University and a former Justice Department attorney, said the act was written to give Mnuchin tremendous power. "He can negotiate the terms of any loan or loan guarantee, so it's a much broader authority than back in 2008," when Congress offered a bailout to banks and automakers during the last financial crisis.
With so much discretion, Henning wondered whether businesses with political ties to Trump might end up benefiting. "Is he going to favor businesses that are friendly to the president? I don't know."
The legislation does establish a system of oversight on how companies can use the money that is widely thought to exceed the standards set in 2008-09. Borrowers, for instance, must be based in the U.S. and companies cannot repurchase outstanding stock or pay dividends until one year after their borrowing is repaid. The legislation also makes companies ineligible for loans if top Trump administration officials, members of Congress or their families have 20% control of the company or more.
The law also created a new government watchdog — a special inspector general to be appointed by Trump — and a panel appointed by Congress to monitor how the aid is deployed. Trump, however, has already rejected the independence of the office and disputed other aspects of the oversight rules, including that Congress should be consulted in the allocation of money.
The Treasury Department did not respond to questions about Mnuchin's role. The White House declined to answer questions about the potential for influence and instead offered a statement trumpeting the legislation, saying it would "take care of all Americans, including affected industries and small businesses, in unprecedented ways during this ongoing pandemic."
The $2.2 trillion relief bill also contains up to $50 billion in support for passenger airlines and $8 billion for air cargo carriers, half of the money intended to pay workers.
Administration officials indicate that the first major wave of cash to hit the economy will likely start flowing Friday in the form of $349 billion in forgivable loans, provided on a first-come, first-served basis, to small businesses that agree to retain or rehire their workers. That will be followed by cash deposits of $1,200 per person with incomes below $75,000. The infusion will depend on banks approving loans at a record pace and an Internal Revenue Service with 20,000 fewer workers than it had a decade ago.
It will also depend on bank websites not crashing amid a crush of loan applications and checks reaching the proper accounts without the money being garnished for people's past debts.
Mary Miller, who oversaw efforts to revive the economy after the Great Recession as the Treasury Department's undersecretary for domestic finance, noted that many banks appear unready to process loans that are forgivable if small businesses keep their workers on payroll.
"I want to see the money hit the ground as quickly as possible, but I'm skeptical that it can work like magic," said Miller, who is now running for mayor of Baltimore. "We're racing against time. Small businesses can't wait a few weeks before they fail."
"Time is of the essence," Mnuchin stressed Wednesday in an interview on CNBC. "We have a lot of money. We need to get that money in Americans' hands."
If the money is exhausted, he said, the administration plans to go back to Congress for more. "That will be at the top of the list to go back to Congress," he said.
The Small Business Administration has expanded from 3,000 employees to 5,000 and more in order to manage the effort. But the IRS, which will help distribute nearly $300 billion in checks, has lost more than 20 percent of its workers since fiscal 2010. There are also unfilled spots at Treasury, which will force Mnuchin to scramble in order to distribute funds successfully.
"You can't get the medicine administered if you don't have the people to administer it," said Sarah Bloom Raskin, who succeeded Miller at Treasury and later served as a Federal Reserve governor.
Tony Fratto, a former Treasury and White House spokesman during George W. Bush's administration, said the scope of the effort means, "There are absolutely going to be mistakes. There's no doubt about it. You just can't do something this big, this quickly, with so little documentation without mistakes."
Still, Fratto said, "The objective right now to minimize damage to the U.S. economy means that you put a much higher priority on pushing money out the door as quickly as possible."