Democratic lawmakers scored a key political victory in the record $2 trillion stimulus bill by securing independent oversight of some $500 billion for distressed businesses, but the extra scrutiny may slow the flow of cash.
The original proposal from Senate Majority Leader Mitch McConnell would have given Treasury Secretary Steven Mnuchin nearly unchecked authority over the money. “I’ll be the oversight,” President Donald Trump said Tuesday, a statement met with mockery by Democrats.
Instead, Senate Republicans agreed to largely adopt House Speaker Nancy Pelosi’s proposal for both an independent inspector general to monitor the flow of money and a five-member panel appointed by Congress to oversee the program.
But implementation of the oversight is causing concern, particularly because Mnuchin’s department is already understaffed.
The Senate passed the bill late Wednesday night. But it was briefly held up because, according to a Democratic aide, Republicans had left out language requiring the Treasury and the Federal Reserve to publish every week what companies would be receiving assistance. The language was then reinserted, the aide said.
Some critics worry the guardrails will slow the distribution of urgently needed relief. Others are concerned the independent monitors will provide only minimal protection against waste and fraud in what will likely be the biggest flood of federal dollars to corporations in American history.
“It’s hard to save companies and investigate them at the same time,” said Tony Fratto, who worked in the George W. Bush White House during the global financial crisis.
The legislation would create a special inspector for Pandemic Recovery inside the Treasury Department. The inspector general would be confirmed by the Senate and have an operating budget of about $25 million for five years and submit quarterly reports to Congress, according to the text of the legislation released Wednesday night.
The inspector general’s job includes “audits and investigations” in loans and loan guarantees issued by the Treasury and financed under the bill.
The congressionally appointed panel would oversee the distribution of stimulus dollars and make sure companies adhere to requirements on retaining workers and salaries while limiting executive pay.
The Treasury secretary would be required to provide regular testimony on Capitol Hill about how stimulus funds were being spent, and release details terms of loans and assistance to corporate borrowers. The inspector general would also have subpoena power to investigate possible corruption.
The stimulus oversight is modeled on the Troubled Asset Relief Program, a $700 billion bailout for banks passed amid the 2008 financial crisis. Elizabeth Warren, now a Democratic senator from Massachusetts, led the congressional oversight panel created for TARP.
In an interview Monday with Bloomberg TV, she said the coronavirus stimulus would need another team to ensure “the money is spent according to the law and according to the promises that have been made, an oversight panel that has real teeth.”
But Fratto warned that the TARP special inspector general functioned more as a front-end investigator than after-the-fact auditor, slowing the execution of the rescue program for foundering banks. A similar approach today could prevent businesses crippled by the coronavirus shutdown from gaining access to funds before they are forced to take dramatic steps, like cutting jobs, he said.
“If this new special inspector general sees the job as more of an auditor than an investigator, then we have an opportunity for this to be effective,” Fratto said. “A better definition of what its mission is. Every regulator has already increased their regulatory oversight functions since the global financial crisis.”
The influence of the inspector general could be felt long beyond the coronavirus crisis. For example, the TARP special inspector general remains active because the program still has about $2.6 billion available for mortgage reduction through 2024 and, through 2022, roughly $500 million for what’s known as the Hardest Hit Fund, mostly unemployment insurance and blight demolition.
A spokesman for the TARP inspector general said the agency could not comment on the COVID-19 stimulus legislation until it became law.
2008 Bailout Backlash
Lawmakers are particularly concerned about avoiding the public backlash that followed the 2008 bailout, which became politically toxic amid reports that bankers at bailed-out financial institutions had received bonuses at the same time millions of Americans lost their jobs and homes.
“Congress, once they actually did it, they kind of regretted it, because they don’t like to give up that kind of authority,” Steven Rattner, who was the so-called czar for the Obama administration’s $50 billion auto industry bailout, said in an interview last week. “But that was the right thing to do then.”
The $500 billion fund for business relief will be split into two piles, according to the Senate legislation. About $75 billion is reserved for airlines, hard-hit after Americans stopped traveling for fear of the virus, and other “national security”-related companies – such asBoeing Co. About $425 billion would go into Treasury’s Exchange Stabilization Fund.
That fund – traditionally employed for managing currency markets – would back emergency lending programs by the Federal Reserve. Those programs, in turn, must be approved by the Treasury secretary.
That structure likely limits Treasury’s influence in the design of the program. In 2008, Congress said the Fed’s programs needed to benefit groups of multiple companies, rather than specific firms.
Democrats had originally criticized Republicans’ proposal for corporate assistance as a “slush fund” for companies that would be controlled by the White House. Senate Minority Leader Chuck Schumer heralded the oversight steps as “much needed” in a floor speech to announce the deal on Wednesday.
Trump Org Barred
“If any of these loans look untoward, if any of these loans don’t look right, if any of these loans shouldn’t go to where they’re going, the public, the Congress, will know quickly and that will put pressure on the Treasury secretary not to do them, and certainly not to repeat them,” Schumer said.
The legislation also blocks organizations controlled by government officials and their relatives from drawing money from the fund, meaning President Donald Trump’s hotel and resort company, theTrump Organization, won’t be eligible for federal relief. Companies connected to Trump’s senior adviser and son-in-law, Jared Kushner, also won’t be eligible for government aid under the bill.
“We’ve never had a situation where we had a president who has owned businesses while in office,” Fratto said. “That’s the risk if you are president and you keep those businesses.”
Even with the additional guardrails, Mnuchin will have significant flexibility as the administration dishes out relief under the stimulus program. The Treasury secretary is expected to be given $100 million to spend hiring investment banks for their services in administering the emergency lending program.
Two of his predecessors, Hank Paulson and Tim Geithner, brought in additional staff, including prominent Wall Street figures, to help manage the bailouts of U.S. banks and auto companies.
— With assistance by Jason Grotto
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