–June To Be Very Difficult for Jobs
–Ready to Take Losses on Emergency Loans
WASHINGTON (MaceNews) – Even as parts of the economy sputter into a small-scale reactivation hundreds of billions of dollar of government support are poised to be deployed beginning in the next two weeks, the Treasury secretary and Federal Reserve chairman said Tuesday.
Testifying to the Senate Banking Committee, the two quarterbacks of the government’s massive virus response programs amplified on Monday’s congressional commission report, that much of the $500 billion for middle market firms has yet to be used to keep the medium-sized businesses afloat.
“Of the 500 billion approximately 50 billion was for indirect lending programs from the Treasury and 450 billion was available for the 13-3 (Fed) facilities,” Treasury Secretary Steven Mnuchin said. “ I’ve allocated about half of that and let me be clear. I am prepared to allocate the rest of that.”
Why has it taken so long? Federal Reserve Chair Jay Powell answered: “Main Street is in a class by itself really,” he said. “It’s not the bond market, right?
The Main Street lending facility’s three sub-programs should be ready to go at the latest a few days into June, he said.
He continued, “These are small and medium sized companies. They live in a world of bank lending that’s a world of negotiated documents and we’re trying to enter that world and make loans to qualifying buyers.”
So far, most of the effect of the money Congress intended to inject into businesses starving for revenue has yet to be used, and so the positive effect on the economy h as yet to be felt, Powell said.
Mnuchin responded to intimations he is being too cautious in using the congressionally allocated funds, fearful of the almost inevitable losses that will entail.
“Let me just make a comment because I know there’s been a lot of questions as to whether the Treasury is willing to take risk,” Mnuchin said. “I would say the answer is absolutely yes.”
In contrast with the Paycheck Protection Program’s forgivable loans, for which there is no credit risk, with the Main Street loans to larger firms, “I do put up capital so by definition that capital is at risk and we are fully prepared to take losses in certain scenarios on that,” Mnuchin said.
Answering another question, Mnuchin said the TALF program anticipates some losses even though the similar financial crisis program ended up with some earnings.
“There are scenarios within Main Street where we could lose all of our capital and we’re prepared to do that,” he said. In a scenario where there is a greater degree of economic recovery, “We could actually make a small amount of money, but again as I’ve said no different than Secretary Paulson during the TARP period, they didn’t think they were going to make money or our intention is that we expect to take some losses.”
Asked if he still thinks the third quarter will see some growth and the fourth quarter some substantial rehiring, Mnuchin instead answered, “Let me just comment I have said publicly and I’ll say again, I think the job numbers will get worse before they get better. So, I’ve just want to be very clear that I think that June will be … very difficult.
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