It sounded like a great idea back in April. With the economy getting hammered by Covid-19, the Federal Reserve hatched a bold plan to rescue thousands of midsize companies that were falling into a gap between government aid programs.
Using its magic printing press, the U.S. central bank would take $75 billion appropriated by Congress and turn it into as much as $600 billion in loans to companies damaged by the pandemic.
The effort now appears to have been doomed from the start, squeezed between legal restrictions on the Fed’s emergency powers and the risk aversion of the banks that the program relied on to make loans. Eight months in, the Main Street Lending Program has pushed less than $6 billion out the door.
“There’s been bipartisan acknowledgment that Main Street isn’t working,” says Bharat Ramamurti, who sits on the congressional commission charged with supervising the spending authorized by the Coronavirus Aid, Relief, and Economic Security Act. “I don’t think anybody is under the illusion this program is solving the problems that exist.”
Treasury Secretary Steven Mnuchin announced on Nov. 19 that he wouldn’t approve an extension of the program, along with four other emergency lending facilities, past Dec. 31, but Democrats might be able to revive it. Some, including Virginia Senator Mark Warner, clearly want to. “As we’re looking at the virus actually accelerating at this point, and the potential for businesses even going into more duress, the idea that we’d end the program arbitrarily on Dec. 31—I just think makes no sense,” Warner says. “We think we need to make adjustments on both program eligibility, loans terms, and weight, so this works for more firms.”
It’s difficult to see how a few tweaks would suddenly resolve the real issues that afflict the program. Those start with the limits on the Fed’s emergency powers. The central bank can lend almost infinite amounts of money, but it can’t give it away. That means the Fed must reasonably expect repayment on loans and must charge rates that won’t end up undercutting private lenders.
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