[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
OVERSIGHT OF THE TREASURY DEPARTMENT'S
AND FEDERAL RESERVE'S PANDEMIC RESPONSE
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HYBRID HEARING
BEFORE THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
SECOND SESSION
__________
DECEMBER 2, 2020
__________
Printed for the use of the Committee on Financial Services
Serial No. 116-115
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
__________
U.S. GOVERNMENT PUBLISHING OFFICE
43-529 PDF WASHINGTON : 2022
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HOUSE COMMITTEE ON FINANCIAL SERVICES
MAXINE WATERS, California, Chairwoman
CAROLYN B. MALONEY, New York PATRICK McHENRY, North Carolina,
NYDIA M. VELAZQUEZ, New York Ranking Member
BRAD SHERMAN, California ANN WAGNER, Missouri
GREGORY W. MEEKS, New York FRANK D. LUCAS, Oklahoma
WM. LACY CLAY, Missouri BILL POSEY, Florida
DAVID SCOTT, Georgia BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri STEVE STIVERS, Ohio
ED PERLMUTTER, Colorado ANDY BARR, Kentucky
JIM A. HIMES, Connecticut SCOTT TIPTON, Colorado
BILL FOSTER, Illinois ROGER WILLIAMS, Texas
JOYCE BEATTY, Ohio FRENCH HILL, Arkansas
DENNY HECK, Washington TOM EMMER, Minnesota
JUAN VARGAS, California LEE M. ZELDIN, New York
JOSH GOTTHEIMER, New Jersey BARRY LOUDERMILK, Georgia
VICENTE GONZALEZ, Texas ALEXANDER X. MOONEY, West Virginia
AL LAWSON, Florida WARREN DAVIDSON, Ohio
MICHAEL SAN NICOLAS, Guam TED BUDD, North Carolina
RASHIDA TLAIB, Michigan DAVID KUSTOFF, Tennessee
KATIE PORTER, California TREY HOLLINGSWORTH, Indiana
CINDY AXNE, Iowa ANTHONY GONZALEZ, Ohio
SEAN CASTEN, Illinois JOHN ROSE, Tennessee
AYANNA PRESSLEY, Massachusetts BRYAN STEIL, Wisconsin
BEN McADAMS, Utah LANCE GOODEN, Texas
ALEXANDRIA OCASIO-CORTEZ, New York DENVER RIGGLEMAN, Virginia
JENNIFER WEXTON, Virginia WILLIAM TIMMONS, South Carolina
STEPHEN F. LYNCH, Massachusetts VAN TAYLOR, Texas
TULSI GABBARD, Hawaii
ALMA ADAMS, North Carolina
MADELEINE DEAN, Pennsylvania
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
DEAN PHILLIPS, Minnesota
Charla Ouertatani, Staff Director
C O N T E N T S
----------
Page
Hearing held on:
December 2, 2020............................................. 1
Appendix:
December 2, 2020............................................. 43
WITNESSES
Wednesday, December 2, 2020
Mnuchin, Hon. Steven T., Secretary, U.S. Department of the
Treasury....................................................... 5
Powell, Hon. Jerome H., Chair, Board of Governors of the Federal
Rreserve System................................................ 6
APPENDIX
Prepared statements:
Mnuchin, Hon. Steven T....................................... 44
Powell, Hon. Jerome H........................................ 46
Additional Material Submitted for the Record
Waters, Hon. Maxine:
Written responses to questions submitted to Secretary Mnuchin 58
Written responses to questions submitted to Chairman Powell.. 73
Letter to Hon. Mark Calabria, Director, FHFA................. 85
Letter from the Credit Union National Association (CUNA)..... 87
Letter from the National Association of Federally-Insured
Credit Unions (NAFCU)...................................... 90
Letter from the National Association of REALTORS to Treasury
Secretary Mnuchin and FHFA Director Calabria............... 94
Letter of support from PATH (People Supporting the Homeless). 96
Letter from various midsized nonprofits...................... 97
OVERSIGHT OF THE TREASURY
DEPARTMENT'S AND FEDERAL
RESERVE'S PANDEMIC RESPONSE
----------
Wednesday, December 2, 2020
U.S. House of Representatives,
Committee on Financial Services,
Washington, D.C.
The committee met, pursuant to notice, at 10:04 a.m., via
Webex, Hon. Maxine Waters [chairwoman of the committee]
presiding.
Members present: Representatives Waters, Sherman, Clay,
Green, Perlmutter, Foster, Heck, Gottheimer, Lawson, San
Nicolas, Porter, Axne, Casten, Pressley, Ocasio-Cortez, Wexton,
Lynch, Gabbard, Adams, Dean, Garcia of Illinois, Garcia of
Texas, Phillips; McHenry, Wagner, Lucas, Posey, Huizenga,
Stivers, Barr, Hill, Zeldin, Mooney, Davidson, Budd, Kustoff,
Gonzalez of Ohio, Rose, Steil, Gooden, Riggleman, Timmons, and
Taylor.
Chairwoman Waters. The Financial Services Committee will
come to order.
Without objection, the Chair is authorized to declare a
recess of the committee at any time. I want to remind Members
of a few matters, including some required by the regulations
accompanying House Resolution 965, which established the
framework for remote committee proceedings.
I would ask all Members on the Webex platform to keep
themselves muted when they are not being recognized by the
Chair. This will minimize disturbances while Members are asking
questions of our witnesses.
Members on the Webex platform are responsible for muting
and unmuting themselves. The staff has been instructed not to
mute Members, except when a Member is not being recognized by
the Chair, and there is inadvertent background noise.
Members on the Webex platform are also reminded that they
may only attend one remote hearing at a time. So, if you are
participating today, please remain with us during the hearing.
Members should try to avoid coming in and out of the hearing,
particularly during the question period.
If, during the hearing, Members wish to be recognized, the
Chair recommends that Members identify themselves by name so as
to facilitate the Chair's recognition. I would also ask that
Members be patient as the Chair proceeds, given the nature of
the online platform the committee is using.
In addition, for Members participating in person, the
Attending Physician provided guidance.
I now recognize myself for 4 minutes to give an opening
statement.
Today, the committee convenes to conduct oversight over the
Treasury Department's and Federal Reserve's pandemic response.
This pandemic continues to have a terrible impact across the
nation. There have been over 13.4 million coronavirus cases in
the U.S., which is almost double the amount of cases when
Secretary Mnuchin and Chair Powell last testified in September,
and over 267,000 people have lost their lives to the virus.
Hospitalizations and deaths are surging as this crisis spirals
out of control. Small businesses are shutting their doors
permanently, and millions are at risk of eviction, foreclosure,
and being laid off.
An historic number of Americans resoundingly voted for a
new direction last month by overwhelmingly voting for
President-elect Biden and Vice President-elect Harris. The
American people have made it clear that they want a government
that will fight this virus and will protect their families and
small businesses from the impacts of COVID-19.
Secretary Mnuchin, on a call last month, many committee
Democrats and I committed to not going home until we have a
deal for a stimulus package that is desperately needed across
the country, but as negotiations continue, I am appalled that
you would knowingly make matters worse by permanently ending
essential emergency lending programs, leaving States, cities,
and small businesses out to dry as the nation faces a dire and
worsening phase of the pandemic crisis. There is simply no
justification or justifiable reason to take these tools away,
with the pandemic crisis worse than it has been, and the Biden
Administration arriving in January.
And, Chairman Powell, I am also concerned that the Federal
Reserve acceded to Treasury's request after publicly indicating
the importance of extending these Facilities.
Secretary Mnuchin, I am also very concerned that the
Treasury Department may be taking actions that will undermine
housing markets during the pandemic by reportedly working with
the Federal Housing Finance Agency (FHFA) to rush the
Government-Sponsored Enterprises (GSEs) out of conservatorship
before the end of the Trump Administration.
These actions follow the Trump Administration's obstruction
of the transition process, delaying important information-
sharing about the pandemic response and national security
between the Biden transition team and the current
Administration. So today, you will be held to account for your
misguided actions.
I now recognize the ranking member of the committee, the
gentleman from North Carolina, Mr. McHenry, for 4 minutes.
Mr. McHenry. Thank you, Madam Chairwoman.
And, look, I know there has been a lot of partisan talk by
my colleagues on the Democratic side of the aisle attacking the
actions of the Treasury Secretary and even the Federal Reserve.
And I know committee Democrats and a lot of Democrats in
Congress said that they wouldn't go home until they had a deal,
and then they went home for 10 days. So, there is not a whole
lot of believability coming from our fellow politicians here on
Capitol Hill right now. It is quite frustrating.
But, Chairman Powell, Secretary Mnuchin, I want to thank
you for being with us today and for being so available. I also
want to commend you for the quick and decisive work that you
both have done, and I think that is something for which we
should commend you.
But, today, I think there is also a reason for optimism.
The coronavirus vaccines are moving at an unprecedented pace.
Last month, Pfizer announced its vaccine is 95-percent
effective, and they are currently seeking regulatory clearance.
Moderna announced on Monday that its vaccine is 94.1-percent
effective, and they will also seek regulatory clearance. And
the British announced today that they are moving forward as
well with their vaccine distribution.
This is proof that the public-private partnerships, like
those in Operation Warp Speed, can lead to phenomenal successes
in record time. But we know a full economic recovery will occur
only when Americans can go back to work safely, send their kids
back to school confidently, and have easy access to testing and
treatments. And there is still more work to be done.
And so, I do want to go back to our committee jurisdiction,
and the Treasury and the Fed's decisive actions back in March
and April to prevent the worst of this economic crisis and save
millions of jobs.
Chairman Powell, the Federal Reserve's emergency lending
facilities continue to serve as a strong backstop to our
financial markets and to prevent disorder in the financial
markets from impacting our real economy. Those programs
stipulated billions of dollars in private-sector lending and
successfully operated as lender of last resort.
And they acted as that necessary source of liquidity in
those urgent times earlier this year. They ensured the orderly
flow of credit and the functioning of markets of all sizes,
including supporting workers in communities across the country.
So, I want to commend you for that.
But they are emergency facilities only, and they are
backstops designed to support the functioning of private
markets, and they are intended to be a lender of last resort,
not to replace private markets. And from the start, I have said
that we need to be forward-thinking and have a plan to wind
down these firefighting measures, when appropriate.
And so, I want to thank both the Fed and the Treasury for
having a plan to wind those measures down appropriately, in
accordance with the Coronavirus Aid, Relief, and Economic
Security (CARES) Act law. And I will ask you specifically about
the additional capacities that you will have with the CARES Act
expiring on December 31st.
Additionally, Secretary Mnuchin, thank you for your quick
work on the Paycheck Protection Program (PPP) that supported
millions of small businesses. I know we still need additional
relief for more small businesses in different segments, and
thank you for continuing to work for a bipartisan agreement
here on Capitol Hill, and to not play the gamesmanship and
partisan games that have bedeviled these talks in the last
couple of months. Thank you for rising above that.
But there is still work to be done, and I look forward to
us coming together and having a package that can support small
businesses and do the responsible things necessary to help
rebuild our economy and to protect American citizens. Thanks so
much for being here today, and I look forward to your
testimony.
Chairwoman Waters. Thank you very much. I now recognize the
gentleman from Texas, Mr. Green, who is also the Chair of our
Subcommittee on Oversight and Investigations, for 1 minute.
Mr. Green. Thank you, Madam Chairwoman.
I thank the witnesses for appearing as well. Mr. Mnuchin
[inaudible] indicating that the market has recovered
significantly. This begs the question for my constituents, what
market? We know it isn't the Federal market [inaudible] The
free food market, the foods, obviously, have one thing in
common, and when all the food is gone, the front lines
[inaudible].
The supermarkets, the market prices there have gone up 3.9
percent for the 12 months ending in October. The stock market
does not measure certain things of influence to my
constituents. It does not measure the hunger pains that my
constituents suffer, the depression, and the addiction. It
doesn't measure the working-class uncertainty and coronavirus
injury and death.
My concern today is, what is your agency doing to help the
grim reality of this pandemic for consumers? I look forward to
hearing your testimony.
I yield back.
Chairwoman Waters. Thank you very much.
I now recognize the subcommittee's ranking member, Mr.
Barr, for 1 minute.
Mr. Barr. Thank you, Madam Chairwoman.
And thank you to our witnesses for being here today.
Congress, the Fed, and Treasury acted boldly in the face of
the economic turmoil brought on by the COVID pandemic, and
showcased the true reach of the Federal Government's response.
Through Congress' fiscal policy authority and the Fed's
emergency lending facilities, we were able to stabilize
markets, keep workers on the job, and ensure the continued
functioning of corporate credit markets.
As we continue on the path of economic recovery, it is
important that we take stock of the tools used. We must
evaluate which were effective and which were not, which should
be redeployed and which can be wound down, and which programs
are legally set to expire and which programs should be
reauthorized. That is the role of this committee with oversight
of the U.S. financial system. I look forward to hearing from
our witnesses on this and other topics to help inform Congress'
continued response to the pandemic.
Secretary Mnuchin and Chairman Powell, I commend you on
your work to promote economic stability in turbulent times, and
I thank you for your service.
I yield back.
Chairwoman Waters. Thank you.
I want to welcome today's witnesses to the committee.
First, I want to welcome the Honorable Steven T. Mnuchin,
Secretary of the United States Department of the Treasury. He
has served in his current position since 2017. Mr. Mnuchin has
testified before the committee on previous occasions, so I do
not believe he needs any further introduction.
I also want to welcome our other distinguished witness, the
Honorable Jerome Powell, Chairman of the Board of Governors of
the Federal Reserve System. He has served on the Board of
Governors since 2012, and as its Chair since 2018. Chair Powell
has previously testified before the committee, so I believe he
also does not need any further introduction.
Each of you will have 5 minutes to summarize your
testimony. When you have 1 minute remaining, a yellow light
will appear. At that time, I would ask you to wrap up your
testimony so we can be respectful of the committee members'
time. And without objection, your written statements will be
made a part of the record.
Secretary Mnuchin, you are now recognized for 5 minutes to
present your oral testimony.
STATEMENT OF THE HONORABLE STEVEN T. MNUCHIN, SECRETARY, U.S.
DEPARTMENT OF THE TREASURY
Secretary Mnuchin. Thank you.
Chairwoman Waters, Ranking Member McHenry, and members of
the committee, I am pleased to join you today to discuss the
Department of the Treasury's unprecedented response to support
the American people throughout the pandemic. We continue to
work to implement the historic CARES Act with speed,
efficiency, and transparency, but our job will not be complete
until we get every American back to work.
When I last testified before you in September, I stated
that America was in the midst of the fastest economic recovery
from any crisis. I am proud to say that while there is still a
lot more work to be done, that statement is true. In the third
quarter, GDP grew by 33 percent annually, beating all
expectations and a previous record of 1950.
Americans are getting back to work. The October Jobs Report
showed the economy gained back 12 million jobs since April,
more than 50 percent of all jobs lost due to the pandemic.
The unemployment rate has decreased to 6.9 percent, a rate
not expected by the blue chip to be achieved until the fourth
quarter of 2021. The historic bipartisan CARES Act provided the
economic relief that is critical to supporting the economy
recovering. Additional economic slowdowns, however, continue to
impair and cause great harm to American business and workers.
Based upon the recent economic data, I continue to believe
that a targeted fiscal package is the most appropriate Federal
response. I strongly encourage Congress to use the $455 billion
in unused funds from the CARES Act to pass an additional bill
with bipartisan support. The PPP has unused money of $140
billion that could be sent out the door immediately to support
many small businesses. The Administration is standing ready to
support Congress in this effort to help American workers and
small businesses that continue to struggle with the impact of
COVID-19.
Treasury has been working hard to implement the CARES Act
in a transparent and efficient manner. We have released a
significant amount of information on Treasury.gov and
USAspending.gov. We continue to cooperate with various
oversight bodies, including the new Special Inspector General
(IG), the Treasury IG, the Treasury IG for Tax Administration,
the new Congressional Oversight Commission, and the GAO.
We have provided regular updates to Congress, and this is
my ninth appearance before Congress for the CARES Act hearings.
We have also devoted significant resources to responding to
inquiries from numerous congressional committees and individual
Members on both sides.
We appreciate your interest on these issues, and we remain
committed to working with you to accommodate Congress'
legislative purpose to advance the whole-of-government approach
to defeating COVID-19.
Chairwoman Waters, I do want to just respond to your
comment where you said I had no justification and made matters
worse on my termination of the facilities. I just want to
emphasize that this was not a political decision; I was merely
implementing the CARES Act. I am happy to walk you, your staff,
or other members of the committee through Section 4029, which
makes it very clear.
I find it implausible that any member of the committee
believed, in voting for the CARES Act, that you were
authorizing me to invest $500 billion in Federal Reserve
facilities to make loans and purchase corporate bonds in
perpetuity with no expiration date. That is exactly what you
would have to believe if you disagree with my interpretation of
congressional intent on the issue. And since I was personally
there and negotiated most of these documents, I am very
familiar with them. But if Congress wants to extend this money
for Federal purposes for these facilities, Congress can add
that to new legislation.
I would like to thank the members of the committee for
working with us, and I am pleased to answer any additional
questions. Thank you very much.
[The prepared statement of Secretary Mnuchin can be found
on page 44 of the appendix.]
Chairwoman Waters. Thank you very much, Secretary Mnuchin.
Chair Powell, you are now recognized for 5 minutes to
present your oral testimony.
STATEMENT OF THE HONORABLE JEROME H. POWELL, CHAIR, BOARD OF
GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Mr. Powell. Chairwoman Waters, Ranking Member McHenry, and
members of the committee, thank you for the opportunity to
update you on our ongoing measures to address the hardship
wrought by the pandemic.
Our public health professionals continue to deliver our
most important response, and we remain grateful for their
service. The Federal Reserve, along with others across the
government, is using its policies to help alleviate the
economic burden.
Since the pandemic's onset, we have taken forceful actions
to provide relief and stability, to ensure that the recovery
will be as strong as possible, and to limit lasting damage to
the economy. Economic activity has continued to recover from
its depressed second quarter level.
The reopening of the economy led to a rapid rebound in
activity, and GDP rose at an annual rate of 33 percent in the
third quarter. In recent months, however, the pace of
improvement has moderated. Household spending on goods,
especially durable goods, has been strong and has moved above
its pre-pandemic level. In contrast, spending on services
remains low, largely because of ongoing weakness in sectors
that typically require people to gather closely, including
travel and hospitality.
The overall rebound in household spending is due, in part,
to Federal stimulus payments and expanded unemployment
benefits, which provided essential support to many families and
individuals.
In the labor market, more than half of the 22 million jobs
that were lost in March and April have been regained, as many
people were able to return to work. As with overall economic
activity, the pace of improvement in the labor market has
moderated.
Although we welcome this progress, we will not lose sight
of the millions of Americans who remain out of work. The
economic downturn has not fallen equally on all Americans, and
those least able to shoulder the burden have been the hardest
hit. In particular, the high level of joblessness has been
especially severe for lower-wage workers in the service sector,
for women, and for African Americans and Hispanics. Economic
dislocation has upended many lives and created great
uncertainty about the future.
As we have emphasized throughout the pandemic, the outlook
for the economy is extraordinarily uncertain and will depend,
in large part, on the success of efforts to keep the virus in
check. The rise in new COVID-19 cases, both here and abroad, is
concerning and could prove challenging for the next few months.
A full economic recovery is unlikely until people are confident
that it is safe to reengage in a broad range of activities.
Recent news on the vaccine front is very positive for the
medium-term. For now, significant challenges and uncertainties
remain, including timing, production, and distribution and
efficacy across different groups. It remains difficult to
assess the timing and scope of the economic implications of
these developments with any degree of confidence.
The Fed's response has been guided by our mandate to
promote maximum employment and stable prices for the American
people, along with our responsibility to promote the stability
of the financial system. We have been taking broad and forceful
actions to more directly support the flow of credit in the
economy.
Our actions, taken together, have unlocked almost $2
trillion of funding to support businesses, large and small,
nonprofits, and State and local governments since April. This,
in turn, has helped keep organizations from shuttering and has
put employers in a better position to both keep workers on, and
to hire them back as the economy continues to recover.
These programs serve as a backstop to key credit markets
and have helped restore the flow of credit from private lenders
through normal channels. We have deployed these lending powers
to an unprecedented extent. Our emergency lending powers
require the approval of the Treasury, and are available only in
very unusual circumstances, such as those we find ourselves in
today. Many of these programs have been supported by funding
from the CARES Act, and I have included detailed information
about those facilities in my written testimony.
The CARES Act assigns sole authority over its funds to the
Treasury Secretary, subject to the statute's specified limits.
The Secretary has indicated that these limits do not permit the
CARES Act-funded facilities to make new loans or purchases or
to purchase new assets after December 31st of this year.
Accordingly, the Fed will return the unused portion of the
funds allocated to lending programs that are backstopped by the
CARES Act in connection with their termination at the end of
the year. As the Secretary noted in his letter, non-CARES Act
funds and the Exchange Stabilization Fund are available to
support emergency lending facilities if they are needed.
Everything the Fed does is in service to our public
mission. We are committed to using our full range of tools to
support the economy and to help ensure that the recovery from
this difficult period will be as robust as possible on behalf
of communities, families, and businesses across the country.
Thank you.
[The prepared statement of Chairman Powell can be found on
page 46 of the appendix.]
Chairwoman Waters. Thank you very much, Chair Powell.
I now recognize myself for 5 minutes for questions.
Secretary Mnuchin and Chair Powell, just last month the
Federal Open Market Committee (FOMC) met and, according to the
minutes, ``a few participants noted that it was important to
extend the emergency lending facilities beyond year end.''
A few days later you, Secretary Mnuchin, requested that the
Fed eliminate its CARES Act emergency lending facilities at the
end of the year and return $419 billion so that it could not be
used in the future. Initially, the Fed resisted publicly, but
the next day, Chair Powell, you acquiesced.
Secretary Mnuchin, your own Office of Financial Research
(OFR) warned that we should expect, ``potentially severe losses
from borrower defaults and bankruptcies.'' Moreover, the
outlook for States, cities, airports, and hospitals is not
good.
And despite what President Trump suggests, it is not
limited to blue States. For example, the day after New York
State's credit was downgraded, Mississippi's credit was
downgraded. With the pandemic worse than at any point since it
began, it is foolish and reckless to take away emergency
lending options at this time.
Secretary Mnuchin, you argue that it was congressional
intent for these Fed facilities to be shut down at the end of
the year, but the law does not say that, and even the actions
of my Republican colleagues belie that novel interpretation.
Senator McConnell filed a COVID-19 bill that would change
the law to require the Fed to close all of its facilities after
January 19, 2021. So, if the law already required this, this
bill wouldn't be necessary. The CARES Act was passed to
stabilize the economy during the entirety of the pandemic, not
until the end of your tenure as Treasury Secretary.
Secretary Mnuchin, it was reported last week that you
intend to transfer the unused portion of the CARES Act, that
$500 billion appropriation, to Treasury's General Fund so that
the next Secretary can't have access to the fund. However,
Section 4027 of the CARES Act explicitly states that funds may
only be transferred on January 1, 2026, not before January 1,
2026.
What you are doing is contrary to what is lawful, and it
puts our entire economy in jeopardy. And, what's more, it has
also been reported that you are working with Director Calabria
of the Federal Housing Finance Agency to sell off the
government stakes in the housing giants, Fannie Mae and Freddie
Mac, likely destabilizing the entire housing market in the next
few months.
As I understand it, Secretary Mnuchin, the Obama
Administration showed you every courtesy when your team was
taking the reins. Similarly, the Bush Administration worked
closely with President Obama's incoming team during the
financial crisis, even before he was sworn in. They did so
because they were honoring the decision of the American
electorate.
Tell me, Secretary Mnuchin, and Chair Powell, does the
Secretary's expected successor, Janet Yellen, support what you
are doing? Does she agree that the emergency lending facilities
are not needed even though thousands of people are dying each
day, millions more are being infected each week, tens of
thousands of small businesses are closing permanently, and our
cities and States are struggling? Does Ms. Yellen support
Director Calabria's plans to fundamentally remake the housing
markets, where millions of people are struggling to pay their
mortgage and rent each month? Secretary Mnuchin?
Secretary Mnuchin. Again, let me first comment on--and in
all due respect, I believe I am following the law. Section 4029
makes very clear that on December 31, 2020, the authority
provided under new loans, guarantees, or other investments
shall terminate.
Chairwoman Waters. Thank you very much. I am going to
reclaim my time.
Do you agree? Do you agree, Mr. Powell?
Secretary Mnuchin. Let me just continue. The transfer of
the funds is not up to me. When funds come back, they go into--
Chairwoman Waters. Reclaiming my time, I need to have an
answer from Mr. Powell. Do you agree with Secretary Mnuchin?
Mr. Powell. The Secretary has sole authority over the CARES
Act funding under the CARES Act. The Fed is not involved in
that. His reading of the law, thus, is the authoritative one,
and we accept it.
Secretary Mnuchin. I would also just say, if I was
politically-motivated, I wouldn't have extended the four
facilities in deference to the Fed's view that were non-CARES
Act facilities. So, had I been trying to be political, I would
have terminated those.
Chairwoman Waters. My time has expired.
I now recognize the distinguished ranking member, Mr.
McHenry, for 5 minutes for questions.
Mr. McHenry. Secretary Mnuchin, let me just give you a
moment to answer. It sounds like you have additional things you
want to explain in your reading of the CARES Act. The CARES Act
expires on December 31st of this year. That is in the law. So,
let me give you the opportunity to give a full answer on your
decision with the Exchange Stabilization Funds.
Secretary Mnuchin. Thank you very much. There are three
sections I direct people to. First, Section 4029, which is the
termination date of December 31st of 2020 to make new loans,
loan guarantees, or other investments shall terminate. That is
perfectly clear.
Second, Section 4003, which references deposit of proceeds.
So, when proceeds come in, we allocate proceeds. Whether it is
the return of an airline loan or money from the Fed, we
allocate it very clearly in Section 4003.
Third, as the Chair referenced, Section 4027, which
references if there was money left over, okay. And there are
limited uses of what that money can be, either expenses or
follow-on investments on existing loans. So, if we had to make
an advance on an existing loan to an airline, that is under
Section 4027, and any money on 2026 will come back vis-a-vis
that.
So, again, Section 4003, Section 4027, Section 4029, and,
again, I personally negotiated this language. And, again,
Congress has the ability to change this if they think the money
should be spent otherwise.
Mr. McHenry. Secretary Mnuchin, you and I talked regularly
during those negotiations. I was a strong advocate for as large
an Exchange Stabilization Fund dollar amount as possible so
that both the Treasury and the Federal Reserve would have
maximum firepower to put out what we did not fully understand
would happen in the coming weeks or coming months with the
nature of the virus.
So, we, in the midst of this negotiation, had a very, very
large Exchange Stabilization Fund (ESF). Absent the CARES Act's
$454 billion in the Exchange Stabilization Fund, how many
dollars are allocated to the Exchange Stabilization Fund?
Secretary Mnuchin. Again, we allocated something like $20
billion from the ESF for the pre-CARES facilities prior to the
CARES Act. As I said, in deference to the Fed, those facilities
don't have this restriction and still exist. And there is still
something like an additional $50 billion that could be used in
the future for emergencies, which would support another $500
billion.
And, again, I want to thank Congress for giving
extraordinary authority to the Secretary of the Treasury for
$500 billion. As people have noted, many people criticized that
authority. And I am merely following the law and returning that
authority back, as Congress intended.
Mr. McHenry. Chairman Powell, these facilities of the Fed
served a very important purpose in the early days. Their
utilization in recent months has not significantly changed in
dollar value of Fed lending facilities, and so the four
remaining facilities are still important as a lender of last
resort facility, of course.
I want to thank you for your work to stand up those
facilities and your work in the last 8 months of this year to
stand up more facilities than were stood up in the fullness of
the financial crisis of 2007, 2008, 2009, 2010. You stood up
more facilities in 8 months--well, actually, in 3 months, than
they did in 4 years. So, I thank you and the staff of the
Federal Reserve for your solid great work to support our
economy and to ensure that this health crisis, that has become
an economic crisis, did not become a financial crisis. I want
to commend you for that.
Finally, I want to note that I have consistently been an
advocate of the independence of the Federal Reserve for making
monetary policy and supporting our economy. I do think it is
important, an important hallmark, whether it was Chair Yellen
in your seat, Chairman Powell, or your service as Chairman of
the Federal Reserve, that we honor the independent policymaking
and monetary policy decisions of the Federal Reserve. And I
want to thank you for your leadership.
I yield back.
Chairwoman Waters. Thank you very much.
The gentleman from Guam, Mr. San Nicholas, who is also the
Vice Chair of the committee, is recognized for 5 minutes.
Mr. San Nicolas. Thank you, Madam Chairwoman.
Chairman Powell and Secretary Mnuchin, thank you so much
for making time to be with us here today. I wanted to open with
some questions regarding the Main Street Lending Program
(MSLP), Mr. Chairman. Are you familiar with how much has been
authorized for the MSLP at this time?
Mr. Powell. Yes, I am. We made about $5 billion in loans, a
little better than $5 billion in loans.
Mr. San Nicolas. Okay. So, we have about $5 billion out
there in the MSLP. Now, those programs are administered by
participating banks, correct?
Mr. Powell. Yes.
Mr. San Nicolas. Are the banks--
Mr. Powell. Put it this way: We work through the banking
system. We access borrowers through the banking system. We
administer the overall program, but the banks are facing off
against the actual borrowers.
Mr. San Nicolas. Right. So, these borrowers who are
receiving MSLP funds, are they required to be investment-grade
borrowers?
Mr. Powell. No.
Mr. San Nicolas. And that just brings me full circle, Mr.
Chairman, because the last time we spoke, I was discussing the
Municipal Liquidity Facility and the Fed's inability to allow
municipalities that are below investment grade to be able to
access that liquidity.
And it was mentioned in our hearings that the Federal
Reserve does not provide funding to noninvestment grade
entities. And yet, through the MSLP, indirectly, the Federal
Reserve, as you have mentioned, is willing to do so for private
sector entities.
Mr. Powell. As you will recall, with the Territories, there
are no investment grade, overall sovereign investment grade.
But we worked with you and your office to work with one of the
below sovereign level facilities. The name of it doesn't come
to mind. And we also worked with you to be in touch with the
Treasury Department under various loan programs that might be
useful.
But, no, the overwhelming majority of municipal borrowers
are investment grade, and we did limit the facility to that.
Mr. San Nicolas. The reason why I am raising this point,
Mr. Chairman, is because I just wanted to highlight the
inconsistency in the policy, because if investment grade is a
requirement for the Federal Reserve to be providing financial
support, particularly as the lender of last resort, and it is
not imposing that same requirement on private sector entities
that are accessing the MSLP, I again beg the question, why are
we doing so for municipal entities trying to access the
Municipal Liquidity Facility?
I appreciate your staff trying to work with us in looking
for workarounds in this environment, but, it is just so
glaring, Mr. Chairman, that these private companies are not
investment grade, and they are able to access the support. I am
glad they are; I want them to. But we are not allowing
municipal entities who are not investment grade to be able to
access the specific facilities that we set up for our municipal
circumstances.
I just wanted to put that in the record, Mr. Chairman. I am
hoping that you can go back to the table and reconsider this,
given these issues that we are bringing to light. And at the
end of the day, we need a solution for our municipal entities
that are below investment grade, but are in the same boat as
all of these private sector entities that are able to access
capital through the MSLP.
Thank you, Madam Chairwoman, and I yield back.
Chairwoman Waters. Thank you very much.
The gentlewoman from Missouri, Mrs. Wagner, is recognized
for 5 minutes.
Mrs. Wagner. Thank you, Madam Chairwoman.
And welcome, Secretary Mnuchin and Chairman Powell. First,
I would like to thank you both, both you and your staff for
your service to our nation and your tireless efforts during
this pandemic to implement the CARES Act and for propping up
the Federal Reserve's emergency lending facility.
While economic data continue to trend in a positive
direction and we do know that credible and safe vaccines are
just weeks away, the surge in cases and lockdowns occurring
across the country could result in our economy backsliding
again if we do nothing. I want to reiterate the urgency, the
overdue urgency for Congress to provide immediate targeted
relief now, not next year. It should have been months and
months ago. Our nation's hospitals, small businesses, schools,
many of our hardest-hit industries, and certainly those who
continue to be unemployed, cannot continue to wait any longer
for relief.
Just this week, St. Louis County, which I have the
privilege of representing, reported an average of 660 new cases
being added every day, with a total of 51,324 confirmed
coronavirus cases as of Sunday. Many of my constituents in
Missouri's Second District are under a mask mandate, and
restaurants and bars have been completely shuttered and are
closed down. Capacity limits of gatherings are down to 10
people.
Our families and our businesses are asking Congress for
additional relief to combat this health crisis. Hospitals are
filling up, and many businesses are worried that they will not
survive. They are reaching the desperation point. We must stop
playing partisan politics and come to a bipartisan agreement to
provide a direct COVID-related stimulus and support now.
Chairman Powell, according to the data you are seeing, what
parts of our economy are most in need of fiscal stimulus
measures provided by Congress?
Mr. Powell. Thank you. There are many sectors that could
use some help, and, of course, those decisions are really up to
you and the Administration. But I will just mention quickly, I
would start with the labor market. I think we ought to remember
that, despite the rapid progress in getting people back to
work, which is so welcome, there are still 10 million people
who are out of work because of the pandemic. And, that is more
than lost their jobs in all of the global financial crisis 10
years ago, which at the time was the biggest recession that we
had had in a long, long time.
So, there is a lot of work left to do there. The
unemployment insurance programs are expiring at year's end. I
think that is an area where I would certainly look.
Another thing that comes up all the time in our discussions
is smaller businesses. We met with a group of community bankers
a week or so ago, and they were telling us there are just a lot
of smaller businesses in their communities that will struggle
to make it through this winter because, as you say, in
Missouri's Second District--and it is true all over the
country--COVID is moving up, and with the cold weather, people
are staying in, and it is going to be tough on a lot of small
businesses. That is another place where I would look.
Finally, I do think for State and local governments, and
this differs State to State, revenue is down, and maybe not so
much in some States, but in some States by a lot, and costs are
going up. And I think they deliver critical services. They are
living under balanced budget requirements, and so they lay
people off, and they have laid off more than a million people
already. So, that is another area where I think it would be
profitable to look.
Mrs. Wagner. Thank you, I appreciate that.
Secretary Mnuchin, I will ask you a similar question. You
have mentioned the need for a targeted fiscal package with $455
billion in unused funds from the CARES Act that did need to be
returned to Treasury, given the law.
How do you suggest we appropriate this money to support the
most-vulnerable segments of our population?
Secretary Mnuchin. My single-highest priority would be to
activate the $140 billion in PPP funds that are not spent, that
we could immediately send out to the hardest-hit small
businesses whose revenue is down dramatically.
I also think Congress should consider extending some of the
unemployment insurance programs that expire at the end of the
year.
Mrs. Wagner. I appreciate that. And the Paycheck Protection
Program is estimated to have saved more than 50 million jobs,
including many jobs across Missouri's Second Congressional
District.
Chairwoman Waters. The gentlelady's time has expired.
Mrs. Wagner. Thank you. I yield back.
Chairwoman Waters. The gentleman from Illinois, Mr. Casten,
is recognized for 5 minutes.
Mr. Casten. Thank you very much. We really appreciate you
all being here today.
I was really pleased that the Federal Reserve's financial
stability report identified climate change as a risk to
financial stability. The report stated that, ``different
sectors of the economy and geographic regions face different
risks that will diverge from historical patterns.'' It also
said that levered financial institutions may be exposed to
losses from disasters made more likely by climate change.
Chairman Powell, while there is more to explore about how
to incorporate these risks into modeling, do you think it is
appropriate for financial institutions to incorporate climate
risk into credit risk assessment?
Mr. Powell. Let me say this for starters: Climate change is
an important issue. I want to say that society's broad response
to climate change really has to come from elected
Representatives. I think there is a role for the Fed here, and
we are working our way through understanding what that will be.
But one thing is the public will expect that, in our
supervision and regulation of financial institutions and
financial market infrastructure, that they will be resilient,
we will make sure that they are resilient to climate change
risks. And I do think that it does fall on banking institutions
and CCPs and other financial market infrastructures to evaluate
that and incorporate it in their own operations and also, I
would think ultimately, in the credit that they extend.
Mr. Casten. I think I will take that as a yes, because I
was really just asking if it was appropriate for financial
institutions to incorporate. What role the Fed has is, of
course, a separate question.
I certainly agree with you, and I asked the question
because I am really concerned with the OCC's latest rule that
would prevent banks from integrating climate-related risks into
their credit assessments, despite the fairly significant
financial risk that climate poses.
The OCC rule specifically says that the risks of lending,
``would not change based on the sector in which the firm
operates,'' which is categorically false. I don't know how you
would tell banks that somehow they need to ignore the dynamics
in the sector without imposing significant systemic risk on the
banking sector, not allowing banks to account for the sector of
the economy where it sits just defies logic and market
fundamentals.
The report also stated that, within the financial system,
increased transparency, through improved measurement and
disclosure, would improve the pricing of climate risks. What
additional transparency would be helpful to appropriately
assess the overall risk to the financial system due to climate
change?
Mr. Powell. I am glad you read that box in our Financial
Stability Report. We are really at the beginning of the process
of thinking our way through these things, and so are other
market regulators and central banks and financial institutions
around the world.
The point there was that we are going to need transparency
about how financial institutions are thinking about these
risks, how they are incorporating it in their business model.
We don't actually regulate transparency. That is really more of
a market regulator job, what is a required disclosure.
I think we are all moving in that direction, but in terms
of the interaction between financial regulators and financial
institutions, we are at the beginning of the work.
Mr. Casten. Would a standardization of climate-related risk
disclosures from publicly traded companies be useful for you in
order to continue that work?
Mr. Powell. I think that is certainly where we are headed
over time. Again, it is not our responsibility. That would be
the market regulator's responsibility. But I do think that is
where we will be going.
Mr. Casten. Thank you. And I yield back the balance of my
time.
Chairwoman Waters. Thank you.
The gentleman from Kentucky, Mr. Barr, is recognized for 5
minutes.
Mr. Barr. Thank you, Madam Chairwoman.
Chairman Powell, some in the press this morning and some of
my colleagues have seemed to try to make the argument that you
and the Treasury Secretary are in disagreement about the
Exchange Stabilization Fund, but I don't detect much of a
disagreement.
What I heard the Secretary say is that his decision to not
extend the $430 billion left in the Exchange Stabilization Fund
is rooted in his interpretation of the statute of the CARES
Act. And what I heard you say is that you believe that the
Secretary, under the law, has the authoritative interpretation
of that and you accept that.
Now, obviously, you stated yesterday that you think it is
perhaps premature to be pulling back from emergency lending
programs, but I heard the Treasury Secretary say that it is
within Congress' ability to authorize that, so I don't see a
disagreement here.
But given the modest takeup in some of the emergency
lending programs, particularly Main Street, wouldn't it be wise
for Congress to repurpose at least some of that $430 billion
towards what, admittedly, has been an effective program, the
Paycheck Protection Program?
Mr. Powell. I hope you won't mind if I use just a couple of
seconds to clarify what is going on.
Mr. Barr. Sure.
Mr. Powell. As I said earlier, the Secretary has sole
authority over CARES Act funds. He reads the statute and reads
it to say that there is no support for lending after December
31st. We accept that. We don't have a role in reading it. That
is one thing. Our thinking is not about the CARES Act money; it
is more about support for the economy.
Mr. Barr. Sure.
Mr. Powell. We were concerned that the public might
misinterpret this as the Fed stepping back and thinking that
our work is done, and that is very much not the case. So, we
needed to send a signal to the public to that effect.
And, as the Secretary pointed out in his letter and as we
pointed out in our letter, there is Exchange Stabilization Fund
money that is available to support the reestablishment of these
facilities or other facilities, if they are needed and they
meet the legal requirements and that kind of thing.
Mr. Barr. Let me just ask this, though: Wouldn't it be wise
for Congress at this point, before the end of the year, to
repurpose some of those CARES Act funds towards the Paycheck
Protection Program, given the concerns of the small businesses
that you referenced?
Mr. Powell. I would just say that what I am hearing from
across the aisle and on both sides of the Hill is the desire to
do something to fund these causes, as the Secretary just talked
about, and others. And I think that would certainly be a help
for the economy. As to where that money comes from, that is
really up to you.
Mr. Barr. One area where there is, I think, significant
bipartisan support is for streamlining the forgiveness process.
A recent survey in Kentucky found that 27 percent of community
banks in Kentucky would not participate in a new round of PPP
without streamlined forgiveness and clear rules of the road.
Many of the businesses in my district who have applied for
forgiveness tell me that the process from the Small Business
Administration (SBA) is slow and cumbersome. It is a big
problem if lenders will not participate in a second round
because of inadequate streamlining of the forgiveness rules.
Secretary Mnuchin, you previously indicated your support
for legislation to streamline PPP forgiveness. Is this still
the case, and what more can we do to ensure participation by
community lenders in a new round of PPP?
Secretary Mnuchin. I do support that. And we have created
three different forms for forgiveness, using what authorities
we have, and making it as simple as possible for loans that are
less than $50,000.
But I know there is bipartisan support to pass a bill. I
believe it is all loans $150,000 or less. And we fully support
that, subject to audit.
Mr. Barr. Thank you.
Chairman Powell, the statutory language in the CARES Act
temporarily suspends accounting rules related to troubled debt
restructuring (TDR), and that expires on December 31st. It is
important that Congress extend this important tool to allow
lenders to continue to work with their customers.
What authorities do you have at the Fed to extend TDR
relief administratively versus what Congress must do to ensure
lenders can continue to accommodate borrowers?
Mr. Powell. We actually don't have authority to extend TDR.
It is an accounting rule. We have a lot of authority, though,
and we will use it to make sure that banks continue to work
with their borrowers, to encourage them to do so, I should say.
Mr. Barr. There is some uncertainty among the auditing
community about whether life insurers would qualify for TDR
relief under CARES. This is a problem, because insurers make up
over 13 percent of the commercial real estate lending market, a
sector that is deeply impacted by the pandemic.
Chair Powell, do you agree that life insurers, given their
participation in the commercial real estate lending market,
should qualify for TDR relief?
Mr. Powell. I would have to check on that, and get back to
you. Thanks.
Mr. Barr. We think that is an important thing to look into.
My time has expired. I yield back.
Chairwoman Waters. Thank you very much.
The gentleman from New Jersey, Mr. Gottheimer, is
recognized for 5 minutes.
Mr. Gottheimer. Thank you, Madam Chairwoman.
And thank you, Chairman Powell and Secretary Mnuchin, for
being here today.
The COVID-19 pandemic, as we have been talking about, has
caused ongoing global health and economic crises. While certain
aspects of our economy are recovering, millions of Americans
and thousands of my constituents are in dire need of help. We
can't go home from Washington, given what is going on, without
risking a double-dip recession.
As you said earlier this month, Chairman Powell, further
support is likely to be needed to avoid another spread of the
virus, and to help individuals. We are obviously in the lame
duck session of Congress. The American people have waited long
enough. Our families, our businesses, and our communities are
all suffering, and it would be unconscionable for any party to
walk away from so many who are hurting right now.
Yesterday, the Problem Solvers Caucus joined a bipartisan
group of Senators in releasing a new $908 billion emergency
short-term stimulus package. It is intended to be a critical
downpayment to get through the next months.
If I can start with you, Secretary Mnuchin, have you had a
chance to review the framework, by chance?
Secretary Mnuchin. First, let me just say I really
appreciate the work that you have personally done, and the
Problem Solvers have done, in trying to reach bipartisan
solutions.
I did review it briefly yesterday after my testimony, and I
will be spending more time on it today. Again, I would urge
Congress to move quickly on the PPP, for which there seems to
be enormous bipartisan support. But, again, thank you
personally for your efforts.
Mr. Gottheimer. Thank you, Mr. Secretary. And I appreciate
the work we have done together on this. And obviously, I hope
this will be something that if we can get the support here, the
Administration might support.
If I could turn to Chairman Powell, would you speak to the
urgency for fiscal relief, and what do you believe is at stake
this winter for the economy and for families if we don't get an
emergency package done in the next week?
Mr. Powell. My view is that it would be very helpful and
very important that there be additional fiscal support for the
economy, really to get us through the winter. We have made a
lot of progress faster than we expected, and now we have a big
spike in COVID cases, and it may weigh on economic activity.
People may pull back from activities they were previously
involved in, or not get involved in new activities. So, I think
it would be helpful if we could get that done, if you could get
that done.
Mr. Gottheimer. Thank you so much, Mr. Chairman.
Just to follow up on that, obviously, local governments are
struggling now, through no fault of their own. It is putting
law enforcement, firefighters, teachers and their [inaudible]
on the line. What do you think the impact will be, if we can't
get extra resources to our State and local governments, on the
economy?
Mr. Powell. These are really decisions for you, but I would
say that State and local governments provide critical services.
You mentioned them. And State and local governments live with
balanced budget requirements, unlike the Federal Government.
And what happens when revenues soften and expenses go up is you
see layoffs. And that was a big part of the story in the slow
recovery from the global financial crisis a decade ago. We now
have a little more than a million in layoffs so far.
State and local governments are some of the very largest
employers in the country, and they provide those critical
services. I think that is a worthy place for you to look, in
terms of where support might be appropriate.
Mr. Gottheimer. Do you see it as sort of, just to follow up
on that point, a ripple effect? In New Jersey, about a third of
our businesses already, small businesses, have already gone
out, including about 28 percent of restaurants. When you add
that with the revenue declines for the State and local
governments, and all of these businesses coming out, what do
you see on the other side of the virus? And, again, with the
vaccine, but what can be the economic [inaudible] that all of
this brings along after the virus is behind us?
Mr. Powell. I think, as you suggest, that you have a near-
term and medium-term difference. The near-term does look
challenging through the winter. Small businesses--we are
hearing all over that small businesses are really under
pressure. And then, sometime in the middle of next year, it
really does look like that may be the light at the end of the
tunnel--we all hope so--and that the economy could be very
healthy.
The problem is, of course, people who lose their homes now
or businesses that go out of business, these are sometimes
small businesses that might have generations of sort of human
capital built up in their activities. And once they are gone,
they can't just be recreated. So, you could lose parts of the
economy, and that will mean a slower recovery.
I like to think of it as a bridge over this chasm that was
created by the pandemic. We are trying to get as much of the
economy and as many of the workers across that bridge to the
post-pandemic economy. And I think we have done well at that,
but there is still some work left to do.
Mr. Gottheimer. Thank you so much.
And I yield back.
Chairwoman Waters. The gentleman's time has expired.
The gentleman from Ohio, Mr. Gonzalez, is recognized for 5
minutes.
Mr. Gonzalez of Ohio. Thank you, Madam Chairwoman, for
holding this hearing, and I thank both of our witnesses for all
of your work throughout this pandemic. I sincerely believe that
we will look back a decade, or 2 decades from now, and the work
that you two did together will be looked at in the most
favorable light. And so, I couldn't be more grateful for your
service, so thank you both for that.
Look, we can see the light at the end of the tunnel with
two vaccines awaiting approval, and I think the bridge comment
is exactly correct. We are looking to bridge from now until,
call it April 1st or whenever that is. And I was pleased to
join a group of bipartisan and bicameral Members yesterday as
my colleague, Mr. Gottheimer, just mentioned, with the Problem
Solvers Caucus to hopefully provide that bridge, and I hope we
will be able to do that.
Chairman Powell, before I move into some questions on that,
going back to the Exchange Stabilization Fund a bit, the main
purpose was to provide liquidity to the financial system to
stabilize the financial system. As these programs expire, do
you see the same or similar risks to the liquidity inside the
financial system as you did, say, back in March or April, or do
you feel like we are in a much better place today?
Mr. Powell. We are clearly in a much better place. To be
clear, the utilization of these facilities, most of them, is
very, very low now. Nonetheless, we see them as serving a
backstop function that a central banker would want, and we
would want to leave that backstopping function in place for
some additional period of time but not forever.
If you look back at what we did in the global financial
crisis, we left them out there until we were well past the
difficulty, and then we unplugged them, put them in the attic,
and put them away. None of them became a permanent feature of
the landscape, and we hope these don't either. So, that is the
way we think about it.
Mr. Gonzalez of Ohio. Thank you. That is helpful. And
hopefully, as we debate the next package, we can consider that.
Secretary Mnuchin, in recent months, we have heard Speaker
Pelosi on multiple occasions state effectively that nothing is
better than something with respect to additional relief. In
your estimation, is nothing better than something for my
constituents back home?
Secretary Mnuchin. No. Something is clearly better than
nothing. And, again, I would urge Congress to do something, if
it is just the PPP or more.
Mr. Gonzalez of Ohio. And, of course, that is an obvious
statement, which I think everybody knows, but for whatever
reason, the Speaker has chosen that path. My understanding is
you have continued dialogue with her. I am not going to ask you
to divulge sort of the specifics of those conversations, but
you have been involved in a lot of deals in your life,
certainly as Treasury Secretary.
As you have had these discussions, how would you
characterize them with respect to willingness to actually get a
deal done? Because I think there are a lot of people who like
to talk around here, but when it gets down to it, actually
don't do that much with respect to closing a deal. How would
you characterize the discussions?
Secretary Mnuchin. I would say the good news is when we
really needed to get this done last March, it got done with
overwhelming bipartisan support. Republicans and Democrats came
together in an unprecedented response. When we needed to extend
the PPP, people came together in an unprecedented response.
Unfortunately, since that period of time, things for which,
in my opinion, there should be absolute bipartisan support, and
we could get done, unfortunately, the Speaker has had--a half a
loaf is not good enough and wanted a full loaf. So, again, I
would encourage Congress, particularly over the next few weeks
in the lame duck, let's try to get something done.
Mr. Gonzalez of Ohio. No. I couldn't agree more, and I--
again, to state another obvious point, my colleagues on the
other side of the aisle are in the Majority. And in order for
this to actually get done, we are all going to have to come
together to do it, but really, the pressure needs to come from
them. And I hope that they will use the leverage that they have
to encourage the Speaker to put a real bipartisan bill forward,
because as Chairman Powell said, and as you have said, as
common sense demands, it is obvious that we need a bridge here,
that there are people struggling. There are small businesses
struggling. There are people who are unemployed who are
struggling. And I can almost guarantee you to the person that
every single one of them would prefer something to nothing. And
I hope that this body will come to common sense and actually
get that done.
And with that, I yield back.
Chairwoman Waters. Thank you.
And I object to all of the fault being placed on the
Speaker's back. I would advise the President to get involved
and get off the golf course.
Mrs. Axne, you are now recognized for 5 minutes.
Mrs. Axne. Thank you, Madam Chairwoman, and I thank both of
our witnesses for being here.
As we all know, we are in dire straits right now. Iowa has
now had increasing unemployment claims for 6 straight weeks.
And, of course, I would like to remind everybody that we need
to pay attention to the level of unemployment, not just the
direction. This is all happening when week after week, we see
initial claims higher than the worst that we saw in the Great
Recession. That is 36 weeks in a row where we have seen record
unemployment claims across this country.
Meanwhile, The Century Foundation recently estimated that
12 million people would lose their unemployment benefits the
day after Christmas if we don't act. That seems very terrible
for this country.
Chairman Powell, what are the economic impacts of removing
that support at a time when this recovery is so fragile?
Mr. Powell. This is if the unemployment programs run out
and expire at the end of the year. We would be concerned that
the unemployment rate for people in the bottom quartile, for
example, is about 20 percent still, and those are people with
relatively low savings, low wealth. And we would be concerned
that they would be vulnerable to losing their houses or their
rental and just be in a very difficult place. So, we think that
is an appropriate place to look for further help.
Mrs. Axne. I appreciate that. As we all know, 1 in 8
Americans are going hungry, more than 3 million businesses have
closed, and we are approaching 100,000 people now hospitalized
with COVID. So I am wondering, for either one of you, does
seeing this kind of need and the discussion that we have had
today show the importance of passing another COVID aid package?
And how quickly do we need to get that done?
Mr. Powell. I would just urge, as the Secretary has done,
that this is a good time. This would really help the economy
through these winter months and beyond. And, again, we can see
the vaccines coming, but we have a bit more of the bridge to
build, and I think it would be very important for the economy
to receive that help.
Secretary Mnuchin. I would agree with that, as I have
echoed.
Mrs. Axne. Thank you.
And, Secretary Mnuchin, I did want to discuss the CDC's
eviction moratorium that currently expires on December 31st. A
study recently showed that 430,000 cases of COVID and more than
10,000 deaths are due to lifting the earlier State and local
eviction moratorium. Are there plans to extend that to possibly
protect 10 million households from eviction this January?
Secretary Mnuchin. I think, as you know, that wasn't our
first choice. Our first choice was really assistance to those
people, but I will discuss that with the President, and
extending it.
And, Chairwoman Waters, I have been speaking to the
President every day and updating him on the state of the
negotiations. He would like us to see additional funding.
Mrs. Axne. Thank you. I hope we can get that done quickly
so that we don't have a 20-day gap here where millions of
people are going to get evicted. Soc, please get back to us and
the chairwoman on what we can expect from that. Thank you.
I would also like to discuss what you are doing with the
$450 billion of funds for the CARES Act. I know we have had
some discussion here. I am going to set aside the question of
whether what you are doing is legal, because I want to get into
why you are doing this. One explanation I have seen is that
it's because you think Congress should use this for fiscal aid,
and I don't disagree with that.
The problem with this, though, is that if Congress wants to
reappropriate money from the Exchange Stabilization Fund (ESF),
we can do that the same as we can from the General Fund. The
only real difference I can see is that leaving it in the ESF
makes it a heck of a lot easier for a future Treasury Secretary
to use this money quickly to provide for economic support. So,
why are you choosing to make it harder to support the economy
in the future?
Secretary Mnuchin. I just want to clarify, because there is
a bunch of confusion. Whether it sits in the general account,
whether it sits in the ESF, all of this is completely governed
by the law. And as I have said, I extended the pre-CARES Act
facilities. If I was looking to do something that was
political, I wouldn't have extended those.
My result in not extending the CARES Act is merely an
administration of my obligation under this law. It doesn't
matter what account it is in. That has nothing to do with it.
The money is administered pursuant to the law. And if Congress
wants to change the law, that is fine. And the reason why I
believe Mitch McConnell has put some new language in isn't in
my interpretation of the law; it is because many of you seem to
be confused and he wants to clarify it.
Mrs. Axne. Reclaiming my time, Thank you, Mr. Secretary,
but that is just not accurate. The CARES Act is very clear that
existing investments can remain there, and that is what you
have made happen with the Fed's facilities, so that answer
isn't acceptable.
Why are you looking for a way not to help American people
right now? This isn't your money; it is taxpayer money, and it
should be quickly available to the American people right now
when we need the help. So, I see you undermining the American
people on your way out the door. You need to reverse this
decision so that these programs can keep supporting people.
Chairwoman Waters. The gentlelady's time has expired.
Mrs. Axne. Thank you for your service, and I yield back.
Chairwoman Waters. Thank you.
The gentleman from Tennessee, Mr. Rose, is recognized for 5
minutes.
Mr. Rose. Thank you, Chairwoman Waters, and Ranking Member
McHenry. And I thank you, Secretary Mnuchin and Chair Powell,
for being here today for this third oversight hearing required
by the CARES Act. I want to thank you also for the great work
by both the Department of the Treasury and the Federal Reserve
throughout this pandemic response. Your fast action has allowed
businesses in my district in Tennessee and across the country
as well to keep their doors open, and to keep employees on the
payroll.
I also want to underscore the importance and impact of the
CARES Act on stabilizing the economy. We continue to see strong
economic recovery, and I hope we can continue that trend as we
work towards the great American comeback.
Congress has already provided approximately $1 trillion
through bipartisan legislation, including the CARES Act, to
stabilize State and local economies and support communities,
including frontline workers, teachers, students, school
employees, and employers and employees.
In your testimony, you pointed out that $455 billion in
unused funds remain from the CARES Act. Back in Tennessee,
folks are talking about how these funds sit unused while House
Democrats continue to discuss spending an additional $3.4
trillion, and that is with a ``T,'' trillion, in the Health and
Economic Recovery Omnibus Emergency Solutions (HEROES) Act.
In Middle Tennessee, there have been several industries
that are enjoying their best year ever while others have been
completely devastated by the government-imposed shutdowns due
to the coronavirus pandemic. The American private bus and motor
coach industry is one of the latter. The motor coach industry
plays a vital role in our travel, tourism, and music
industries, and provides nearly 600 million passenger trips per
year. In the wake of the pandemic, nearly all of the 3,000
companies in the industry at some point were completely shut
down, 36,000 vehicles were parked, and most of the over 88,000
employees were laid off.
We have billions of dollars sitting unused, and yet this
industry still needs relief. Congress must act to provide
targeted relief.
Secretary Mnuchin, as a proponent yourself of targeted
relief, can you detail what you would do to provide targeted
aid to this devastated industry?
Secretary Mnuchin. Yes. And let me just say, there is more
than the $450 billion unused. There is actually another $140
billion in PPP on top of that. But I would support $20 billion
in additional money in payroll support to the airlines,
identical to what we have done before in the CARES Act. I think
that would be very meaningful in terms of employment and saving
the industry.
Mr. Rose. And I appreciate that, but unfortunately, that
assistance didn't reach the motor coach industry, and so they
have not enjoyed that same targeted relief that we saw go to
the airline industry.
Do you believe that the aid that you described should be
included in an end-of-year package?
Secretary Mnuchin. I apologize. I thought you were asking
about the airlines. I would support additional aid to the motor
coach industry as well.
Mr. Rose. Thank you. Lastly, would you be willing to commit
to having Treasury staff brief my staff and Senator Marsha
Blackburn's staff before the end of the year on ways that
Treasury might be able to provide targeted assistance to the
bus and motor coach industry using any existing funds?
Secretary Mnuchin. We would be happy to. I don't think,
unfortunately, we can use existing funds, but we would be more
than happy to go through that with your staff.
Mr. Rose. Thank you.
Thanks to President Trump's Operation Warp Speed, and the
great American innovative industries that we have, we are
getting closer and closer to widely distributing a vaccine. In
Tennessee, if the FDA authorizes emergency use, we are
expecting to see distribution beginning in mid-December.
Chair Powell, could you speak to the effect that
distributing an effective vaccine would have on our economy?
Mr. Powell. Yes. Clearly, in the medium-term, which is to
say, sometime in the middle of next year, we are not well-
positioned to give a precise estimate of when that might be,
people will regain confidence that they can gather in various
activities that now seem too risky because of COVID, and that
will have a very positive effect on economic activity, on
spending, and on hiring. So, we do see very positive things
coming.
I just would add, though, as I said in my testimony, the
path is a little bit uncertain because we are still learning,
going to be learning, about the efficacy of the vaccines and
also about the speed of the rollout and who will get them and
in what order and what the effect will be on the public. But,
overall, I think we see a very positive set of developments
coming at a somewhat uncertain time but not so long into the
future.
Mr. Rose. Thank you, Chairwoman Waters. I yield back.
Chairwoman Waters. Thank you.
The gentlewoman from California, Ms. Porter, is recognized
for 5 minutes.
Ms. Porter. Thank you, Madam Chairwoman.
Chair Powell, would you say the economic crisis caused by
the pandemic is over?
Mr. Powell. I'm sorry. I couldn't hear exactly what you
said. I apologize.
Ms. Porter. That's okay. Would you say the economic crisis
caused by the pandemic is over?
Mr. Powell. No, I would not.
Ms. Porter. Okay. How long do you think it will take before
we know?
Mr. Powell. I think--well, before we know, I think we will
know a lot in the next 4 to 6 months about vaccines. The real
issue, though, is what are going to be the effects of people
whose jobs may have changed or gone away? It is really the
new--the post-pandemic economy is going to be different, and we
are going to learn a lot about that in the second half of next
year. And I think those people are going to need help, some of
them.
Ms. Porter. And I think that is, Chair Powell, a very fair
answer. We can't know unless we have a crystal ball exactly how
the recovery from this is going to proceed.
Now, Secretary Mnuchin, who is also here with us today,
apparently disagrees with you. In fact, Secretary Mnuchin is so
certain that the economic crisis is over that he wants to ban
the Fed from using any more of the $500 billion that Congress
set aside in the CARES Act to help the economy. Two weeks ago,
he wrote to you to request that you return the remaining $455
billion because our economy, in his opinion, simply doesn't
need it anymore.
In response, you, Chair Powell, said that the outlook for
the economy is extraordinarily uncertain. The Federal Reserve
would prefer that the full speed of emergency facilities
established during the pandemic continue to serve their
important role as a backstop for our still strained and
vulnerable economy.
Needless to say, it is highly concerning that the two
people tasked with stabilizing our economy do not agree on
whether the markets are stable. But it actually doesn't matter
what either of you two think because Secretary Mnuchin simply
doesn't have the authority to recall the $455 billion.
I am reading aloud now from Section 4027 of the CARES Act:
``On or after January 1, 2026, any funds that are remaining
shall be transferred to the General Fund,'' in other words,
sent back to the Treasury.
Secretary Mnuchin, is it currently the year 2026? Yes or
no?
Secretary Mnuchin. First, let me comment. I do believe
there is an economic emergency.
Ms. Porter. Secretary Mnuchin, reclaiming my time.
Secretary Mnuchin. You are putting words in my mouth that
are not correct.
Second of all, okay--
Ms. Porter. Reclaiming my time.
Secretary Mnuchin. --the answer is that 4027--
Chairwoman Waters. The time belongs to the gentlelady.
Ms. Porter. Madam Chairwoman?
Reclaiming my time, Mr. Mnuchin, would you start by
answering my next question, and I will ask you others. Is today
the year 2026? Yes or no?
Secretary Mnuchin. Of course, it is not 2026. It's
ridiculous to ask me that question and waste our time.
Ms. Porter. Secretary Mnuchin, I think it is ridiculous
that you are playacting to be a lawyer when you have no legal
degree.
Secretary Mnuchin. Actually, I have plenty of lawyers at
the Department of the Treasury who advise me, so--
Ms. Porter. Mr. Mnuchin--
Secretary Mnuchin. --I am more than happy to follow up with
Chairwoman Waters and the ranking member and explain all of the
legal provisions. I am more than happy to make that access.
Ms. Porter. Secretary Mnuchin, are you, in fact, a lawyer?
Secretary Mnuchin. I do not have a legal degree. I have
lawyers who report to me.
Ms. Porter. Thank you.
Chair Powell, are you, in fact, a lawyer?
Mr. Powell. I am a former lawyer, a recovering lawyer.
Ms. Porter. You have a legal degree, correct?
Mr. Powell. Yes, I do.
Ms. Porter. Okay. Secretary Mnuchin, you are trying to tell
Chairman Powell to send over any remaining funds right now, and
you are claiming, falsely in my opinion, that is what the law
says. And you have gotten into a disagreement with someone who
is actually a lawyer--
Secretary Mnuchin. Are you a lawyer?
Ms. Porter. --and, Congress, which actually wrote the law
about what it says. So, let's go through with what the law
actually says.
Secretary Mnuchin. Okay. Actually, I wrote the law with
Congress, for what it is worth. And, by the way, it is not $450
billion he is returning. I think it is approximately $175
billion.
Ms. Porter. Reclaiming my time, there was no question
there.
Secretary Mnuchin, the CARES Act already says in exhibit--
in Section 4027, it says that you have to stop making any new
investments, new investments, in Fed lending programs at year's
end. It doesn't say that the Fed programs must stop making
loans or purchases. You are making a decision that is not
aligned with the statute or congressional intent.
Chairwoman Waters. The gentlelady's time has expired.
The gentleman from Wisconsin, Mr. Steil, is recognized for
5 minutes.
Mr. Steil. Thank you, Madam Chairwoman.
Secretary Mnuchin, thank you for being here. Would you like
to further your comments for just a minute on the last exchange
there as to your rationale? I feel like you got cut off there
for a minute.
Secretary Mnuchin. Thank you very much. And, again, I think
what I will do is follow up with the chairwoman and the ranking
member so we clarify both 4027 and 4029. Again, I have had
these discussions with the Senate. And, again, if there is any
misunderstanding on this, again, this can be changed.
Mr. Steil. I appreciate it. Thank you very much, and thank
you for being here.
Chairman Powell, the Fed balance sheet currently stands at
$7.2 trillion, more than $3 trillion above where we started at
the beginning of the year. At the hearing on June 17th, I asked
you how the Fed would manage its balance sheet going forward to
mitigate inflationary pressures. I think we need to keep this
issue in mind in light of the unusual monetary and fiscal
tactics we have been required to employ this year to maintain
the economic growth and stability that we have had.
When we spoke, you commented that during the last recovery,
going back a ways, the Fed waited until it was, ``well down the
path of recovery,'' before deciding what to do. You asserted
that the balance sheet, I think in your words, ``doesn't
present issues at the current time,'' suggesting that
addressing the balance sheet size was not a priority.
It is now 6 months later. Our economy has begun to recover.
The unemployment rate has fallen from approximately 10 percent
to closer to 7 percent. Multiple vaccine trials have been
successful, and we are expecting distribution in the not-too-
distant future. We are not out of the woods yet, but there is
cause, I think, for optimism about our economic recovery.
Could you comment on the indicators that you are watching
closely as you consider taking steps to begin to restore the
Fed's balance sheet to its prepandemic levels?
Mr. Powell. Sure. Our priority remains supporting the
economy until we are really well through this. We are going to
keep our rates low and keep our tools working until we feel
like we really are very clearly past the danger that is
presented to the economy from the pandemic. So, we are not
considering pulling back any of our support for the economy,
and we are not going to, until we feel very confident that it
is no longer necessary.
The time will come to start thinking about balance sheet
issues, and we have the model of what we did in the last
financial recovery. And I was at the Fed during those years
when we were considering that. That time will come. It is well
into the future. I think we know how to do it, and that is
slowly and carefully.
I think we have also seen all of these years of large
balance sheets, and understandably, people were concerned after
quantitative easing began that there would be inflationary
pressures or market distortionary problems, but we really
didn't see them. So, we don't want the balance sheet to be, in
the long run, any bigger than it needs to be, but the main
thing for us is to keep the support that the economy needs
until we are confident that it no longer needs it.
Mr. Steil. Thank you for your comments. If I can shift
gears, Chairman Powell, as you know, LIBOR is linked to almost
$400 trillion in financial contracts, so the implications of
the transition away from the benchmark are quite significant. I
am especially concerned about some of the tough legacy
contracts which reference LIBOR and are unchangeable.
On Monday, the Fed, the FDIC, and the OCC issued a
statement recognizing some of these developments and
reiterating, among other things, that banks should transition
away from the U.S. dollar LIBOR as soon as practical. Are you
concerned that some financial market participants may continue
to reference LIBOR in contracts even after the relevant phase-
out dates?
Mr. Powell. As you know, we have provided guidance to
market participants that we would strongly discourage the use
of LIBOR for new contracts after the end of 2021. And then,
there is a proposal which will go out for comment, but the idea
would be that LIBOR would cease to be published, would cease to
exist, except in the tail in the remaining outstanding
contracts at June 30, 2023.
It is very important that people understand that LIBOR
should not be assumed to continue to be published after that.
That does mean there will be a so-called hard tail, and we do
think that will take legislation, and we have been working with
Congress and also at the New York State level on that. So, we
think that is important but not urgent from a time standpoint,
but something that we will need to get done.
Mr. Steil. Thank you very much. Thank you both for being
here.
I yield back.
Chairwoman Waters. Thank you.
The gentlewoman from Massachusetts, Ms. Pressley, is
recognized for 5 minutes.
Ms. Pressley. Thank you, Madam Chairwoman.
Chairman Powell, you have consistently publicly called for
greater fiscal aid. You testified that, ``the risk of overdoing
it is less than the risk of underdoing it.'' I agree with you
here, Chairman Powell. This is not a question of either/or. We
absolutely need further stimulus, but Congress has also
provided the Fed with over $450 billion to support lending to
cities, States, and small businesses.
Now, in fact, in your March 23rd press release announcing
these emergency lending facilities, you state 3 times that the
Fed, ``is committed to using its full range of tools and
authorities.'' Yet, in less than 24 hours, you gave up any
resistance to Secretary Mnuchin's arbitrary demand to shutter
these facilities by the end of the year, including the
municipal liquidity in Main Street lending facilities.
So, I want to just build on my colleague, Representative
Axne's, line and justfurther sort of enumerate and unpack the
sobering landscape likely before us. So, yes or no, please,
with the ongoing pandemic, do you expect the number of cities
and States facing historic budget shortfalls to continue to
rise? Chairman Powell, yes or no?
Mr. Powell. I don't really have a strong expectation on
that, but that may be right.
Ms. Pressley. I will take that as a yes.
Do you expect further State and municipal credit
downgrades, making it more difficult for State and local
governments to borrow? There have been 337 downgrades so far.
Do you expect that to happen? It is a yes or a no.
Mr. Powell. I think it is probable.
Ms. Pressley. Okay. I will take that as a yes.
Are we facing an unprecedented wave of small business
closures? Yes or no?
Mr. Powell. I think that is uncertain. Unprecedented wave?
I don't know that we know that.
Ms. Pressley. Okay. Is the rescue of small businesses
essential to any long-term economic recovery? Yes or no?
Mr. Powell. Yes. It is important.
Ms. Pressley. And would failure to provide relief to
cities, States, and small businesses further widen existing
inequalities, including, but not limited tox, the racial and
gender wealth gaps? Yes or no?
Mr. Powell. Look, I think it is--
Ms. Pressley. Yes or no?
Mr. Powell. I think it--I'm sorry. Yes-or-no questions for
these questions--I am just going to answer you, which is that I
think it is important that these groups--
Ms. Pressley. Reclaiming my time.
Mr. Powell. --get additional fiscal support. Thank you.
Ms. Pressley. Please don't--I don't want you to filibuster
here, okay, because these issues are of great import. And part
of your job is forecasting, so I am leaning in on your
expertise. So, again, yes or no, will this exacerbate racial
and gender wealth gaps, failing to provide relief to cities and
States and small businesses?
Mr. Powell. I think there is a risk of that. I think there
is a risk of that, yes.
Ms. Pressley. Chairman Powell, the Federal Reserve lends at
a ratio of 10 to 1, so if Congress set aside $400 billion to
cover any potential losses, you can lend up to how much to
these facilities? What is that amount?
Mr. Powell. Whatever 10 times the amount of equity that has
been pledged, so it would have been several multiple trillion,
$4 trillion or so. Of course, that borrowing happened. It just
didn't happen in the facility.
Ms. Pressley. Over $4 trillion. So, you have a
responsibility to support maximum employment. Yet in the midst
of a global pandemic, you have been complicit in eliminating
over $4 trillion in potential relief to cities, States, and
small businesses. And then adding insult to injury, the
Secretary wants to move this money to Treasury's General Fund,
conveniently out of reach of the incoming Administration and in
direct violation of the CARES Act.
I know there has been this sort of, Jedi mind trick going
on here, but we know what our intentions are. We can read. And
the funds are supposed to be available for up to 5 years, so I
am not even sure why we have been going back and forth on that.
But I did also just want to ask about--let me for a moment
turn to Secretary Mnuchin, just building on the line from my
colleague, Congresswoman Porter, here. What does it state in
Section 4027, subsection C, paragraph 2 of the CARES Act? I
just want to make sure we are all operating with the same
information.
Secretary Mnuchin. Section 4027 allows, to the extent we
have made, for example, an existing loan to an airline. If we
need to advance additional money to that airline in a
protective capacity, or if we have expenses, that is what 4027
applies to. And, again, it says very clearly that there are
certain funds that can be used until 2026, and will continue to
be available in Section 4027. Sections 4027 and 4029 work
together. Section 4029 has the December 31st--
Ms. Pressley. I will just reclaim my time. I am reclaiming
my time because, I don't know, we must be reading a different
text. So, Mr. Secretary, Section 4027, subsection 2, paragraph
2--
Chairwoman Waters. The gentlelady's time has expired. Thank
you.
Ms. Pressley. Thank you.
Chairwoman Waters. The gentleman from Texas, Mr. Gooden, is
recognized for 5 minutes.
Mr. Gooden. Thank you, Madam Chairwoman.
Secretary Mnuchin, thank you for your prior support for
credit risk transfer (CRT) as a means of reforming Freddie Mac
and Fannie Mae, as expressed in Treasury and the
Administration's housing reform plan. Does that support still
exist? And do Treasury and the Administration still support CRT
for the GSEs, and more importantly, the de-risking of Fannie
Mae and Freddie Mac that protects taxpayers?
Secretary Mnuchin. Yes.
Mr. Gooden. Would you like to elaborate on that?
Secretary Mnuchin. I think credit risk transfer is a very
effective mechanism of supporting the institutions. I also
think that capital accumulation is something that is very
important, and ultimately capital raising, so that taxpayers
are not at risk.
Mr. Gooden. Thank you. As you know, I, and many of my
colleagues in both Chambers of Congress and a variety of
stakeholders who have filed comments, have urged FHFA to ensure
a robust, risk-based CRT market in the new capital framework
for the GSEs. And while I support the capitalization of the
Enterprises, I have real concerns about the impact of FHFA's
capital rule on the CRT market.
The Financial Stability Oversight Council (FSOC) and
Treasury provided a brief 4-page review of FHFA's 400-plus page
proposed capital rule with little to no analysis of the impact
on the markets for CRT or mortgage-backed securities.
Do you think FHFA's capital rule provides adequate capital
relief for CRT? And has Treasury, FSOC, or the Office of
Financial Research examined the effects this rule could have on
the CRT market or access to mortgage credit?
Secretary Mnuchin. We have done some work on that, and we
would be happy to follow up with you on it.
Mr. Gooden. Thank you. I would appreciate that.
Mr. Powell, you were filibustered earlier. Did you have any
further comments? The floor is yours. I will give it to you. I
have 3 minutes.
Mr. Powell. Thank you. I just would say that, for example,
the municipal facility--the level of municipal borrowing is set
to exceed the all-time annual record this year, and that is
because of the backstop of this facility. You don't measure the
success of the facility by the amount of lending it does. It
succeeded in restoring borrowing in the markets at very low
levels for municipalities and other State and local government
entities across the credit spectrum: small; medium; and large.
So, I would just say that I think it has been quite a success.
Mr. Gooden. Thank you. I appreciate it.
Madam Chairwoman, I yield back.
Ms. Dean. [presiding]. The gentlewoman from New York, Ms.
Ocasio-Cortez, is recognized for 5 minutes.
Ms. Ocasio-Cortez. Thank you both so much for coming to
offer your testimony today and your expertise.
Secretary Mnuchin, not to belabor the point, but I did want
to dive back in here to Sections 4027 and 4029 that you are
referencing. I do think it is important that we discuss this
because you are bringing it up as the main rationale as to why
you are kind of bringing these funds back into the Exchange
Stabilization Fund.
So, first and quickly, Section 4027 of CARES explicitly
states that unused funds are to be returned to the Exchange
Stabilization Fund on January 1, 2026, correct?
Secretary Mnuchin. That is correct, and that will occur on
January 1, 2026.
Ms. Ocasio-Cortez. And that is with respect to the unused
funds. Now, Section 4029--
Secretary Mnuchin. No, it is not the unused; it is the
unused funds in the ESF at that time, that is correct.
Ms. Ocasio-Cortez. Yes. Thank you.
Section 4029 refers to rescinding authority to making new
loans, right? So, the law explicitly does contemplate--it has
that Section A, B, and C--and it does explicitly contemplate
that remaining funding as of January 1, 2021, which is in just
a matter of weeks, to be available for restructuring,
modification, amendment, and administrative costs. Is that
right?
Secretary Mnuchin. That is correct.
Ms. Ocasio-Cortez. I was wondering if I could give you the
opportunity to discuss, instead of choosing to return those
funds--and you are choosing to return those funds, right?
Secretary Mnuchin. No, I am not choosing to return those
funds. Whether the funds are returned or the funds aren't
returned, 4029 governs both direct and indirect. So, again, I
could have allocated all $500 billion on day one to the Federal
Reserve. I allocated $200 billion. It really is irrelevant.
Section 4029 governs the same provision, whether money is
sitting in any of the accounts. That was the purpose of 4029.
If you don't read it that way for 4029, then it shouldn't have
existed. There was no purpose to have the December 31, 2020,
date. And, again, I personally negotiated these documents.
Ms. Ocasio-Cortez. I understand. And I am trying to seek
some clarification because we are in such a desperate position.
Given the unfortunate gridlock, I think if--that we are all
kind of in--we are all aligned in interest in trying to figure
out where we can explore maximum flexibility as offered by the
statute, and so I am just curious.
Instead of choosing to kind of return--or rather, instead
of returning these funds, instead of reading the interpretation
as returning these funds to ESF, could you use, could we use
this modification statute to recapitalize loans?
Secretary Mnuchin. Recapitalize existing loans?
Ms. Ocasio-Cortez. Yes.
Secretary Mnuchin. Again, in my example, we have made
airline loans.
Ms. Ocasio-Cortez. Yes.
Secretary Mnuchin. So, people are focusing on the Section
13(3), these facilities. This governs both the direct loans and
the indirect loans. In the case of an airline loan that we have
already made, and we need to make protective advances after
December 31, 2020, the statute allows us to do that. And,
again, it doesn't matter whether I had allocated $500 billion.
I just want to put this in perspective. Of the $190 billion I
allocated, that would have done $2 trillion of lending, I
believe we have done about $25 billion in total. So, this is
irrelevant in the broader scheme of things.
Ms. Ocasio-Cortez. And to kind of turn to your airline
example, are there other examples of advances that could be
provided ahead of the sunset date?
Secretary Mnuchin. Again, on any of the existing underlying
loans. So if there is a Main Street loan that has already been
made, and that Main Street loan needs a protective advance
after December 31, 2020, that can be done. The difference
between Sections 4027 and 4029 has to do with existing loans
versus new loans. So, again, it is very clear. Section 4029
says that making new loans, loan guarantees, or other
investments shall terminate.
Ms. Ocasio-Cortez. Thank you very much.
Ms. Dean. The gentleman from South Carolina, Mr. Timmons,
is now recognized for 5 minutes.
Mr. Timmons. Thank you, Madam Chairwoman.
I want to first align myself with the comments from my
colleagues on both sides of the aisle. We need to help small
businesses across this country. It is critical. It is past
time. Businesses in my district in the State of South Carolina
are struggling. We have tourism-related businesses that are set
back. We have businesses--bars, restaurants, yoga studios--that
are struggling, and that is in South Carolina, where we are
mostly reopened.
Here in D.C., they just went to 25-percent capacity for
restaurants. The hotel I am staying in has permanently closed
their restaurant and their rooftop bar until the restrictions
are lifted.
We need to help the businesses that are being put out of
work by the government. Government closures are helpful in
certain cities, but in others, we need to safely reopen. And
any business that is being closed because of the government
must get relief. It is a taking, and it is wrong.
So, first, we need to get additional PPP loans. We need to
help the businesses that are struggling the most, but we have
to be surgical about it. We don't need to paint with a broad
brush.
To that end, my first question is to both of you. There is
no denying that the Federal Government has spent an exorbitant
amount of money this year to combat both the health and
economic toil of the virus. As our national debt climbs towards
$30 trillion, it could very well hit $30 trillion next year
between the next COVID relief package and deficit spending for
next year, but we as policymakers are looking to provide
targeted relief for our constituents.
How do we get the best bang for our buck? In other words,
what type of economic relief or stimulus will be the most
effective in preserving and creating jobs? And, secondly, how
would you recommend policymakers address our mounting debt over
the next few years?
Secretary Mnuchin. I would say for small businesses, the
simplest and most effective thing that can be done is to
authorize me to use the $140 billion sitting in the accounts of
the General Fund for additional PPP loans. We spent a lot of
time on 4027 and 4029. I, unfortunately, don't have the legal
authority to spend this money, and I would like the legal
authority. That would be the simplest thing to do.
Mr. Timmons. My next question is, is that enough? What
about the businesses that have had 97-percent revenue loss,
whether it is an event venue or a minor league baseball team or
any other business that has been totally shut down? They are
not looking at this as, we need more PPP loans. They are
looking at it from the perspective that the government has
literally ended all revenue. What do we do for those
businesses?
Secretary Mnuchin. The good news about PPP loans is, if you
use the money correctly, they go and immediately become grants
and they are forgiven. And I do agree, we should pass
legislation to simplify the grant forms. And I agree with you,
stages, restaurants, entertainment business, and $140 billion
isn't enough. I would allocate $300 billion to this
immediately.
Mr. Timmons. I couldn't agree with you more, and I
appreciate that sentiment, and I urge everyone involved that we
pass this immediately. It needs to be done before Christmas.
And I don't think it is productive talking about whether the
President is playing golf or not. Everyone is at fault.
Politics are what is to blame, and we need to rise above the
politics and we need to get this done.
Secretary Mnuchin, yesterday, before the Senate Banking
Committee, you indicated that Fannie and Freddie should not be
released from conservatorship without appropriate capital. Can
you expound on that a bit? Does that mean that they should have
at least the required amount of capital under the FHFA's new
capital rule? And would that be the minimum capital level or
the minimum capital level plus the buffer specified in the 2020
rule?
Secretary Mnuchin. Let me just be clear. Despite the fact
that the Director and I are having conversations, we have made
no decisions at Treasury whatsoever yet. We are contemplating,
but there could be a scenario where at some point, between
basically the zero capital they have and the full capital
requirement, there would be a consent order, and they would be
released subject to a consent order. But as I said yesterday,
there has to be significant capital for them, in my opinion, to
be released.
Mr. Timmons. Thank you.
I want to really thank both of you for all of the work you
have done in the last year. It has been truly remarkable. And I
am optimistic that we are going to get on the other side of
this pandemic soon and get our economy back up and running.
And with that, I yield back. Thank you.
Ms. Dean. The gentleman yields back.
The gentlewoman from Virginia, Ms. Wexton, is recognized
for 5 minutes.
Ms. Wexton. Thank you, Madam Chairwoman. And thank you very
much, Secretary Mnuchin and Chairman Powell, for joining us
here today and for all of your work during this pandemic.
Secretary Mnuchin, one of the facilities that you are
allowing to expire at the end of the year is the Main Street
Lending Program which, as we have discussed, has had a number
of issues and I would submit has been really kind of a
disappointment. It was designed to support up to $600 billion
in lending to small businesses and medium-sized businesses, but
in 8 months, it has only supported about $5 billion of loans to
about 420 companies.
Do those numbers sound right to you, Secretary Mnuchin?
Secretary Mnuchin. They do. And I would acknowledge that I
am disappointed as well that there wasn't more take-up. It was
something the Fed and Treasury worked very hard on, but it was
very difficult to design a program that could really be used.
Ms. Wexton. One of the loans that [inaudible] was to
Wellshire Financial Services, which is a company that is in car
title lending. And I assume you are familiar with this loan
because it has been reported in the media lately. Are you
familiar with this loan that was made?
Secretary Mnuchin. I am really not familiar with the loan.
I have seen certain things in the media, but I don't have
access to the underlying loan documents and the underlying loan
files that the Fed has.
Ms. Wexton. So, you didn't have a role in making this loan
because it was only between the lender and the borrower, right?
Secretary Mnuchin. I had no role other than setting the
policies with the Fed Chair for the facilities.
Ms. Wexton. Okay.
Secretary Mnuchin. And I assume the loan complies, but I
don't know.
Ms. Wexton. One of the policies, though, was that those
loans would not be available to finance or lending
institutions, correct?
Secretary Mnuchin. I believe that is correct, but I am not
familiar with the details of the loan, as I said.
Ms. Wexton. I will tell you a little bit about it, because
they were able to exploit a loophole in the law by organizing
in Texas as a consumer credit access company rather than a
lender, and they did that in Texas to avoid their usury laws
there. And now, they have a $25-million loan from the U.S.
Government, taxpayer-funded, at 3 percent, which they are
lending out to people at 350 percent.
Assuming that is correct, would you agree that this
violates the spirit and the intent of the law and the
regulations?
Secretary Mnuchin. I would, and I would expect that loan
will be reviewed and audited.
Ms. Wexton. Okay. So you agree that it is not a good look,
especially given that it has come to light that the owner of
the company is a major donor to the President?
Secretary Mnuchin. Again, as I have said, I don't know the
specifics of the loan, but I agree, based upon what you are
saying, that was not the spirit and the intent of the use of
the loans.
Ms. Wexton. Can I get a commitment from you here today that
you will review that loan and consider clawing back the money?
Secretary Mnuchin. You will have to get that from the Fed,
because they administer the program. I don't administer it. I
don't have that ability. But I am sure Chair Powell will
respond to that.
Ms. Wexton. Chairman Powell, can we get a commitment from
you to consider clawing back the money, and to review this loan
to Wellshire Financial Services?
Mr. Powell. It is really inappropriate for me to try to
comment on individual loans. Like the Secretary, I am not
involved in the process. I will say this. People make
representations. We set out clear rules, they have to be
obeyed, and we will always look. And if they are not obeyed or
if incorrect representations are made, then the consequences
will follow. And we will look at all of the loans in that
light.
Ms. Wexton. Very good. Thank you.
Secretary Mnuchin, a lot of discussion has been taking
place in this hearing today about whether these programs have
to expire at the end of the calendar year, or whether you are
allowing them to expire. And I understand that you are saying
your reading and your interpretation is that they must expire,
and you don't have any discretion in that. I can't help but
suspect that had the results of the election for President been
different, your interpretation would be different. But I would
inquire, have you had an opportunity to speak to incoming
Treasury Secretary Yellen?
Secretary Mnuchin. I have.
Ms. Wexton. Okay. Very good. And have you discussed with
her your intention to end these facilities?
Secretary Mnuchin. I have discussed it with her. We are
cooperating with the transition. I had a very good working
relationship with her when she was the Fed Chair. And I have
advised her that my reading of this and my interpretation was
nonpolitical and was following the law. So, yes, I did advise
her of that.
Ms. Wexton. And was she disappointed or did she disagree
with your interpretation of the law?
Secretary Mnuchin. She didn't reflect an interpretation one
way or another.
Ms. Wexton. Thank you very much.
I will yield back.
Ms. Dean. The gentlewoman yields back.
The gentleman from Texas, Mr. Taylor, is recognized for 5
minutes.
Mr. Taylor. Thank you, Madam Chairwoman. I appreciate that.
I appreciate this hearing, and I appreciate you gentlemen's
hard work during an unprecedented 2020, one that we really
didn't see coming.
I want to talk about the policy decisions that are being
made in this building versus broad help, which is what we did
in the spring, versus targeted help, which I think is something
that we are talking more about. Heretofore, I have heard some
reluctance to go to targeted specific help, and I will use
airlines as an example. That is something we made a decision on
in the spring, that we were going to give targeted, specific
help to the airline industry, because there is a need there.
[Audio malfunction.]
Mr. Taylor. Madam Chairwoman, can we get that--
Chairwoman Waters. If you would suspend for a moment until
we get the audio straightened out.
I think you can resume now.
Mr. Taylor. Okay. Thank you.
And so as we think about--something I have been very
concerned about is the hospitality space, largely because the
unemployment numbers are so enormous. We are talking in the
range of 10 million people who are currently unemployed as a
result of COVID, and approximately half are just in one
specific sector, in the hospitality space. So it is my concern
or belief that we need to be targeted in this building.
And I will point out that the Problem Solver package that
came out yesterday, the PPP reload, was designed specifically.
It is a much smaller number by saying you have to have a 35-
percent drop in revenue, so that created a limiter of kinds to
say, hey, if you are doing well, you are not going to be able
to get a PPP reload. And I have businesses in my district that
do telemedicine, and their sales are up 100, 200, or 300
percent because telemedicine is a big thing. They are doing
better. They don't need a PPP loan. They still have business
problems, but it is not a PPP reload that they need.
Chairman Powell, would you concur that it is time to begin
to think more about specific, targeted help rather than broad
help into sectors that are in harm's way?
Mr. Powell. I think the timing and the scope and the
components of this are really up to you. I would say I do see a
number of areas, and I mentioned them earlier, including small
businesses, that do need help, and I think that would be
probably very helpful for the economy were that to happen.
Mr. Taylor. And I will point out it is probably better for
the taxpayer rather than just handing out tons of money
everywhere, to be specific.
Secretary Mnuchin, would you like to speak to the need of
targeted assistance versus broad assistance?
Secretary Mnuchin. Yes. I agree completely. And as you have
rightly said, if we are going to do more PPP loans, we should
have a provision that companies' revenues are down. That is
pretty straightforward.
Mr. Taylor. Okay. I certainly appreciate your guidance and
insight, and I will continue to advocate on that front.
And I have to admit I have been somewhat entertained by the
discussion about Section 4029, which I have had to pull up and
read just to make sure I was thinking about it correctly, and I
will just read 4029(b). ``On December 31, 2020, the authority
to provide under this subtitle to make new loans, loan
guarantees, or other investments shall terminate.'' That seems
very clear in terms of--that is 4029(b).
So, the ability for you to make new loans, Mr. Secretary,
new loans, loan guarantees, or other investments terminates.
That is what the law says. I think that is what you are saying.
Secretary Mnuchin. It is. And as I have said, if anybody on
this committee doesn't think that is what it said, and they
think that doesn't apply, then they would have given me
unlimited authority to use this money forever.
Mr. Taylor. Sure.
Secretary Mnuchin. And I don't know why 4029 would have
been inserted. So, I haven't had anybody rightfully explain if
4029 doesn't--what was the purpose of it?
Mr. Taylor. Sure. And 429B, again, it could have said
December 31, 2021, in which case it would go on for another
year, but it is clearly the end of this year that is the
termination of your authority under the law.
And I just want to say that I am a believer in equal
protection under the law, and I commend you for following the
law and reading the law and not trying to twist it into
something that it was never meant to be. The law seems very
clear to me, Mr. Secretary, and I certainly applaud your
efforts to comply with it despite a lot of bizarre efforts to
try to twist it into something that it is not.
Secretary Mnuchin. Thank you.
Mr. Taylor. Thank you.
Secretary Mnuchin. I wish we spent as much time talking
about PPP loans as we have as Sections 4027 and 4029. And I
would also just say, when we passed this law, we thought it was
highly unlikely that we would need to be using these at this
period of time.
Mr. Taylor. Thank you, Mr. Secretary.
Madam Chairwoman, I yield back.
Chairwoman Waters. Thank you.
The gentleman from Massachusetts, Mr. Lynch, is recognized
for 5 minutes.
Mr. Lynch. Thank you, Madam Chairwoman.
I want to thank Chairman Powell and Secretary Mnuchin for
attending this hearing and for helping the committee with its
work.
So, let's talk about January 1st, because we have much
pandemic-related support that is going away right now unless
action is taken. We also had last week, I think, 827,000 new
unemployment claims. Again, going back to the rental assistance
that is pandemic-related, that is scheduled to expire December
31st as well.
Chairman Powell, we are going to be in a bad place, I
think, on January 1st. And even if there were a last-ditch
effort to--by Congress to put something in place, what we saw
in the CARES Act was there was a considerable lag time before
we could actually get the help out to the American people,
whether that was small businesses or people waiting for
stimulus checks or supplemental unemployment benefits, working
with the States.
Is there a power that you have, independent of Congress, in
terms of appropriations? Let's take renters' assistance for
right now, the forbearance that we might allow renters who
don't have the ability to pay their rent. Of course, we would
have to protect the small landlords, the landlords who are out
there who are getting pressure from banks and mortgage
companies to render payment to them, and then ultimately to the
bondholders as well, that underwrote those mortgages and are
expecting payments.
Do you have independent power that might provide relief in
the short term until Congress can get its act together and come
to agreement on a larger package similar to what we did in the
CARES Act?
Mr. Powell. Sir, we do have broad powers, but we don't have
those kind of powers. Those are really powers that fall to the
legislature. Nobody elected us. You created us under statute.
You gave us very specific powers, and they don't involve--
Mr. Lynch. I understand that. But I was here in 2008, and
the folks on your side of the table were doing their darnedest
to rescue Wall Street. And now, it is Main Street that is--and
so, I am just asking for the same consideration and the same
sense of urgency when it is regular workers or just average
families who are struggling to pay their rent. I would just
like to see that level of urgency and seriousness that I saw
back in 2008 when we were trying to rescue the big banks. I
have to be honest, I think that I see a little bit of laissez-
faire with respect to average families. I don't see that sense
of urgency.
And, Mr. Secretary, with all due respect, you seem way too
eager to give away or give back or render back the resources
that were available. I didn't see a long and hard discussion
about how we can get this money out to the people who need it.
Rather, it was, well, this is what the law says, so I am going
to do it. And I didn't see any extraordinary effort on the part
of Treasury to find a way, going to court, asking for an
interpretation to say, do I have the ability to continue this,
these payments and this relief to the American people or am I
prohibited from doing so, rather than huddling with the lawyers
who work for you. And I have lawyers who work for me as well. I
didn't see an extraordinary effort on your part to try to find
a way to make sure that the incoming Administration has some
resources to deal with this problem.
Secretary Mnuchin. I just want to be clear. I spent the
last 4 months trying to work with Congress to get additional
legislation passed. I have been on probably a hundred calls.
Mr. Lynch. We all have.
Secretary Mnuchin. What people need is a fiscal response.
These programs were not used. So, let me just be clear: People
need--and, again, people need more PPP money. They need grants.
They need airline support. They need unemployment insurance.
These facilities were not being used. And I have worked every
day to try to get Congress to pass more legislation. So, I
don't appreciate that comment that I haven't worked hard.
Mr. Lynch. Well, sir, I would just say that what I saw when
Wall Street was on the hook was creativity to the nth degree in
ways of repurposing money to make sure they got what they
needed. And I would just--
Chairwoman Waters. The gentleman's time has expired.
Mr. Lynch. I yield back.
Chairwoman Waters. The gentleman from New York, Mr. Zeldin,
is recognized for 5 minutes.
Mr. Zeldin. Thank you, Madam Chairwoman.
Secretary Mnuchin, feel free to use some of my time here to
complete your thought. I will yield to you.
Secretary Mnuchin. Thank you. I was just saying if I had
any legal authority or I could get the President to sign an
Executive Order tomorrow to send out the $140 billion to small
businesses that need PPP loans, I would do that.
And, again, for all of the conversations we have had on
these facilities, which were barely being used, most of which
did support big corporations, I might add, and not Main Street,
enough money to Main Street, Main Street needs more money,
grants, PPP. Thank you.
Mr. Zeldin. Thank you, Secretary Mnuchin and Chairman
Powell, for being here today. And thank you to Chairwoman
Waters and Ranking Member McHenry for holding this hearing.
Secretary Mnuchin and Chairman Powell, I want to start off
by saying thank you to both of you for your leadership during
this pandemic, especially as it pertains to standing up and
fine-tuning these needed liquidity facilities.
First off, I would share that, with regard to the Paycheck
Protection Program, I have heard from business owners in my
district, from local mayors and others about how the Paycheck
Protection Program has not only saved small businesses and
small business jobs but saved the entirety of Main Streets in
the First Congressional District of New York.
With regards to the facilities, the original Municipal
Liquidity Facility term sheet excluded my home County of
Suffolk where my constituents live, but the Federal Reserve and
Treasury listened to the concerns that I and others raised
about lowering the population thresholds for eligible issuers.
This provided greater access to a much-needed backstop
financing tool for many State and local governments and
entities, like the MTA.
I want to say thank you for your attention to this critical
market and the commitment to remaining vigilant of any problems
as they arise, because we need all levels of government to work
together. This is not a time to be Republicans first or
Democrats first. This is a time to be Americans first.
Secretary Mnuchin, late one night, got on the phone with my
local Democrat county executive to talk to us about the
Municipal Liquidity Facility and getting eligibility for
Suffolk County, and you listened to our concerns.
The Municipal Liquidity Facility is set to expire at the
end of this month, and all unused CARES Act funds at the
liquidity facilities, to my understanding, will be returned to
the Treasury Department, but I want to make sure Congress,
Treasury, and the Federal Reserve are working together and
remaining vigilant into 2021 as well. To ensure adequate
municipal debt liquidity, the Municipal Liquidity Facility
should remain in operation into 2021, until we know for sure we
are out of the woods.
The onus is not just on the Federal Reserve and Treasury.
Congress needs to step up to the plate and get a COVID-19
relief bill across the finish line.
Secretary Mnuchin, I know how hard you have been working
over the course of what has been many months, which is why I am
glad that you had an opportunity here to help clear the record
as to the allegations and the charges that were just being made
in your direction. You have been working extremely hard, and I
want to thank you for your efforts in negotiating the next
bill.
Congress provided support for State and some local
governments in the CARES Act, but limited the support for local
governments with more than 500,000 in population.
Chairman Powell, in a Senate Banking Committee hearing in
May, you talked about the negative effects on the overall
economy that come about when State and local governments face
serious fiscal constraints, citing evidence from the 2008
financial crisis. It is clear that fiscal solvency at all
levels of government is important for economic recovery.
Can you elaborate on the importance of the health of all
levels of government for the health and growth of the overall
U.S. economy?
Mr. Powell. State and local governments, as you suggest,
provide critical services--fire, police, sanitation, all of
those things that people depend on for public safety--and live
under balanced budget requirements in essentially all of the
States. So, what happens when costs go up and revenues go down
is that they lay people off. They have laid off more than a
million people so far. And that was a big problem in the years
after the global financial crisis. We hope it doesn't become a
big problem here.
But these are critical government services, and, as I have
said, it is up to Congress and the Administration, but I think
that is an important area to look at for further support.
Mr. Zeldin. Again, I thank you both for all of your efforts
since we were first hit by this pandemic.
And again, thank you, Chairwoman Waters, and Ranking Member
McHenry, for holding this hearing. I yield back.
Chairwoman Waters. Thank you.
The gentlewoman from Hawaii, Ms. Gabbard, is recognized for
5 minutes.
Ms. Gabbard. Thank you very much, Madam Chairwoman.
Thank you both for making the time to come and have this
discussion today.
Secretary Mnuchin, you made a comment about how you wish
there were more questions about the PPP program. I wanted to
ask you to talk a little bit about that today, given a comment
you just made and also the news that has come out about how
some of the largest businesses that qualified under PPP took
the majority of the money.
So, as we look to a new stimulus package, whether it is
this year or it comes out early next year, what improvements
would you recommend that the PPP program take on to ensure that
the majority of those dollars are actually going to the small
businesses within our communities, who are barely keeping their
heads above water, trying to survive?
Secretary Mnuchin. Thank you. When we created the original
program, the entire economy was shut down. But now that that is
not the case, I agree with you, it should be much more
targeted. I think it should be focused on the smaller
businesses. I think it should be focused on a revenue decline.
Chairwoman Waters and I worked on a set-aside to make sure
there was money available for underserved areas. I think that
is something that should be done again. We have signed up many
more Community Development Financial Institutions (CDFIs) since
then that are ready to go.
I also very much support a program of investing $10 billion
to $12 billion in CDFIs so that they can do $100 billion of
lending. I think there is big bipartisan support. I have spoken
to Chairwoman Waters, Senators Warner and Crapo, and others.
So, I think there are a lot of things that could be done very,
very quickly that would have a big impact.
Ms. Gabbard. There is no question that the need is there
and the frustration, especially as these reports come out about
where the money has gone, and a lot of folks have been left
stranded.
I want to pivot for a second in a different direction that
hasn't been covered today in the area of sanctions. I served on
the House Foreign Affairs Committee for my first 6 years in
Congress. And both in Congress as well as in the Executive
Branch, sanctions are often one of the first go-to actions to
take within the realm of foreign policy, for a variety of
reasons.
I recently pulled the list of U.S. sanctions that we have
on countries and industries and individuals around the world,
and it is a very exhaustive list, as I am sure you are aware,
with some sanctions even going back decades.
Can you speak to the Department of the Treasury's process
and whether or not you work with other Federal agencies and
departments, like the Department of State, Department of
Defense and others, to assess the effectiveness of these
economic sanctions once they have been levied? And if you do
that, how often, really with the intent of saying, okay, these
sanctions have been put in place, are they achieving the
intended objective and, if not, what are they doing and what
unintended negative consequences are there?
Secretary Mnuchin. First, let me just say I really
appreciate you bringing up this subject, and I would be more
than happy to follow up with you offline. I spend an enormous
amount of my time--really, before the pandemic, I was spending
50 percent of my time on the sanctions. I think they are very,
very effective foreign policy tools.
We coordinate 100 percent with the State Department, the
National Security Council, and the intelligence agencies on
anything we do. We have a robust interagency process. I am
going to encourage Chair Yellen to spend time on this. I also
want to thank the committee and Congress. You have given us a
lot of funding over the last 4 years. We have increased the
number of people we have in these areas.
And these are very effective tools, combined with our
strong military. But in many cases, they are very, very
powerful tools and don't put our military in harm's way.
Ms. Gabbard. Before my time runs out, if you can speak
briefly, and if not, I would like to follow up with you, I
would love to know what specific mechanisms and measures of
effectiveness you and these other Departments use in order to
make sure that they are achieving an intended objective as well
as what measures of impact do you use to say, hey, these
sanctions against this country were intended for this purpose,
but it is actually stopping this country from getting medicine
and food and basic supplies, creating a negative humanitarian
effect.
Secretary Mnuchin. That is a very thoughtful question, I
might just add. In the best-case scenario, we see a specific
action as a result of the sanction and we remove the sanctions,
but we also work very hard on humanitarian issues and issuing
licenses for them.
Chairwoman Waters. The gentlelady's time is up.
The gentleman from Ohio, Mr. Davidson, is recognized for 5
minutes.
Mr. Davidson. Thank you.
Madam Chairwoman, thank you for the recognition. Chairman
Powell and Secretary Mnuchin, thank you for the time you have
given us today. I really appreciate the way you have handled
our questions and the way you have pointed out what the law
that Congress passed actually says and, frankly, for faithfully
following that law.
We do need fiscal policy, not just monetary policy, and,
frankly, we need Congress. From the way it sounds, some of my
colleagues would just strike Article I from the Constitution
and have the Executive Branch do everything.
I am glad that this body stays relevant, and I am hopeful
that we can do some of the good things that did happen.
Let me highlight a couple of things that my constituents in
the Eighth District of Ohio share with me. One, Chairman
Powell, the Federal Reserve had a very robust and very swift
and decisive response in the last half of March and in the
early days of April. Those first 2, 3 weeks, there was a true
liquidity crisis that was hitting our markets and truly global,
because the demand for dollars wasn't just here in our markets;
the demand was global.
You saw OPEC countries dump oil into the market, sucking
cash, U.S. dollars into their countries, as a way for them to
get liquidity. But you saw holders of all sorts of assets,
including municipal bonds, generally considered very safe and
liquid, disappear. There was no buy side.
So, the Federal Reserve's response in providing liquidity
there, to me, fits right in line with the whole purpose of the
broad authority under Section 13(3). But, nevertheless, we saw
under 13(3) some distortions that have carried over as we have
seen the size of the Fed's balance sheet grow, and some of the
questions on that, I think are relevant. How big does it grow?
Well, big enough to make sure we provide economic stability--
that was the clear intent of the CARES Act--but not so big that
it causes true economic distortions.
And where the inflation is showing up isn't in consumer
prices. A lot of people fear and, frankly, know that it is in
marketable securities on Wall Street. And while that benefits
retirement savings, it accentuates the wealth gap.
Secretary Mnuchin, thanks for calling attention to the
Payroll Protection Plan. That was tremendous for Ohio's Eighth
District. In our district, we had about 9,000 loans made, and
80 percent of them were for $150,000 or less. So, they were
small loans, overwhelmingly made by smaller lenders.
And what was the effect of that? We had over 100,000 people
in Ohio's Eighth District stay on payroll. The loan did go to
the businesses, of course, but for the purpose of keeping
payroll happening. And the benefit was that so many of these
individuals and their families kept benefits, health insurance,
and other things that come with employment. So, it has been a
tremendous source of stability.
So, I congratulate my colleagues on the success of the
Payroll Protection Plan, but, frankly, on Treasury and the SBA
and others, all of the banks that made this functional.
The concern I have is the slow-walking of forgiveness on
the back end. So, I hope you can give some attention to that.
And, as time dwindles swiftly, I want to get to one topic that
is emerging. We have seen the rise of digital assets and,
frankly, to the extent that some people have proposed a central
bank digital currency as a response to our monetary situation
right now.
And I think it is important that we do that very
thoughtfully [audio malfunction].
Chairwoman Waters. I think there are some technical
difficulties here.
We are past our hard stop, and I apologize for that. We are
5 minutes past. And so, I would like to thank our distinguished
witnesses for their testimony today.
The Chair notes that some Members may have additional
questions for this panel, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to these witnesses and to place their responses in the record.
Also, without objection, Members will have 5 legislative days
to submit extraneous materials to the Chair for inclusion in
the record.
[all]