May 19, 2020

Jerome Powell & Steve Mnuchin Testimony Transcript on COVID-19 Stimulus

Steve Mnuchin Jay Powell Testimony May 19
RevBlogTranscriptsCongressional Testimony & Hearing TranscriptsJerome Powell & Steve Mnuchin Testimony Transcript on COVID-19 Stimulus

Federal Reserve Chair Jerome Powell & Treasury Secretary Steve Mnuchin testified before the US Senate on May 19. They defended the US stimulus packages amid the coronavirus pandemic. Read the transcript of the virtual testimony and click the timestamp links to see video synced with an interactive transcripts.


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Senator Mike Crapo: (00:00)
Full of the five minute clock. And this time I will do my very best to tap the gavel at about 30 seconds before the five minutes is up. And I ask everyone to please honor our tight timeframes today. You should all have one box on your screen labeled clock that will show how much time is remaining. To simplify the speaking order, Senator Brown and I have again, agreed to go by seniority. With that, today we welcome to this virtual hearing, the honorable Steven P. Mnuchin, Secretary of the Department of Treasury, and the honorable Jerome H. Powell, Chairman of the Board of Governors of the Federal Reserve System. We will receive testimony from the Secretary of the Treasury and the Chairman of the Federal Reserve as required under Title IV of the CARES Act.

Senator Mike Crapo: (00:53)
Congress has appropriated nearly $3 trillion to protect, strengthen, and support Americans to fight the pandemic, and also to stabilize the infrastructure of our economic system. A large portion of this funding is authorized under Title IV of the CARES Act, which provides significant resources for loans, loan guarantees, and other investments from Treasury and the Federal Reserves 13(3) emergency lending facilities and programs in support of eligible businesses, states, municipalities, and tribes.

Senator Mike Crapo: (01:27)
Title IV of the CARES Act provided $454 billion as an infusion into the Exchange Stabilization Fund to support the Federal Reserves, the emergency lending facilities that facilitate liquidity in the marketplace and support eligible businesses, states local governments, and tribes.

Senator Mike Crapo: (01:46)
This unique lending authority known as 13(3) authority is authorized under section 13 of the Federal Reserve Act and plays a critical role in stabilizing markets. Both prior to and after the enactment of the CARES Act, the Federal Reserve announced the establishment of, or its intent to establish several emergency lending facilities to support financial markets and businesses, including some that are supported and funded by the CARES Act.

Senator Mike Crapo: (02:15)
Last week, other members of this committee, and I had a robust discussion with Vice Chairman Quarles on these facilities, and stressed the importance of getting facilities like the Main Street Lending Programs and the Municipal Liquidity Facility up and running quickly to provide a lifeline to struggling businesses, states and local governments. Again, I stress the importance of setting these facilities up quickly and allowing broad access.

Senator Mike Crapo: (02:41)
There was also a discussion about whether it’s acceptable for the treasury to take any losses on investments put into the special purpose vehicles that the Fed will lend for various programs. The 13(3) facilities are a critical component of a strong economic recovery, which reinforces the need have them quickly operational, broadly available and as flexible as possible.

Senator Mike Crapo: (03:05)
Title IV also contains robust oversight provisions, especially the one that brought us here today, section 402(6). It’s critical that each federal agency follow all reporting and oversight requirements in the CARES Act. Other steps are already being taken to ensure appropriate oversight. Last week, this committee voted the special inspector general for pandemic recovery favorably out of committee. And yesterday, the congressional oversight committee published its initial report on oversight of Title IV. The CARES Act is the biggest rescue package in the history of Congress. And we need to make sure the dollars in program quickly find their mark.

Senator Mike Crapo: (03:45)
During this hearing, I look forward to hearing more on an update of the status of the Treasury Loan Programs, 13(3) emergency facilities and the Paycheck Protection Program, steps the Fed and Treasury have taken and will continue to take, to provide transparency into the loans and loan guarantees under the CARES Act, and how the unused funds from Title IV will be prioritized and leveraged to provide additional liquidity to the economy.

Senator Mike Crapo: (04:12)
While not part of Title IV of the CARES Act, SBA and Treasury have worked around the clock to wrap up the Paycheck Protection Program that has approved over 4.3 million loans to small businesses, that amount to about $513 billion. According to the SBA, the overall loan size for the PPP is $118,000. And during the second round of PP funding, the average loan size has been around $70,000. On April 28, Treasury and SBA announced that SBA would review all PPP loans in excess of $2 million, to make sure that the borrower’s self-certification for the loans was appropriate. Last week, SBA and Treasury provided a safe harbor for loans under $2 million.

Senator Mike Crapo: (04:58)
Finally, on May 8, 2020, Commerce Committee Chairman Wicker and I sent a letter to Secretary Mnuchin on the Payroll Support Program, requesting a detailed report on the status of the program. And on May 12, Treasury announced the new transparency measures, with regard to the PSP.

Senator Mike Crapo: (05:17)
I encourage you to continue your work with the applicants and update the information as additional funds are disbursed. I commend each of you and your staff for the hard work and extraordinary actions you’ve taken to stabilize the economy and provide support to Americans during this trying time. Thank you for joining us today to share your agency’s activities and plans and response to COVID-19. Senator Brown.

Senator Sherrod Brown: (05:39)
Thank you, Mr. Chairman. I’d like to thank Chairman Crapo for following the best advice of health experts and holding a virtual hearing to prevent the spread of coronavirus. And I welcome Secretary Mnuchin and Chairman Powell to the Senate Banking and Housing Committee. Thank you for joining us.

Senator Sherrod Brown: (05:57)
I am still outraged by Leader McConnell’s reckless decision to keep the Senate in session, putting Capitol Hill workers, including Capitol police officers, custodial staff, floor staff, cafeteria workers, putting all workers at risk. Leader McConnell has forced workers to go against public health authorities advice for three weeks now. He still has no plan to get additional help for families and communities. The House passed a bill that incorporates many of our plans. The American people are rising to the challenge, their leaders are failing them. Leader McConnell says he sees no urgency. Those are his words, “No urgency.”

Senator Sherrod Brown: (06:39)
Before we begin, I’d like to pause for a moment to recognize all the workers who have lost their lives on the job during this pandemic. The coronavirus has been the great revealer. It’s brought out the best in our communities. We remember the Spirit of Solidarity that created our social safety net during the New Deal and inspired World War II Victory Gardens, and powered the Civil Rights movement. Today that Spirit of Solidarity reveals itself enhance on mass in fire escape applause for hospital workers and video conference play dates, as millions of individual Americans pulled together to do their part to flatten the curve.

Senator Sherrod Brown: (07:19)
But this pandemic also lays bare how corporations that now claim their workers are essential, have for too long, treated them as more of a cost to be minimized. Since the bailouts of the financial crisis, many of us have been concerned about how our country rewards Wall Street and too often ignores the people who make our country work.

Senator Sherrod Brown: (07:41)
Whenever we’re asked why wages for these essential workers are stagnant, we’re told we can’t afford it. Companies would have to raise prices if they paid people more. Nevermind that CEO’s were getting huge raises, Wall Street investors, huge payouts, nevermind that low prices don’t do you a lot of good if your wages stay low right along with them.

Senator Sherrod Brown: (08:00)
Our economy has been paying the price for that with a shrinking middle class, with rising inequality, with lower economic growth. Now it’s pretty clear when millions of Americans, millions of workers are laid off or have their hours cut, or making low wages to begin with, are now worried about their future, our economy grinds to a halt. In fact, the only thing keeping our society running in the middle of this crisis is American workers. Those who stock our shelves and deliver our packages and fill our prescriptions and prepare food and care for loved ones.

Senator Sherrod Brown: (08:33)
A grocery store worker in Ohio told me recently, “I don’t feel safe at work and they don’t pay me much. I don’t feel essential, I feel expendable.” We’re asking people to show up for work, and risk their health and risk their family’s safety. Perhaps we’re finally realizing the words of Dr. King ringing true, that one day our society will come to respect the sanitation worker. For the person who picks up the garbage in the final analysis, is as significant as the physician. If he doesn’t do his job, diseases are rampant. All labor has dignity.

Senator Sherrod Brown: (09:07)
Yes, all labor has dignity. You might think that a time when we’re demanding more from essential workers than ever before, that people who punch a clock or swipe a badge, people who take care of our families and our elderly, mostly women, often black and brown workers, you might think they’d all be getting a huge race. Our economy is supposed to reward people whose talents are in high demand. That’s what we’re taught. That’s what CEOs tell us, right? But that’s not happening. Workers are getting left behind again.

Senator Sherrod Brown: (09:35)
As essential workers go home to their families, think about this. After a long, stressful day, they’re wondering how they’re going to pay their rent. They’re wondering how they’re going to afford another week of groceries, and they wonder whether they’re going to infect their families after going to work. Those are the ones that are working.

Senator Sherrod Brown: (09:51)
How about the 35 million Americans who have been laid off from their jobs because of this crisis? When we passed the CARES Act, we tried to address this. We tried to make sure that the trillions of dollars in spending wouldn’t just go to Wall Street, like it usually does. We wanted to make sure the Fed and the Treasury got this money directly into workers’ pockets. We didn’t want to see it to go to gas and oil companies, whose activities, frankly, pose an existential threat to essential workers in our whole economy.

Senator Sherrod Brown: (10:21)
Chairman Powell, I appreciate your recent comments about how Congress needs to do more to put money directly in workers’ pockets. I agree of course, with that. If Congress does not act now to put money in the hands of people who actually power our economy, and workers, their families, and main street businesses in struggling communities, we risk making the economic crisis worse. Leader McConnell needs to let the Senate take up the House Bill immediately. Debate it, negotiate it, argue with us, fight over it, but do something.

Senator Sherrod Brown: (10:52)
Congress has an important responsibility also, to make sure the $500 billion we’ve already approved for the Fed and Treasury, is actually getting to workers. And from what we know so far, it does not appear that this administration or the Federal Reserve are making workers their priority.

Senator Sherrod Brown: (11:09)
Today, I look forward to hearing from both of you, Mr. Secretary and Chair Powell, not only about what you’re doing for big banks or big corporations, we already know that and how you expect the money to trickle down. But how you’re making sure the money and the authority Congress gave you actually helped the people who make this country work. I want to hear how it’s going to be different this time. I want you to explain what you will do to transform our economy so that it works for everyone, not just the wealthy and the powerful. I want to hear about your plans to make our economy work for essential workers now and in the future, and how to safely get those who have lost their jobs back to work. Thank you, Mr. Chairman.

Senator Mike Crapo: (11:52)
Thank you, Senator Brown. We’ll now move to the testimony. Secretary Mnuchin and Chairman Powell, your full written statements will be made a part of the record. We will now go to your oral testimony. We’ll start with you, Secretary Mnuchin.

Steve Mnuchin: (12:07)
Thank you. Chairman Crapo, Ranking Member Brown and members of the committee, thank you for this opportunity to highlight how the Department of Treasury and the Federal Reserve are working together to provide liquidity to the financial system.

Steve Mnuchin: (12:20)
Our programs support the flow of much needed credit to American workers, families, business, states, and municipalities. I am testifying today on camera at the request of the committee, I look forward to testifying in-person going forward, in a safe way with proper social distance saying according to medical guidelines.

Steve Mnuchin: (12:41)
I want to begin by acknowledging the unprecedented challenges the American people are experiencing due to the COVID-19 pandemic. This disease is impacting families and communities across the nation. Through no fault of their own, the American people are also enduring economic challenges. I’m inspired by our nation’s medical professionals and first responders on the front lines, taking care of our fellow citizens, thanks to their efforts and unwavering commitment to their communities. I am confident that our nation will emerge from this pandemic stronger than ever before.

Steve Mnuchin: (13:23)
President Trump and the entire administration are provided to committing necessary relief to help people get through this time. The Treasury Department is working hard to implement the CARES Act. We appreciate Congress working with us to enact the statute, which is the single largest economic relief effort in the history of our country. We also appreciate the feedback we’ve received from Members of Congress on both sides of the aisle, as we implement a number of the critical programs established by the CARES Act.

Steve Mnuchin: (13:55)
We have worked closely with the Small Business Administration on the Paycheck Protection Program to ensure processing of over 4 million loans for over $500 billion, to keep tens of millions of hardworking Americans on the payroll. We are proud that nearly 400 community development financial institutions, and minority depository institutions, and many small banks and non-banks are participating in this program.

Steve Mnuchin: (14:23)
We’ve issued more than 140 million economic impact payments for over 240 billion, to provide direct relief to millions of Americans. The typical family of four received approximately $3,400. We have distributed about $150 billion to states, local and tribal governments through the Coronavirus Relief Fund for Essential Services. We have also approved nearly 25 billion in payroll support to the airline industry to protect this critical sector of our economy.

Steve Mnuchin: (14:55)
Turning to the central focus of the hearing today, the CARES Act also provided authority for 454 billion and support for the Federal Reserve lending facilities to provide liquidity to the system. Since March 17th, I have approved the following facilities, the Commercial Paper Funding Facility, the Primary Dealer Credit Facility, the Money Market Fund Liquidity Facility, the Term Asset Backed Securities Loan Facility, the Primary Market Corporate Credit Facility, the Secondary Market Corporate Credit Facility, the Main Street Business Lending Program, the Municipal Liquidity Facility and the PPP Lending Facility.

Steve Mnuchin: (15:36)
We have committed approximately 200 billion in credit support under the CARES Act. We have the remaining money to create or expand these programs as needed. And we continue to monitor a variety of economic sectors closely and are prepared to support these programs with the Federal Reserve, as we need to move forward.

Steve Mnuchin: (15:57)
We are sympathetic to the hardworking Americans in business enduring tremendous challenges due to COVID-19. We have had to take unprecedented steps to shut down significant parts of our economy in the interest of public health. As a result in the second quarter of this year, we are continuing to see large unemployment and other negative indicators. It is important to realize that the large number represents real people. This is why it is so important to begin bringing people back to work in a safe way.

Steve Mnuchin: (16:28)
As we listen to medical experts, we are optimistic about the progress being made on vaccines anti-viral therapies and testing. Working closely with the governors, we are beginning to open the economy in a way that minimizes risk to workers and customers. We expect economic conditions to improve in the third and fourth quarter and into next year.

Steve Mnuchin: (16:50)
I want to conclude by thanking the hardworking people at the Treasury, the Federal Reserve and throughout the administration. Under the leadership of President Trump, I am proud to have worked with all of you on a bipartisan basis to get relief into the hands of hardworking Americans and businesses as quickly as possible. While these are unprecedented in difficult times, these programs are making a major positive impact on people’s lives. Together, we will destroy COVID-19 virus and our country will emerge from this pandemic stronger than ever.

Steve Mnuchin: (17:24)
Thank you for the opportunity to discuss these efforts today, and I look forward to your questions.

Senator Mike Crapo: (17:29)
Thank you, Secretary Mnuchin. Chairman Powell.

Jerome Powell: (17:36)
Chairman Crapo, Ranking Member Brown and other members of the committee, thank you for the opportunity to testify today at the first quarterly hearing on the CARES Act. This is a worldwide public health crisis and healthcare workers have been the first responders, showing courage and determination and earning our lasting gratitude, so have the legions of other essential workers, who put themselves at risk every day on our behalf.

Jerome Powell: (18:02)
As a nation, we have temporarily withdrawn from many kinds of economic and social activity to help slow the spread of the virus. Some sectors of the economy have been effectively closed since mid March. People have put their lives and livelihoods on hold, making enormous sacrifices to protect not just their own health and that of their loved ones, but also their neighbors and the broader community.

Jerome Powell: (18:25)
While we are all affected, the burden has fallen most heavily on those least able to bear it. The sacrifices we’re all making represent an investment in our individual and collective health. As policymakers, we should continue to do what we can to help cushion the blow.

Jerome Powell: (18:43)
The scope and speed of this downturn are without modern precedent, significantly worse than any recession since World War II. We’re seeing a severe decline in economic activity and employment, and already the job gains from the last decade have been reversed. Well more than 20 million people have lost their jobs and recent Fed research shows that what others have also found, that people earning less are the ones being hardest hit. This reversal of economic fortune has caused a level of pain that is hard to capture in words, as lives are upended amid great uncertainty about the future.

Jerome Powell: (19:16)
The Federal Reserve is committed to using our full range of tools to support the economy in this challenging time. Our actions so far fall into four categories. First, outright purchases of treasuries and agency mortgage backed securities to restore functionality in these critical markets. Second, liquidity and funding measures, including discount window measures, expanded swap lines with foreign central banks and several treasury backed facilities to support smooth money market functioning.

Jerome Powell: (19:44)
Third, with additional treasury backing facilities to more directly support the flow of credit to households, businesses, and states, state, and local governments. Fourth, temporary regulatory adjustments to encourage and allow banks to expand their balance sheets, who support household and business customers.

Jerome Powell: (20:02)
So far, we have created 11 facilities under section 13(3) of the Federal Reserve Act to support liquidity funding and the flow of credit. All of these facilities have been undertaken with the approval of the Treasury Secretary, and many of them are supported by funding from the CARES Act.

Jerome Powell: (20:18)
I’ve discussed these facilities in greater length in my written statement, which I’ve provided to the committee. At the Fed, we’re committed to transparency, particularly in deploying our emergency powers. Public faith in our operations depends on that transparency. Thank you, and I’ll be happy to answer your questions.

Senator Mike Crapo: (20:39)
Thank you, Chairman Powell. Well, I’ll begin with you, Mr. Chairman. As you know, with regard to the municipal facility, the thresholds for cities and counties are established, but they are established at such a level that many of the small cities and counties across the United States cannot apply for individual loans. You have indicated that it would be contemplated that the states be able to apply for loans for these smaller cities and counties. And there’s a lot of concern out there about this.

Senator Mike Crapo: (21:17)
I’d like to ask you to clarify that it is intended that these dollars do reach these small cities and counties, and tell us the process by which that can be accomplished.

Jerome Powell: (21:29)
Thank you. Thank you, Mr. Chairman. As you’ve seen, we’ve been gradually expanding the scope of potential borrowers in this world. And there are 50,000 entities capable of borrowing, so we need to draw some lines to be able to handle this. But in the first instance, we’ve said that we will always be willing to lend to a state, with the purpose of downstreaming to counties, cities, other subdivisions of governmental authority within that state. So that’s one thing.

Jerome Powell: (22:03)
We also lowered the size of the city. And I would tell you, we’re continuing to look at ways to accommodate further borrowers, including perhaps in the case of states with relatively low populations, where the only borrower with access may be the state government itself. We’re looking at ways to make sure that in those states, that we address the needs of potentially another borrower or two, and that’s something we’ll be working on, going forward.

Senator Mike Crapo: (22:36)
Well, thank you very much. And Secretary Mnuchin, to you, with regard to the 13(3) facilities, the CARES Act appropriates, if I recall correctly, $500 billion to be utilized through the Exchange Stabilization Fund to help facilitate the implementation of these section 13(3) facilities by the Federal Reserve. Most of that has not yet played out, correctly? Am I correct?

Steve Mnuchin: (23:05)
So there’s of the 500 billion, approximately 50 billion was indirect lending programs from the Treasury and 450 billion was available for the 13(3) facilities. I’ve allocated about half of that, and let me be clear, I am prepared to allocate the rest of that. The only reason I have not allocated it fully, is we are just starting to get these facilities up and running. We want to have a better idea as to which one of the facilities needs more capital, as well as the potential for adding additional facilities. So I expect to allocate all the capital as needed as was given to us.

Senator Mike Crapo: (23:41)
And so that the listening public can be clear about this, the way these facilities work is once the money is allocated, as you’ve just indicated to a particular facility, and the Fed implements that facility, then that money can actually be leveraged into much greater amounts of liquidity for whatever market or situation that is addressed, correctly? Is that correct?

Steve Mnuchin: (24:02)
That is correct, depending upon the credit risk, it depends on the leverage. We’ve allocated with the existing capital, up to about 2.3 trillion in existing facilities. And Mr. Chairman, let me just make a comment, because I know there’s been a lot of questions as to whether the Treasury is willing to take risk with that. I would say the answer is absolutely, yes.

Steve Mnuchin: (24:26)
The way these facilities work is, in the facilities that don’t have any credit risks such as the PPP, I approve those without capital allocated. By definition, any facility that the Fed believes puts them at risk, I do put up capital. So by definition, that capital is at risk and we are fully prepared to take losses in certain scenarios on that capital.

Senator Mike Crapo: (24:51)
Well, thank you. And I have just about 50 seconds left and I want to stay with the time. But there have been some allegations that just big companies are being benefited by these facilities. Could you quickly address that Secretary Mnuchin?

Steve Mnuchin: (25:05)
Well, let me just comment. The announcement of the Corporate Bond Facility without putting up $1 of taxpayer money, unlocked the entire primary and secondary market for corporate bonds. So companies such as Boeing, that I had expected would need to borrow from us on a direct basis, were able to borrow $25 billion in the primary markets. So I would say in the best case scenario, the markets open up and we don’t need to use these facilities.

Steve Mnuchin: (25:34)
In the case of Main Street Facility and the Municipal Facility, which we expect both to be up and running by the end of the month, we expect these to have a big impact on both those markets.

Senator Mike Crapo: (25:44)
Thank you very much. Senator Brown,

Senator Sherrod Brown: (25:50)
The workers who have kept our country running during this public health emergency, the essential workers that we all pay lip service, at least to, are often the lowest paid workers in our economy. They’re usually women, they’re disproportionately black and brown workers. Too often, they don’t have a union. They’re low wage workers who do the laundry at hospitals, who prepare our food. They put their lives on the line to keep our country running. They’re still worried about paying the bills, staying afloat and staying healthy. Mr. Secretary, do you think that’s fair?

Steve Mnuchin: (26:24)
Mr. Senator, I apologize. Due to the technical issues, I didn’t hear the beginning of your question. So I heard, “Do you think that’s fair,” but I didn’t hear the question.

Senator Sherrod Brown: (26:33)
The people that we call the essential workers and we call out and thank, those essential workers are often the lowest paid workers. They do the laundry, they’re the custodians, the security people. They prepare our food, they put their lives on the line for very low wages. And they’re still worried about they’re paying the bills. Is that fair?

Steve Mnuchin: (26:54)
Well, Mr. Senator, I just want to thank all the essential workers, whether it be the health care people, the-

Senator Sherrod Brown: (27:01)
The thanking is great, but these are people. Is it fair that our economy pays the essential workers so little in such work conditions?

Steve Mnuchin: (27:10)
Mr. Senator, some of those people are paid less than others. Again-

Senator Sherrod Brown: (27:17)
Well, my question is, is that fair?

Steve Mnuchin: (27:20)
Again, Mr. Senator, I don’t know what specific workers you’re referring-

Senator Sherrod Brown: (27:24)
I can lay them all out. I’ll try the Chairman of the Federal Reserve. Mr. Chairman, is it fair that those workers who are exposing themselves to this virus that are making low wages, we call them essential by all of our definitions. Is that fair?

Jerome Powell: (27:41)
Those are workers who were in basically in the service sector. That’s, what’s unusual about this is it’s all about the service sector. And particularly those parts of the service sector that are where there are lots and lots of in-person contact. And those tend to be lower paid workers and they’re definitely the most effected. And I would just say that, all of our efforts are to do what we can to help those people and create conditions so that they’ll have the best possible chance to get back to work.

Senator Sherrod Brown: (28:09)
Well, some of the best things you both could do, is to support pandemic pay for these workers and support another recovery act that included more dollars for these low paid workers, who we continue to celebrate as essential. Mr. Secretary, we pass the CARES Act to help millions of workers who make our country work. You’ve set up CARES Act programs to lend trillions of dollars to companies. Am I right that you’re not requiring companies to use the money they borrow to keep their workers on the payroll?

Steve Mnuchin: (28:39)
Mr. Senator, I am following what was the exact letter and spirit of the law that we negotiated with you and others on a bipartisan basis. In some of these facilities, there are specific requirements. And I assure you that the Chair and I are absolutely enforcing those requirements, as required in both the literal and spirit of the negotiations.

Senator Sherrod Brown: (29:03)
Well, that was nice sounding words, but the administration is willing to send people to work without regard for their safety. But the administration is unwilling to make sure these trillions of dollars in taxpayer money will help these workers directly.

Senator Sherrod Brown: (29:17)
Secretary Mnuchin, let me go somewhere else. Public health experts have told us it’s not safe to reopen the economy until we have worker protections in place that will control the spread of COVID. Things like testing, contract tracing, protective equipment efforts that the president has clearly failed to lead to help our country. Secretary Mnuchin, you said there’s considerable risk of not reopening, that keeping some businesses close could cause permanent economic damage. How many workers will die if we send people back to work without the protections they need, Mr. Secretary?

Steve Mnuchin: (29:50)
Mr. Senator, we don’t intend to send anybody back to work without the protections. And I would say I was prepared to come there today. I thought it was safe to testify. Matter of fact, I already was at the Senate this morning wearing a mask, and I assure you both myself and everybody on the task force, the vice president and others are following the best medical advice. And I couldn’t be more proud of the medical advice that we’re getting and the way the economy is opening up in a safe way.

Senator Sherrod Brown: (30:20)
So how many workers should give their lives to increase our GDP by half a percent, that you’re pushing people back into the workplace? There’s been no national program to provide worker safety. The president says reopened slaughterhouses, nothing about slowing the line down, nothing about getting protective equipment. How many workers should give their lives to increase the GDP or the Dow Jones by 1,000 points?

Steve Mnuchin: (30:44)
No workers should give their lives to do that, Mr. Senator. And I think your characterization is unfair. We have provided enormous amounts of equipment, we’ve worked with the governors, we’ve done a terrific job of getting-

Senator Sherrod Brown: (30:55)
Mr. Secretary, I’m not going to let you make a political speech about how, what a great job. We hear that from the president’s news conferences. When in fact, this country.

Sherrod Brown: (31:03)
… not from the president and his news conferences, when in fact this country, the president did … has still not led an effort to scale up testing. He’s played state against state. He’s played hospital against hospital to get protective equipment. Everybody in the country, your comments not withstanding knows that. Chairman Powell, you said last week that additional fiscal support could be costly, but worth it if helps avoid longterm economic damage and leaves us with a stronger economy. So Congress needs to think about more than just the national debt right now. It’s less costly to act today to help people than to pay for our failure to act in the future. Is that right, Mr. Chairman?

Mike Crapo: (31:39)
And if you’d answer quickly, Mr. Chairman.

Jerome Powell: (31:41)
Sure. Well, that is what I said. I said it could be. This is really a question for Congress to weigh. I wanted to call out a risk there, which was the risk of longer term damage to the economy. And that’s what I was doing. And I said we may need to do more and congressmen as well.

Sherrod Brown: (31:59)
Thank you. And Mr. Chairman, one brief comment. The administration thinks we should put more workers at risk than just the stock market. They haven’t come up with a basic plan for how to protect workers when they go back to work. When president Trump and leader McConnell didn’t want to give it to a way trillions and tax breaks to billionaires, the price tag didn’t matter a couple of years ago when that happened, but we need to spend money now to keep workers safe in spite of the comments of some of the administration and some in [inaudible 00:32:27] leadership. Thank you, Mr. Chairman.

Mike Crapo: (32:29)
Well, thank you. I think that I would disagree with that characterization as well. But let’s move on to Senator Toomey.

Pat Toomey: (32:40)
Mr. Chairman, thanks for joining us this way. I just want to follow up on this discussion about additional spending and remind everybody while we authorize something on the scale of $3 trillion to round things off of direct spending and lending, and then authorize the fed to complement that with another roughly $3 trillion. That could be $6 trillion. That’s like 30% of our entire annual economic output. And in fact, actually more than half of it has not yet been spent or lent. So I think you can make a pretty strong case that before we rush out and do another spending bill, we actually let some of this stuff go to work and understand the consequences of what we’ve already done. I appreciate the Chairman observing that his comment, while I think it was often mischaracterized as calling on Congress to pass a new bill, in fact, is much more nuanced than that and it acknowledged among other things, the potential costs of new spending. The comment that you made at the Peterson Institute, Mr. Chairman, do you still stand by that comment?

Jerome Powell: (33:58)
I do. Would you like me to expand on that, Senator?

Pat Toomey: (34:03)
I think we covered it, so I appreciate that. Let me move on to follow up on something that the Secretary said about reopening. I think it’s worth remembering why we shut down our economy in the first place. It was a very specific reason, and that was to prevent the virus from spreading so rapidly that so many people would get sick so quickly that we would overwhelm our hospitals. Well, it’s been clear for weeks now that we’re not going to overwhelm our hospitals, certainly not in Pennsylvania, and I know not in most of the country. And so I think it’s essential that we begin the process of carefully, thoughtfully, and safely reopening the economy. Secretary Mnuchin, the longer that we continue a shut down, when weeks turn into months, doesn’t that necessarily increase the risk that some businesses will fail, some jobs won’t be there to go back to if a lockdown and a shutdown continues indefinitely?

Steve Mnuchin: (34:58)
That’s absolutely the case, Mr. Senator, there is the risk of permanent damage. And as I’ve said before, we’re conscious of the health issues and we want to do this in a balanced and safe way.

Pat Toomey: (35:09)
Thank you. So I guess for either of you on this one, I want to talk a little bit about the Main Street programs. First, give us your best estimate of when we can expect borrowers to actually be able to access funds from these programs.

Jerome Powell: (35:26)
I’ll go ahead. So on Main Street and frankly on all of the other facilities, we expect all of them to be stood up and ready to go by the end of this month. I don’t say that it won’t be a day or two into June, but that’s our expectation and the funds should be flowing directly after that.

Pat Toomey: (35:43)
And very briefly, would it be possible to characterize the remaining hurdles you’ve got to get over in order to start actually being operational?

Jerome Powell: (35:55)
Sure. So it’s … all of them are complex and challenging. Main Street is in a class by itself really. It’s not the bond market, right? These are small and medium sized companies. They live in a world of bank lending. That’s a world of negotiated documents and we’re trying to enter that world and make loans to qualifying buyers. So we’ve set up big operations at the Federal Reserve Bank of Boston and hired service providers. And we’re doing all of that to be ready to face off against it. It’s very diverse, small, medium, and large companies, very different industries with very different credit needs. Some of them asset based, some of them cashflow based. So it’s a really complex undertaking and people are working literally around the clock and have been for weeks to get it ready by the end of this month.

Pat Toomey: (36:45)
Thank you for that. I also observed that one of the terms, one of the conditions, of these facilities is that the banks who are acting as lenders … and by the way, I’m hoping that non banks can as well, business development companies and others, I think would be effective conduits for these funds. But the lender is going to be required to keep some of the risks on their own books. And I’m wondering what kind of reaction you’ve gotten from lenders and potential borrowers. What kind of participation are you anticipating? Do you think there’ll be strong demand for these facilities given the way they’ve been structured?

Jerome Powell: (37:24)
There are three facilities we’ve had a lot of outreach to, borrowers, lenders, everybody going back over the last couple of months. And pre-facilities will probably attract different levels of demand. We are getting a good deal of interest in inquiry on them. And I think we’ll find out fairly quickly. You should know that we will continue to be prepared to adapt, as we have shown, if the uptake is not what we would hope and we’ll be prepared to go after that and try to find ways to address the needs of this area of the economy.

Pat Toomey: (37:57)
All right. Thank you very much. Thanks, Mr. Chairman.

Mike Crapo: (38:00)
Thank you, Senator Reed,

Jack Reed: (38:04)
Chairman Powell, thank you for your great leadership. And I think you recognize that state and local governments are absolutely critical to our response to COVID, but also to our economy. It’s been estimated for example, that there are 20 million jobs in state local government, that they contributed, state local governments, 8.5% to national GDP. And we all know they’re facing dire economic circumstances, projected 10% budget losses this year, 25% next year. How likely will it be for us to have a robust recovery if our States do not receive additional and flexible fiscal relief? Not alone from the fed, which increased the leverage, but the fiscal grants to the states? How robust can our recovery be if this key sector is out of play?

Jerome Powell: (38:53)
Senator, I don’t want to get too into individual fiscal proposals. Those are really for you. I’ve tried to stay at a fairly high level on this. I will just echo though that I think something like 13% of the workforce is in state and local government. A lot of the critical services that people rely on day to day are provided at the state and local level with balanced budget amendments. That means that there are balanced budget provisions in state constitutions. That means that when revenue goes down sharply, it can mean job cuts, it can mean service cuts. So those are all important things to consider going forward.

Jack Reed: (39:33)
Well thank you. Secretary Mnuchin, I just want to make a comment, because I made this comment to you repeatedly. That is, I do believe that with the coronavirus relief fund that we passed, you do have the flexibility to provide support for the states when it comes to lost revenue. This lost revenue was not anticipated in their budgets far from that. And second, it is directly related to the COVID virus. If you go to most states, it is directly related.

Jack Reed: (40:00)
So I would urge you to relook, as you’ve done at PPP, and we’ve tailored that several times, to look back again and reconsider the ability to use flexibility in this coronavirus relief fund. So that’s just a comment, Mr. Secretary. Let me return back to Chairman Powell.

Jack Reed: (40:17)
Chairman Powell, we know that unemployment is going to be something that will be with us for a while. It’s about 15% now. I’ve seen estimates as high as 20 or 25% next year. And yet our unemployment insurance firms are keyed to a date. They will end at a certain time. Do you think it’s important for us to have the confidence and give confidence to people that they can still receive funds like this, even as the data surpassed, the economy is still in disarray and states are still looking at 10% unemployment rates? Don’t they need that certainty, so we’d have to build in some type of test … not a date, but a test for unemployment compensation?

Jerome Powell: (41:04)
Senator, again, that’s a question about a specific fiscal policy and that really falls to you. We try not to get into too many specifics. I will say though, that, the risk that I called out last week and that I’ve been concerned about and others have isn’t that long periods of unemployment can really affect people’s ability to go back to work ,because they lose their networks, they lose their skills, they lose contact with the job market. So I think anything that keeps people intact is probably … hopefully in their job, but in the meantime, keep them out of [inaudible 00:41:41] solvency and things like that, should the expansion start later or take longer to get going. Those are appropriate things for you to look at.

Jack Reed: (41:51)
Thank you. Just a final point, Chairman Powell, that I think we’re missing the boat once again. This is sort of like déjà vu. I was here in 08, 09, 10, and we leaped in to help the mortgage market with both feet, but we didn’t help people avoid foreclosure. It seems to me that that’s what we’ll do again, unless we have a fiscal program that provides resources to keep people in their homes. When they can’t pay their rent, when they miss their mortgage payments, that’ll put pressure on the mortgage community and you and the fed and the treasury will rush to their help. Wall Street will get the help, Main Street will be left behind. It’ll be as it was in 08, 09, and 10, thousands and thousands of people without homes and any economic recovery is going to be slowed by people in those conditions. So I would just ask whether you consider this fiscal response to the core problem? People can’t pay their rent, they can’t pay the mortgage is probably the best response rather than filling in later.

Jerome Powell: (43:01)
Yeah, I think you’re right. Waves of foreclosures can undermine household finances obviously, or as a result of bad households, finances are troubled. But of course in this case, there has been some significant forbearance on that. And I think that’s again, something to continue to consider.

Jack Reed: (43:25)
Thank you very much, Mr. Chairman. Thank you, Chairman Powell and Chairman Crapo. Thank you.

Mike Crapo: (43:30)
Thank you. Senator Scott.

Tim Scott: (43:33)
Thank you, Mr. Chairman, and to the panel, thank you all for being with us this morning, a really important time in our country. And there’s no doubt that a global pandemic is really shocked the world and frankly shuttered a lot of businesses. And because of the Paycheck Protection Program, I think the two traunches of the Paycheck Protection Program has saved, from my understanding, somewhere near 50 million jobs, the first traunch about 30 million jobs, the second traunch about 20 million jobs, and we still have about a hundred billion dollars left that we can deploy into our communities. With that said, thinking about the backdrop of a hundred billion dollars left in the triple P, Mr. Secretary, I think that I feel really passionate about helping the underserved communities, whether that’s the Horry County in South Carolina or West Virginia and some of the rural parts of West Virginia.

Tim Scott: (44:24)
But very often, small and minority businesses are the lifeblood in those small rural communities. And frankly, we have the Minority Business Development Agency that has done a really good job of helping to deploy some of the resources from the triple P into those underserved communities. My question is how can we use NBDA or some other mechanism to get more of those resources in our rural communities, or frankly in our inner city communities where perhaps that Paycheck Protection Program has been more intimidating for smaller businesses like my barber shops and beauty salons, some of the rural gas stations that may not have the banking relationship that was necessary at the beginning of the program, or they’re a 1099, which means that basically they had to wait a week before they were able to get into cycle. How can we help those organizations and agencies like the NBDA actually provide the marketing so that more people understand the benefits and they understand the program of the triple P? Mr. Secretary.

Steve Mnuchin: (45:33)
Well, Senator Scott, first of all, thank you, because we appreciate the work you’ve done with us on this issue already, and we will continue to work with you and others. One of the things we are very pleased about the additional money is that the average loan size has come down considerably. I think we all had certain concerns about in the first traunch, how larger companies were prioritized. I believe that’s now been corrected. I also couldn’t be more pleased how we’ve been able to get sole proprietors and others into the program. And as I have said is, fortunately right now we still have a significant amount of money left, but we are very much willing to consider the bipartisan request of reserving money for CDFIs at the end to make sure that the underserved communities are properly served in this program. Thank you.

Tim Scott: (46:26)
Thank you, ms. Secretary, once again, let me just say to you, since I can see you on the screen, you have done a fabulous job under intense pressure, and without any question, America recognizes the valuable service that you’ve provided to our country. And I am personally thankful for your accessibility. Under pressure, you have still been very receptive and responsive, and that is to say a lot under the current conditions. So thank you very much on that.

Tim Scott: (46:54)
And Chairman Powell, I heard you talk about forbearance very quickly there. And this is an issue that continues to grow in importance and really in urgency, whether it’s a small business, whether it’s the residential market or the commercial market. The one concern I have that continues to grow would be commercial mortgage-backed securities. There are a number of shopping centers in South Carolina and frankly throughout the country where having spoken to some of the folks who own those shopping centers, like 20 to 22% of the folks are able to pay their rent, which means that we’re looking at a domino effect in the mortgage market, whether it’s commercial and frankly residential, the same concern.

Tim Scott: (47:38)
I’m not sure what the answers are. Certainly it’s either forbearance or frankly, bankruptcy for many firms. What should we expect? What should we anticipate from the fed and from the treasury as it relates to creating more liquidity in that market? And is there … I don’t know that there’s a silver bullet. I don’t see a panacea, but what would you both suggest that I should tell my constituents on this really important issue? Thank you.

Jerome Powell: (48:07)
So it is an important market. As you know, we’ve supported the CMBS market with our open market purchases and that did help the market keeps functioning. In addition, legacy CMBS are eligible for our term asset loan facility, which is an asset backed security. It’s an important market. We continue to monitor it. The 13(3) facility is a lending facility and that’s the tool we have. Not every problem can be successfully addressed with such a facility, but where it can be, we’re willing to take a hard look.

Tim Scott: (48:42)
Okay. Thank you. Mr. Secretary, anything to add to that, sir?

Mike Crapo: (48:47)
Quickly, please.

Steve Mnuchin: (48:48)
Again, I would just add both working with the FHFA as well as [inaudible 00:48:54] on the agency side, and then working with the fed on the securitization side. Unfortunately, securitizations have certain limitations, but we continue to do this. Thank you.

Tim Scott: (49:04)
Thank you, Mr. Chairman, for I may be over my time. I can’t see the clock so I assume that I have five more minutes left.

Mike Crapo: (49:12)
I’ve been trying to tap. I’m not sure if everybody’s hearing the taps, but I’ll do something louder.

Tim Scott: (49:18)
Thank you, sir.

Mike Crapo: (49:18)
All right, thank you. Senator Menendez.

Bob Menendez: (49:21)
State and local governments are facing unprecedented budget challenges. We’re looking at an enormous wave of budget shortfalls about to crest, which will lead to a devil’s cocktail of devastating layoffs, dangerous cuts to public safety and essential services, and massive local tax increases. Any one of those ingredients alone threatens to make this economic crisis even worse. And the combination of all three is almost unthinkable. The Bureau of Labor Statistics just reported that state and local governments laid off nearly one million workers in the month of April. That’s almost one million firefighters, police officers, teachers, emergency health personnel that should be on the front lines of the public health crisis, but are sidelined instead. So Chairman Powell, let me just start by asking, do you agree that our economy will get worse if state and local governments are forced to lay off even more firefighters, police, officers, teachers, and emergency health personnel?

Jerome Powell: (50:36)
Well, let me say what we are doing, Senator. We have a liquidity facility that is there to address the short term liquidity needs that these entities have because of their loss of revenue due to the effects of pandemic. And that’s really the tool that we have to …

Bob Menendez: (50:55)
I appreciate that, but that’s not my question. My question is if states, counties, municipalities, continue on the path to lay off … we have a million laid off, even more, just from an economic situation, doesn’t that make the economic recovery even worse?

Jerome Powell: (51:19)
Essentially yes, Senator and we have the evidence of the global financial crisis in the years afterward where state and local government layoffs and lack of hiring did weigh on economic growth. [crosstalk 00:51:32]

Bob Menendez: (51:32)
Well, one of the tools that we have to alleviate this problem is by using the money Congress provided in the CARES act to bring down borrowing costs for our state and local governments so they can set the state for a strong recovery. I was glad to see the Federal Reserve support local governments to the municipal lending facility. But frankly, I don’t think it’s enough. In a letter that I, senators Tillis, Brown, and Murkowski sent to you and Secretary Mnuchin last week, we called on the fed to establish another facility, one that would purchase medium and longterm municipal bonds, both directly from issuers, as well as on the secondary market, and thereby ensure our state and local governments can continue to finance key public services and invest in infrastructure and other areas to jumpstart our economy and get Americans back to work. Will you commit to work on that proposal that the Senator sent to you?

Jerome Powell: (52:28)
Yes. We’ll take a look at that, Senator. I will say though that our … generally with 13(3), what we’re trying to do is address liquidity needs. And those are really longer term funding needs, but notwithstanding that, we are taking a look.

Bob Menendez: (52:42)
Well, I appreciate that. In a speech last week, Mr. Chairman, you said, “Additional fiscal support could be costly, but worth it if it helps avoid longterm economic damage and leaves us with a stronger recovery. The tradeoff is of course, for our elected representatives.” And I agree. The hit to our States, cities and counties is tremendous and it’s not just specific to my state of New Jersey. Projections released by Moody’s reveals that every state in the nation is already … all will soon face historic budget shortfalls.

Bob Menendez: (53:15)
Just to pick a few examples, they found that Ohio and Arizona are each facing a fiscal shock totaling about 20% of their entire state budget. And for some states, the numbers are even worse like West Virginia, which is facing a 40% fiscal shock. Like you said, the fed can’t be expected to solve all of our problems. Yesterday, I introduced SMART act, which is a bipartisan, three Republicans, three Democrats, to provide $500 billion in direct support to our state and local governments. It’s the first bipartisan bill of its kind in the Senate. And I think when we have colleagues from Mississippi, Louisiana, and Maine on the Republican side, it’s not a partisan issue. Would that be the type of solution that can get us back in terms of the States into fiscal recovery?

Jerome Powell: (54:05)
Senator, we try to stick to our knitting over here and you know that we’ve done what we can with the municipal liquidity facility, but those questions are really for elected representatives [crosstalk 00:23:18].

Bob Menendez: (54:17)
Well, let me just close on this. A lot of minority owned businesses are not getting access to the Paycheck Protection Program as we in Congress intended. I know the Secretary has been receptive. I hope you will be receptive as well to allowing community development, financial institutions, and minority development institutions get greater access to these programs and to the lending facility set up on the CARES act so these funds can reach businesses and low income and underserved areas of our country. It’s just still not happening. And the Secretary I believe has been rather receptive about this. I’d urge you Mr. Chairman, to be receptive as well.

Mike Crapo: (54:56)
Thank you. We’ll next move to Senator Sasse who will be with us by telephone. And Senator Sasse, I will tap at about 30 seconds left of your five minutes. You can proceed.

Ben Sasse: (55:07)
Thank you, Chairman. And gentlemen, thank you for both being here. Sorry that I’m in the hallway outside of the judiciary committee hearing, so I don’t have the Zoom camera here, but I’m grateful for both of your time and responsiveness on this. I want to start by asking about some of the recent cyber attacks. We’ve obviously seen an increase in schemes directed at financial institutions that have been the active in trying to help with corona response. And I’m just curious as to if you have any update for us on the cybersecurity attacks we see in the space.

Steve Mnuchin: (55:45)
Well, I would just comment on that, that we have a department within treasury that is actively working on all these issues and coordinates and make sure that our infrastructure … I will just give a pitch for our Secret Service bill of moving the Secret Service back to the treasury [crosstalk 00:56:04] the issues I think they can help with is on these cyber related issues. But I can assure you, we have all the resources working on this jointly and take it very seriously.

Ben Sasse: (56:12)
… the institutions that don’t have the scale to have huge cyber defenses on their own. And when we see foreign actors doing stuff like this, it’s obviously critical that we view this as a whole of society problem, not just these institutions alone. So thank you for your pledge to keep looking at that Chairman Powell, the fed has done a series of announcements over the last two months about the 13(3) lending facilities. And in the announcement of April 9th, the fed announced that the term asset backed securities loan facility would be expanded to include commercial mortgage backed securities, as well as static collateralized loan obligations.

Ben Sasse: (56:59)
The Wall Street Journal described that expansion as, “The fed will in effect be buying the worst shopping malls in the country and some of the most indebted companies.” Could you give us your perspective on the Wall Street Journal’s characterization of this expansion and are they right about the risk levels with some of the commercial properties? Obviously, as America goes through this experience of corona time, lots and lots of people are not just doing telecommuting and distancing for the present, but we see in Silicon Valley lots of companies planning to migrate their longterm strategy. And I would assume that’s a bellwether of what we’re going to see for commercial property across America. The taxpayer should not be on the hook for flooding into that space. Can you help us understand how you’d respond to the Wall Street Journal’s argument?

Jerome Powell: (57:46)
Sure. First, in [inaudible 00:26:51], we’re supporting asset backed securities markets broadly, which that’s consumers, that’s car loans, that’s credit card loans, things like that. In addition to the CMBS you mentioned, now we’re only buying the AAA rated piece and we’re only buying it with a good size haircut. So the credit risk is actually very, very low on this to us. And the same thing is true of the CLS.

Ben Sasse: (58:14)
That’s helpful, the AAA point. Thanks Chairman. Secretary Mnuchin, I want to go back to some China IP issues that you and I have discussed before. Obviously the Chinese government has been stealing American intellectual property for decades to fuel its economic rise. And while we’ve indicted companies and individuals for cyber espionage and for some of the theft of this intellectual property, we rarely see any sanctions for these crimes.

Ben Sasse: (58:43)
For instance, we’ve indicted Huawei and its subsidiaries and its CFO for a long list of crimes, from the theft of trade secrets to sanctions of Asians money-laundering, but we haven’t placed any sanctions on Huawei itself. How do you and the treasury department assess the costs and benefits of utilizing sanctions against some of the Chinese Communist Party’s economic champions like Huawei that obviously are not really private sector companies? They built the business side, the sort of extensively private sector side of their organization by stealing IP, but the backend of Huawei is obviously hooked in not just to the communist party, but to military intelligence. So why do we continue to treat these ” companies” as if they’re really private sector? Where do you come down on the cost benefit analysis on utilizing sanctions?

Steve Mnuchin: (59:37)
Well, I think as a matter of policy, and I’ve said this before, I don’t comment on future sanction’s actions, nor do I comment on specific sanctions on specific companies. Although I will tell you that the issues related to Huawei, we do discuss on an interagency basis and do coordinate. I would also just comment that I’ve worked very closely with Ambassador Lighthizer obviously on the China agreements, and forced technology transfer is a major issue that we’ve been combating.

Ben Sasse: (01:00:10)
Fair, Secretary, but we’ve heard US government officials of both administrations for two decades talk about agreements that are eventually going to have peace and they almost never do. Ambassador Lighthizer has been a bit of a pit bull on, on this piece of it, but discussing it in the interagency process isn’t really the same as us pushing to help Huawei and their state-based backers understand that IP theft has real consequences, not just press releases.

Ben Sasse: (01:00:42)
So I’m glad that it’s a topic for inter-agency discussion, but I would just say, and I know that the Chairman’s gavel there implies that I’m at time, but I would just say in the intelligence community oversight committee of the community in the legislature, this is an increasingly bipartisan issue that Republicans and Democrats believe that it’s important for us to be holding these faux private sector companies in China to more account. And the Chinese government needs to know that we mean it, not just say, “Eventually somebody is going to come up the stairs if you guys keep stealing IP,” and they continue to do it. So for what it’s worth, I think the article one perspective, if you’re on an increasingly bipartisan basis is serious. Thanks Chairman.

Mike Crapo: (01:01:25)
Thank you. Senator Tester.

Jon Tester: (01:01:28)
Thank you Mr. Chairman Ranking Member Brown. I want to thank both Secretary Mnuchin and Chairman Powell for being on the call today. We’ve all seen what’s transpired over the last couple of months, as far as inspectors general go. My question is quite simple. Can I get both of your commitments, individually, of course force, that if an IG submits a request to you, that you would provide any information to them and do so in a timely manner?

Steve Mnuchin: (01:01:52)

Jerome Powell: (01:01:54)

Jon Tester: (01:01:56)
Good. So Secretary Mnuchin, can you tell me, from your perspective, how active is the congressional oversight committee …

Jon Tester: (01:02:03)
From your perspective, how active has the Congressional Oversight Commission been?

Steve Mnuchin: (01:02:06)
I’ve seen the recent record. I can’t comment on what meetings they’ve had or what they’ve done on that.

Jon Tester: (01:02:14)
Okay. Okay. And you guys, I would assume, comply with any requests that they make [inaudible 01:02:19], correct?

Steve Mnuchin: (01:02:21)
I see no reason why we wouldn’t.

Jon Tester: (01:02:23)
Okay. Well, just … I value that and I appreciate that from both of you. I think that the president has a bit of a different opinion, and I say that by what he said, not by what I think about the values of inspector general. Secretary Mnuchin, do you think it’s right to be able to remove public servants that their job is [inaudible 01:02:47]?

Steve Mnuchin: (01:02:48)
I think that if you’re referring to the removal of the IG, again, which I only know from what I’ve heard the president say, but yes, that’s within his authority.

Jon Tester: (01:03:00)
Yeah. Even if they’re doing their job?

Steve Mnuchin: (01:03:03)
Again, that’s an appointed position. He has the right to withdraw, just as he’s nominated a new special inspector general to work with the CARES act, which we look forward to the Senate confirming so we can work with that person.

Jon Tester: (01:03:16)
I have a totally different perspective on that. And I will tell you why. I know he has the ability to remove anybody, including yourself. And I would say that if you’re doing your job in this case, the inspector general, doing it in independent basis. I think it’s a clear misunderstanding of the three branches of government. So I talked to you a little bit about reporting to the IGs, and I will tell you, I learned something on today’s call. I didn’t know, before that most … Nearly half, by Senator Tooney, of the dollars that we’ve allocated, the three trillion has neither been spent or lent. So can you guys … We need more transparency on these programs, and I think you would agree with that. When can we see full information about who’s getting the dollars?

Steve Mnuchin: (01:04:06)
Well, let me just comment. When we negotiated this bipartisan deal, we agreed to unprecedented transparency. So we agreed to release things that are not required by 13.3. So I don’t know why you haven’t seen that. Everything’s posted on our website or defense website. We take great pride in the transparency that we’ve provided. And we’ve agreed to as part of the CARES act.

Jon Tester: (01:04:32)
Secretary, you’re saying that the information about who’s getting the dollars and who’s getting the money is already posted on your website?

Steve Mnuchin: (01:04:43)
Again, what I’ve said is every single commitment we’ve made is listed on the website, every single term sheet, and yes-

Jon Tester: (01:04:52)
Every dollar that’s gone out is being listed on your website, that’s what you said, that’s what I heard.

Steve Mnuchin: (01:04:57)
Again, within the CARES act facilities with the fed. When we do individual transactions through them, they are listed.

Jon Tester: (01:05:09)
Chairman Powell … I look forward to seeing that list by the way, Secretary Mnuchin. And I’m going to go online and I’m going to search it because I’m going to tell you that as much transparency as you said are with this program, as a senator from Montana, as a member of the banking committee, I’m not seeing any of it, quite frankly. I’m seeing general numbers. I am not seeing any of it. We will deal with that at a later date. Chairman Powell, I have a question for you. Three trillion been’s put out. Can you give me an idea how many dollars because of the leveraging that the fed used has actually been infused in the economy?

Jerome Powell: (01:05:52)
Well, senator our facilities, the big facilities to which the equity has been committed are really just coming online. So it’s all ahead of us. We’ve taken some time to set these facilities up. So the amount that’s going out so far is, in the context of the US economy, fairly modest. We have committed though to disclose all of the borrowers and the amounts in a timely way.

Jon Tester: (01:06:19)
And I appreciate that. There’s 200 billion that I believe Secretary Mnuchin said would be leveraged to 2.3 Trillion. Do you agree with that?

Jerome Powell: (01:06:29)
Yes, potentially. We can’t be precise about these numbers, but we can leverage their equity at about that rate.

Jon Tester: (01:06:35)
Yeah. What’s 100 billion among friends. Hey, thank you very, very much. I appreciate you both being here. I look forward to being able to find the information Secretary Mnuchin said was online. Take care. God bless.

Speaker 1: (01:06:46)
Senator Cotton.

Senator Cotton: (01:06:48)
Thank you, mister chairman. Secretary Mnuchin, Chairman Powell, thank you both for being here. I want to speak about the primary and secondary corporate credit facilities. As of today, those facilities are available to companies that have ratings from public writing agencies like S and P and Moody’s. As you know, that can be a very expensive process. Some companies don’t want to go through the cost or the [crosstalk 01:07:18] of getting those rating, but [crosstalk 01:07:21]. These companies often tend to be privately owned, sometimes family owned. They can have very large employee bases. We have some in Arkansas and they’re employing thousands of workers. I think probably all of the senators on this committee, maybe all 50 states have companies that are in this category. Oftentimes they sell loans directly to insurance companies like life insurers that are rated by the National Association of Insurance Commissioners. Those writings are high quality. They are the functional equivalent of a public ratings agency, like a S and P or Moody’s. Secretary Mnuchin, What is the possibility of opening up those facilities to companies that are selling those kinds of loans with those kind of credit worthiness writings from the NAIC?

Steve Mnuchin: (01:08:16)
Senator Cotton, I’ve appreciated the opportunity that you’ve brought this to our attention. And as I’ve suggested, I’m working with the fed very closely to see if we can accommodate using those NAIC ratings. And if in need, there is some private ratings that can be done on a level that is not costly to the companies, but we are committed to make sure that these companies can use the facilities as well.

Senator Cotton: (01:08:44)
And Chairman Powell. Can I get your perspective on that question?

Jerome Powell: (01:08:46)
Yes. If I understood your description of the companies, they sound more like main street companies than primary or secondary credit market. Those are for investment grade issuers who issued public bonds. If I misunderstood, I’m sorry, but-

Senator Cotton: (01:09:01)
On the main street facility, mister chairman, I think the limitation that some companies might face is that they exceed the employee cap, which I understand to be 10,000. It would be similar to the main street lending facility.

Jerome Powell: (01:09:16)
Well, I’ll just echo what Secretary Mnuchin said. We’re working on this problem.

Senator Cotton: (01:09:21)
Thank you for that. And mister secretary, any thoughts on when that decision might be made, so some of these companies can get the certainty on whether they’ll have access to that facility or another facility, or perhaps a brand new facility?

Steve Mnuchin: (01:09:34)
I understand the importance of this, and I’ll commit to try to get back to you within the next week. And we want to make sure that if there are companies that slipped through these two facilities, the chair and I will work together to make sure that we deal with those issues that they have funding.

Senator Cotton: (01:09:51)
Okay. Thank you both for that. And thank you for your work on this question over the last couple of weeks. Secretary Mnuchin, I want to turn to a question about the paycheck protection program. It’s a very specific question, but I got it coming in my office this morning from one of our small community lenders in Arkansas. I suspect many other lenders have the same question. I suspect that banks across all of our states have this question. The note we received said that we are required to file a PPP version of SBA form 1502 by Friday for all the loans refunded, yet the guidance and format of the reporting requirements have not been issued. We are reaching a critical point in time. As you know, banks have to extract this information from our core, and that can be both time consuming and tedious. We asked for a little more detail. That detail is as follows.

Senator Cotton: (01:10:41)
Banks will have to extract these data points from our primary core software system. This will require programming to mind these data points then merging into the required format. Then we’d have to inspect for accuracy. This will require several days to accomplish. It is not as simple as pushing a button and the data is populated. Mister secretary, given that this is Tuesday, the deadline for this is Friday. What’s the prospect of getting more detailed guidance from the SBA as soon as possible, or perhaps pushing that deadline back a little bit so all of these lending institutions [inaudible 01:11:15] what you need?

Steve Mnuchin: (01:11:17)
Mister senator, I believe we’ve already pushed that date back, but I will check on that and confirm it. And if there is a specific institution that has a problem, please let me know the name and we’ll figure out how to accommodate that. We want to make sure that we get the information, but where there are small and medium sized banks that have issues, we’ll obviously try to figure out how to accommodate them.

Senator Cotton: (01:11:37)
Thank you very much. And thank you again.

Senator Warner: (01:11:47)
Some of the comments I think you’ve made, and I want to reinforce them. I think we all realize and understand that losing a job at any point in your lifetime is an enormous challenge. Losing a job in the midst of a recession could be … Or depression could be devastating. I point to the survey that the fed put out last week, that literally said 40% of our fellow Americans who make less than $40,000, 40% of those folks had their jobs disappear between February and March. We all know as well that 36 million Americans were unemployed. We’re at depression levels of unemployment.

Senator Warner: (01:12:27)
I think statistics have always shown that particularly losing a job during a recession could actually incur long time income losses, up to 19% over the coming decade. Some of the statistics that I’ve seen. So I’d, again, like you to take a moment to say, we have to measure overdoing versus under doing, but with this type of devastation, with this type of pain disproportionately hitting low and moderate income Americans, can you speak to us of the results and the longterm scars this would present if we don’t take aggressive action?

Jerome Powell: (01:13:07)
Thank you. I’d be glad to. So there is clear evidence that when you have a situation where people are unemployed for long periods of time, it can permanently weigh on both their careers and their ability to go back to work and also weigh on the economy for years. Equally so with small and medium sized businesses, which are the jobs machine of our great economy, if we allow unnecessary avoidable insolvencies because of effectively a natural disaster, that too will destroy the work of many families and generations, and it’ll weigh on the economy. So those are things to keep in mind. As I said earlier, this is the biggest response by Congress ever, and the fastest and the biggest from us and still, this is the biggest shock we’ve seen in living. And the question looms in the air of is it enough? We’ll have to-

Senator Warner: (01:13:58)
I would argue that historically, whether it’s our country or other nations, that governments tend to undershoot during these periods. And we now have 36 million Americans without work and 40% of the folks under $40,000 a year losing their work, that this scar could be deep and wide. One of the reasons I want to turn to you, Secretary Mnuchin, and we’ve discussed this, and I think a number of our colleagues on both sides of the aisle understand this, we did some aggressive things for folks in the airline industries. So we did some addressing things for folks under 500, but that middle market, that the main street facility is supposed to address. I am gravely concerned that we need to both get that out and we need to be very aggressive with it.

Senator Warner: (01:14:43)
I did a letter to you all, for you, secretary, yesterday, outlining some of the ideas that I hope you’d be willing to lean into, but I want to … And you made mention earlier that you were willing to have some of that $75 billion at risk in this facility, but I’d like you to speak to that a little bit more, specifically in terms of which, as you built out the baseline of this facility, how much risk and how much of that capital did you expect to potentially lose? And that I’d love to have then the fed chairman very quickly echo whether he’s willing to relook at some of the penalty fees that are, my understanding, fed regulations, but not legislatively mandated. Secretary Mnuchin, you first please.

Steve Mnuchin: (01:15:30)
Thank you. Well, Senator Warner, first of all, I want to personally thank you for the time that you spent with us during the legislative process in helping to craft these different pieces and your availability since then to work with us. So we appreciate your thoughts and we’ll continue to work with you. As it relates to risking capital, as I’ve said, almost by definition, any time that the fed thinks they need capital, there’s a risk to us. We obviously model out various different scenarios. We’ve obviously continued to adapt the main street program to let more and more companies into it. And although we refer to it as one program, it effectively has three sub programs.

Steve Mnuchin: (01:16:12)
So we run different scenario analysis. There are scenarios within main street where we could lose all of our capital and we’re prepared to do that. There’s scenarios where the world gets better and we could actually make a small amount of money. But again, as I’ve said, no different than Secretary Paulson during the tarp period, they didn’t think they were going to make money. Our intention is that we expect to take some losses on these facilities. That’s our base case scenario.

Senator Warner: (01:16:42)
And mister chairman, do you want to address in terms of the penalty rate?

Jerome Powell: (01:16:45)
I’d be glad to. So what we’re doing here with these programs is we’re making loans in times of severe stress, where markets are not working, and not providing credit on reasonable terms, the original purpose of central banks. So what rates should we charge? And what we do is we charge a rate that is a little bit higher than the normal rate, but in most cases, much below what the market is currently providing. That encourages prompt repayment. It helps those who can’t get credit, but not those who want credit from us to save a few basis points. And if markets are functioning reasonably well, we don’t want to replace them. We we want to be a backstop to those.

Senator Warner: (01:17:20)
I think, mister chairman, my term is up, but I would just urge you. These are extraordinary times and I hope you will lean into this as much as possible. Thank you, mister chairman.

Speaker 1: (01:17:29)
Thank you. Senator Rounds?

Senator Rounds: (01:17:32)
Thank you mister chairman. Gentlemen, first of all, thanks. And I appreciate the work that you have done and your organizations have done in making this whole thing work as well as it has in a very short period of time. I would ask, first of all, to Secretary Mnuchin. In discussing with our local lenders, they’ve got a number of questions coming in with regard to PPP, and specifically two different sections. A portion of number one was the rule in which we asked that these loans be literally divvied out and accepted within 10 days of the time of approval. And second of all, how that relates to a June 30th date for the execution or completion of the use of those loans. And mister Secretary, I don’t find where there’s actually a June 30th end date, where that has to happen in order to facilitate forgiveness of that loan. Can you talk a little bit about your options or the flexibility you have with regard to the PPP and the forgiveness loans and that June 30th date that so many people have concerns about?

Steve Mnuchin: (01:18:44)
Well, let me just comment. I think the concern that people have that’s even bigger that we’d like to get a partisan technical fix is you said there’s the 10 days to disperse it. We’ve then given banks another 10 days, if people haven’t sent back the documents, and then there’s the eight week period. So companies are really having issues with not necessarily being able to use it during that eight weeks. They don’t want more money, but want flexibility that they can use it in longer than an eight week period. And as it relates to the June 30th issue, we’re happy to follow up with your staff and talk about where that fits into the bill

Senator Rounds: (01:19:24)
Chairman Powell, I [inaudible 01:19:27] letter from Vice Chair Corals recommending that Congress give regulator’s discretion to loosen certain capital requirements prescribed by section 171 of Dodd-Frank. Do you share vice chair’s thinking? What additional measures do you think Congress and the federal reserve should consider?

Jerome Powell: (01:19:48)
I do share that. So the idea is temporarily during this period, unusual, unique period in our history, the banks have been strong. They’ve been making loans, they’ve been taking in deposits and because of the growth in their balance sheet, they’re constrained by some of these regulations because they’re taking on board very low risk assets. So we’ve tried to provide relief so they can continue to do what they’re doing. So I do support that and we’ve done a number of things, and we’ll let you know as we see the need for other adjustments.

Senator Rounds: (01:20:22)
Thank you, mister chairman. Secretary Mnuchin, one thought with regard to in the middle of this COVID-19 pandemic, we still have a discussion about on a regular basis get questions from taxpayers here about the amount of money that we borrowed and what we’re going to do about it. You’re going to play a key role in how we lay out that repayment plan. Can you talk a little bit about the tools available to you, specifically with regard to long or ultra long treasury bonds? I know it’s been a hot topic, and I know that most recently you launched a 20 year bond. Can you talk about the maturities, how you plan on laying that out, the strategy that you’re using to best accommodate our needs for the immediate liquidity, but also recognizing that you’ve got some tools available and with these ultra low interest rates that we’re at right now, it may very well work to our benefit to feather this out over an extended period of time.

Steve Mnuchin: (01:21:23)
Well, thank you. I’m glad you asked that question because I think it’s very important. So the first I would just answer prior to this, we spent a lot of time looking at 50 and 100 year bonds and determined that there just wasn’t enough demand to make it worth it given our borrowing sizes. We did get advice on a 20 year. So we’ve added the 20 year. That gives us the ability to both extend the duration as well as to raise significant amount of funds. So it is my intention, as you’ve described, to borrow a lot of money in the short term to have the funding, but then to expand our financing in 10, 20 and 30 year bonds. What I’d like to do is lock in a significant amount at very low interest rates so that the money we’re borrowing can be paid back and dealt with over a long period of time.

Speaker 1: (01:22:18)
Thank you. Senator Warren?

Senator Warren: (01:22:21)
Thank you, mister chairman. Today’s hearing takes place in the worst economic crisis of our lifetimes. Unemployment is now at Great Depression levels, nearly 40% of people making less than $40,000 lost their jobs in March alone. Businesses are shuttered and they may never reopen. Congress passed the CARES act and put nearly half a trillion dollars worth of taxpayer money and corporate bail out money in your hands. This is not the PPP or the small business fund, but half a trillion dollars for mid sized and giant corporations. So I want to talk a little bit about where that money’s going.

Senator Warren: (01:23:10)
The law gives treasury and federal reserve the authority to write tailored rules determining which companies get taxpayer relief and how they can spend that money. And over the past few weeks, the fed has been putting out these rules in the form of what you call term sheets. So Secretary Mnuchin, you have said that the jobs numbers will improve. In fact, on Fox News, you said, quote, we will have a better third quarter. We will have a better fourth quarter and next year is going to be a great year. Now, to make that happen, people are going to need jobs. So does this mean that you will require companies that received the bail out money from the taxpayers to keep their workers on payroll?

Steve Mnuchin: (01:24:00)
So let me just comment of, I have said publicly, and I’ll say again, I think the job numbers will get worse before they get better. So I just want to be very clear that I think that June will be a very difficult quarter. As it relates to the CARES act, I take great pride in the bipartisan support on these bills. And these specifics were negotiated on a bipartisan basis very clearly in each one of these programs. And it is our intent in the 13.3 Facilities to fulfill both the spirit and the details of the law. So different facilities have different requirements.

Senator Warren: (01:24:40)
So I’m sorry, Secretary Mnuchin, that’s not quite right. What the law specifically does is gives you the specific authority to determine the terms on which these loans were made and who’s going to be able to get them for these midsize and giant corporations. And so I had a very simple question for you. You say the economy is going to recover. It’s going to take jobs in order for that to happen. So what I want to know is are you going to require companies that received money from this half a trillion dollar slush fund to have to keep people on payroll? It’s a simple question. Yes or no. Are you going to require that?

Steve Mnuchin: (01:25:22)
First, let me say that our number one objective is keeping people employed.

Senator Warren: (01:25:29)
[crosstalk 01:25:29] who are getting tax payer money. That’s my question.

Steve Mnuchin: (01:25:34)
Again, we negotiated very significant restrictions on employee compensation, on dividends, on buybacks and in the main street facility, we have put a provision that we expect people to use their best efforts to support jobs. But-

Senator Warren: (01:25:54)
I’m sorry, I’m sorry. I have very limited time, mister secretary. Let me understand what you’re saying. All the facilities that are not the main street facility are not putting in any requirement for payroll, and the main street facility is something about a commercial reasonable effort to be able to maintain jobs. In other words, if somebody fires, if a corporation fires a bunch of people then gets federal taxpayer money, you’re fine with that. Or if they take a bunch of federal taxpayer money and then say, “Well, it didn’t work out commercially for us.” Then they can fire people. So I take it your answer to my question that whether or not you’re going to require as part of the terms of the loan that people be kept on payroll is no. Is that right Secretary Mnuchin?

Steve Mnuchin: (01:26:47)
That was discussed with people on both sides of the aisle.

Senator Warren: (01:26:53)
[crosstalk 01:26:53]. I’m sorry, Secretary Mnuchin. I’m talking about your term sheets that you’re putting out and you’re telling me you’re not going to require any payroll. Let me ask you one more question. Taxpayers are on the hook here for nearly half a trillion dollars. You’re not going to require that the keep a single person on payroll. There are some rules though, in the term sheets, as you identified earlier, like prohibiting companies from getting fail out money from double dipping in other CARES programs. And by law companies that get this money are going to have to sign agreements, certifying that they’re in compliance. So Secretary Mnuchin, here’s what I want to know. Will you create a certification process that ensures that executives are held personally liable and are subject to criminal penalties if they provide false information or misuse bail out funds?

Speaker 1: (01:27:50)
And if you could be brief, mister secretary.

Senator Warren: (01:27:52)

Steve Mnuchin: (01:27:53)
We will review that. And again, I would just comment on programs like the airline programs had very specific requirements to keep jobs, which was the intent of Congress.

Senator Warren: (01:28:03)
That’s right. And the rest was left up to you. And what you’re saying is that you won’t do it. You know, we’re in a situation where 35 million Americans have filed for unemployment. You’re in charge of half a trillion dollars. You’re boosting your Wall Street buddies and you are leaving [inaudible 01:28:21] people behind. I think that’s-

Steve Mnuchin: (01:28:23)
Senator Warren, I think that’s a very unfair characterization. And these issues were discussed with both Republicans and Democrats at the time. You were not necessarily part of those discussions, but these were completely discussed.

Senator Warren: (01:28:36)
You were given the authority to determine the terms. You’ve said it yourself. You’re putting out term sheets. And those term sheets do not require that a single corporation getting billions of dollars in taxpayer money retain one job.

Speaker 1: (01:28:53)
Senator Purdue.

Senator Purdue: (01:28:55)
Thank you, mister chairman, thank you both for being here today. I look forward to these quarterly updates. Chairman Powell, when you took this responsibility, the fed had about a $5 trillion balance sheet. You work it down to about 3.8. It was about four when the COVID-19 crisis hit. With the money supply increasing from 3.8 to $5 trillion recently, with the debt being at $23 trillion and with about two thirds of what we’ve done so far in the $3 trillion relate package, it looks like it goes to debt and with the potential for more movement by the fed that would take the balance sheet now from $4 trillion, just in March, the five moves you made, takes it up to potentially 13 and a half a trillion dollars. It’s around probably seven trillion today. And it could go north of 14 if in fact main street program is fully levered up.

Senator Purdue: (01:29:51)
Help us understand … I mean, how do you put this genie back in the bottle? Help us understand how you’re thinking about this demand on capital, demand for capital and what it might do to interest rates in the short term and the longterm implications of what we’ve just done. This is not a criticism at all. I’d love to get your thoughts of how we should be thinking about that balance sheet, given that China, Japan, EU all the other big central banks are doing fairly similar moves, just not as dramatically as we have done.

Jerome Powell: (01:30:20)
So when we expand our balance sheet, when we buy securities, as you know, Senator, so we bought a lot of treasury in MBS securities to get those markets working. As these facilities grow, we’ll also expand our balance sheet. And those … That expands the money supply. I would expect that over time, and that time will probably not be very soon, but over time, the assets that we have on our balance sheet from this era will come to maturity. They’ll roll off. And the balance sheet will, again, very gradually return. This’ll be some years down the road, I would think.

Senator Purdue: (01:30:58)
I’ve watched how hard it was to get us down from just 4.1 to 3.8 in the latter stages of that, and the consternation it had both politically and economically. So you’re confident that over time we’ll be able to manage that size balance sheet?

Jerome Powell: (01:31:14)
So what really matters is the size of the balance sheet relative to the size of the economy. And we actually … That came down quite significantly from the end of 2014, until 2017, just by holding the balance sheet constant. So it can be done in a way that is sort of passive and gradual. And it was for about three years now. We came down from, what, 25% of GDP to 16 or 17% of GDP. So it can be done over time. In the meantime, I would say it doesn’t have implications for inflation. It doesn’t have implications particularly for problematic implications. I’m not saying there are no limits to this, but it’s not something that raises financial stability or inflation concerns.

Senator Purdue: (01:31:54)
Secretary Mnuchin, I just want to thank you and echo what Scott said earlier, and that is about your availability through this crisis. I know you’re recently married and I don’t know where your wife is these days sheltering in place, but [inaudible 01:32:09] haven’t seen much of her. Thank you for all your sacrifices making this thing happen. I want to correct the record, that we’ve been told in this meeting that there’s no data out there, but I want to highlight some numbers for us here. First of all, the Dodd-Frank bill killed about 4,000 community banks in about six years.

Senator Purdue: (01:32:26)
There was a bipartisan bill done in January of 2018 that modified the most onerous parts of that and saved our community banks. And they are the rock stars in this process, in the PPP program anyway, and I have a question, secretary. [inaudible 01:32:41] had 800 SBA bank loan or banks were approved under the SBA system prior to this. Some 5,000, almost 5,000 banks made 4.3 million loans and so far have put out $520 billion to companies under 500 employees. And by the way, 99.8% of that 520 billion went to companies with fewer than 500 employees. So it did what we wanted to do. And 93%-

Senator Perdue: (01:33:03)
Employees with fewer than 500 employees. So it did what we wanted to do. And 93% of those loans, or $350,000 or less. My problem is this secretary, is that I think we have two levels, one in the bill itself. And one that is happening now in what we’ve done here, is that we’ve dis-incented people to come back to work. Even now, my state is beginning to open up, and by the way, safely. We have two constituent groups out there, the military and essential workers to look at how they managed their protocols and so forth while they manage through this crisis. It gives me great competence that we can open the economy up.

Senator Perdue: (01:33:36)
The unemployment premium is keeping people from coming back to work there are employers in my state who really want people to come back to work. But they’re saying, “No, why would I do that? I’m going to enjoy this premium right now. And then I’ll… Call me back in a couple of months.”

Senator Perdue: (01:33:48)
The second thing is a lot of small employers actually encouraged a few weeks ago, their employees to go on unemployment, even though they were getting money. And they were hoping that when the revenues starting, when they opened up, they would begin to then bring the people back and then use the loan to pay salaries in that. How would you help us think about… Help us think about how to deal with that? The labor department at one point said they were going to put some rules out about this premium. And the second thing is the enforcement behind if an employer wants an employee to come back to work, that employee should no longer be qualified for employment insurance. Would you address those concerns, please?

Senator Mike Crapo: (01:34:24)
And if you could be brief, please.

Steve Mnuchin: (01:34:26)
Thank you. And let me just say, we are aware of the technical problem here, and we want to have a technical fix on the unemployment insurance. But specifically, let me just comment on the PPP. If you offer back a worker and they don’t take that job, they will be required to notify the local unemployment insurance agency because that person will no longer be eligible for unemployment.

Senator Schatz: (01:34:53)
Thank you.

Senator Mike Crapo: (01:34:54)
Senator Schatz.

Senator Schatz: (01:34:57)
Thank you to all of the testifiers and panelists. Chairman Powell, I want you to take us through two very simple scenarios. The first is if Congress takes no additional action in the next couple of months and the other is if Congress steps into the breach and passes another fiscal policy bill. I know you are loathed to weigh in on specific policy recommendations, but I want you to talk in terms of the overall economy, about the impact on quarters three and four should we decide to say that the bills that we’ve passed are enough?

Jerome Powell: (01:35:42)
I think it really depends on the path of the economy. Honestly, as I said, my concern has been the risk and possibility of longer run damage to the economy through unnecessary insolvencies on the part of households and businesses and longterm unemployment. And that if find ourselves in that place, we may have to do more and it could also be something that Congress would want to do. I think so [crosstalk 01:36:07] go ahead.

Senator Schatz: (01:36:08)
So, according to census data, about half of small businesses are going to run out of cash within a month. States are slowly reopening the economies. But consumer behavior is not going to rebound to normal within a month. Do you think that there’s going to be a strong enough rebound in economic activity in the next one to three months for that alone, from what we’ve already done alone, to prevent thousands of small businesses from going under? Or do you think there is a need for additional fiscal policy?

Jerome Powell: (01:36:40)
So I think we’re going to see here fairly quickly, how the reopening goes. And it’s very hard to know. We haven’t done this thing before. No one’s done this sort of thing before. So I think you were going to be getting a lot of information fairly quickly here in terms of what may be needed. I am reluctant to… I make my comments of fiscal policy at a general level. I am reluctant to talk about timing and specific provisions. It’s really not the Fed’s role. We do try to stick to our netting.

Senator Schatz: (01:37:10)
So why don’t you go ahead. I’ll just give you… I’ll give you an open ended question. Please provide the panel with some comments about the importance of fiscal policy over the next six to nine months.

Jerome Powell: (01:37:22)
So it’s a combination of a couple of things. First, just as I mentioned, the risk of lasting damage to the productive capacity of the economy, through of the labor force, because of longer term unemployment. And through unnecessary avoidable insolvencies on the part of small and medium sized businesses. Those two things create a real risk.

Jerome Powell: (01:37:44)
The other thing I’ll point to is, what we do is we address liquidity problems, not solvency problems. We have lending powers, not spending power. So over time, and this is not a certainty, this is a possibility. Over time solvency problems emerge from liquidity problems. Liquidity can develop into solvency with the passage of time. That all depends on the path of the economy, how well the reopening goes and which path we find ourselves on. So look, I think what Congress has done to date has been remarkably timely and forceful. I think you could say the same about what we’ve done. I do think we need to take a step back and ask over time, is it enough? And we need to be prepared to act further. And I would say we are, if the need is there.

Senator Schatz: (01:38:35)
Seems to me that the distinction between a solvency problem and a liquidity problem applies to big institutions, big corporations, even governments. But when you’re talking about a small business or a family, there’s not much of a difference between having a cashflow problem and simply being flat broke. And it seems to me that, that distinction you are able to make and rightly do, as the head of the federal reserve, is a rather abstract one for the companies that are eight persons and the families that are sort of at economic death’s door. They don’t distinguish between a solvency problem and a liquidity problem. They’ve run out of money.

Senator Schatz: (01:39:23)
Secretary Mnuchin, section four, one, one four, of the Cares Act states that carriers receiving payroll grants, shall quote, “refrain from conducting involuntary furloughs or reducing pay rates and benefits until September 30th, 2020.” But on April 21st, United Airlines received $4.9 billion. And on May 1st United announced that it would reduce 28,000 workers from full time to part time within two weeks. Was that announcement a violation of the terms of the payroll support program?

Senator Mike Crapo: (01:40:01)
And again, please be brief.

Steve Mnuchin: (01:40:02)
Well, we believe right now that they’re in compliance with the program.

Senator Schatz: (01:40:08)
Right now. Were they violating this when they first announced it?

Steve Mnuchin: (01:40:13)
Again, I don’t want to go through specific situations with specific companies. I will say right now, we believe they are in compliance with the agreement.

Senator Schatz: (01:40:22)
Thank you.

Senator Mike Crapo: (01:40:23)
Senator Tillis.

Senator Tillis: (01:40:25)
Thank you Mr. Chairman and Chairman Powell and Secretary Mnuchin. Thank you for your, I think, heroic work. Your team’s done a great job under immense pressure. And I appreciate it. One thing I want to go back to, it was mentioned by some of my colleagues about the CMBS. I liked the fact that the administration expand itself to cover legacy CMBS. I think that’s a good step. I personally believe that commercial real estate is under severe stress and it’s likely to get worse before we start seeing a turn and a more positive growth, that more positive indicators from the economy.

Senator Tillis: (01:41:03)
One thing that I am concerned with Secretary Mnuchin, is right now, it looks like we’ve only got about 15% of from the American hotel and lodging association, about 15% of forbearance’s of any time from the CMBS servicers or service providers. That seems like a low number to me. One, I’d be curious if you think that’s low given the circumstance right now? And then what more we may need to do congressionally to get the servicers and the borrowers to the table?

Steve Mnuchin: (01:41:35)
It does seem a bit low to me as well. We do have a structural problem of loans that are in securitization’s and how they have to be dealt with, with the special servicers. So obviously as it relates to the banks, the banks have much more flexibility, but this is a technical issue and we may need to come back to Congress to work with you on a technical fix.

Senator Tillis: (01:41:58)
Well, thank you. I’d like to hear about that. I think that we need to do it because I’m gravely concerned with the retail shopping, the hotel lodging industry. And those are industries that are largely going to lag behind some of the business startups that we’re seeing in some states. So I’d be interested in your feedback. I was also kind of curious about the TALF program and potentially other areas where we should expand. I’m thinking about new issues CMBSs as installment loans. Have you thought about that? And if you also thought about less than triple [crosstalk 00:09:34].

Steve Mnuchin: (01:42:35)
Well, we’ve thought about all of those. And I would just say, I want to thank the people at the fed and the treasury who have worked around the clock to get these facilities up and running. We’ve prioritized these. But I assure you as the fed chair and I have said, we will look at all of our options to make sure we support jobs across the spectrum.

Senator Tillis: (01:42:55)
I’d particularly be interested. You don’t have to expand on it here, but on new issues. I’m very interested in that to see what you’re gaming out? What do you think is within the realm of possibilities? Chairman Powell do you have anything to add to that?

Jerome Powell: (01:43:09)
No, just our commitment as the secretary suggested to keep our minds open and looking at evolving those facilities, as we learn more.

Senator Tillis: (01:43:18)
Secretary Mnuchin. And I have one question for you, then a final question for the both of you. I’m thinking more about the tax burden right now, middle class households. Do you think any of our future work here should include a treatment for maybe a reduction in the tax burden for middle-class households, and whether or not that would be helpful?

Steve Mnuchin: (01:43:42)
I think that’s something that should be seriously considered.

Senator Tillis: (01:43:44)
Now the final one that I have chairman I’m going to keep to time. I have a growing sense that we have a bit of a donut hole, some businesses that are not quite right for the paycheck protection program because of their size. They’re not quite big enough or the nature of their business to be eligible for the upcoming main street lending facility. So have you all looked at and Secretary Mnuchin, and I appreciate what you said about the eight week cover period. I think there are a lot of mechanics in there and what should be included as a forgivable portion of the proceeds.

Senator Tillis: (01:44:19)
All of that we need to look at. We need to know fairly quickly. We know that covered period is going to take for congressional action. But when we massage the PPP, that may fix the problem for some of these people I describe as being in the donut hole. But are you seeing that now? We don’t have the full information on main street lending act, but I get a sense that there’s going to be some people caught in between. And what are your thoughts about more we need to do there? That final question is for both you and Secretary Powell.

Steve Mnuchin: (01:44:48)
I would say our objective is to make sure that there are people that don’t fall out in between. So between the PPP, the idle loans and the main street program, it is our objective to try to cover as many of those companies as possible.

Jerome Powell: (01:45:05)
In fact, that’s one of the reasons why we went to a smaller minimum loan level on the main street facility in the last turn of the term sheet.

Senator Tillis: (01:45:14)
Thank you, Chairman Powell and Secretary Mnuchin. I also look forward to seeing the main street lending act mobilized in the coming couple of weeks. Thank you. Thank you, Mr. Chair.

Senator Mike Crapo: (01:45:23)
Thank you, Senator Van Hollen.

Senator Van Hollen: (01:45:25)
Thank you, Mr. Chairman, Secretary Mnuhcin, Chairman Powell recently acknowledged the need for additional fiscal relief and just this hearing acknowledged and response to Senator Menendez, that state and local layoffs of police and firefighter, first responders, teachers, will make a bad economic situation, even worse. Do you agree with that assessment?

Steve Mnuchin: (01:45:53)
Well, I’ve recently provided guidance on the 150 billion we sent to the states that they can use that money for police, fire, and first responders without restriction. So I hope there would be no layoffs as a result of that relief. That was our objective.

Senator Van Hollen: (01:46:10)
Right? But in addition to them, so that just moves the burden on the other public service providers, including teachers, healthcare workers, public health care workers. Wouldn’t you agree that layoffs of those workers, or any workers, just takes a bad situation and makes it worse?

Steve Mnuchin: (01:46:28)
I think it does. But I think the question that Congress and the Senate needs to address is who should pay for that, which taxing authority? Whether it’s the states or the federal government. And I look forward to working with the Senate on a bipartisan basis.

Senator Perdue: (01:46:44)
Well Secretary Mnuchin, you said which taxing authority. As you know, states have balanced budget requirements, the federal government doesn’t. We just borrowed $3 trillion. It seems to me, we need to take action here to prevent a bad situation from getting even worse. Let me ask you about the PPP program. A bipartisan group of senators have written and spoken to you about some of the unilateral and unnecessary conditions the treasury regulations imposed on PPP. In fact, the small business administration IG recently said that the 25% limit on forgiveness for fixed costs did “not align with the language in the statute”. Senator [Rounds 01:47:31] just raised another issue, which is a design flaw in the statute in my view, regarding the June 30th deadline for qualifying for full forgiveness. The House, in the Heroes Act reformed both of these provisions. Do you agree with the changes that the House made in the Heroes Act with respect to PPP?

Steve Mnuchin: (01:47:54)
I’m not familiar with their specific language, but I’m happy to look at it. But I do want to comment on the 75% issue and SBA wrote back to the IG to disagree with that. And I’ve spoken to both [Cardin 01:48:08] and Rubio on this approach. The program was designed for eight weeks plus, overhead.

Senator Van Hollen: (01:48:14)
Mr. Secretary, I know what your position is. I just wanted to highlight the position of the Inspector General of the SBA. And in my view, you can’t find that 25% limitation anywhere in the statute. I challenge anyone to take a look and find it there. I would ask you to take a look at the rebuilding main street initiative, that a number of us have put forward. I do think it can get bipartisan support and look forward to your responses there.

Senator Van Hollen: (01:48:42)
Let me turn to Chairman Powell and just say that I believe that overall, the fed has acted quickly and for the most part necessarily and appropriately. But I have serious concerns about the actions you’ve taken with respect to the secondary market facility, with respect to junk bonds. In response to Senator Sasse, you emphasized that at least with the TALF program, you were essentially helping those with AAA rates.

Senator Van Hollen: (01:49:14)
But when you look at the secondary market facility, you have purchased junk bonds. And we have this strange situation where the same day we had unprecedented damage in terms of unemployment numbers. The stock market was in fact going up. And you pointed out that most of the people being hurt are those earning less than $40,000 a year. In fact, 40% of them have lost jobs. And it’s not clear to me why putting money into junk bonds is helping folks on main street. In fact, it puts the public in a first loss position behind even the most subordinated bond holder and uses public funds that take on years and even decades of the future cash flows with the price risk. Can you respond to that concern?

Jerome Powell: (01:50:13)
Thanks, I’d be glad to. So the only so high yield bonds that we can buy are those of companies that were investment grade on March 22, but that have been downgraded, so called fallen angels. These are some, in many cases, very large us companies with many, many thousands of employees. And we made them eligible for the investment grade for the primary market corporate credit facility. And we don’t want to have a cliff there to where the investment grade markets are working well, but the leverage markets or non-investment grade markets are not.

Jerome Powell: (01:50:44)
So we’ve made a very limited narrow set of actions to support market function in those markets, including buying ETFs exchange traded funds, that’s a portfolio and that’s had an effect to improve market function. We may have to be lending money to those companies. But even better, they can borrow themselves now. And a lot of that has been happening and that’s a really good thing. So that’s kind of why we did it. And we it’s a fairly narrow intervention. We’re not buying junk bonds generally across the board at all.

Senator Van Hollen: (01:51:17)
Mr. Chairman, if I could just follow up briefly, I think a lot of those bonds were already in trouble before the intervention and their trouble was not directly related to the pandemic. And if you could get back to me and just show me where the fed has the authority to purchase this kind of lower, below investment grade instruments. I’d appreciate it.

Senator Van Hollen: (01:51:43)
Thank you.

Senator Mike Crapo: (01:51:44)
Senator Kennedy.

Senator Kennedy: (01:51:46)
Chairman Powell, do you believe that states and cities, are going to experience revenue shortfalls as a result of the economic lockdown to try to contain the scrub of the grown virus?

Jerome Powell: (01:52:04)
Yes, Senator, I do think that’s what we’re seeing.

Senator Kennedy: (01:52:05)
Do you think they’re going to be substantial?

Jerome Powell: (01:52:11)
Yes I do.

Senator Kennedy: (01:52:14)
Is your municipal liquidity facility set up?

Jerome Powell: (01:52:21)
Yes, it is. Well we’re probably 10 days away, two weeks away from it actually being operational. Not quite yet then, is the answer.

Senator Kennedy: (01:52:30)
And as I understand it, you basically will buy short term paper, like revenue anticipation notes from the states, which will allow those states to issue that short term paper and a lower interest rate? Am I correct?

Jerome Powell: (01:52:48)
Well, they’ll be able to issue it at all in many cases. So yes, we’re supporting market function there. And by the way, that should support market function across the municipal markets in longer term maturities too.

Senator Kennedy: (01:53:00)
Do you know how many States are prohibited by their constitution from borrowing money to pay for operating expenses?

Jerome Powell: (01:53:09)
I think 49 States have a balanced budget amendment or balanced budget requirement.

Senator Kennedy: (01:53:14)
Yes, sir. But a lot of states have in their state constitutions, they’re prohibited from borrowing money to operate government. They can borrow money to build things, but not to operate government. You’re aware of that?

Jerome Powell: (01:53:30)
Well, I thought most states could, could borrow during the course of a year for maturities of less than a year to smooth out the inflow of cash, revenue anticipation notes, tax anticipation notes.

Senator Kennedy: (01:53:43)
Right. Have you had a lot of inquiries about the municipal liquidity facility?

Jerome Powell: (01:53:49)
Yes, senator, we sure have.

Senator Kennedy: (01:53:51)
Okay. Secretary Mnuchin, do you agree with what the Chairman said?

Steve Mnuchin: (01:54:00)

Senator Kennedy: (01:54:01)
Okay. Well, let me offer you an observation, Mr. Secretary. I’m not expecting you to comment on it. It looks to me like the game plan is to have Senator McConnell, Senator Schumer, Leader McCarthy, Speaker Pelosi, and you, go off and go shake a deal on the next package, if there is one. And then you will bring that deal back to the Republicans and Democrats in both houses. And if the past is any indication, the Republicans and Democrats in both houses, who don’t get to participate in the negotiations will moan and groan and complain and then moo and follow their leaders in the chute like cattle.

Senator Kennedy: (01:54:59)
I’m not sure that’s going to work this time. I think that whatever deal you all come up with is going to receive serious pushback from both Republicans and Democrats in both houses for a variety of reasons. I could of course be wrong, but I doubt it. Why would we not agree to allow the states to use the $150 billion that we have already appropriated to them to address shortfalls in their revenue base as a result of the coronavirus?

Steve Mnuchin: (01:55:47)
Well, Senator Kennedy, I just want to comment on the first thing. I have no intention of doing what you’ve just described, nor do I think I did that in the past.

Senator Kennedy: (01:55:55)
I don’t want to debate [crosstalk 01:55:56] It’s been done in the past. It was done last time. I’m not being critical of you.

Steve Mnuchin: (01:56:03)
In all fairness, Senator, [crosstalk 01:56:04] there were at least 20 or 30 senators, both Republicans and Democrats that participated in the detailed analysis of the last bill.

Senator Kennedy: (01:56:14)
Well, I understand, but there are a lot more members of the House than the Senate. And I’m not being critical. I’m just telling you, that’s the way it works around here and we all know it. Why would you not be supportive? We’ve already spent $150 billion in the Cares Act. The states have it. We know they’re going to have shortfalls. We may not be able to pass another bill. I think it’s less than 50% chance of passing another bill. Why would we not allow states without appropriating any new money, to you use that money to address revenue shortfalls that you and the chairman of the fed both agree are going to exist and be substantial? And why would we not do that today?

Steve Mnuchin: (01:56:59)
Well, Senator Kennedy, I appreciate your bill. And I know I had the opportunity to meet with you and other senators with the president. And if there’s bipartisan support for that, I’m sure that the president and I would look forward to that.

Senator Kennedy: (01:57:15)
What would it take for you to agree to support it? How do I demonstrate bipartisan support?

Steve Mnuchin: (01:57:26)
And again, I think I have a call scheduled with you later today. So I’m happy to talk to you more about it. But again, I think the president, I have said, if there is bipartisan support for this and the money has already been allocated, that is something that I assume we’d very seriously go along with. But again, there has to be broad bipartisan support.

Senator Kennedy: (01:57:47)
Right. How about if there were 60 votes in the Senate? Would you consider that bipartisan support?

Senator Mike Crapo: (01:57:57)
Now would you please be brief?

Steve Mnuchin: (01:57:59)
Again? I would just say I appreciate-

Senator Kennedy: (01:58:01)
How much time do I have?

Senator Mike Crapo: (01:58:02)
You’re a minute and 15 seconds over.

Senator Kennedy: (01:58:05)
I’m sorry. I can’t see my clock.

Senator Mike Crapo: (01:58:09)
We’re going to have to figure that out. Several have had that problem.

Senator Kennedy: (01:58:12)
Could you have him answer that one for me Mr. Secretary, Mr. Chair?

Steve Mnuchin: (01:58:16)
Again, I leave the details to that up to you and the senators there. I appreciate the unanimous support we had previously, but I’ll leave that to you.

Senator Kennedy: (01:58:27)
I’m sorry. I went over Mr. Chairman.

Senator Mike Crapo: (01:58:28)
No problem. Senator Cortez Masto, can you see your clock? Good.

Senator Cortez Masto: (01:58:35)
Thank you for joining us. Let me start with Chairman Powell. Jeremy Powell, interesting conversation you were having with Senator Schatz on the liquidity problems versus the solvency problems. I do know that you have highlighted that some of the sectors, airlines and hospitality, are in rough financial shape because I come from Nevada and it is a hospitality generated state where we get most of our revenue. Can you speak to the challenges that hospitality in terms of tourism sectors face right now?

Jerome Powell: (01:59:11)
Sure. So I think sectors of the economy like that, where the business model is to gather people in one place and entertain them, feed them, fly them around, whatever you’re going to do. Those are sectors where it will take some time for, I think, the public to return. That’ll happen, but it’ll take some time for the public to regain confidence and adapt to the new world and start traveling, taking vacations, going to restaurants, things like that.

Senator Cortez Masto: (01:59:39)
And I’m glad you brought that up. Because that’s one thing that we haven’t talked about was this notion that when we look to open our businesses, and I think we all, in a bipartisan way, that’s what we want. We’ve got to find this balance about opening our businesses in general. But they’re only going to be as successful as the customer confidence that is there to patronize those businesses. And that’s not just true for the hospitality industry. That is true for all businesses. I do know that the service and retail has been hardest hit business and my understanding that some of the data that I’ve seen over 2% of those businesses have closed permanently already. And so how are we to address this consumer confidence issue? Because I know that is something that you’ve thought about and talked about publicly I’ve seen. What should we be doing?

Jerome Powell: (02:00:31)
You know, one thing I’ll say is it affects different sectors of the economy differently. But the ones we talked about are the ones where it’s most important. Other sectors of the economy may be able to do recover much more quickly than that. And we certainly hope so. But the number one thing of course, is people believing that it’s safe to go back to work and to go out. And that’s about having a sensible, thoughtful reopening of the country, something we all want. And it’s something that we’re in the early stages of now. That’s what it will take for people to regain confidence I think, and resume their activities. Again, at a different pace, depending on the nature of the business, the nature of the activity.

Senator Cortez Masto: (02:01:09)
Right. And the healthcare piece of it, right? That they’ll feel safe going back out. If they feel safe that their health… They’re going to be healthy and safe when they go into an establishment. Isn’t that true?

Jerome Powell: (02:01:19)
Yeah. It will be a combination of getting the virus under control, development of therapeutics, development of a vaccine, all of those things. And also just, I think, seeing what your eyes are telling you… People, you can feel it already, people are doing things that they wouldn’t have done two months ago, a little bit at a time. And I just think that process will take time.

Senator Cortez Masto: (02:01:40)
Yeah. And until that happens, many, many people are relying on their local governments and state government as their social safety net. Right? They’re telling them, looking to local government, state government to tell them how they can stay safe if they’re opening businesses, where the healthcare facilities are, how they can get testing that is needed in contact tracing. Isn’t it true that’s where they rely would be on their local governments most often?

Jerome Powell: (02:02:06)
Yes. I think that’s where the decisions will be made is at state and local government. Also businesses, individual businesses. We talked to a lot of businesses and nonprofits and leaders in all those areas. And what I feel like is, certainly for the larger ones, there’s a very thoughtful process going on about this. But ultimately people will make their own minds up. You know, you can change the formal social distancing measures, but ultimately people are going to decide what they should and shouldn’t do with themselves and with their families. And I think that will boil down to having pretty good confidence that it’s safe to go out.

Senator Cortez Masto: (02:02:41)
And I agree with you. And I also know, at least in my state, that many are waiting and relying on their state and local governments to weigh in and help them make those determinations and set those guidelines and make sure their communities are safe. That’s why funding for our state and local governments is so important. And I cannot stress that enough. Not only in the next fiscal package that needs to come into state and local government, but you also touched on it, the municipal lending facility, I would like to see more of that available to smaller populated states and local governments. Nevada has 3 million population. There has to be a way to also give them the opportunity to get the liquidity or the funds that they need to ensure that they’re providing that safety net, that social safety net to consumers in general. I know my time is up. Secretary Mnuchen, I have questions for you as well. I will submit those for the record. Thank you both for joining us today.

Senator Mike Crapo: (02:03:43)
Thank you. Before I moved to Senator McSally, I’ll announce to those remaining that a vote started about 10 minutes ago, and we still have a number left to go. So I ask you to please pay attention to the clock. Sorry that it just turns out this way at the end of these hearings. Senator McSally.

Senator McSally: (02:03:59)
Thank you, Mr. Chairman, Chairman Powell, Secretary Mnuchin. Good to see you virtually.

Martha McSally: (02:04:03)
Chairman Powell, secretary Mnuchin, good to see you virtually. I want to talk about China. As we know, they unleashed this virus on America and the world with their classic communist coverup, deception, continued propaganda campaign, costing now over 90,000 American lives, 35 million Americans losing their jobs so far. We don’t know who patient zero is. They destroyed samples. They silenced doctors. They kicked out journalists, impacted international travel to seed this, and their reckless behavior continues to be the root of all this. As you know, this is why we’re here today. We’re talking about the economy, which was very strong and now really struggling. People all over Arizona are really struggling because of the calamity that’s come from this virus. So I want to, I don’t think anybody, I should say, actually let me just ask. I don’t think either of you think there’s any reason that we should be rewarding China or Chinese state on enterprises or individuals or entities that want China to prosper as we implement these massive initiatives to support the American economy. Is it fair to say neither of you want that to happen?

Steve Mnuchin: (02:05:07)
That’s correct.

Jerome Powell: (02:05:09)
Senator McSally, that’s really not a question for me. We’re [crosstalk 02:05:14] the economic response to this.

Martha McSally: (02:05:16)
I know, but none of us as Americans want to see China or Chinese owned enterprises prospering. So I want to talk about a company called BlackRock. On March 24th, the federal reserve bank of New York retained BlackRock as the financial agent to operationalize and transact with primary dealers in the primary market corporate credit facility and the secondary market corporate credit facility. As you know, these facilities serve as markets for companies to sell bonds and obtain loans during this situation, this downturn. Typically there’s a competitive bidding process, but BlackRock was selected for this one. As you probably know, BlackRock is one of the leading investment banks and Chinese funds, including helping Chinese companies list and go public on American stock exchanges. Chinese companies listed on American exchanges are prohibited or prohibit the public company accounting oversight board, or the PCAOB, from reviewing their audit reports.

Martha McSally: (02:06:14)
On BlackRock’s website, they have a page titled, Five Myths And Realities About Investing In China. According to BlackRock, one of the biggest myths about China is that Chinese state owned enterprises don’t control their economy. BlackRock even tries to back that up with data. I won’t go into all of it, but it’s ridiculous. BlackRock’s ode to China doesn’t mention anything about human rights abuses, military responses to the Hong Kong democracy protests, or even that the country is ruled by a communist party. Ironic that one of the world’s largest investment banks and allegedly a staple of free markets neglects to mention the fact that communists actually run China, and all while refusing to invest in a number of legitimate and legal industries here in America, but that’s a separate issue. So my question is how and why did BlackRock get selected as a financial agent for these facilities? How much money do they stand to make as the agent? And what, if anything, will prevent BlackRock from taking their profits that they earn to invest in their interest in China and Chinese state owned enterprises?

Jerome Powell: (02:07:17)
So I guess I’ll take that. We hired BlackRock for their expertise in these markets. They’re actually an asset manager. They are a very large asset manager, which is active and in the markets that we’re concerned with, with the primary market and secondary market credit facilities. It was done very quickly due to the urgency and the need for their expertise. We will rebid the contract as we would in practice do going forward, and so that’s where that is. The fees are a matter of public record and we’ll be happy to supply those to you.

Martha McSally: (02:07:50)
But what, if anything, can we do to prevent any of their profits from this to actually benefiting China and Chinese state owned companies, which they’re severely invested in?

Jerome Powell: (02:08:04)
I would just say this. All large asset managers buy Chinese securities. These are global asset managers. It’s in no way, I’m not here to defend or criticize them for that. It’s not really relevant to the work we want them to do. What we’re trying to do is create conditions in which US workers can keep their jobs or return to them. And that’s what our sole focus is. We’re not trying to reach out for other public policy objectives or deviate from that. We have really a laser focus on that. And we concluded that this company was the right one to be our fiscal agent in this place. Their views on anything else are really not important. What’s important is that we do everything we can to support [inaudible 02:08:45] in the United States.

Martha McSally: (02:08:48)
Well, let me just say it’s important to all of us, and thank you for all your leadership on this, to support our economy, to support jobs, to get our economy back on track. But it’s also important that we wake up as Americans, that we hold China accountable and that they’re not allowed to profit because of these investments tax payers are made. So I’m going to follow up with you on these issues. I really think BlackRock and others need to also wake up and do their patriotic duty, see what’s going on here. China, communist China should not be profiting off of unleashing this calamity on the world. And that should be something that should unite all Americans, even if they work at BlackRock.

Mike Crapo: (02:09:23)
Thank you. Senator Jones.

Doug Jones: (02:09:29)
Thank you, Mr. Chairman. Quickly I’ll follow up. I agree that we need to hold people accountable, China, the WHO, folks in this administration. Everybody needs to be held accountable if they had deficiencies in what was going on in this pandemic. So secretary Mnuchin, let me say, I saw recently that the treasury is going to begin issuing debit cards for Americans for their direct payments. You will recall that Senator Cotton and I sent a letter shortly after the passage of the CARES Act encouraging that. So I appreciate your willingness to do that. I think it’s going to quickly get money to millions of Americans that haven’t received those direct payments as of yet.

Doug Jones: (02:10:10)
I wanted to also ask you about the payroll protection program. As we’ve talked about a little bit early on in the first round of funding, there were some problems with the banks and there were underserved communities that are not getting their funds. And I think we’ve tried to correct that and doing much better. But the SBA inspector general issued a report in the wake of that, that recommended that the agency start collecting demographic information on who got those loans. Can you commit to work with the SBA administrator to make collecting demographic information mandatory for these PPP loans so that there is that much needed transparency?

Steve Mnuchin: (02:10:52)
Well, I can tell you in the forms that the lenders are required, there is demographic information. We’ve been advised to make that optional and not mandatory, but we very much hope that people provide that. And let me just say, we’re very much committed to make sure that we serve the underserved communities with the money we have left.

Doug Jones: (02:11:15)
Great, thank you. Chairman Powell, I also saw your speech and read your comments, saw the 60 Minutes piece, and it kind of reminds me in listening to some of the comments about this is what Judge Taylor in To Kill A Mockingbird said that people are going to hear what they want to hear, and they’re going to see what they want to see. What I saw is a call to action from that. And one of the things that was talked about, that 40% of the Americans that have lost their jobs and how it’s affecting our minority communities, not only in their health and the disparities, what is being shown a spotlight is the disparities on so many things.

Doug Jones: (02:11:51)
And you mentioned how this pandemic can exacerbate the existing gap of wealth and assets and ownership between minorities and even just poor people in general. We started this pandemic with about 40 million poor people. It’s going to get much better than that. And it’s going to be a cause for racial lines. What can we do to try to narrow that gap, to make sure that the wealth gap does not even get greater as we open back up this economy?

Jerome Powell: (02:12:22)
Well, the job losses that have been happening have been happening in the service economy and particularly in those parts where you’re dealing directly with people, and that is a lot of less well paying jobs and that sort of thing. So if you look at the industries that have been really hard hit with job losses, it’s those industries. It’s restaurants, hotels, it’s travel, things like that, retail. And I recommend, by the way, to have a survey of household economic decision making, which we released annually. We just released it. And that’s where those statistics come from.

Jerome Powell: (02:12:53)
There’s a lot in there, and it is stunning how quickly households get into financial trouble, how little many lower income households have in the way of financial resources. These are longer term problems to deal with. I think for now, this very much calls on us to do what we can to support the economy. And as I mentioned earlier, we have 20 some million people out of work. We want to do everything we can to create a world where they can go back to their jobs or find new jobs. And I think that’s something all of us as policymakers should be strongly focused on.

Doug Jones: (02:13:29)
Well, thank you for that. And it seems to be connected to your comments of also making sure that we keep people in their livelihoods, to keep the unemployment numbers down. I think from our standpoint, we have been focused in on both saving lives and saving livelihoods. And while we don’t want to give folks incentives to stay on unemployment, we certainly do want to give incentives to businesses to open carefully. I would encourage you if you haven’t to look at the paycheck security program that Senator Warner and others and I are going to be filing this week, so that we can give these opportunities, because I’m assuming that the more opportunities we can give employers to keep people on their payroll with benefits, that would aid in opening up the economy safely and trying to keep us from getting into that longterm recession. Would that be fair?

Jerome Powell: (02:14:28)
I’ll be happy to take a look at your material legislation, proposed legislation.

Doug Jones: (02:14:32)
Great. Well, thank you Mr. Chairman. I appreciate the opportunity. Thank you for coming, Mr. Secretary and Mr. Chairman.

Mike Crapo: (02:14:38)
Thank you. Senator Moran.

Jerry Moran: (02:14:40)
Mr. Chairman, thank you. Had I had more time, I would extol the virtues of both the secretary and the chairman and their efforts, their team, their public service during this crisis. In the absence of that time, I hope you understand the sentiments that that sentence expresses. But I want to focus I guess, secretary Mnuchin, we’ve talked about PPP and we’ve seen the consequences, the positive consequences that have come from the program. There are large businesses main street in which the facilities are being developed to assist, but I’m worried about other businesses. I would use an example, not that I’m lobbying for any company, but an example that comes to my mind in Kansas is Yellow Roadway, a trucking company. Employs almost 30,000 people. It is not investment grade. It has leverage. And it is a company that in the absence of assistance, the jeopardy of its employees are significant.

Jerry Moran: (02:15:51)
I think there’s a lot of companies out there like that. I think there’s a number of other companies in Kansas like that. And I want to make certain that we are doing the things that are necessary to prepare to be of assistance to them. I think Senator Toomey and Senator Warner earlier indicated that very few of us expected treasury not to have to take losses, that there needs to be some risk taking here. And I want some kind of assurance that under the before program, before facilities, that these kinds of companies that are hugely important to the economy can receive some assistance with the facilities at treasury and the FED. Secretary Mnuchin, is there some level of comfort I can have?

Steve Mnuchin: (02:16:37)
You have my assurance that we will go back and look at that specific company and see what we can do and get back to you.

Jerry Moran: (02:16:43)
But I hope it’s more than that because it’s not just that company. There’s a number of companies across the country, not just in Kansas, but this is hugely important for us.

Steve Mnuchin: (02:16:51)
Just to be clear, companies like that. And as I said before, we want to make sure that there are facilities that companies don’t fall through the cracks. So between all the different facilities, we’re trying to do as much as we can within our powers.

Jerry Moran: (02:17:05)
Let me suggest to you that timing is of the essence, just as it was in PPP. The circumstances companies face today in lay off and furloughing employees are present and around the corner. So I encourage the precipitous but thoughtful action in addressing these circumstances. Let me see if I can get two other questions in. One, do we have a timeframe, Mr. Secretary, for further guidance regarding PPP loan forgiveness?

Steve Mnuchin: (02:17:38)
There’s some guidance that just came out on, on loan forgiveness that we believe deals with most of the major issues.

Jerry Moran: (02:17:45)
And then the second question, secretary Mnuchin, does treasury and SBA plan to issue guidance that would allow 501-C3 organizations to utilize the alternative size standards for PPP eligibility?

Steve Mnuchin: (02:17:58)
We’re reviewing that specific request. So we’ve had that request and we’re reviewing it carefully.

Jerry Moran: (02:18:03)
Is that something that a decision is close to being imminent?

Steve Mnuchin: (02:18:08)
We’re going to decide one way or another whether we can do that. So, yes.

Jerry Moran: (02:18:13)
Okay. Thank you very much. Thank you, Mr. Secretary. Thank you, Mr. Chairman.

Steve Mnuchin: (02:18:17)
Thank you.

Mike Crapo: (02:18:19)
Thank you. And you get a gold star Senator Moran for yielding back a minute or so. Our final habit [inaudible 02:18:27] Senator questioning is Senator Smith.

Tina Smith: (02:18:30)
Thank you, Mr. Chairman. Thank you, ranking member Brown. And thanks to both of you for being here today. Chair Powell, you’ve talked about how we won’t be able to solve the economic crisis without solving the public health crisis, which I agree with. And secretary Mnuchin, you’ve said that we need to reopen the economy ,and I quote, “in a thoughtful way,” which I also agree with. So it seems to me that a really important part of being thoughtful is to make sure that Americans have accurate information about what’s going on. So I have no doubt that you’ll be surprised to hear that a lot of us were taken back when a couple of, I don’t know, a couple of days or so ago, we heard president Trump’s son Eric Trump acting as a surrogate for his father, say this.

Tina Smith: (02:19:15)
He said, “They think, meaning they, the Democrats, “that they’re taking away Donald Trump’s greatest tool, which is to be able to go into an arena filled with 50,000 people every single time. So that they will, and you watch, they’ll milk it every single day between now and November 3rd. And guess what? After November 3rd, coronavirus will magically all of a sudden go away and disappear, and everybody will be able to reopen.” So this is the kind of misinformation that concerns me greatly. Secretary Mnuchin, are you aware of any evidence that what Eric Trump said, that his assessment is accurate?

Steve Mnuchin: (02:19:52)
I didn’t see Eric’s comments nor do I think in this setting it’s appropriate for me to comment on it one way or another.

Tina Smith: (02:20:01)
Well, I don’t think it’s accurate. And I think it’s exactly the kind of misinformation that is so damaging to our, and undermining of both our economic approaches and our policy approaches here. But let me ask you, secretary Powell, even before the COVID-19 crisis, many Minnesotans were struggling to find an affordable place to live. And last year, I spoke with hundreds and hundreds of Minnesotans and family, community leaders about this challenge, housing developers as well. And they all told us that at every part of the housing continuum, from housing for homeless people and supportive housing all the way up to workforce housing, that this is a significant problem and a significant affordability challenge.

Tina Smith: (02:20:44)
And so now we have this, this coronavirus challenge. So I, along with many of my colleagues on this committee, have been pushing for support for housing, 11.5 billion for homeless assistance, 100 billion for rental assistance and 75 billion to stabilize homeowners. Chair Powell, could you talk a little bit about the importance of the housing sector in our economy right now and what challenges you see ahead for us as we are living through this crisis? And I appreciate what you said, that most important policy objectives should be to keep people in their homes and keep them paying the bills.

Jerome Powell: (02:21:26)
So these are longer running problems, which are of course under particular pressure right now. But as an example, a lot of the jobs are in big urban areas more and more. And that’s where the job creation is. And yet, the cost of living in those places is higher and higher, very high. And often, people who are in the service industries providing their services have to commute very long times to be able to afford to live in a place. And so it’s an issue that’s been with us for awhile. It’s not one really that the FED can affect much other than by affording fair lending laws and things like that. But we can’t really directly affect those, but they are important to our economy.

Tina Smith: (02:22:10)
Well, and I realize that you don’t want to comment specifically on the specific policy issues that we have confronting us here in Congress, but in general, do you see a risk to the housing market as the economy continues to take a downturn in the months ahead?

Jerome Powell: (02:22:28)
Well, I think there are multiple risks. One is just to the extent forbearance doesn’t do the job, you may have people losing their homes. That’s something, given that this is a natural disaster in a way, that’s something that would be great to avoid. You also see the housing industry coming, I wouldn’t say to a halt, but under great pressure and activity being slowly. That’s a lot of jobs right there. So I think really it comes down to sensibly, thoughtfully opening up the economy in a way that builds confidence and keeps people safe. And I think that’s really important that we do that well. And if we do, these other things will take care of themselves over time.

Tina Smith: (02:23:13)
This is an issue that I think we should continue to work on and talk about. The challenges that people will have if they do lose their home, the ripple effect of people not being able to pay their rent or their mortgage, and then the impact that that has all the way up through the housing continuum I think is a great concern. And if you don’t have a safe place to live, then nothing else in your life works. I believe that this is something that’s really important for us to address in the next package. Thank you very much, Mr. Chair.

Mike Crapo: (02:23:39)
Thank you, Senator Smith. And we have also been joined now by Senator Sinema, So she will be the last questioner. She will be with us on audio only. And thank you, Senator Sinema. If you finish in your five minutes, I may make it to the vote.

Kirsten Sinema: (02:23:55)
Well, thank you Mr. Chairman, and thank you to our witnesses for being here today. Everyday Arizonans from every corner of my state are worried about their health and their future. And that’s why my office has doubled our state team to better serve Arizonans during this difficult time. Our goal is to offer top-notch constituent services, connecting Arizona with resources and going the extra mile to ensure they get the assistance they need. I’m glad that we’re having an oversight hearing today because robust congressional oversight is critical to ensuring we know where the CARES Act money is going and how it’s going to be spent.

Kirsten Sinema: (02:24:27)
It’s also vital to ensuring that Arizonans are not stuck in government bureaucracy. I’m focused on cutting through that red tape to help Arizonans. My first question is for secretary Mnuchin. Let’s start with the economic injury disaster loans. I sent you and administrator Carranza a letter on April 17th outlining my concerns with how the administration has run this program. I have not received a response. The CARES Act promises small businesses a $10,000 loan advance within three days of their application. I know Arizonans who went through this process. None of them got their loan advance within three days, and no one received the full $10,000. Why aren’t they getting that full amount and why aren’t they getting it on time?

Steve Mnuchin: (02:25:11)
Well, first of all, let me just apologize that you haven’t received a response. I will look into that after this and get back to you. As it relates to the EIDL program, again, that’s within the SBA, but let me just comment that the SBA had significant systems issues getting the EIDL program up and running. I thought the grants were doing much better than the loans. So I’ll follow up and look at that. On the loans, they’re rebuilding the entire system because I think, as you know, we have over five million loans to process, but we will follow up with you.

Kirsten Sinema: (02:25:42)
As you know, the SBA internally changed the policy of EIDL to only issue $1,000 loan advances per employee, up to 10,000. The original plan was $10,000 per company. Who authorized the change, and why was it made?

Steve Mnuchin: (02:25:57)
I believe the SBA administrator made that change, and I believe her thought on that was that there was limited money and try to spread it out amongst as many companies as possible.

Kirsten Sinema: (02:26:11)
And she did not think to herself, let’s go back and ask Congress to authorize more funding to pay for that, which they appropriated and called for in the legislation?

Steve Mnuchin: (02:26:23)
Well, there was additional money in the second phase and we appreciate that Congress reacted to that.

Kirsten Sinema: (02:26:30)
Okay. But secretary, my question is the SBA made this internal change without getting authorization from Congress. And if they’re saying they did it because they didn’t have enough money, we then gave more money and they still haven’t used it to give that money to people as promised as the $10,000 in the original legislation.

Steve Mnuchin: (02:26:49)
Right. As I said, I’m more than happy to follow up with you. I’m not involved in some of the direct specifics of that. So let me follow up with your office.

Kirsten Sinema: (02:26:59)
I appreciate that, secretary. The last thing I’ll say about the EIDL loan, my office is right now working on over 300 outstanding EIDL cases. Some of them are dating all the way back to early and mid March. Can your team commit to [crosstalk 02:27:13] get these cases moved through quickly?

Steve Mnuchin: (02:27:16)
I commit we will work with the SBA to follow up. That’s not acceptable. So we’ll follow up with the SBA with you.

Kirsten Sinema: (02:27:24)
I appreciate that. I have some questions about the paycheck protection program as well. Small business owners in Arizona are asking for guidance on how the loan forgiveness works, and the lack of guidance has made it difficult for small businesses to plan. We received some guidance last Friday and there’s more still to come. Could you tell me why it’s taking so long to get guidance for small businesses on the loan forgiveness aspect of PPP?

Steve Mnuchin: (02:27:49)
Well, just a comment. I think you know this was a very complicated program that we set up in a short period of time. I thought that the guidance we put out dealt with all the issues, but if there are specific issues that you’re hearing from, we will follow up with you and provide that clarity.

Kirsten Sinema: (02:28:05)
I appreciate that. We would like to follow up specifically. As you know, the application to get your PPP loan was only one page long, but the forgiveness application is 11 pages long, and according to my staff requires a minimum of three hours to complete. This is a real problem for mom and pop shops in Arizona. What efforts can we offer to assist small businesses in filling out the complex form?

Steve Mnuchin: (02:28:32)
Well, I can assure you, I spent a lot of time on the complexity that we tried to get it as short as we could under the requirements of the law. I hope it doesn’t take three hours for small business, but again, we tried to make it as short as possible.

Kirsten Sinema: (02:28:45)
I appreciate that. Mr. Chairman, I see that my time has expired. I would like you to make it to the vote. I have many more questions. I’ll submit some of them in writing. Thank you so much, Mr. Chairman.

Mike Crapo: (02:28:55)
Thank you, Kyrsten. I really appreciate that. And I understand Senator Brown wants to make a 60 second statement. You can do so, please.

Sherrod Brown: (02:29:03)
I will do 60 seconds. Thank you, Mr. Chairman, another successful hearing. Thank you, chair Powell and secretary Mnuchin. I wear on my lapels, I’ve said before, a pin depicting a canary in a bird cage instead of the official senate pin. You all know the story, the mine workers took the canary down in the mines to warn of poisonous gas. You didn’t have a union strong enough to protect them in those days or a government that cared enough. That’s why we had the New Deal with worker protections and public health. Now, a century later, it’s starting to feel like we’re back in the mines. Millions of American workers don’t have a union to protect them after decades of corporate attacks.

Sherrod Brown: (02:29:40)
And based on the responses we’ve heard today and what we’ve heard especially from the president over the past few months, it seems that once again workers don’t have a government that cares enough to protect. I mean, look at how the administration treats essential workers, women, especially African American, Latina workers, putting their lives on the line. Look at who they’re willing to spend money on. This administration tells us everything we need to know. That’s why Congress needs to stand up for workers. That’s why workers need unions. So we can fight back for economic security and safety protections and the dignity they deserve and for American values. So Mr. Chairman, thank you for allowing me the last minute or so.

Mike Crapo: (02:30:20)
Well, thank you. And I also want to thank you, Senator Brown, for your cooperation on working with us to have this hearing and help it to work out. I appreciate the cooperative way in which we have been able to work on these hearings. I do disagree with the notion that our secretary and our chairman here are not working very hard to make sure that their support we have voted on gets out to those very people, those who have these lower paying jobs, those who are in the service industry, the small businesses, the medium sized businesses and those places that will be needed to stand up our economy as we have the opportunity to do so. So we may have a different point of view on that, but I do appreciate your support in helping me get this hearing set up and working.

Mike Crapo: (02:31:11)
And to our witnesses, secretary Mnuchin, chairman Powell, I again appreciate your cooperation and work with me as we’ve put together this hearing. We are plowing new ground here in the senate as is happening across this nation while we deal with COVID-19, and your cooperation and working to get us through this hearing and get your report to us is deeply appreciated. With that, I will say that for senators who wish to submit questions for the record, those questions are due on Tuesday, May 26th. And I ask you, our witnesses, to respond to those questions as quickly as possible. Again, thank you-

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