Sep 22, 2020

Transcript: Mnuchin, Powell Testimony on Treasury Dept. & Federal Reserve COVID-19 Response

Transcript: Mnuchin, Powell Testimony on Treasury Dept. & Federal Reserve COVID-19 Response
RevBlogTranscriptsCongressional Testimony & Hearing TranscriptsTranscript: Mnuchin, Powell Testimony on Treasury Dept. & Federal Reserve COVID-19 Response

Sec. Steve Mnuchin and Fed. Chair Jerome Powell testified before the House on the Federal Reserve and Treasury Department’s COVID-19 responses. Read the transcript of the full September 22 hearing below.

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Rep. Patrick McHenry: (00:00)
Has been a fierce advocate for her principal’s perspective in negotiations. She is not wavered in her view, but her view being the chairwoman’s view, but at the same time being cordial enough to have a conversation and maintain relationships, that is a priceless bit of art that is representative of Lisa’s character. And we are grateful that, Lisa, that we’ve been able to work with you. We wish that we had been more successful in our negotiations with you personally, but it is due to your talent, it is also due to your knowledge.

Rep. Patrick McHenry: (00:46)
So we thank you for your service to your country, to our country, to this institution, and to this committee. And I know committee Democrats, especially, we’ll miss you, committee Republicans, won’t miss you quite as much, but we’re certainly grateful for the relationship that we’ve all been able to have with you, Lisa. And so congratulations to you on your son and your new family, and we hope that your time away will be but temporary from public service, but thank you for your service to your country and this institution. I yield back.

Rep. Maxine Waters: (01:29)
Thank you very much, Mr. Ranking member. This hearing is entitled Oversight of The Treasury Departments and The Federal Reserve’s Pandemic Response. This hearing is the committee’s second quarterly hearing required by the CARES Act for oversight of the various facilities and programs under the act. I now recognize myself for four minute to give an opening statement. So welcome back Chair Powell and Secretary Mnuchin. Since you last testified before this committee in June, the Coronavirus crisis has continued to have a catastrophic impact on communities across the country. Nearly 200,000 people in the United States have lost their lives to the Coronavirus, and there have been over 6.8 million U.S. cases.

Rep. Maxine Waters: (02:23)
Millions of families are struggling to make ends meet during this crisis and are on the verge of eviction. Over a million small businesses, which are the lifeblood of our economy have shut their doors, as families across the country are looking to Washington for leadership. The Trump administration has utterly failed in its economic response to this virus, with 32% of renters unable to make their full September rent payment at the beginning of the month, according to Apartment List, and back rent piling up. The need for emergency rental assistance to prevent a crushing wave of evictions is growing every day.

Rep. Maxine Waters: (03:07)
Instead of rental assistance, the Trump administration has issued a Centers for Disease Control and Prevention action that temporarily forbids evictions for some renters, but only after they signed documents that potentially expose them to litigation and criminal penalties. Meanwhile, the unpaid back rent continues to accrue, meaning that the Trump administration is simply delaying, not preventing, evictions. The HEROES Act, which passed the House in May to prevent those evictions and provide other critical relief is gathering dust on Mitch McConnell’s desk.

Rep. Maxine Waters: (03:49)
I said before that I’m pleased that after calls from members of this committee, the Treasury and small business administration made adjustments to the paycheck protection program to ensure that community development, financial institutions and minority depository institutions are able to provide loans to the communities they serve. And I appreciate that the Federal Reserve has expanded several programs, but I’m frustrated with the Trump administration’s implementation of the pandemic relief programs based on the concerns I continue to hear.

Rep. Maxine Waters: (04:26)
Specifically, I’m very concerned that much of the 500 billion Congress allocated in the CARES Act to Treasury, most of which was to support bad lending, to help really businesses non-profits, State and Local Governments as going unused. Almost six months after the passage of the CARES Act, a mere 0.2% of Main Street Lending Program Funds, and 0.3% of Municipal Liquidity Facility Funds have been put to use. This is unacceptable. Secretary Mnuchin, Chair Powell, let me be blunt, this pandemic response has fallen badly short, and the Trump administration has severed ties to efforts to pass the relief package or address the major public health and economic crisis we face.

Rep. Maxine Waters: (05:20)
Your work to adjust this crisis doesn’t stop when the stock market recovers from its losses, your mandate is to help hardworking individuals and families who have suffered. Before I close, let me just say that I just learned today that there are 40,000 students that have been infected with the virus, that shakes me, and we still have people who are forcing schools to open and not do distance learning. I don’t get it. And I didn’t know until today that that many students had been infected. So I’m very, very concerned. I new recognize the Ranking Member of the committee, the gentleman from North Carolina, Mr. McHenry, for four minutes.

Rep. Patrick McHenry: (06:02)
We all know that testing, treatment and therapeutics need to come online for a full economic recovery. That is moving at pace, and an unprecedented pace, I would say, not just globally, but here in the United States with great innovators, and the coordination between the public sector and the private sector has been the best it’s ever been in generations. And this administration through response to this unprecedented pandemic, this Federal Reserve’s response to this unprecedented pandemic is top notch. It is fantastic. The delivery that Secretary Mnuchin was able to provide on PPP, which supported 51 million jobs and issued over 5 million loans to small businesses impacted by COVID. That was the direct intervention of the Treasury Secretary and his team at Treasury.

Rep. Patrick McHenry: (06:57)
The Federal Reserve stood up more facilities and a six month period of time than they did in the fullness of the financial crisis. They stood up more facilities than they didn’t decades prior to this pandemic. So I would give the Federal Reserve an A-plus for its initial response and to where we are. And just because Congress can’t get its act together and compromise, seeing to see a way through so we can provide those people that are still hurting because of this voluntary shutdown of our economy, because of this health crisis. We need to give those people relief and we need to come to terms. That means that Democrats and Republicans need to move to the middle.

Rep. Patrick McHenry: (07:41)
And I would commend Secretary Mnuchin for his negotiations and his willingness to move the ball forward on behalf of the American people, even in the midst of the crazy politics that we’re currently experiencing and people shouting in the streets, and threatening violence, because they don’t like political perspectives. So I would commend him for being willing to negotiate where others have walked away, like Speaker Pelosi and Leader Schumer, and saying 3 trillion is all we going to accept and nothing less is completely unacceptable. We need to actually find compromise to support those people that are still out of work because of this global health pandemic.

Rep. Patrick McHenry: (08:26)
Quite frankly, in that bill Democrats would rather be all Blue States, and hold out for that rather than help people that are still out of work because their jobs are shut down. Let me finish with this. What we saw at the end of last year was the best economy of our lifetimes. We had a Household Wage growth at almost 7% in 2019. Households were feeling wealthy for the first time in a very, very long time in my State of North Carolina and across the country. We need to do that again. We know that we’re in the midst of this health pandemic. We know that the therapeutics are coming online, treatment techniques are much better than they were at any time since March. And those things are coming along, and maybe there’ll be a vaccine maybe, but we need to have treatment, and we need to have testing at wide scale so that people can get back to some semblance of economic life.

Rep. Patrick McHenry: (09:34)
What I would like to hear today is a limit to the Federal Reserve’s actions and activities, and where Congress should act, because monetary policy simply cannot do the same thing that fiscal policy can. And on the fiscal side of the House, Secretary Mnuchin, I’d like to hear the economic plan from this administration on how we get past, when we get past this awful, awful scourge of COVID, what that economic recovery must entail to get people back in the position they were in, in 2019, or even in January or February of this year. I think there’s a good story to tell, and a hopeful story to tell if we can work together and get things done. And so reporting your testimony, I yield back.

Rep. Maxine Waters: (10:20)
I now recognize the Chair of the subcommittee on Oversight and Investigation, Mr. Green, for one minute.

Rep. Al Green: (10:27)
Thank you, Madam chair. Madam chair, I would like to associate myself entirely with your [inaudible 00:10:32], and I would only add this, that these stimulus, the economic impact statements must be made because the rent must be paid. Yesterday, the GAO reported that the Treasury Department likes to date information on the number of eligible recipients who have yet to receive their EIP economic impact payments. This new GAO report follows previous GAO projects dating back to May 2020, that persons not in the traditional important relationships, such as those working in the gig economy, maybe missing from the RSEIP Outreach. With none of this data, it is very difficult to know who’s being left behind and there may be millions in the number.

Rep. Al Green: (11:19)
I say again, the rent must be paid, hence the EIP payments must be made. If we do not do this, we will put persons at risk of being evicted at a time when we’re having a pandemic that is still taking lives in this country. I do believe that this can be done, but I do know that we must have more help to make sure that the rent is paid. The EIP payments are already there, they’re funded. We need to make sure that the people who need them will get the funds. I yield back.

Rep. Maxine Waters: (11:58)
I now recognize the Subcommittee’s Ranking Member, Mr. Barr for one minute.

Rep. Andy Barr: (12:03)
Thank you, Secretary Mnuchin and Chairman Powell for appearing before the committee today, and for your continued efforts to combat the economic fallout from the COVID-19 pandemic. Treasury and the Fed acted swiftly to stabilize the economy, keep businesses open, ensure the continued operation of the credit markets and promote longterm recovery. Since you last appeared before this committee to testify on the CARES Act implementation, the economy has improved, unemployment has decreased, nearly half of the jobs lost in the early days of the pandemic have been added back to the labor market, and our economy is safely reopening. We are on the road to recovery.

Rep. Andy Barr: (12:40)
Policies, put into place by Treasury and the Fed, and actions you both have taken during this crisis, put the economy on a more stable footing. However important sectors of our economy, including hospitality, conventions, entertainment, retail, and commercial real estate remain in distress. And there are elements of your responses to the pandemic that could still be adjusted as we move forward. I look forward to discussing those today and hearing your plans to implement a strategy for long-term economic growth. Thank you.

Rep. Maxine Waters: (13:12)
I want to welcome today’s witnesses to the committee. First, I want to welcome Stephen T. Mnuchin, secretary of the Treasury. He has served in his current position since 2017. Mr. Mnuchin has testified before the committee on previous occasions, and I believe he does not need any further introduction. I also want to welcome our other distinguished witness, Jerome Powell, Chair of the Federal Reserve System. He has served on the board of governors since 2012, and its chair since 2017. Chair Powell has testified before the committee, and I believe he also does not need any further introduction.

Rep. Maxine Waters: (13:57)
Without objection, your written statements will be made part of the record. Each of you will have five minutes to summarize your testimony. When you have one minute remaining, a yellow light will appear, at that time, I would ask you to wrap up your testimony so we can be respectful of the committee members time. Secretary Mnuchin, you are now recognized for five minutes to present your oral testimony.

Sec. Steven Mnuchin: (14:24)
Thank you, Chairwoman Waters, Ranking Member McHenry, and members of the committee. I am pleased to join you today to update you on how the Department of the Treasury and the Federal Reserve have been partnering over the last six months to provide relief for American workers and liquidity to credit markets, business, nonprofit organizations, State and Local Governments and households. We are fully committed to getting every American back to work as quickly as possible. America is in the midst of the fastest economic recovery from any crisis in the U.S. The August jobs report showed the economy has gained back 10.6 million jobs since April, nearly 50% of all jobs lost due to the pandemic. The unemployment rate decreased to 8.4%, a notable achievement, considering many people thought it could get as high as 25%.

Sec. Steven Mnuchin: (15:14)
Thanks to the programs provided by the CARES Act, we never got close to that figure. I believe we will see tremendous growth in the third quarter, fueled by strong retail sales, housing stats, home sales, manufacturing growth, and increased business activity. The September blue-chip survey projects close to 24.24% for third quarter GDP. The recovery has been strong because the administration and Congress worked together on a bipartisan basis to deliver the largest economic relief package in American history. The Federal Reserve has been instrumental to the recovery by implementing 13 unique, 13(3) lending facilities.

Sec. Steven Mnuchin: (15:55)
Economic reopenings combined with the CARES Act have enabled us to have an economic rebound, but some industries particularly hard bit by the pandemic require additional relief. The President and I remained committed to providing support for American workers in business. We continue to work with Congress on a bipartisan basis to pass a phase four relief program. I believe a targeted package is still needed and the administration is ready to reach a bipartisan agreement. Treasury has been working hard to implement the CARES Act with transparency and accountability. We’ve released a significant amount of information on our website, treasury.gov and USAspending.gov. We have released more information than was required by the statute.

Sec. Steven Mnuchin: (16:40)
The Federal Reserve has also posted information on its website regarding the lending facilities. We have provided regular updates to Congress marking my sixth appearance before Congress for our CARES Act hearing. We are cooperating with various oversight bodies, the new Special Inspector General, the Treasury Inspector General, the Treasury Inspector General for tax, the new Congressional Oversight Commission and the GAO. We appreciate Congress’s interest in these issues and devoted significant resources to responding. We remain committing to working with you to accommodate Congress’s legislative needs and further whole of government approach. I’d like to thank the members of the committee for working with us to provide economic support to the American people. Thank you.

Rep. Maxine Waters: (17:25)
Thank you, Secretary Mnuchin. Chair Powell, you are now recognized for five minutes to present your oral testimony.

Chair Jerome Powell: (17:39)
Thank you, Chairwoman Waters, Ranking Member McHenry, and other members of the committee. Thank you for the opportunity to update you on our ongoing measures to address the hardship brought by the pandemic. The Federal Reserve, along with others across government is working to alleviate the economic fallout. We remain committed to using our tools to do what we can for as long as it takes to ensure that the recovery will be as strong as possible, and to limit lasting damage to the economy. Economic activity has picked up from its depressed second quarter level, when much of the economy was shut down to [inaudible 00:18:14] the spread of the virus.

Chair Jerome Powell: (18:16)
Many economic indicators show marked improvement. Household spending looks to have recovered about three quarters of its earlier decline, likely owing in part to Federal Stimulus Payments and expanded unemployment benefits. The Housing sector has rebounded, and Business Fixed Investment shows signs of improvement. In the Labor Market, roughly half of the 22 million payroll jobs that were lost in March and April have been retained as people return to work. Both in employment and overall economic activity, however, remained well below their pre pandemic levels, and the path ahead continues to be highly uncertain. [inaudible 00:18:51] has not fallen equally on all Americans, those least able to bear the burden have been the most effected.

Chair Jerome Powell: (18:56)
The rising joblessness has been especially severe for lower wage workers, for women and for African-Americans and Hispanics. The reversal of economic fortune has upended many lives and created great uncertainty about the future. A full recovery is likely to come only when people are confident that it is safe to reengage in a broad range of activities. The path forward will depend on keeping the virus under control and on policies, policy actions taken at all levels of government. Since mid-March, we’ve taken forceful action, implementing a policy of near zero rates, increasing asset holdings and standing up 13 emergency lending facilities. We took these measures to support broader financial conditions, and more directly to support the flow of credit to households, businesses of all sizes, and state and local governments.

Chair Jerome Powell: (19:46)
Our actions taken together have unlocked more than a trillion dollars funding, which in turn has helped keep organizations from shuttering, putting them in a better position to keep workers on and to hire them back as the economy continues to recover. The Main Street Lending Program has been of significant interest to this committee and to the public. Many of the businesses affected by the pandemic are smaller firms that rely on banks for loans rather than public credit markets. Main Street is designed to facilitate the flow of credit to small and medium-sized businesses.

Chair Jerome Powell: (20:18)
In establishing the facility, we conducted extensive outreach, soliciting public comment and holding in-depth discussions with lenders and borrowers of all sizes. In response to feedback, we’ve continued to make adjustments to Main Street, to provide greater support to small and medium-sized businesses and to nonprofit organizations such as educational institutions, hospitals, and social service organizations. Nearly 600 banks representing well, more than half of the assets in the banking system have either completed registration or in the process of doing so. About 230 loans, totalling roughly $2 billion, are either funded or in the pipeline.

Chair Jerome Powell: (20:56)
Main Street is intended for businesses that were on a sound footing, pre pandemic, and that have good longer-term prospects, but have encountered temporary cash flow problems due to the pandemic and are not able to get credit on reasonable terms as a result. Main Street loans may not be the right solution for some businesses, in part, because the CARES Act states clearly that these loans cannot be forgiven. Our credit facilities have improved lending conditions broadly, including for potential Main Street borrowers. The evidence suggests that most credit worthy small and medium-sized businesses can currently get loans from private sector, financial institutions.

Chair Jerome Powell: (21:34)
Many of our programs rely on emergency lending powers that required the support of the Treasury Department, and are available only in unusual circumstances. By serving as a backstop to keep credit markets, our programs have significantly increased the extension of credit from private lenders. However, the facilities are only that, a backstop. They are designed to support the functioning of private markets, not to replace them. Moreover these are lending, not spending powers. Many borrowers will benefit from these programs as will the overall economy, but for others, a loan that could be difficult to repay might not be the answer. And in these cases, direct fiscal support may be needed. Our economy will recover fully from this difficult period. We remain committed to using our full range of tools to support the economy for as long as is needed. Thank you.

Rep. Maxine Waters: (22:26)
Thank you very much Chair Powell. I now recognize myself for five minutes for questions. I’m very appreciative Chair Powell of the exclamations that you’re given in anticipation of all of the questions that we have about Main Street and other facilities. Earlier this month, our committee held the hearing [inaudible 00:22:52] Federal Assistance to State and Territorial Governments. Although each of the State governors at that hearing can borrow through private markets at more attractive rates than the municipal liquidity facility currently offers. They have earned the need to keep the facility as an option in the future, and the Guam Governor urged the Fed to make the facility available to territories.

Rep. Maxine Waters: (23:19)
The Republican witness, Dr. Holtz-Eakin, a former Congressional Budget Office Director and Staff Economists for President George H. W. Bush’s council of advisors said, and I quote, “The mystery to has been the performance of the Treasury in using, essentially, half a trillion dollars to backstop their facilities, including the municipal liquidity facility. This seems under utilized in my eye, and I don’t fully understand why that hasn’t happened. That is something that can and should be more aggressively used.” So Secretary Mnuchin, at a time when a wide range of businesses have been frustrated that they have been able to access their facilities again, like the Main Street Lending Program, and we’ve heard the excuses that were given for that, and we have Republican and Democratic State governors pressing for more assistance. Do you agree there is more that Treasury can do with the 500 billion Congress provided you to enhance these Fed facilities to support the economy?

Sec. Steven Mnuchin: (24:32)
I unfortunately think there’s not more we can do, and that part of the reason we agreed, if there’s potential legislation, is to reallocate that money to better use. Almost every single one of the facilities has extra capacity. I think that in the case of many businesses that haven’t been impacted by the virus, they’re able to borrow in the private markets. As it relates to Main Street, we’ve worked very hard with the Federal Reserve to roll out this program, it’s based upon underwriting from pre-pandemic, and I know there’s been some questions, we do expect to take losses on that. And we’re working closely with the Fed on that facility.

Rep. Maxine Waters: (25:14)
Secretary Mnuchin, of the 600 billion available through the Main Street Lending Program, only about 1.2 billion has gone out the door to 118 companies. Will Treasury object to the Fed eliminating the Main Street Lending Programs, minimum loan threshold of 250,000 so that small businesses and minority owned businesses who need smaller loans can access the program. Let me just say I’m appreciative of it because when we started out, when they first rolled out with the Main Street Program, the minimum requirement for the loan was 1 million, and you did reduce that to 250,000. I’m asking, can you go further in the reductions so that the loans can be made to smaller businesses, Secretary Mnuchin?

Sec. Steven Mnuchin: (26:08)
I’d be fine lowering that to a $100,000, and we’ll consult with Chair Powell afterwards on lowering it.

Rep. Maxine Waters: (26:17)
Chair Powell?

Sec. Steven Mnuchin: (26:19)
So there’s very little demand in the facility below a million dollars. There isn’t much interest at all below a million dollars. So this would have to be a different facility, it wouldn’t look like Main Street. I think extending credit in those small, small quantities would require a facility built from the ground that would be quite different than Main Street, it wouldn’t have the same requirements. But we can talk that. It wouldn’t look like the current Main Street facility though, it’s just a very different kind of a thing.

Rep. Maxine Waters: (26:49)
Well, I’m aware of how the Main Street facility was formulated, was created for the mid-sized businesses, and also I’m very much aware that they have to repay those loans, but we have so many small businesses still eligible for PPP and beyond, and certainly they would repay those small loans that they could get. It’s not that they are absolutely looking to have the loans wait. So you think that something can be done?

Sec. Steven Mnuchin: (27:25)
It’s possible. I really do, though, think that this is more appropriate for PPP loans, which are in the nature of grants. I think that’s a better way to approach these. Trying to underwrite the credit of hundreds of thousands of very small businesses. It would be very difficult, and I think PPP is a better way to approach that space in the market, and I think you were well advised to use that.

Rep. Maxine Waters: (27:51)
Thank you. I now recognize the distinguished Ranking Member, Mr. McHenry, for five minutes for questions.

Rep. Patrick McHenry: (27:56)
Thank you, Madam chair. So Secretary Powell, let’s begin here. So in the Federal Reserve’s own data, we see that there is a substantial economic recovery happening. We see economic numbers improving, and we have many households that are about the same as they were, a little better off in terms of savings in back at the beginning of the year, but we see many households much, much worse off. And so it’s sort of a tale of two different recoveries, if you will, are two different experiences of this page. So while we see good economic numbers, what are the areas that you see as needing further assistance? What areas of our economy do you see as needing further assistance to get us back to something more normalized given where we are with COVID?

Chair Jerome Powell: (29:03)
I guess I would point to the labor market to capture the size of the issue. We still have 11 million people out of the 22 million who were laid off in the payroll numbers in March and April, still 11 million out there. And that’s really good progress, we’ve put fully half of those back to work, but that’s a long way to go. That’s more people than lost their jobs during the global financial crisis, as I’m sure you know. So there’s a lot of work to do there, and our policies will support that, but it will go faster for those people if it’s all of government working together.

Rep. Patrick McHenry: (29:38)
Meaning that there is a fiscal response to help support the economy for those most effected by COVID, economically affected by COVID.

Chair Jerome Powell: (29:51)
Yes. Now of course, the details of that are between Congress and the administration, not for the Fed to say, but I do think that the recovery will go faster if we have both tools continuing to work together as they have so far, I think, worked very well together.

Rep. Patrick McHenry: (30:06)
Thank you. Secretary Mnuchin, there’s much that’s been made up here on Capitol Hill about your negotiations on another CARES package. Like we pass back in March, that you negotiated. You’re the lead administration negotiator on that package, which I think from all sources, it was a very solid piece of bipartisan legislating, and I want to commend you for being the administration’s voice and negotiator on that project. And I think we’ve got good results from the programs that you were then able to set up in coordination with the Fed. Now, along those lines, what are the components for the next package that we need to take to support the economy, to get things back going again?

Sec. Steven Mnuchin: (30:56)
I think the next package should be much more targeted. It should be focused on kids and jobs, and areas of the economy.

Sec. Steven Mnuchin: (31:03)
It should be focused on kids and jobs and areas of the economy that are still hard hit, particularly areas such as the travel business and others, restaurants. I think there’s broad bipartisan support for extending the PPP to businesses that have had revenue drops for a second check. I think small businesses are a large priority of that.

Rep. Patrick McHenry: (31:23)
Okay. So focused on small business and family support, and so that would be a strong foundation for this. Okay. Now, so let me ask you both this. So treatment, therapeutics, massive scale testing. I mean we are getting up to speed with some really first rate testing across the country and getting kids back in school in a safe way. Those things are sort of foundations for us getting the economy going to the next degree. It’s not all going to be fiscal policy or monetary policy to get people back in restaurants again. It’s not government regulation. It’s going to be people’s decisions of whether or not to engage in many ways, similar to getting on airplanes. So along those lines, do you see the capacity for us to get to a full economic recovery, Secretary Mnuchin?

Sec. Steven Mnuchin: (32:20)
I do. I think it’s just a question of time, and I would just highlight, we’re extremely pleased. We’ve committed to 150 million point of care tests with Abbott that will be delivered between now and the end of the year, and we’re working with other parties to deliver comparable amounts of point of care testing with instant results.

Rep. Patrick McHenry: (32:41)
So that’s instant results, and those are very low cost tests, are they not?

Sec. Steven Mnuchin: (32:46)
That is correct.

Rep. Patrick McHenry: (32:47)
All right. So thank you all for your testimony. Thank you for being here today. Thank you for your leadership in the midst of this, and I know we’re still deeply in the midst of it, of the economic effects of COVID, and I want to thank you all for being there, both with the life insurance policy and with the water to put out the flames. You’ve worked in good stead on behalf of the American people. Thank you both.

Rep. Maxine Waters: (33:13)
The time of the gentleman has expired. I now recognize Mr. Himes of Connecticut for five minutes.

Jim Himes: (33:22)
Thank you, Madam chair, and thank you, gentlemen, for being here. I’m going to pick up on what the ranking member just said about the insurance policy. My time in Washington is bracketed by bail out. Right before I got here, we passed the tarp, which led to a massive bailout of the financial services industry, and of course a bailout of the auto industry, and now through cares, we’re bailing out the airlines, we’re bailing out businesses, large and small. The government is very, very much in the business of bailout. I would point out to my friends on the Republican side, that all of those bailouts were promoted and passed and promulgated by Republican presidents. They might just bear that in mind as they accuse my party of being socialists, but that’s a conversation for a different day. Secretary Mnuchin, I had the opportunity to talk to chair Powell about this. I want to talk with you about bailouts. I’d like to believe that we could do fewer rather than more. I don’t like the idea of business managers large and small thinking that every five, seven, 10 years the federal government will bail them out of liquidity crises or whatever it might be.

Jim Himes: (34:22)
I also like the idea, as long as we’re going to do these things, that the American public be compensated for the use of their funds for private and commercial purposes, and I admire your efforts to get warrants and make sure that the American public is compensated, but there’s a funny hostage situation that developed. When I proposed that on a caucus call, I instantly got calls from labor unions and the airline industry saying, “No, if you make the money cost anything, they won’t take it, then they will fire us.” That feels to me like a hostage situation. Give me the money for free, or we will not take it and we will fire people. So Mr. Mnuchin, I’d love to give you much of the rest of my time. What do we need to do structurally to get out of the business of bailouts? And number two, how can we get out of this hostage situation in which I think you actually worked very, very hard, where the American people are being compensated fairly for the use of their money for private purposes?

Sec. Steven Mnuchin: (35:25)
Well, first of all, I would just say this is a very different situation than the financial crisis, because in this case, the businesses that are impacted were impacted because of COVID, which was not their fault, as opposed to issues that they controlled. I would say in the case of the airlines, I think we struck the right balance. We did get proper compensation for taxpayers. I think it was very important, given what went on in the travel industry, in the case of the national security loan that we’ve made to the trucking company. We took a 30% equity interest in that for proper compensation. So I agree with you that the government should be properly compensated. On the other hand, I think for very small businesses, like the PPP, the money that we spent there, we saved significant money in unemployment on the other side.

Jim Himes: (36:17)
So with respect to the warrants, Mr. Secretary, and the 30% equity stake in the trucking company, what’s your philosophy? Is your philosophy to dispose of that position as soon as you can do so safely and in a sound manner, or is it to maximize the return to the American public?

Sec. Steven Mnuchin: (36:32)
I don’t think it’s to absolutely maximize the return, but I think that the American public should reap the benefit. So my expectation is that’s not something we’d liquidate now. We’d liquidate when the markets are more normalized and the economy is back to normal.

Jim Himes: (36:49)
So let me run an offbeat idea by you. As it happens, I had the opportunity to talk to both secretary Paulson and another former treasury secretary about it. One of the vehicles for capturing common wealth for the citizens of a country is a sovereign wealth fund. As you know, Persian Gulf countries use it, Alaska uses it, Norway uses it, largely oil driven wealth. Should Congress investigate … if we’re going to be in the regular business of bailout and receive a return on that bailout, should we look at establishing a sovereign wealth fund in order to take the proceeds from that common wealth and either use it as an insurance fund or use it to disperse however we may choose to disperse it? Is that an idea that makes any sense to you?

Sec. Steven Mnuchin: (37:37)
Well, let me just say that most countries that have sovereign wealth funds are … in the case of Alaska, it’s typically for future generations, where they’re focused on, in the case of many places, energy and things like that, that will not necessarily be around forever. I don’t necessarily think the US should have a sovereign wealth fund. On the other hand, I think taking the profits and putting it into an account that’s reserved for future emergencies is a very interesting idea and we’d explore it with you.

Jim Himes: (38:11)
Good. I’m going to take you up on that offer. Again, I don’t think any of us want to be in the persistent business of bailouts, but if we’re going to do it, I think we should make sure that the American public is amply compensated for the use of their money. Thank you. I yield back the balance of my time.

Rep. Maxine Waters: (38:23)
Thank you very much. I now recognize the gentle lady from Missouri, Ms. Wagner for five minutes.

Ann Wagner: (38:29)
Thank you, madam chairwoman. Secretary Mnuchin and chairman Powell, thank you for being here today. I have been hearing from employers across the second district of Missouri who desperately need Congress to do its job and pass coronavirus relief legislation so they can do their job and keep handing out paychecks to their hardworking employees. Earlier this month, the Senate acted to pass relief legislation that could actually be signed into law. That package would have given relief to families, schools, childcare providers, small businesses, and those who need it most. At a time when so many are struggling, we really do need to put America’s families first and I am sick of the partisan politicking, partisan wishlists. They should have no place in this conversation. Congress should be laser focused on providing targeted and immediate relief. The Senate majority supports a second round of PPP money that would keep our small businesses afloat, and I call on my colleagues in the house to bring this to the floor.

Ann Wagner: (39:53)
Senator Mnuchin, I am grateful also, as the ranking member mentioned, for your due diligence and your working in negotiating this and what it means for our small businesses, including, as you said, restaurants, travel, events industry, dentists office, and so many others that keep Americans employed. You talked a little bit about how passing the second round of the paycheck protection program would keep America on track for a full economic recovery. How much money do you think we could repurpose from carers in order to do this? And tell us again what this would mean in terms of economic recovery?

Sec. Steven Mnuchin: (40:35)
Well, I agree. We had approximately 450 billion that was allocated to work with the fed on the 13(3) facilities. I agreed that I would reallocate 200 billion of that that’s not used. That obviously needs congressional support, but we would reallocate that, and again, our priorities are kids and jobs.

Ann Wagner: (40:57)
Right.

Sec. Steven Mnuchin: (40:57)
I think the PPP, there’s a very strong bipartisan support. I know that both committees in the House and the Senate have worked on revisions that are necessary revisions, and we look forward to work with both parties on it.

Ann Wagner: (41:12)
And that could be passed today and shined into law today, is that correct?

Sec. Steven Mnuchin: (41:17)
The president would very much support signing into law additional PPP money immediately.

Ann Wagner: (41:22)
We must act. It is clear that the best economic stimulus package we can give to the American people is a fully open economy. It brings people back to work, allows economic growth to begin, and will restore our economy. Chairman Powell, do you agree that reopening has increased economic activity and jump-started the process of bringing the US back to pre-pandemic prosperity?

Chair Jerome Powell: (41:52)
Yes, I do. We need to reopen the economy so people can go back to work and we need to do it in a sustainable way, and that’s why I always mention that a part of reopening quickly and effectively is to keep the virus under control and that takes basic measures like wearing masks and things like that. So the two things go together, fast reopening and maintaining these sorts of measures actually go together.

Ann Wagner: (42:16)
Absolutely. The president’s plan to reopen America has enabled states to tailor their reopening plans to address the specific challenges in their state and region. Chairman Powell, how does this state by state approach ensure success, especially when it comes to states that are responding differently to the pandemic? And are there any regulatory burdens you are aware of that should be removed to improve states’ abilities to quickly and safely reopen?

Chair Jerome Powell: (42:52)
The question of how to reopen exactly and what policies to use, that is a question that is one for elected officials at the state and local level, not for the federal reserve, and so I wouldn’t be a good judge of that. I would say in terms of regulatory adjustments, we’ve made a number that have been designed to allow banks to serve their customers in this … we’ve relaxed a number of regulations temporarily, and we think that that’s really helped them serve their customers in a way that doesn’t at all endanger safety and soundness. We’re open to doing more of that, but many of those things we’ve done, and frankly, the economy is healing now.

Ann Wagner: (43:28)
It kind of is healing, and I do believe that many of the regulatory burdens that we have lifted are things that can be sustained even beyond this pandemic. So I hope that this committee will be able to take a look at that as we go forward. I thank you for your answer and I yield back, madam chairman.

Rep. Maxine Waters: (43:42)
Thank you. I now recognize the gentleman from Illinois, Mr. Foster for five minutes. Mr. Foster, you are muted.

Bill Foster: (44:00)
All right. My apologies madam chair, and my thanks to you and to our witnesses. Chairman Powell, the fed recently announced hypothetical scenarios for the second round of bank stress tests, and unlike the results of the sensitivity analysis conducted earlier this year, you will be releasing bank by bank results. Now, I appreciate this transparency and believe it is very important for markets, policymakers, and the banks themselves to have this information be public. One of the tragedies of the last financial crisis was that in the months prior to the crisis, as pressure built on financial institutions, they did not use this time to raise capital until it was too late. Hopefully the prospect of publicly disclosed stress tests will help avoid a repeat of this behavior if the pandemic downturn continues. Now, you are going to be using the results of these stress tests to determine whether the restrictions on shareholder dividends and the prohibition on buying back shares will continue through the fourth quarter. So my first question, will you be making these determinations on a bank by bank basis, or will all of the large banks be subject to the same restrictions?

Chair Jerome Powell: (45:13)
Yeah, that’s going to depend on a lot of things and those are decisions we’ll make down the road, but I think we’ll be looking probably to use the bank by bank approach.

Bill Foster: (45:24)
Thank you, and given the continuing high unemployment, the failure of the Senate to pass any new COVID relief, and the uncertainty and volatility of a large number of economic indicators, will you err on the side of conservatism and safety in making these determinations?

Chair Jerome Powell: (45:42)
Well, I think the stress tests themselves always err on the side of safety. We think of very extreme scenarios, severely adverse scenarios, and so that’s generally been our approach overall.

Bill Foster: (45:55)
I appreciate that. Now, will you be reanalyzing the living wills of the giant banks to ensure that they could be executed properly at a time of COVID pandemic with, for example, most of the workforce at home?

Chair Jerome Powell: (46:11)
We don’t have any plans that I know of to change the schedule of doing that. Banks have to resubmit those on a regular schedule, and I think we’ll just stick to that schedule.

Bill Foster: (46:21)
All right. Well, I urge you to keep an eye on that, because if we have to execute them and it’s not possible in the pandemic conditions, we will regret that. Now, potential problems may not be confined to a small number of giant banks. For example, the savings and loan crisis was the result of losing bets made by over a thousand smaller institutions, and the taxpayer ended up on the hook for bailouts amounting to about 2% of GDP, which is huge compared to TARP, in which the taxpayers actually got their money back with at least some interest, and given that the fates of small banks are more closely tied to the fates of small and medium sized businesses, which are often most at risk of business failure due to the failed response to this pandemic, what should we be worried about in regards to the potential needs to bail out large numbers of smaller banks if the pandemic continues?

Chair Jerome Powell: (47:18)
I guess I would say we spent 10 years and the banks spent 10 years strengthening their capital, their liquidity, their understanding of the risks and their management of them, and so far the banking system has held up well. Now we don’t know where we are in this whole process, so we’ll be continuing to … as you can see from the stress tests, continuing to do those things that we need to do to continue to assess the strength of the banking system, but so far, we don’t see the kinds of problems you’re talking about. I think with smaller banks, the issue is there’s been a 30 year trend of consolidation and banks going out of business, and that’s not a trend we want to do anything to exacerbate. I do think that smaller banks are going to probably bear too much of the burden here. They have more exposure to real estate and to smaller businesses, which are probably more vulnerable and have less resources to deal with this sort of stress. So I think we’ll be watching carefully to make regulatory adjustments, supervisory adjustments to make sure that we give those banks every chance to serve their customers and to make it through this difficult time.

Bill Foster: (48:30)
Yeah. Thank you. I mean, one of the problems we have in financial regulations, we always seem to be fighting the last war, and we maybe should look two wars back in this, and in my limited amount of time left, you introduced a new strategic framework for conducting long-term monetary policy, and as part of that, you discarded the idea of a fixed goal for full employment. Instead, you’re going to consider a wide range of indicators in making an assessment of whether there are any shortfalls in employment, and I urge you to do that very publicly and transparently, because you can get different answers by choosing different measures, both for inflation and for unemployment. My time is up [inaudible 00:49:14].

Rep. Maxine Waters: (49:15)
Thank you very much. I now recognize the gentleman from Kentucky, Mr. Barr for five minutes.

Rep. Andy Barr: (49:20)
Thank you, Madam chairwoman, and I want to first start by responding to my friend representative Himes’ comments about bailouts, because I share my friend’s antipathy for what he describes as bail outs, but I do think it’s important to point out that bail out, at least the way I look at, it implies that the government is saving businesses from mismanagement or excessive risk taking or the use of taxpayer funds for private use in a way that would promote moral hazard. We saw some of that, I think, in the aftermath of the financial crisis, but that’s not what we have here. What we have here is a congressional response to many state and local governments imposing restrictions.

Rep. Andy Barr: (49:58)
Now some of those restrictions may be very warranted in response to a pandemic, others may criticize some of those restrictions as being overzealous or draconian, but nevertheless, this congressional response in the Cares Act or the PPP program or the Main Street Lending Program, or some of these liquidity facilities seem to me more like a compensation for our regulatory taking. So I think it’s important to point out that distinction of regulatory taking. I do want to ask chairman Powell about Main Street, and I do think there’s interest among potential borrowers to participate in this program, but many businesses and lenders are reporting to us in Congress that the program is not working for them. To date, the fed has committed less than one half of 1% of the total available funds under the program, and so an argument can be made that the program isn’t performing to its full potential.

Rep. Andy Barr: (50:52)
Last week, the fed issued updated FAQ’s about the program and I’ve heard from banks in my district that the updates are unlikely to move the needle. You mentioned that smaller loans for smaller businesses under a million dollars, that this program may not be right for them. It’s more suited to a PPP, but chairman Powell, I would offer for your consideration that some of those businesses that would need a smaller loan, the PPP program really doesn’t help them because their payroll is fairly limited and they have larger amounts of debt. So my question initially would be is the fed considering publishing more targeted guidance, underwriting standards, documentation requirements for the smallest Main Street loans?

Chair Jerome Powell: (51:35)
Well, as you know, Mr. Barr, the limit now is 250,000, and we actually have very little demand below a million, as I told the chair awhile back. So we’re not seeing demand from very, very small loans, and that’s really because of the nature of the facility and the things you’ve got to do to qualify. It tends to be sort of larger sized businesses. Lending at the very small end, under a hundred thousand, it tends to involve a lot of personal guarantees. You’re lending to a person and that person is guaranteeing what is a very small business, and that’s just not a facility that we currently have. We’d have to start from scratch to develop that.

Rep. Andy Barr: (52:18)
Fair point. Just the feedback we’re getting is that for those smaller loans, the lenders are telling us that they really would prefer to use their existing structuring, underwriting, and documentation and account monitoring processes in order for them to get in to that a smaller level loan. I want to talk about EBITDA restrictions in the program, too. The restrictions that we have in the program right now do prohibit many commercial real estate borrowers from accessing the program. In the FAQs released last Friday, you indicated the fed had studied whether to allow for collateral based calculations for asset heavy borrowers, but “determined that conditions do not warrant such changes at this time.” How did you come to this conclusion and are there ways to retool Main Street to work for commercial real estate borrowers?

Chair Jerome Powell: (53:06)
We’ve spent, with Treasury, a great deal of time looking, because we hear these things too, probably from the same people, and we look for places where the banking system, the lending system is not working for commercial real estate, and a big part of that, of course, is the CMBS market, and we don’t have an answer to that because CMBS, there are a couple of problems with commercial mortgage backed securities that make it impossible to make additional loans, for example, and the servicers have to pay. So they’re hard to get foreclosures. So we look at other places in commercial real estate, and it’s not easy to find places where we could have much of an impact.

Rep. Andy Barr: (53:44)
And I appreciated that conversation earlier where you said that the fed’s emergency lending powers may be not particularly suited for CMBS, but to Secretary Mnuchin, appreciate the communication with your team on this issue, and particularly CMBS. Could you detail what treasury is doing to monitor and respond to these challenges facing commercial real estate?

Sec. Steven Mnuchin: (54:05)
Well first of all, I’m sympathetic to the issue and we’ve spent a lot of time internally trying to figure out if there is a way we could structure a program with the fed, and as the fed chair said, unfortunately, there’s a structural problem with limitations of additional debt and prepayment penalties. I think the best way to help many of these is with additional PPP funds so that people can pay rent, so that owners can pay their mortgage.

Rep. Andy Barr: (54:31)
Thank you. I yield back.

Rep. Maxine Waters: (54:33)
The gentleman’s time has expired. I now recognize the gentle lady from Ohio, Ms. Beatty for five minutes. Please unmute.

Joyce Beatty: (54:46)
Thank you madam chairperson. To the witnesses, thank you. We have heard a lot today about reopening the economy. We have also heard a lot about pandemic health and safety, and director Powell, you even used the words they go hand in hand, and actually use the words and pointed to your mask by wearing a mask. All of that is a part of it. So to you, Mr. Secretary, we recently learned that the White House had scrapped plans at the United States Postal Service to send approximately $650 million worth of masks through the mail. Maybe that’s because President Trump sees no value and tweets about not wearing it. You’ve had a lot of involvement with the operations and governance of the US postal. Were you involved in that situation about scrapping the plans or aware of it?

Sec. Steven Mnuchin: (55:53)
So just to be clear, I think I read something in the press about that alleged situation. Never in any of my taskforce meetings do I recall that being discussed or any plan being scratched whatsoever. It may have occurred in a different part of the government, but no, I’ve not heard anything about that.

Joyce Beatty: (56:09)
Would you be willing to look into it since most experts, not me, certainly as a Congress person, but certainly scientists in medical have all stated that wearing a mask is helpful in preventing the spread now that we know over 200,000 people died. Would you look into that since you’ve had involvement with the US postal?

Sec. Steven Mnuchin: (56:33)
I’d be happy to and will get back to your staff.

Joyce Beatty: (56:35)
Thank you very much. My next question is certainly we know that when we talk about reopening the government, which you both agree if people are healthy and if they have health care, then that too goes hand in hand with reopening the economy, by having people be healthy enough to go back to work. That’s a yes or no question, director Powell?

Chair Jerome Powell: (57:01)
Yes, sure.

Joyce Beatty: (57:02)
Secretary?

Sec. Steven Mnuchin: (57:05)
Yes, and I just would add that one of the reasons we liked the PPP is that kept employees connected to their business and in many cases, allowed them to keep their healthcare.

Joyce Beatty: (57:13)
Okay. Earlier this year, the Trump administration submitted a brief to the Supreme Court urging them to overturn the Affordable Care Act, which would roughly strip 20 million Americans of their healthcare in the midst of this historic pandemic that has already cost the lives of we know today more than 200,000 Americans, including stripping protection for preexisting conditions, kicking many of our younger adults off their plans. We’re also hearing now about how great their numbers are. I’ve been in Congress for eight years and I have voted against it a dozen times. Chairman Powell, what effect would stripping 3 million Americans of their healthcare in the midst of this COVID 19 pandemic do to the economy?

Chair Jerome Powell: (58:03)
I wouldn’t want to comment on a particular Supreme Court case, but as you mentioned, health care is an important part of the support system that people need –

Joyce Beatty: (58:12)
Excuse me, let me say it this way, Mr. Chairman. Do you think stripping healthcare or not having healthcare would be bad for the economy?

Chair Jerome Powell: (58:24)
As you started with, I think that having health care coverage is an important basis for people to go to work. It’s one of the reasons people do work and it helps you importantly –

Joyce Beatty: (58:37)
Would you say that’s a say? Then would you say that’s a yes, that having healthcare would certainly be a plus or a positive to having people … I mean, come on, 200 million people have died. Look at the numbers. If I look at African Americans, making up 13% of the population, but having almost 30 some percent positive results, 24% die. Don’t you think healthcare plays into keeping people healthy and the economy?

Chair Jerome Powell: (59:10)
Yes, I do.

Joyce Beatty: (59:11)
Thank you. Chairman Powell, according to a transaction data of the Secondary Market Corporate Credit Facility, the Federal Reserve published on Sunday the fed purchased corporate bonds of dozens of companies that are in good financial conditions, like Apple, which has more than $200 billion cash in hand. How does buying corporate debt of large companies in good financial condition help further the fed’s mandate? And how does buying corporate debt of foreign-owned companies like BP and Toyota further the fed’s mandate?

Chair Jerome Powell: (59:49)
None of those Secondary Market Corporate debt purchases extend any new credit to anybody. So that’s just buying an outstanding bond, and the reason we’re doing that is to have a footprint in the aftermarket, which should conditions deteriorate, it would enable us to continue to have good financial conditions, which would support companies and allow them to keep workers on staff.

Joyce Beatty: (01:00:12)
Okay.

Rep. Maxine Waters: (01:00:14)
Thank you. The gentle lady’s time is up.

Joyce Beatty: (01:00:15)
My time is up.

Rep. Maxine Waters: (01:00:16)
I now recognize the gentleman from Texas, Mr. Williams for five minutes.

Roger Williams: (01:00:20)
Thank you, madam chair, and as most of you know, I’m a small business owner. I want to thank both of you for coming before our committee today. Both the treasury department and the federal reserve have worked with incredible speed to implement the Cares Act and get resources in the hands of hardworking American businesses. I applaud you both for your leadership and your efforts during these uncertain times, and Main Street America also thanks you. Some local governments in my district in Texas are sitting on the money they receive from the corona relief fund because there’s an uncertainty surrounding what counts as an eligible expense. For example, one local government in my district would like to spend the money to buy food for a local food pantry since many of their citizens are seeing food insecurity as a result of the economic shutdowns, but they’re unsure if this will be an eligible expense since the cost was not accounted for in their annual budget prior to the pandemic. So Secretary Mnuchin, what advice would you give these local governments that are unsure if a use for the coronavirus relief funds will be deemed a qualified expense so we can get this money spent?

Sec. Steven Mnuchin: (01:01:26)
Well, we’ll look into your specific question and get back to you, but I will say is we’ve tried to give as much flexibility as we can, and as part of additional congressional authorization to move forward, we’re inclined to allow for additional flexibility on the money that’s already gone out to state and local governments.

Roger Williams: (01:01:44)
Thank you for that, and we’ll get something for you to look at. Chairman Powell, I raised this issue with Vice Chairman Quarles back in May, but wanted to get your perspective as well to make sure everyone at the Federal Reserve is on the same page regarding business interruption insurance. Forcing private companies to cover business interruption claims for COVID-19 –

Roger Williams: (01:02:03)
… private companies to cover business interruption claims for COVID-19 losses would be a terrible precedent of the government stepping in and retroactively changing the terms of an agreement between two private parties and would decimate the insurance industry. And I’ve said before in Texas, we say, “A deal’s a deal.” And the last time you were in front of this committee in June, you mentioned you were aware of this issue as it relates to fiscal stability and I’m hoping we could get a little more substance on this issue since the Federal Reserve is involved in ensuring Federal institutions, including insurance companies that do not pose a risk for our financial system.

Roger Williams: (01:02:35)
So my question would be, can you please give us your thoughts on forcing insurance companies to retroactively cover business interruption claims?

Chair Jerome Powell: (01:02:45)
I don’t think I’ve had a conversation about that since our last visit together in June, but let me check in on the current situation and come back to you [crosstalk 01:02:54].

Roger Williams: (01:02:54)
Okay. That’d be great. Thank you. And both of you have discussed that potential need for another economic stimulus package to come through Congress. We’ve done that today. However, at the moment, much of the money that we allocated in the Cares Act and other aid packages has not yet been spent. The nonprofit committee for responsible Federal budget estimates that the government has allocated or dispersed 2.2 trillion of the 4 trillion that Congress has passed in COVID relief.

Roger Williams: (01:03:21)
Mr. Secretary, you have been deeply involved in negotiating, as we very well know, the next COVID-19 relief package and as we discussed spending new money, how would, or how should we be viewing the economy to ensure that industries in most need of assistance receive it while the other money we’ve already allocated makes its way into the system?

Sec. Steven Mnuchin: (01:03:43)
Well, I think we’re in a very different situation than we were last time. I think last time the entire economy was shut down and we had to act very quickly and in many cases that required us to do things across the board. I think this time it should be much more targeted to the industries that are most impacted by this situation.

Roger Williams: (01:04:02)
Well, thank you. And I want to thank you again for your efforts and basically tell you somebody who is on Main Street, economy is pretty good right now. It’s getting better and attitudes of people and startups are getting better. I hope one day we can look at liability toward a lot of small businesses and big businesses that could keep them from growing. So thank you again for your efforts. We appreciate it. And I yield my time back. Thank you.

Ms. Waters: (01:04:29)
Thank you. I now recognize the gentleman from Washington. Mr. Heck, five minutes.

Rep. Denny Heck: (01:04:36)
Thank you, Madam Chair. Chairman Powell,= I want to discuss fiscal support today, but before I do, I want to quickly address the announcement that the Fed made to take steps, to make the inflation target more symmetric and emphasize one that mandate a new framework that Dr. Foster referred to.

Rep. Denny Heck: (01:04:56)
I’m not at all exaggerating when I say this new framework is the most important thing that’s happened in monetary policy. Indeed, an economic policy [inaudible 01:05:05] in this country. It will have a bigger impact on absorbing [inaudible 00:03:11]. Your leadership [inaudible 00:01:05:16]needs to be acknowledged for it’s significance [inaudible 01:05:23]. So I have something I want to say. Thank you. [inaudible 00:03: 33]-

Ms. Waters: (01:05:31)
Excuse me. Mr. Heck, speak right into the microphone so that we can hear you clearly.

Rep. Denny Heck: (01:05:37)
I hope he was able to hear all of my contents. Can you hear me now, Madam Chair?

Ms. Waters: (01:05:45)
Yes.

Rep. Denny Heck: (01:05:46)
Thank you. So thank you, Chairman Powell, very much for the new framework. At the outset of this pandemic you declared, “This is the time to use the great fiscal power in the United States to do what we can to support the economy and try to get through this.” Congress responded by passing the Cares Act and Congress continues to deliberate, further fiscal support. At your press conference on Wednesday you said that the Federal reserves projections for growth, inflation, and employment were assuming more fiscal support. What size support were you assuming?

Chair Jerome Powell: (01:06:32)
Well, let me say that. I think a big part of the good economic news that we have had results from the fiscal support that came with the Cares Act, so it deserves a lot of the credit for keeping people’s spending and keeping people, business confidence and household confidence high.

Chair Jerome Powell: (01:06:52)
So we don’t agree on a forecast individuals make different assumptions. I think something like most private sector forecasters are assuming that some kind of a package passes sometime in the next few months, but there isn’t any particular number that I would give you that would come out of the Fed.

Rep. Denny Heck: (01:07:12)
But is it not true Mr. Chairman, that the Fed did itself make projections as to growth and inflation and employment. And if so, acknowledging that it assumed fiscal support, there must have been some assumptions about the level of support. How else-

Chair Jerome Powell: (01:07:30)
Actually-

Rep. Denny Heck: (01:07:30)
-would you arrive at your projections?

Chair Jerome Powell: (01:07:33)
Yeah. I wish it were that simple. The way we do it is, what we publish is the individual projections of the 17 people who vote or who, sorry, participants on the FOMC and they’re free to make whatever assumptions they need. And we don’t survey them on every little thing, but I would say most assumed some fiscal action, but we didn’t create a table, and so I can’t tell you exactly what was assumed, but fiscal action underlies many, many current forecasts.

Rep. Denny Heck: (01:08:08)
What happened… Well, let me try this a different way. What happens to growth and employment if there isn’t any fiscal support and it doesn’t [inaudible 01:08:19]?

Chair Jerome Powell: (01:08:19)
Well, so what what’s happened lately is that the economy has proved resilient both to the broader spread of the disease over the summer in some of the South and Southern Western states and also to the expiration of the Cares Act benefits. So we don’t really know what will happen. What I would just tell you what I think the risk is, as someone pointed out, savings are very high and that’s because of a number of things. Part of it is the Cares Act, but there’s still 11 million people unemployed.

Chair Jerome Powell: (01:08:47)
So the risk is that over time, they go through those savings. They haven’t been able to find employment yet because it’s going to take a long time to get, or it’s going to take a while to get 11 million people back to work. And so their spending will decline, their ability to stay in their homes will decline. And so the economy will begin to feel those negative effects at some time. At the same time the economy is recovering, and that’s a good thing. And it’s very hard to have any certainty about the path forward, because we don’t know which of those two forces will dominate.

Rep. Denny Heck: (01:09:19)
Well with all due respect, Mr. Chairman, unless you’re arguing that fiscal stimulus has no impact, then is it not inescapable that if there is no additional fiscal support growth will be lower?

Chair Jerome Powell: (01:09:34)
Yes. Certainly fiscal and I’ve said that I think it will likely be needed and I do defer to the administration and Congress who actually have responsibility for this, but I think that it is likely that more fiscal support will be needed.

Rep. Denny Heck: (01:09:53)
Lastly, the-

Ms. Waters: (01:09:55)
Thank you. The gentleman’s time has expired.

Rep. Denny Heck: (01:09:57)
Madam Chair.

Ms. Waters: (01:09:58)
I now recognize the gentleman from Arkansas, Mr. Hill for five minutes.

Rep. French Hill: (01:10:04)
Thank you, Madam Chair, and of course, thank you, Secretary Mnuchin for being with us today. Chair Powell, it’s terrific to see you. I want to associate myself with the remarks of the ranking member who outlined really the outstanding leadership we’ve obtained from the Treasury and from the Federal Reserve, particularly in the early days of fighting of the virus, and we appreciate your commitment to our country to restore the health of the American people, renew our family’s belief in the American dream, and in your own ways, rebuild the American economy.

Rep. French Hill: (01:10:36)
I want to talk for a minute about this issue for smaller businesses. And I plan on signing the discharge petition in the House today to move Congressman Chabot’s bill to the House floor, which extends the PPP program and clarifies the forgiveness aspects of that. This is something that should have been done at the end of July and I was pleased last week, the democratic members of Mrs. Pelosi’s caucus are objecting to her leadership or lack there of in trying to negotiate this COVID package. I hope my Democrat colleagues will join me in signing that discharge petition, because the PPP extension as secretary Mnuchin outlined is a key component to having the tools necessary for the small business recovery. Secondly, in my view, the proposal by Mr. Rubio, that’s in the Senate bill on the 7(a) loan program is critical because it allows to take this embedded loss of the last six or eight months, or that we think is coming and put it on a 20-year AM at a 1% rate as an SBA product.

Rep. French Hill: (01:11:44)
And it’s a much better solution than the emergency loan program that the SBA has used during this pandemic, which is really geared towards a hurricane and not to a national pandemic. But the third point is the Main Street Program and both of you know my views on this as we’ve talked about it in our oversight commission hearing and privately, and that is on Friday at one o’clock in a typical Washington D.C. issue, the Fed released its frequently asked questions and dumped out to the public on Friday afternoon that you would not pursue this asset-based lending type approach for a different Main Street term sheet. Mr. Barr did a good job describing that.

Rep. French Hill: (01:12:26)
I really think that can be done, Chairman Powell. Two companies on sound footing, two companies that are not able to reach credit traditionally on reasonable terms and in the concept of a backstop and so I want to press both of you of that while it doesn’t fit the Main Street term sheet you had today that took four months to stand up, I still believe that that asset-based lending to a solvent company is important. And you had a key component and another Washington key component in the frequently asked question. You said, “at this time,” so I would urge you to reconsider your position on asset-based lending and offer you each an opportunity to comment. Mr. Powell?

Chair Jerome Powell: (01:13:10)
So we have taken a very close look at it, as you know, and as the Secretary indicated, and, but we’re happy to continue the conversation and we’ll do that with you.

Rep. French Hill: (01:13:21)
I really do believe it can be done in the right way. And I think the three things I commented on the first two, the 7(a) program and the PPP loan, I’m going to address this lower loan size that the chair mentioned, but I do believe there’s a solvent niche out there of portfolio lending that can be done on a sound basis that would offer some liquidity for hospitality, particularly not CMBS per se, but portfolio lending, where they have this gap that we saw after 911 and we saw after the financial crisis, a very slow increases in business travel.

Rep. French Hill: (01:13:59)
Secretary Mnuchin, you commented that you’d like Congress to give you authority to incur risk, as it relates to the $500 billion in funding for the Exchange Stabilization Fund, or particularly the 454 that was not related to airlines and that you propose to reprogram that money for other uses. But when we had a discussion of this in the oversight commission, we issued in our fourth report that we don’t believe that you need any additional congressional authority to reprogram that and take additional risk. Could you comment on that, please?

Sec. Steven Mnuchin: (01:14:35)
So let me just be clear. I don’t think we need authorization to take additional risk. And let me clarify, I think the Main Street loans on general, we will be taking losses because I think this is basically being underwritten on pre-Corona EBITDA.

Sec. Steven Mnuchin: (01:14:52)
What I was suggesting is that we would like to spend that money on other areas of the economy that could be better served. Kids, jobs, more PPP, SBA long-term loans, and that unfortunately we do need congressional authority to use it in other areas. And again, I think is, we have a lot of money leftover and the PPP that’s been appropriated by Congress, that with simple legislation could allow many hard working small businesses to get a second loan.

Rep. French Hill: (01:15:22)
Thank you both for your leadership. Madam Chairman, I yield back.

Ms. Waters: (01:15:25)
Thank you. I now recognize the gentleman from California, Mr. Vargas for five minutes.

Rep. Juan Vargas: (01:15:33)
Thank you very much, Madam Chair. I appreciate it. And I want to thank the secretary, of course and also the chairman for being here today. Appreciate your testimony very much. I have to say I’ve heard some pretty tortured language and tortured logic from some of my colleagues today. A member said that we’re not bailing out businesses “compensation for a regulatory taking.” That sounds a lot like, “Use my words against me,” when you say you won’t vote for a Supreme Court Justice on an election year for president.

Rep. Juan Vargas: (01:16:10)
I mean, the reality is when you talk in absolutes, you get into these situations where logic, it’s twisted to try to fit things. And the other thing I heard today is we should pass, Congress should pass the second Cares Act. We did that. We did that. We passed it. It’s called the Heroes Act so languishing over in the Senate.

Rep. Juan Vargas: (01:16:29)
Then I heard another colleague say, We should do what the Senate did and pass what they did.” They didn’t pass anything, Senate didn’t pass a thing. They tried to pass something, but nothing passed. [inaudible 01:16:41] I guess I heard today also was a pretty rosy picture of the economy, and I don’t want to put words in people’s mouth, but secretary, I believe you said, “the economy, the economic recovery was strong.” I think that tens of millions of Americans would disagree with that and in fact would say that the stock market is not the only economy. You have 11 million Americans that are still out of work that lost their jobs more than in the financial crisis, so I don’t think that they would agree that we’ve had this strong recovery. I do agree with what chairman said that we won’t get a full recovery until everyone feels that they’re safe from this virus.

Rep. Juan Vargas: (01:17:29)
And so I think it is very important that we do everything we can to defeat it. But unfortunately, up to now, I think the virus has been in charge. So I want to ask this, I’ve been watching what’s been happening in Europe. It seems like they’re starting to get a second wave. I’m very concerned that we may have a second wave in our own country, and I’m not sure that we’re prepared for this. I also went back and did a lot of reading on the Spanish flu and saw that their second wave was the more devastating one. Not the first one, the second wave of the Spanish flu. Could you comment either one of you of how prepared we are? What is our plan in case this thing comes roaring back?

Sec. Steven Mnuchin: (01:18:10)
Oh, I would just first comment on, I did say there’s a strong recovery because when you close the economy and you reopen it, it is strong, but there is still more work to do. As it relates to being prepared, and again, I’m not a health professional, although I’ve sat on the task force, I think we’ve made major progress on vaccines, on virals, on testing. So I think on PPE, so I think we are, have done a very good job at being prepared for the virus.

Rep. Juan Vargas: (01:18:45)
But do we have a plan? Do you have a plan in case it comes back? [inaudible 01:18:51] A virus usually has some seasonality to it and you would expect in the winter to come roaring back. We’ve seen that before. Do you expect, I mean, I don’t want to… If it does come back, assume it does, do we have a plan? Does the administration have a plan?

Sec. Steven Mnuchin: (01:19:09)
First from an economic standpoint, we do have a plan for the economy now, and that’s why we want more congressional approval as it relates to the health and yes, the administration and the task force does have a plan, is executing that plan, and a major component of that plan is the vaccine development, which is making great progress.

Rep. Juan Vargas: (01:19:33)
Mr. Chairman, if I may ask you, you said that until people feel that they’re not at risk, the economy won’t come back. Could you elaborate a little more on that?

Chair Jerome Powell: (01:19:44)
Sure. So there are parts of the economy that involves people getting very close together in and that’s travel, hospitality, entertainment, things like that. And I think people will, not everybody, but some part of the population will be reluctant to continue in those activities until they feel confident that it will be safe, that they won’t get sick from doing so. And I think so… And that’s not most of the economy, that’s a piece of the economy. It’s a reasonably substantial piece of the economy where a number of people, millions of people are still not working and it will probably take some time for them to get back to work. So getting them back to work will depend on continued progress on the medical fund, including ultimately a vaccine.

Rep. Juan Vargas: (01:20:36)
I think my time has expired. I yield. Thank you very much.

Ms. Waters: (01:20:41)
Thank you. I now recognize the gentleman from Georgia, Mr. Loudermilk for five minutes.

Rep. Barry Loudermilk: (01:20:48)
Thank you, Madam Chair, Secretary, Chairman Powell, thank you for being here. And let me also echo the thanks for early on in this pandemic, especially with the PPP program, the way our offices work together and your office has worked with the banks in our community to tailor this thing to where it would actually do something for the small businesses. And as a result of that, one of the small banks in my district that only has two branches ended up making more PPP loans than one of the major national banks did nationwide. And that’s just the success of, many of the successes of the PPP, but it’s because of the engagement there.

Rep. Barry Loudermilk: (01:21:31)
Before I get my… I just have two questions. Like to respond to something my good colleague from California just brought up about the recovering economy. I think there are areas of this country the economy is recovering strong and the state of Georgia is one of those. Our revenue reports came out just a little over a week ago. That tax revenues for 2020 are 7.7% higher than 2019 and it’s because instead of using a heavy handed government, putting long-term restrictions on the people, we decided to trust the people that they would be safe and secure and opened our economy. So I think if other states would like to see that type of economic recovery, maybe they should address the way that their states are being governed.

Rep. Barry Loudermilk: (01:22:16)
I know the Federal Reserve is looking in ways of broadening the Main Street Lending Program, which I think we all realize need to be broadened, but there are some areas I’d like to see us take a look at and one of those industries that is interested in Main Street lending is specialized consumer finance firms, which are non-banks that purchase credit card receivables from card issuing banks and they securitize those assets, which enables consumers with subprime credit to access a credit card, which is some of the most vulnerable in our society right now, but the EBITDA requirements prevent them from obtaining a loan.

Rep. Barry Loudermilk: (01:23:03)
So Chairman Powell, would you consider modifying Main Street lending to allow these firms to access this program?

Chair Jerome Powell: (01:23:09)
I’d have to look at that in particular. EBITDA is a very standard cashflow measure. It’s if you’re going to make a cash flow loan in our markets, you’re going to look at EBITDA.

Chair Jerome Powell: (01:23:19)
The alternative is something asset-based and I don’t know these companies to know exactly what we’re talking about, but we’re happy to take a look.

Rep. Barry Loudermilk: (01:23:29)
All right, I’ll make sure that our staff engages with yours to give you some of the folks that are looking to do that and I think it would be wise.

Rep. Barry Loudermilk: (01:23:36)
Another issue is back to the PPP program. Mr. Secretary, is the forgiveness of the PPP loans is very cumbersome and is putting some of the banks such as the one I have brought up earlier, Vinings Bank into a situation where they’re keeping those loans on their books longer than what they had intended to. Is there something that we can do to streamline this forgiveness program so it’s less cumbersome so we can start getting those loans off the books of the small banks to open them up, to make other more traditional business loans?

Sec. Steven Mnuchin: (01:24:18)
We’ve tried to streamline the process for the smaller loans as you outlined. I know that there are some proposals in Congress and as part of legislation, we’ve worked with both committees on that, making sure we have the right balance of protecting for fraud with simplification.

Rep. Barry Loudermilk: (01:24:33)
All right. And then, so I assume with that, you’d be willing if Congress took action there to work with us on that. All right. Thank you both. I know this has been challenging times, but I think the administration has responded admirably and well considering the severity of this crisis. And I think we just, we keep on track and keep pushing forward and we can get through this and make our economy as strong as it was, if not stronger. And Madam Chair, I yield back.

Ms. Waters: (01:25:02)
Thank you. I now recognize the gentleman from Texas, Mr. Gonzalez for five minutes.

Rep. Vicente Gonzalez: (01:25:07)
Thank you, Madam Chair. And thank you Chairman Powell and Secretary Mnuchin. Folks, I represent many small business hoteliers in my district, many of whom are first and second generation Americans who have worked hard to achieve the American dream. As a result of COVID-19 and subsequent travel shutdowns and through no fault of their own family-owned and operated hotels in Texas and across the country are facing an unimaginable economic crisis with no ability to access a lifeline through Main Street lending program.

Rep. Vicente Gonzalez: (01:25:42)
Despite repeated requests from Congress, including my own, the MSLP facts released on September 18th state that conditions did not warrant changes to allowing lending to asset-based borrowers. There’s nothing else for these people to turn to. I want to make sure I understand your message to them. Right now we have money on the table, programs that are not being used, and programs that are being used, but are not quite compliant with the cares and programs that have been drained of funding because they worked. Your positions that these businesses should be allowed to fail that hard-working Americans should lose their livelihoods, and that you’ll do nothing to help them.

Rep. Vicente Gonzalez: (01:26:27)
You want to carefully follow the law, right, on the Cares Act? Well, we passed Cares Act and to the extent that you’re not in compliance with the programs included there, it’s time to get that done. Failure to do so would not constitute following the law. You either are, or you’re not complying with the law. And you do not have programs that comply with the Cares Act distributing of funding. We may be in a crisis now, but I’m sure you can imagine what will happen after the crisis when we start picking up the pieces and scrutinizing the actions of your agencies.

Rep. Vicente Gonzalez: (01:27:05)
Right now, we’re using the powers given to you for explicitly this purpose. You’re using the powers for explicitly this purpose for both you so you can help the country. Businesses need a lifeline that they’re not, even asking for bailouts, businesses like the ones I’m talking about. Lending them money for 10 or 20 or 30 years at a low interest rate, create the liquidity that the markets need and recognize that if all commercial properties start defaulting, we’re looking at another wave of a crisis, aren’t we? And what are we doing to prepare now and help them now and do the work now?

Sec. Steven Mnuchin: (01:27:42)
I would first say, I think we are following the law, so let me just be clear on that. Second thing I would say is that we want to help the types of businesses that you’re talking about. In many cases, they need grants and not loans, but as part of additional SBA appropriations, we very much support long-term loans, particularly for the types of businesses that you’re focused on.

Rep. Vicente Gonzalez: (01:28:14)
What specific loans do you have available for folks like these small hoteliers?

Sec. Steven Mnuchin: (01:28:22)
What are some [crosstalk 01:28:22]-

Rep. Vicente Gonzalez: (01:28:22)
Or help that they [inaudible 01:28:25].

Sec. Steven Mnuchin: (01:28:26)
Again, we support additional money to small hotels because that’s what they need. Additional SBA loans are something that we’ve looked at as well as PPP loans. They don’t fit in many of the cases. These small do not fit into Main Street because they already have additional… They already have other indebtedness and in many cases, they’re either not allowed to take additional loans or they’re too levered to begin with to qualify.

Rep. Vicente Gonzalez: (01:28:57)
So the small ones that do fit in you’re saying that SBA has a program for them?

Sec. Steven Mnuchin: (01:29:06)
As part of additional legislation, the SBA committee has proposed additional money, long-term money for small businesses as part of a new program. And that’s something that we’ve looked at and we would support. Again, many of the small hotels that you’re talking about don’t have any revenues, so those hotels would qualify for additional PPP loans. There’s over $130 billion that’s been appropriated by Congress that we just need authorization to use and that would be the best solution for them.

Rep. Vicente Gonzalez: (01:29:44)
Thank you. I just ask that we stay cognizant of these folks. They’re good Americans, they’re hard-working. They’re an important part of our economies, both locally and nationally, and they deserve our attention. Thank you very much.

Ms. Waters: (01:29:57)
Thank you very much. I now recognize the gentleman from Tennessee, Mr. Kustoff for five minutes.

Rep. David Kustoff: (01:30:03)
Thank you Madam Chairman, and I’d like to thank the witnesses for your leadership during this crisis. I think you’ve both displayed tremendous leadership.

Rep. David Kustoff: (01:30:14)
Secretary Mnuchin, If I could, we’ve talked a lot about the PPP program today and the success and the ranking member talked about the 51 million jobs that it’s estimated that it’s saved as a caveat, maybe 12 million rural jobs in rural communities that it’s saved.

Rep. David Kustoff: (01:30:34)
If I could following up on what Mr. Loudermilk asked about a few moments ago as it relates to the forgiveness. What I’ve heard from small businesses throughout my district, frankly, throughout the state of Tennessee is we’re very thankful about PPP. It literally saved our business, but there is the concern about the complexity of the forgiveness. And so my question is, have you considered administratively forgiving certain loans, say loans of $150,000 or less again through administrative action?

Sec. Steven Mnuchin: (01:31:19)
We have considered that. We don’t think we have the authorization to do that in the context of the law. And we’ve tried to make it very simple for small businesses, but again, there were some proposals out of Congress that just said we should automatically forgive all those loans and that would need congressional action for.

Rep. David Kustoff: (01:31:41)
So your interpretation is, is that you don’t have the authority to administratively forgive those certain loans, again, the smaller loans. I’m using $150,000 or less. Administratively, you don’t have the authority to do that.

Sec. Steven Mnuchin: (01:31:56)
We think we have the obligation to try to get the documents, have them fill out what is an easy form and have the ability to audit those. I think as you know unfortunately there’s been some fraud and we’re working with our IG on that, but no, we don’t think it would be appropriate and we don’t think we have the authorization to do a blanket forgiveness across the board.

Rep. David Kustoff: (01:32:20)
If I can, again we’ve heard from people, I think all of us have about how PPP saved their businesses, kept their employees on the payroll. One criticism… In fact, you all deserve credit for crafting that. I do think frankly, Congress deserves credit that they acted swiftly and in a bi-partisan nature. The one criticism I’ve heard from businesses specifically in my district is that they literally could not compete, some, with the enhanced unemployment benefit, that it was set too high, and so maybe in an area like Tennessee or Mississippi-

Rep. David Kustoff: (01:33:03)
Maybe in an area like Tennessee, or Mississippi, or Arkansas. Maybe it was generous in other states, maybe it’s not. I don’t want to get ahead of the negotiations, but if there is additional enhanced unemployment benefit in the next package, is there a way to somehow tie that to locality?

Sec. Steven Mnuchin: (01:33:24)
Yeah. At the time, we knew that there were certain places that would be too high, and certain there’d be too low. We thought the fair way of doing it was one number across the board. As part of the President’s executive action, he’s now authorized that to go forward with up to $400, 300 if the state doesn’t contribute. And we have proposed as part of additional legislation, having it at something like 75% of wage replacement.

Rep. David Kustoff: (01:33:52)
And would that be uniform across all 50 states, or would it be based somehow on locality and-

Sec. Steven Mnuchin: (01:34:01)
Ideally, it would be each state would take some time for them to implement that technology, but that it would be capped on 75% of previous wages.

Rep. David Kustoff: (01:34:12)
Thank you, Mr. Secretary. One more question for you, if I can. And I’m going to touch on something that I don’t think has been asked today, and that’s on phase one of our agreement with China that was executed earlier in the year. Obviously, we know we’ve faced a pandemic. Are you right now confident that China can meet its commitment to purchase $36.5 billion in agricultural products this year?

Sec. Steven Mnuchin: (01:34:44)
I believe they are on track for that, and Ambassador Lighthizer and I are monitoring that very carefully.

Rep. David Kustoff: (01:34:51)
Thank you, Mr. Secretary. With that, I yield back my remaining time.

Rep. Maxine Waters: (01:34:54)
Thank you. I now yield five minutes to the gentleman from Florida, Mr. Lawson.

Rep. Al Lawson: (01:35:01)
Thank you, Madam Chair, and I would like to thank you and member co-chair Mr. McHenry for hosting this hearing today. And I’d like to welcome the gentlemans to the meeting. It has been very good hearing you all speak this morning. In May, my colleague Representative Taylor from Texas, joined me in writing a letter to both of you regarding the impact of COVID-19 on the commercial real estate market. And I heard some of it talked earlier.

Rep. Al Lawson: (01:35:38)
The commercial real estate market continued to be hit hard due to the economic shutdown that has resulted, and still closing and halted travel. The COVID-19 pandemic had turned the [inaudible 01:35:56] and commercial real estate financial market upside down. In June, I was joined by Representative Taylor and over 100 of our colleagues requesting the Department of Treasury and the Federal Reserve urgently consider targeting economic support to bridge the temporary liquidity deficiencies facing commercial real estate barriers created by the unforeseen crisis. We believe that this is still due that the Federal Reserve has the ability to bridge the gap to various facilities to help many businesses survive the economic disruption. IRA, on Friday, the Federal Reserve released an update on the Main Street Lending Program. Stayed in that condition do not warrant changing this to allow the [inaudible 01:36:54] assist the basic barriers. Would you all care to comment on that for me, please, sir?

Sec. Steven Mnuchin: (01:37:01)
Well, first let me say again, Chair Powell and I both agree with you that the commercial real estate market has an issue. I just want to clarify, when people talk about asset-based lending, they traditionally don’t include real estate in that. The real estate market is its own market, so that wouldn’t necessarily be part of an asset-based program. There are structural problems. I know some people in the House tried to work on a proposal of preferred equity so that it could be going below the existing. But Chair Powell and I will continue to work on this. It’s an issue, we don’t have a solution. We wish we did.

Rep. Al Lawson: (01:37:41)
Okay. Do Chairman Powell wants to comment too? Because I know I was on a call with him several weeks ago about this issue alone, Representative Taylor.

Chair Jerome Powell: (01:37:53)
Yes. And both of us are very familiar with the letter that you sent, and I’ve studied it carefully and really looked hard at how we can reach the problem we’re talking about. And a lot of the problem just isn’t with commercial mortgage-backed securities, those loans contain a provision that says you can incur additional debt. The secretary referred to a way to get around that, and that wouldn’t involve the Fed though, that would be a something for legislation. And we do understand and appreciate that this is a significant problem in the economy, and keep looking for solutions. We don’t really have a solution though with the tools that we have.

Rep. Al Lawson: (01:38:35)
And I understand that we don’t have a solution. I think one of the things that [inaudible 01:38:38], that really bothers me as a lawmaker, when we turned back about $130 billion in PPP funds, and then you find out that all of these people that are suffering tremendously, and they have coming up to maybe releasing something like a large group of employees that depend on them.

Rep. Al Lawson: (01:39:03)
And I think even, I had the opportunity to talk to the chair, Congresswoman Waters, about some of the things that was happening even in her area out in California. And I’m glad that you all are considering, and if we need legislation, I don’t know how quickly we can get legislation through. I was certainly hoping that it could be included in negotiation on the Hero’s Act, and what is coming out of the Senate. But I know the Senate, which was stated today, still haven’t passed anything. So I don’t have much time left, but I’m glad that you always continue to keep that at the forefront because a lot of these employees are just everyday people that need help. And with that Madam Chair, I yield back.

Rep. Maxine Waters: (01:39:54)
Thank you. I now recognize Mr. Hollingsworth from Indiana for five minutes.

Rep. Trey Hollingsworth: (01:40:00)
Good afternoon. First to you, Chair Powell. I was recently excited by the news about creating a more symmetrical inflation target. I think that was great news. I know it’s something that you and I had discussed at length privately, publicly, at these hearings. I’m sure it had a lot of discussion and a lot of research underpinnings, and it wasn’t just my annoyance that led to it. But nonetheless, I really appreciate you doing that. And I think it’s going to be a positive for the Fed and for the American economy going forward. Specifically, I also wanted to turn to the temporary exclusion of treasuries and deposits at Federal Reserve banks from the SLR. I know that was done through March of 2021 on some concerns that increased reserves during this period of time didn’t want to count against them during SLR, but it was not extended to nor does it flow through to the GSID size indicator.

Rep. Trey Hollingsworth: (01:40:48)
I was wondering why that was the case. And is there any further discussion or dialogue about extending it through the GSID size indicator?

Chair Jerome Powell: (01:40:57)
I have to go check on that for you. I’m not aware of any of those discussions.

Rep. Trey Hollingsworth: (01:41:00)
Okay, great. Well, if you wouldn’t mind checking on this, because I think that it is really important to us to make sure that we see that flow through. Given that in the fourth quarter, I think many of our largest institutions are going to begin to see those impacts. Onto you Secretary Mnuchin, what you said a few minutes ago. I wanted to talk about that there’s been a proposal around Congress potentially talking about preferred equity to some of our real estate borrowers that are most troubled. That, to me, is troubling. That proposal. And I think you said there doesn’t feel like there’s a good solution. Could you talk about why that isn’t a good solution?

Sec. Steven Mnuchin: (01:41:36)
Well, I mean, ideally we’d rather lend as debt and not do preferred equity-

Rep. Trey Hollingsworth: (01:41:43)
Evaluation issues, government ownership position issues. How do you get paid back issues? Those sorts of things-

Sec. Steven Mnuchin: (01:41:49)
All of the above. Exactly.

Rep. Trey Hollingsworth: (01:41:50)
Exactly. And one of the things that I want to emphasize is that there’s real distress in this community. There are real challenges in this community. But the longer that we continue to talk about solutions that aren’t real solutions, I think the longer it will take to get to a legislative and administrative fix that will provide a real solution to those that are hurting across my district, across my state, and across this country. So I appreciate your clarity on that. With that I’ll yield back.

Rep. Maxine Waters: (01:42:14)
Thank you. I now recognize the gentlelady from Michigan, Ms. Tlaib. Five minutes.

Rep. Rashida Tlaib: (01:42:21)
Thank you so much, Chairwoman. Thank you both so much for being here. One of the questions, or some of the basic ones I just want to review with both of you, I mean, Chairman Powell and Secretary Mnuchin. What do you think your primary role is during this pandemic? And I’ll start with you Chairman.

Chair Jerome Powell: (01:42:41)
We are here to serve the American people. I-

Rep. Rashida Tlaib: (01:42:44)
It’s to stabilize the economy.

Chair Jerome Powell: (01:42:47)
That’s a big part of it right now, yeah.

Rep. Rashida Tlaib: (01:42:48)
How about you, Treasurer? Secretary.

Sec. Steven Mnuchin: (01:42:51)
Yes. That’s correct. And to operationalize what are obviously all the responsibilities of the treasurer-

Rep. Rashida Tlaib: (01:42:56)
Like prevent an economic collapse, right? [crosstalk 01:42:58] Both agree-

Sec. Steven Mnuchin: (01:43:00)
Yes, for starters.

Rep. Rashida Tlaib: (01:43:02)
Yeah. No, I hope so too. I’m going to start with you Chairman Powell. Every time I’ve asked you, regarding state and local governments, you have insisted there’s nothing that the Fed can do for states and cities in distress. However, you did create a municipal liquidity facility, MLF, to apparently just do that. However, the program is pretty restrictive. Is it true that only the state of Illinois has applied?

Chair Jerome Powell: (01:43:28)
No, we’ve done two loans. And of course that facility has resulted in $250 billion of borrowing in the private sector though, where there was none taking place before the facility was announced.

Rep. Rashida Tlaib: (01:43:40)
Do you think state and local government going bankrupt would create instability in our economy?

Chair Jerome Powell: (01:43:46)
I think that’s an issue that’s outside my bailiwick.

Rep. Rashida Tlaib: (01:43:49)
[crosstalk 01:43:49] So you don’t think it’s an integral part to ensure that state and local government, and the public sector, is stabilized and will not go bankrupt like the city of Detroit did?

Chair Jerome Powell: (01:44:00)
States can’t go bankrupt. There’s no means for them to. Cities, of course, can under-

Rep. Rashida Tlaib: (01:44:04)
Yeah. So the city of Detroit, when they went bankrupt, did you think there was a impact in the economy there?

Chair Jerome Powell: (01:44:11)
Yes.

Rep. Rashida Tlaib: (01:44:13)
I think so too. My district really hasn’t benefited from the program. And one of the things that I want to point out to you, Chairman Powell, is you don’t have to lend with penalty rates to state and local governments. This regulation that you have there about penalty rates, that wasn’t created by statute, correct? That was created by you all internally?

Chair Jerome Powell: (01:44:34)
It’s in our regulation and in our practice.

Rep. Rashida Tlaib: (01:44:38)
But why not remove the penalty rate when there’s a heightened unemployment or when the state local governments are at risk?

Chair Jerome Powell: (01:44:45)
What that facility has accomplished, is it has opened up the private market. So people are… Right, not people, but state and local governments are borrowing in record amounts, at record low yields. And that’s across the yield curve, and it’s [crosstalk 01:44:58]-

Rep. Rashida Tlaib: (01:44:59)
Only two states applied, correct?

Chair Jerome Powell: (01:45:00)
Excuse me?

Rep. Rashida Tlaib: (01:45:01)
Only two states have been able to qualify under the MLF program?

Chair Jerome Powell: (01:45:04)
Yes, but they’re all borrowing in public markets [crosstalk 01:45:05]-

Rep. Rashida Tlaib: (01:45:07)
But how many cities?

Chair Jerome Powell: (01:45:07)
They’re borrowing in the public markets at much cheaper rates, which is [crosstalk 01:45:09]-

Rep. Rashida Tlaib: (01:45:10)
But Chairman Powell, for what I understand is for corporations, the Fed supports bonds within a five year maturity. Do you think corporations in debt are more important than local municipalities? Because I understand there’s this five years, and you have it for what, three years for local government?

Chair Jerome Powell: (01:45:24)
Yeah. So state and local governments generally are not allowed to borrow to finance deficits. And so what it is, is they’re borrowing is for liquidity. And there’s a part of the market which is zero to three years that is about liquidity, and that’s where we have been willing to lend. But there’s been a lot going on, longer term issues, 20 year bonds and 30 year bonds have been issued. And that’s because of our backstop. Our facility is performing its backstop function, and that has enabled the private market to work very well to serve state and local governments.

Rep. Rashida Tlaib: (01:45:55)
Yeah, I don’t think it… Honestly, just looking at what happened in the city of Detroit, I’m really worried that we’re not being flexible enough, we’re not being able to accommodate for the fact that these state and local governments… And you know that much of the policies from within, I mean, to stabilize the economy, we have to uplift and make sure that the communities are protected. So I’d recommend that you check out the Bill that I have, Uplifting Our Local Communities Act. I really would appreciate that.

Rep. Rashida Tlaib: (01:46:21)
Secretary Mnuchin, we got to prevent an economic collapse, right? I mean, this is a huge issue. And this is probably even deeper than even what the recession that we went through. Yes or no, do you believe another stimulus check could help stabilize the economy?

Sec. Steven Mnuchin: (01:46:33)
I do.

Rep. Rashida Tlaib: (01:46:35)
However, you’ve been on record for not supporting the economic package that we passed in May that included another round of stimulus checks for millions of Americans that are right now unable to afford their rent and so forth. Can you explain what your position there is? Because I think the American people are a little confused. Does the administration support a $1,200, another stimulus payment?

Sec. Steven Mnuchin: (01:46:59)
The administration does support another stimulus payment.

Rep. Rashida Tlaib: (01:47:04)
But you’re willing to go ahead and support it within the Heroes Act, that payment, then push back on what I call, Let Them Go Bankrupt Bill, that the Senate has proposed?

Sec. Steven Mnuchin: (01:47:15)
Let me just say, I take great pride that the last two Bills we did passed with overwhelming bipartisan support. We obviously can’t pass a Bill in the Senate without bipartisan support. And our job is to continue to work with Congress to try to get additional help to the American public.

Rep. Rashida Tlaib: (01:47:33)
I think you need to be very clear with the senators, Secretary, really clear treasurer, that direct payment to individuals is critical to preventing an economic collapse in our country.

Rep. Maxine Waters: (01:47:44)
Thank you very much. We’re going to move to the last member who will be able raise questions. Both of our guests have a hard stop at 12:30, and we’re going to honor that. Mr. Budd, I now recognize you, the gentleman from North Carolina for five minutes.

Rep. Ted Budd: (01:48:03)
Thank you, Chairwoman and Secretary Mnuchin. Thanks for being here. So to date, less than 1% of the PPP loans nationwide have been processed through the SBAs forgiveness portal. Many small businesses, these PPP borrowers, are waiting to see if Treasury or Congress is going to act on some bipartisan forgiveness proposal that we see in the House and in the Senate. Now, the current one, as I understand it, the current process is really confusing for a lot of these small business owners, and it’s not what they expected when they first took out these loans. Now the current process, it’s also a real burden on community banks that have a lot less resources than our large banks. Now, the time for such a streamlined process to be put in place was a long time ago, it was weeks ago. But due to this delay, the situation with banks and borrowers is getting more and more urgent. So under your current authority, would you and Administrator Carranza be able to implement a streamlined process as outlined in the Paycheck Protection Small Business Forgiveness Act?

Sec. Steven Mnuchin: (01:49:12)
Sorry, I’d have to look at the specifics of the Act, and get back to you. But I believe the answer is that we don’t have the authority to implement it the way it is in the Act. But again, I would just say, the forgiveness portal is open, we’re encouraging small businesses to apply. And we’re working with SBA to make sure that they can process those as quickly as possible, and we could provide small businesses tools to make it easy for them.

Rep. Ted Budd: (01:49:42)
Mr. Secretary, I’m glad that the portal is open, and I’m assuming that it’s working. Do you consider it currently to be a streamlined process? And is there anything, improvement that you could do within your authority?

Sec. Steven Mnuchin: (01:49:54)
We developed an easy form, so we tried to make it significantly easier. And again, we’re happy to work on a bipartisan basis with Congress if they want to pass legislation that creates blanket authority for forgiveness.

Rep. Ted Budd: (01:50:08)
Thank you, Mr. Secretary. Chairman Powell, thanks again for being here. At your last appearance before the committee, you stated that our banking system is robust and it’s been a source of strength throughout this pandemic. Specifically, you cited the unprecedented influx of deposits, forbearance measures taken by banks, and the continued ability to lend as evidence of the strengths of the US banks in the COVID-19 environment. Now, while many industries have understandably needed government support and continue operating during the forced economic shutdown, my view is that the financial system has been a crucial partner for the Fed and Congress in facilitating relief to businesses and households. Now, I bring all this up because I’ve heard some call the recent actions taken by Congress and the Fed, they’ve actually called it a bailout for banks. So my question to you is simple, has there been a bailout for banks during COVID-19?

Chair Jerome Powell: (01:51:06)
No, I wouldn’t say that there has been.

Rep. Ted Budd: (01:51:09)
So my office keeps hearing from companies that are unable to secure short-term financing, but they’re using their working capital financing to run their operations. They were too large to take advantage of the PPP, and they don’t have access to the capital markets. So how could the Fed use it’s 13(3) authority to provide assistance to these companies, many of whom provide services and supplies all up and down the supply chain, they’re critical to our nation’s economy, what can the Fed do to provide assistance to them?

Chair Jerome Powell: (01:51:43)
So on working capital, in looking at the idea of an asset-based facility, we did a good deal of work in that sector. And we came away thinking that working capital financing was pretty broadly available. So I’m surprised, and it’s not a good thing that I’m hearing that it’s difficult for some. So we’ll go back and look at that.

Rep. Ted Budd: (01:52:07)
Chairman, is there something that I should relay to these mid-sized businesses that maybe they haven’t found, or they’re not aware of, that they should look to for support?

Chair Jerome Powell: (01:52:18)
Well, we have the Main Street facility, of course, which has three different portals, or three different loan products. And all companies are welcome to borrow there. We have, as I mentioned, a growing interest there. So there’s the PPP program-

Rep. Ted Budd: (01:52:41)
Chairman, do you think [crosstalk 01:52:41]? I’m sorry, do you think there might be a gap between the PPP and the Main Street Lending Facility where some could get caught in the large [crosstalk 01:52:50]-

Chair Jerome Powell: (01:52:50)
We’ve been looking for gaps, honestly. And we did look at working capital finance, and did not see a big problem to solve there. But we’ll go back and take another look at that.

Rep. Ted Budd: (01:53:02)
Thank you, Chairman. I yield back my time.

Rep. Maxine Waters: (01:53:05)
Thank you very much. I’d like to thank our distinguished witnesses for their testimony today, without objection. All members have five legislative days within which to submit additional written questions for the witnesses to the Chair, which will be forwarded to the witnesses for their response. I ask witnesses to please respond as promptly as you’re able. Without objection, all members will have five legislative days within which to submit extraneous materials to the Chair for inclusion in the record. This hearing is adjourned.