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Treasury Secretary and Fed Chairman Testify on Coronavirus Relief Efforts. Aired 10:30-11a ET

Aired May 19, 2020 - 10:30   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


[10:30:00] STEVEN MNUCHIN, SECRETARY, U.S. TREASURY: -- assure you that the chair and I are absolutely enforcing those requirements as required in both the literal and spirit of the negotiations.

BROWN: Well, that -- that -- that was nice-sounding words, but the administration is willing to send people to work without regard for their safety, but the administration's unwilling to make sure these trillions of dollars in taxpayer monies will -- will help these workers directly.

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

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

BROWN: So how many -- how many workers should give their lives to increase our GDP by half a percent, that you -- that you're pushing people back into the workplace? You -- there's been no national program to provide worker safety. The president says reopen slaughterhouses; nothing about slowing the line down, nothing about getting protective equipment. Is -- is -- is -- how many workers should give their lives to increase the GDP or the Dow Jones by 1,000 points?

MNUCHIN: No worker should give their lives to do that, Mr. Senator, and I think your characterization is unfair. We have provided enormous amounts of equipment. We've worked with the governors. We've done a terrific job of getting (inaudible)...

(CROSSTALK) BROWN: Mr. Secretary, I -- I'm not going to let you make a political speech about how -- what a great job. We hear that from the president in his news conferences when in fact, this country -- the president did -- is -- has still not led an effort to scale up testing. He's played state after state -- state against state. He's played hospital against hospital to get protective equipment. Everybody in the country, your comments notwithstanding, knows that.

Chair Powell, you said last week the additional fiscal support could be costly, but worth it if it helps avoid long-term economic damage and leads us to a stronger economy. So Congress needs to think about more than just the national debt right now. It's always costly to act today to help people than to pay for our failure to act in the future. Is that right, Mr. Chairman?

CRAPO: And if you'd answer quickly, Mr. Chairman.

POWELL: Sure. Well, you -- that -- that isn't what I said. I said it could be. I -- this -- this is really a question for Congress to weigh. I wanted to call out the risk there, which was the risk of longer-term damage to the -- to the economy, and that's what I was doing, and I -- I -- I said we may -- we may need to do more, and -- and Congress may, as well.

BROWN: Thank you.

And Mr. Chair -- Chairman, one -- one brief comment. The administration thinks we should put more workers at risk to juice the stock market. They haven't come up with a basic plan for how to protect workers when they go back to work. When President Trump and Leader McConnell give -- want to give away trillions in tax breaks to billionaires, the price tag didn't matter a couple years ago, when that happened. But we need to spend money now to keep workers safe, in spite of the comments of some in the administration and some in Senate leadership.

Thank you, Mr. Chairman.

CRAPO: Well, thank you. I think that I would disagree with that characterization, as well. But let's move on to Senator Toomey.

TOOMEY: (inaudible), Mr. Chairman.

Thanks for joining us this way.

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

POWELL: I do. I do. Would you like for me to expand on that, Senator?

[10:35:00]

TOOMEY: You know, I think we covered it, so I appreciate that.

Let me move on to follow-up on something the Secretary said about reopening. I think it's worth remembering why we shut down our economy in the first place. It was a very specific reason and that was to prevent the virus from spreading so rapidly that so many people would get sick so quickly that we would overwhelm our hospitals.

Well, it's been clear for weeks now we're not going to overwhelm our hospitals, certainly not in Pennsylvania and I know not in most of the country. And so, I think it's essential that we begin the process of carefully, thoughtfully, and safely reopening the economy.

Secretary Mnuchin, the longer that we continue a shutdown, when weeks turn into months, doesn't that necessarily increase the risk that some businesses will fail, some jobs won't be there to go back to if a lockdown and a shutdown continues indefinitely?

MNUCHIN: That's absolutely the case, Mr. Senator. There is the risk of permanent damage. And as I've said before, we're conscious of the health issues and we want to do this in a balanced and safe way.

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

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

TOOMEY: And very briefly, would it be possible to characterize the remaining hurdles you've got to get over in order to start actually being operational?

POWELL: Sure. So it's -- all of them are complex and challenging. Main Street is in a class by itself, really. It is -- it's not the bond market, right? These are small- and medium-sized companies. They live in a world of bank lending. That's a world of negotiated documents and we're trying to enter that world and make loans to qualifying buyers.

So we've set up, you know, big operations at the Federal Reserve Bank of Boston and hired service providers. And we're doing all of that to be ready to face off against -- it's very diverse small, medium, and large companies. Very different industries with very different credit needs, some of them asset based, some of them cash flow based.

So it's a really complex undertaking. And people are working literally around the clock and have been for weeks to get it ready by the end of this month.

TOOMEY: Thank you for that. I also observed that one of the terms -- one of the conditions of these facilities is that the banks who are acting as lenders -- and by the way, I'm hoping that non-banks can participate as well. Business development companies and others, I think, would be effective conduits for these funds.

But the lender is going to be required to keep some of the risks on their own books. And I'm wondering what kind of reaction you've gotten from lenders and potential borrowers. What kind of participation are you anticipating? Do you think there'll be strong demand for these facilities given the way they've been structured?

POWELL: There are three facilities we've had a lot, a lot, of outreach to borrowers, lenders, everybody going back over the last couple of months. And the three (ph) facilities will probably attract different levels of demand. We are getting a good deal of interest and inquiry on them. And I think we'll find out fairly quickly.

You should know that we will continue to be prepared to adapt, as we have shown, if the uptake is not what we would hope then we'll be prepared to go after that and try to find ways to address the needs of this -- of these -- this area of the economy.

TOOMEY: All right. Thank you, very much.

Thanks, Mr. Chairman.

CRAPO: Thank you.

Senator Reed?

REED: Chairman Powell, thank you for your brave leadership.

And I think you recognize that state and local governments are absolutely critical to our response to COVID but also to our economy. It's been estimated, for example, that there are 20 million jobs in state and local government, that they contributed -- state and local governments -- 8.5 percent to the national GDP. And we all know they're facing dire economic circumstances, projected 10 percent budget losses this year, 25 percent next year.

How likely will it be for us to have a robust recovery if our states do (ph) not receive additional and flexible fiscal relief? Not a loan from the Fed, which increases their leverage, but fiscal grants to the states. How robust can our recovery be if this key sector is out of play?

[10:40:00] POWELL: Senator, I don't want to get too into individual fiscal proposals. Those are really for you. You know, we -- I -- I've tried to stay at a fairly high level on this.

I will just echo, though, that I think something like 13 percent of the workforce is in state and local government. A lot of the -- a lot of the critical services that people rely on day to day are provided at the state and local level. With balanced budget -- budget amendments -- that means that there are (ph) balanced budget provisions in the state constitutions, that means that when revenue goes down sharply it can mean job cuts and service cuts. So those are all important things to consider in -- in going forward.

REED: Well, thank you.

Secretary Mnuchin, I just want to make a comment because I made this comment to you repeatedly. That is, I do believe that within the (ph) Coronavirus Relief Fund that we passed, you do have the flexibility to provide support for the states when it comes to lost revenue. This lost revenue was not anticipated in their budgets, far from that.

And second, it is directly related to the COVID virus. If you go to most states, it is directly related.

So I would urge you to re-look, as you've done at PPP and you've tailored that several times, to look back again and reconsider the ability to use flexibility in this Coronavirus Relief Fund. So that's just a comment, Mr. Secretary.

Let me return back to Chairman Powell. Chairman Powell, we know that unemployment is going to be something that will be with us for a while. It's about 15 percent now. I've seen estimates as high as 20 percent or 25 percent next year. And yet, our unemployment insurance programs are keyed to a date. They will end at a certain time.

Do you think it's important for us to have the confidence and give confidence to people that they can still receive funds like this, even if the date has surpassed, the economy is still in disarray, states are still looking at 10 percent unemployment rates? Don't they need that certainty? So we'd have to build in some type of test (ph), not a date, but a test (ph) for unemployment compensation.

POWELL: Senator, again, that's a -- that's a question about a specific fiscal policy, and that really falls to you. We -- you know, we try not to get into too many specifics.

I will say, though, that the risk that I called out last week and that I've been concerned about and others have, is that long periods of unemployment can really affect people's ability to go back to work. Because they lose their networks, they lose their skills, they lose contact with the job markets.

So I think anything that keeps people intact is probably -- hopefully in their job. But in the meantime, keep them out of insolvency (ph) and things like that, if -- should -- should the expansion take -- start later or take -- take longer to get going. Those are -- those are appropriate things for you to look...

(CROSSTALK)

REED: Thank you.

Just a final point, Chairman Powell. That -- I think we're missing the boat once again. This is sort of like deja-vu. I was here in 2008, '09, '10. And we leaped in to help the mortgage market with both feet, but we didn't help people avoid foreclosure. It seems to me that that's what we'll do again, unless we have a fiscal program that provides resources to keep people in their homes.

When they can't pay their rent, when they miss their mortgage payments, that'll put pressure on the mortgage community. And you and the Fed and the Treasury will rush to help. Wall Street will get the help, Main Street will be left behind. It'll be as it was in '08, '09 and '10, thousands and thousands of people without homes. And any economic recovery is going to be slowed by people in those conditions.

So I would just ask whether you consider this fiscal response to the core problem -- people can't pay their rent, they can't pay their mortgage -- is probably the best response rather than filling (ph) in later.

POWELL: I think you're right. It's -- foreclosure, waves of foreclosures can undermine household finances obviously. And -- or -- or as a result, bad household finances or troubled (ph).

So -- but of course in this case, there has been some significant forbearance on that. And I think, you know, that's again something to continue to consider.

REED: Thank you very much, Mr. Chairman.

I thank Chairman Powell and Chairman -- Crapo, thank you.

CRAPO: Thank you.

Senator Scott?

SCOTT: Thank you, Mr. Chairman.

And to the panel, thank you all for being with us this morning. Really important time in our country. There's no doubt that the global pandemic has really shocked the world and frankly, shuttered a lot of businesses.

And because of the Paycheck Protection Program, I think the two tranches of the Paycheck Protection Program has saved, from my understanding, somewhere near 50 million jobs. The first tranche, about 30 million jobs; the second tranche, about 20 million jobs. And we still have about $100 billion left that we can deploy into our communities.

[10:45:00] With that said, thinking about the backup (ph) of $100 billion left in the PPP, Mr. Secretary, I think you know that I feel really passionate about helping the underserved communities, whether that's Horry County in South Carolina, or -- or West Virginia and some of the rural parts of West Virginia.

Very often, small and minority businesses are the lifeblood in those small rural communities. And frankly, we have the Minority Business Development Agency that has done a really good job of helping to deploy some of the resources from the PPP into those underserved communities.

My question is, how can we use the MBDA or some other mechanism to get more of those resources in our rural communities or, frankly, in our inner city communities, where perhaps the Paycheck Protection Program has been more intimidating for smaller businesses like barber shops and beauty salons, some of the rural gas stations that may not have the banking relationship that -- that was necessary at the beginning of the program, or they're 1099, which means that basically they had to wait a week before they were able to get in the cycle.

How can we help those organizations and agencies like the MBDA actually provide the marketing so that more people understand the benefits and they understand the program of the PPP, Mr. Secretary?

MNUCHIN: Well, Senator Scott, first of all, thank you because we appreciate the work you've done with us on -- on this issue already, and we will continue to work with you and others.

One of the things we are very pleased about the additional money, is that the average loan size has come down considerably. I think we all had certain concerns about in the first tranche, how larger companies were prioritized. I believe that's now been corrected. I also couldn't be more pleased, how we've been able to get sole proprietors and others into the program.

And as I have said, is fortunately, right now, we still have a significant amount of money left. But we are very much willing to consider the bipartisan request of reserving money for CDFIs at the end to make sure that the underserved communities are properly served in this program. Thank you.

SCOTT: Thank you, Mr. Secretary. Once again, let me just say to you -- since I can see you on the screen -- you have done a fabulous job under intense pressure. And without any question, America recognizes the valuable service that you have provided to our country.

And I am personally thankful for your accessibility under pressure. You have still been very receptive and responsive, and that is -- that is to say a lot, under the current conditions. So thank you very much on that.

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

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

POWELL: So it is an important market. As you know, we've supported the CMBS market, (inaudible) open-market purchases on (ph) that -- that did help that market keep functioning. In addition, legacy CMBS are eligible for our Term Asset Loan Facility, which is an asset-backed security.

It's an important market, we continue to monitor it. You know, the 13(3) facility is a lending facility and that's -- that's the tool we have. Not every -- not every problem can be as successfully addressed with such a facility, but -- but where it can be, we're willing to take a hard look.

SCOTT: OK. Thank you.

Mr. Secretary, anything to add to that, sir?

CRAPO (?): Quickly please.

[10:50:00]

MNUCHIN: Again, I would just add, both working with the FHFA as well as Ginnie Mae on the -- the agency side, and then working with the Fed on the securitization side. Unfortunately, securitizations have certain limitations. But we continue to do this. Thank you.

SCOTT: Thank you, Mr. Chairman. I may be over my time, I can't see the clock so I assume that I have five more minutes left.

(LAUGHTER)

CRAPO: I've been trying to tap. I'm not sure if everybody's hearing the taps, but I'll -- I'll do something louder.

SCOTT: Thank you, sir.

CRAPO: All right, thank you. Senator Menendez.

MENENDEZ: State and local governments are -- are facing unprecedented budget challenges, we're looking at an enormous wave of budget shortfalls about crests which will lead to a devil's cocktail of devastating layoffs, dangerous cuts to public safety and essential services and massive local tax increases. Any one of those ingredients alone threatens to make this economic crisis even worse and the combination of all three is almost unthinkable.

The Bureau of Labor Statistics said just reported that state and local governments laid off nearly 1 million workers in the month of April, that's almost 1 million firefighters, police officers, teachers, emergency health personnel that should be on the front lines of the public health crisis, but our sideline instead. So Chairman Powell, let me just start by asking do you agree that our economy will get worse if state and local governments are forced to lay off even more firefighters, police, officers, teachers and emergency health personnel?

POWELL: Well let me say what we are doing senator, we are -- we have a liquidity facility that is there to address the short-term liquidity needs that these entities because of their loss of revenue due to the effects of the pandemic. And that's really the tool that we have to...

MENENDEZ: I appreciate that, but that's not my question. My question is if states, counties, municipalities continue on the path to lay off -- we have 1 million laid off even more, just from a -- from an economic situation, doesn't that make the economic recovery even worse?

POWELL: Essentially yes, senator, and we have the evidence of the global financial crisis in the years afterward where state and local government layoffs and a lack of hiring did weigh on economic growth.

MENENDEZ: Well, one of the tools that we have to alleviate this problem is by using the money Congress provided in the CARES Act to bring down borrowing costs for our state and local governments so they can set the stage for a strong recovery. I was glad to see the Federal Reserve support local governments through the municipal lending facility, but frankly I don't think it's enough.

In a letter that I, Senators Tillis, Brown and Murkowski sent to you and Secretary Mnuchin last week, we called on the Fed to establish another facility one that would purchase medium and long-term municipal bonds both directly from issuers as well as on the secondary market, and thereby ensure our state and local governments can continue to finance key public services and invest in infrastructure and other areas to jumpstart our economy get Americans back to work. Will you commit to work on their proposal that the senators sent to you?

POWELL: Yes, we'll take a look at that, senator. I will say though that generally with 13(3), what we're trying to do is address liquidity and those are really long-term funding needs, but notwithstanding that, we -- we are taking a look.

MENENDEZ: I appreciate that. In a speech last week Mr. Chairman, you said quote, "additional fiscal support could be costly, but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery. The trade-off is of course elected representatives," and you know I -- I agree. The hit to our states, cities and counties is tremendous and is not just specific to my state of New Jersey; projections released by Moody's reveals that every state in the nation is already or will soon faced historic budget shortfalls.

Just to pick a few examples, they found that Ohio and Arizona are each facing a fiscal shock totaling about 20 percent of their entire state budget and for some states, the numbers are even worse like West Virginia, which is facing a 40 percent fiscal shock. Like you said the -- the Fed can't be expected to solve all of our problems.

Yesterday, I introduced SMART Act, which is a bipartisan -- three Republicans, three Democrats -- to provide $500 billion in direct support to our state and local governments. It's the first bipartisan bill of its kind in the Senate, and I think when we have colleagues from Mississippi, Louisiana and Maine on the Republican side, it's not a partisan issue. Would that be the type of solution that can get us back in terms of the states into fiscal recovery?

[10:55:30]

POWELL: Senator, we try to stick to our knitting over here and we -- you know that we've done what we can with the municipal liquidity facility, but those questions really for elected representatives (inaudible).

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

CRAPO: Thank you. Well let's move to Senator Sasse, who will be with my telephone. And Senator Sasse, I will tap at about 30 seconds left of your five minutes. You can proceed.

SASSE: Perfect. Thank you chairman, and gentlemen, thank you for being here. Sorry that I'm in a hallway outside of a judiciary committee hearing, so I don't of the Zoom camera here, but grateful for both of your time and responsiveness on this.

I want to start by asking about some of the recent cyber attacks. We've obviously seen an increase in schemes directed at financial institutions that have been active in trying to help with corona response and I'm just curious if you have any update for us on the cyber-security attacks we see in this space?

MNUCHIN: Well, I would just comment on that we have a department within Treasury that is actively working on all these issues and coordinates and make sure that our infrastructure -- I will just give a pitch for our Secret Service bill of moving the Secret Service back to the Treasury, (inaudible) is I think they can help with is on these cyber-related issues. But I can assure you we have all the resources working on this jointly and take it very seriously.

SASSE: (Inaudible) institutions that don't have the scales that have huge cyber defenses of their own and when we see foreign actors doing stuff like this, it's obviously critical that we view this as a whole of society problem. Not just these institutions alone. So thank you for your pledge to keep looking at that. Chairman Powell, the Fed has done a series of announcements over the last two months about the 13(3) lending facilities.

SASSE: And in the announcement of April 9th, the Fed announced that the term asset-backed securities loan facility would be expanded to include commercial mortgage-backed security as well as static collateralized loan obligations. The Wall Street Journal described that expansion of quote, "the Fed will in effect be buying the worst shopping malls in the country and some of the most embedded company," closed quote. Could you give us your perspective on Wall Street Journal's characterization of this expansion and are they right about the risk levels with some of the commercial properties?

Obviously, as America goes through this experience of corona time, lots and lots of people are not just doing telecommuting and distancing for the present, but we see at Silicon Valley lots of companies planning to migrate their long-term strategy, and I would assume that's a bellwether of what we're going to see for commercial property across America. The taxpayers should not be on the hook for flooding into that space.

Can you help us understand how you'd respond to The Wall Street Journal's argument?

POWELL: Sure. First, in TALF we're supporting asset-backed security markets broadly, which -- that's consumers, that's car loans, that's credit card loans -- things like that in addition to the CMBS you mentioned. Now, we're only buying the AAA-rated piece and we're only buying it with a good-sized haircut. So the credit risk is actually very, very low on this -- on this to us. And the same thing is true of the CLOs.

SASSE: That's helpful, the AAA point. Thanks, Chairman.

Secretary Mnuchin, I want to go back to some China I.P. issues that you and I have discussed before. Obviously, the Chinese government has been stealing American intellectual property for decades to fuel its economic rise. And while we've indicted companies and individuals for cyber espionage and for some of the theft of this intellectual property, we rarely see any sanctions for these crimes.

For instance, we've indicted Huawei, and its subsidiaries, and its CFO for a long list of crimes from the theft of trade secrets, to sanctions evasion, to money laundering, but we haven't placed any sanctions on Huawei itself.

How do you and the Treasury Department assess the costs and benefits -- [11:00:00]