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They can’t seem to agree on anything from where the money went, who got what, and oh, lets slice and dice the unemployment numbers because they don’t appear accurate. One thing is for sure, In n Out is going after their insurance carrier, which I believe many businesses are and should for denial of benefits during Covid19.
I hope to spare you the entire briefings in the future, but this morning’s briefing is very telling as even the next aid package seems to be in trouble.
A $600 billion Federal Reserve loan program designed to offer a lifeline to tens of thousands of struggling U.S. companies is heading for trouble before it even gets under way.
Some potential borrowers complain that the "Main Street" lending program — so named because it's aimed at helping midsize companies hit hard by the coronavirus crisis — imposes interest rates that are too high and requires businesses to pay back loans too quickly.
Under the program, expected to be rolled out this week, companies will also face unwelcome curbs on stock buybacks, dividend payments and executive pay. And the sheer length of time it has taken to start the program — two months — has already forced many firms to seek alternatives. That has left industries divided, with manufacturers eager to tap the loans but retailers wanting more, as many businesses face the prospect of extensive layoffs or even bankruptcy.
“The general feeling among our members is too late and not enough,” said David French, senior vice president of government relations at the National Retail Federation.
The warnings about the Main Street rescue echo those of the wildly popular Paycheck Protection Program, the small business lending effort that ran into a wall of problems after its chaotic launch in April, stirring up similar fears about whether federal assistance will get to the businesses that need it the most.
The Main Street program is a critical component of the federal economic relief because it’s supposed to fill a gap for companies that are too big for the government-backed small business loans but not large enough to warrant giant bailouts like the airlines. Targeted businesses — those with fewer than 15,000 employees or less than $5 billion in annual revenue — can receive four-year loans that they don’t have to start paying back for a year.
But the early misgivings about the program could force the Fed and the Treasury Department to revamp its design to avert bankruptcies and do more to help employers make it through the pandemic.
"I hope I'm going to be surprised that it's more robust," said Sen. Mark Warner (D-Va.), a key advocate for creating the program, in an interview. "It's not been the kind of stampede that I expected."
It's not only the potential borrowers who are feeling uneasy. Another complication may come from reluctant banks, which are tasked with issuing the loans.
Lenders will be able to make money while offloading most of the risk of default to the Fed — which will purchase up to 95 percent of each loan — but they might still be hesitant to extend credit to companies that are in such dire condition that they can’t get financing elsewhere. One bank representative described a “fizzle” at launch instead of a “big bang.”
The kickoff and any recalibration of the business rescue will be one of the Fed’s most difficult tasks yet during the pandemic, after the central bank under the leadership of Chair Jerome Powell unleashed a swift barrage of easy money and emergency lending that helped fend off an even deeper economic downturn.
“Chairman Powell has made it clear that the Fed is not economically omnipotent,” said Isaac Boltansky, director of policy research at Compass Point Research & Trading. “The Main Street effort will underscore its inherent limitations.”
The Main Street program is a novel one for the Fed, as the Covid-19 crisis has forced the central bank to expand the scope of the emergency lending actions it took during the 2008 financial crisis.
The Fed announced details of the program in April after Congress set aside $500 billion in funds to aid companies, $75 billion of which will be used by Treasury to cover any losses from the midsize business program. As long as losses don’t exceed that amount, the Fed is willing to lend up to $600 billion in newly printed money.
Companies that take advantage of the program have to make “commercially reasonable efforts” to retain employees, but unlike the "paycheck protection” goal of the small business rescue, they don’t have to formally pledge to use the money for payroll. That decision, criticized by Democrats like Sen. Elizabeth Warren of Massachusetts, was made under the assumption that companies might need to use the money elsewhere to be in a position to pay back the loan.
The Fed and Treasury previously expanded eligibility for the program, after asking for feedback during the initial rollout. About 30,000 businesses now meet the workforce and revenue criteria for the loans, according to Treasury.
Powell last week held open the possibility that the program would be further broadened. The minimum is $500,000 for new loans, and the maximum is $200 million for expansions of existing loans. “I can imagine us expanding on either end,” he said.
Yet some potential borrowers and banks say there won’t be a rush to take advantage of the program as it’s structured today.
Rep. French Hill (R-Ark.), a former banker and Treasury official who now serves on Congress’s coronavirus oversight panel, said he has heard feedback from midsize businesses indicating the program wouldn’t work for them. The terms of the loans may not fit some of the businesses that are hurting the most, including hotels and larger restaurant chains, he said.
Warner, a member of the Senate Banking Committee, has called on the Fed and Treasury to ease the terms, including the interest rate. He argues that Treasury should be more willing to lose money on the program.
“I think the secretary gets that, but I also think he wants to make sure that he gets clearer signs from Congress that was our intent,” Warner said.
A senior Treasury official told POLITICO that the government’s losses on these loans will depend on how the economic situation unfolds. Under certain severe scenarios contemplated by the department, Treasury could lose most or all of the $75 billion that it’s contributing to the program.
Lenders are already trying to downplay expectations. Even though banks will only carry a small portion of the loan on their books, they warn that the loans still carry the risk of borrowers defaulting, making underwriting a significant hurdle, and that there is only a small pool of likely borrowers. Some fear they’ll be vilified if they don’t approve enough loans.
"The way this is currently structured, we don’t think there's going to be a huge amount of loans underwritten and a lot of money flowing out to the economy,” said Lauren Anderson, senior vice president and associate general counsel at the Bank Policy Institute, which represents the country’s largest lenders.
Reluctance by lenders to offer the loans is a top concern for the National Association of Manufacturers, which says there is a “huge appetite” among its members for the program.
“We just want to make sure that lenders are participating and money is flowing out into the system,” said Chris Netram, the group’s vice president of tax and domestic economic policy.
The Fed and Treasury are encouraging banks to extend credit beyond loans they would normally make. For example, lenders will be compensated for routine management of the loans based on the entire value of the financing, not just the portion they own.
The senior Treasury official also said the department would be open to tweaking the program if few companies are interested but said there’s no reason to adjust the loan terms if demand is low just because companies don’t want to take on more debt.
And if banks are proceeding with caution, that may not be a problem either for those running the program.
“If a bank is not willing to even lend 5 percent of a loan to help the company through this, that’s a very strong indication that this company is not a viable company,” the Treasury official said. “And we don’t want to be making loans to bankrupt companies.”
WASHINGTON (Reuters) - A technical snafu in a U.S. government system caused many small businesses to receive loans twice or more under a federal aid program to help businesses hurt by the COVID-19 pandemic, nearly a dozen people with knowledge of the matter said.
The money mistakenly handed out could amount to hundreds of millions of dollars that the government and lenders - which made the loans - have been trying to identify and recover in recent weeks, one of the people briefed on the matter said.
The technical issue and scale of the resulting duplicate deposits made under the Small Business Administration’s $660 billion Paycheck Protection Program (PPP) have not been previously reported. They are the latest issue to emerge with the massive program, which was designed to keep businesses hurt by the novel coronavirus afloat and their workers employed.
The error was caused by a blind spot in the SBA’s loan processing system which failed to see when some borrowers submitted applications multiple times typically with several different lenders, three of the sources said.
Information provided by the sources, which include industry executives and borrowers, as well as Reddit posts, suggest at least 1,020 duplicate deposits were issued. While that is a tiny fraction of funds disbursed under the huge program, it could amount to roughly $116 million dollars based on average loan sizes.
A spokesman for the SBA declined to comment, while a spokesman for the Treasury, which jointly administers the program, did not respond to a request for comment. Launched in April, the PPP allows small businesses hurt by the pandemic to apply with a bank for a forgivable government-backed loan. The SBA has approved roughly 4.48 million loans averaging $114,000 in size for a total of $510 billion as of May 30.
Under the program, lenders issue the loan and are later reimbursed by the SBA. The government has said it will only guarantee one loan per borrower, which means lenders, rather than the taxpayer, are likely to be on the hook for the error.
Wells Fargo & Co (WFC.N), JPMorgan Chase & Co (JPM.N), Bank of America Corp (BAC.N), PayPal Holdings Inc (PYPL.O), Kabbage Inc, Square Inc (SQ.N) and BlueVine are among companies that have deposited duplicate loans, according to the sources and Reddit posts.
“The SBA inadvertently issued duplicate loan approvals to some small businesses. It is our impression that the majority of these borrowers are...honest small business owners who had applied for a PPP loan through multiple lenders,” a spokeswoman for BlueVine said in an email, adding “multiple” lenders were affected.
A spokeswoman for JPMorgan Chase said the bank was aware of a “handful” of duplicate deposits and had referred those customers to the SBA. A spokeswoman for Square confirmed it was working with the SBA and borrowers to resolve the issue.
Spokesmen for Wells Fargo and Bank of America declined to comment. A spokesman for Kabbage did respond to requests for comment.
“We have seen a small number of duplicate applications funded through the SBA Paycheck Protection Program, despite the administration’s guidance that applicants not apply more than once for a loan,” said a spokesman for PayPal, which partnered with a bank to fund the loans. He added PayPal was working with the SBA and borrowers to resolve the issue.
The PPP was launched hurriedly on April 3 as the government rushed to get cash to millions of desperate borrowers. From the outset, the unprecedented first-come-first-served program struggled with technology and paperwork problems that led some businesses to miss out while some affluent firms got funds.
In the scramble for cash, many businesses applied with multiple lenders. Industry sources estimated that roughly 15-20% of the applications received by the biggest banks were duplicates.
Most of those were spotted and withdrawn, but a fraction appeared to slip through if a borrower’s Social Security Number and tax identification code were mixed up in the system, one of the people said. Another source briefed on the issue said the SBA estimated that the universe of duplicate approvals amounted to hundreds of millions of dollars if not more.
“The SBA has asked lenders to review duplicate loans based on a list they provided and work with any other lenders that may have extended funds to get one of the parties to cancel,” the BlueVine spokeswoman said.
The SBA has said in the past that it doesn’t collect disbursal data from lenders, so the agency may not know the total amount of duplicate deposits. And lenders may not know if they have issued a duplicate deposit unless the borrower tells them, three of the people said.
“How is it that I was successful at getting money from two different banks?” asked one California-based business owner who said she received two deposits, one of which was processed by Wells Fargo. She told Reuters that she returned the other loan.
Businesses that refuse to return loans could be referred to the Department of Justice, which is probing suspected PPP fraud.
Some borrowers said they weren’t clear on how to fix the issue. One Reddit user who last month said they received duplicate deposits from JPMorgan Chase and PayPal said they had a “deep fear” that if they reported the problem they may be left “with no PPP at all.”
WASHINGTON — One of the biggest questions surrounding the government’s efforts to help businesses struggling amid the coronavirus pandemic is whether the programs are constructed in a way that will prevent a wave of bankruptcies, keeping a short-term shock from turning into drawn-out economic pain.
A new analysis from a group of Harvard University researchers suggests that the answer, should markets turn ugly again, might be no.
Highly indebted public companies that employ millions of people are largely left out of the major direct relief options that Congress, the Federal Reserve and the Treasury have devised to help companies make it through the pandemic.
Much of that is by design. Policymakers have prioritized getting help to businesses that came into the coronavirus crisis in good health, lowering the chances that taxpayers will wind up bailing out big companies that loaded up on risky debt. It could also help officials avoid the kind of angry criticism that surrounded 2008 bank and auto company rescues.
But it leaves a slice of America’s companies fending for themselves amid the sharpest downturn since the Great Depression, putting them at greater risk of bankruptcy and their workers at greater risk of job loss.
Publicly traded firms that employ about 8.1 million people — roughly 26 percent of all employment at tracked publicly traded companies — are all or mostly excluded from direct government relief, based on an analysis by Samuel Hanson, Jeremy Stein and Adi Sunderam of Harvard, along with Eric Zwick of the University of Chicago.
Not all of those companies are likely to run into trouble, some have deep-pocketed investors behind them and others made poor financial choices that left them vulnerable to shock. But excluding a broad swath of employers could affect how successful the government is at preventing wide-scale bankruptcies if virus-related economic pain lingers, the researchers warned.
“We’re trying to flatten the bankruptcy curve, or flatten the financial distress curve,” said Mr. Hanson, who refined the analysis for The New York Times. If a large number of companies are left out of support programs and go out of business, “it’s likely to be very costly and leave permanent scarring to our productive capacity.”
Their analysis is only a starting point. Many private companies are also excluded, but information about those firms is harder to come by, so the authors do not account for them.
“This is almost like the tip of the iceberg,” Mr. Hanson said.
After the pandemic forced states to go into varying degrees of lockdown in March, tanking revenues and freezing the financial markets that companies tap to raise cash, the government announced a suite of programs to help corporations make it through.
The Paycheck Protection Program for small businesses — created and funded by Congress and operated by the Treasury and the Small Business Administration — extends loans to companies employing up to 500 people, with some exceptions. The loans are forgivable as long as those businesses meet program criteria, which require them to hang onto workers.
To help bigger companies, Congress turned to the Fed, which can set up emergency lending programs in times of economic trouble. Lawmakers gave Treasury Secretary Steven Mnuchin $454 billion to back up such efforts.
The Fed’s midsize business option, called the Main Street program, is in the process of getting up and running and will offer loans to companies with up to 15,000 employees or $5 billion in revenues. Those with especially high debt levels cannot tap it.
The Fed’s main big-company relief program will buy newly issued corporate bonds. It is restricted to firms with highly rated debt, or those that have been downgraded only since the coronavirus crisis took hold.
Those three programs — the Paycheck Protection Program, Main Street and the primary market corporate bond facility — are the ones included in Mr. Hanson and his colleagues’ analysis.
Some of the firms that those direct government programs miss — think the Gap, Dell Technologies and Kraft Heinz — are household names with huge work forces. If such companies were to run into problems gaining access to cash, it could precipitate job cuts, the researchers said.
But there is a reason the business relief programs have avoided directly betting on more debt-laden big companies. Including shakier businesses in the Main Street facilities or the corporate bond program would increase the risk that companies would fail to pay the Fed and the Treasury back, ramping up the chances that the lending programs would lose money and — ultimately — cost taxpayers.
Adding in risky companies could also expose the Fed and the Treasury to accusations that they bailed out companies that private equity firms had loaded with debt to maximize profits. And Democratic lawmakers have specifically warned against helping companies that were struggling heading into the crisis.
The Fed should “refrain” from using the Main Street program “to help companies paper over existing problems arising from excessive leverage, international price competition and concerns about long-term viability,” Senator Sherrod Brown, the highest-ranking Democrat on the Senate Banking Committee, wrote in a letter to the Fed chair, Jerome H. Powell, and Mr. Mnuchin on May 18.
The Fed has helped risky companies less directly. One of its corporate bond programs will buy a limited amount of junk-bond exchange traded funds, which trade like stocks but track a broad basket of corporate debt. That, along with the mere signal that investment-grade bond purchases are coming, has breathed life back into choked bond markets, including for junk debt.
But the fact that a group of companies has little to no access to direct assistance — essentially leaving those firms at the mercy of market conditions — could come at a cost if things worsen again, in which case borrowing is likely to become more difficult for high-yield companies that do not actually have Fed support to back them.
“You have to be a little careful about assuming you can just do things with magic,” said Mr. Stein, the analysis co-author who is a former Fed governor. While markets might assume the central bank will step in to help the market, if they don’t when push comes to shove, conditions could deteriorate sharply.
“The high-yield market might really think that there’s a Fed put right now,” he said, referring to a financial promise to buy if prices dip below a certain level. “At some point, if that comes unglued, you have a real problem.”
Companies with low bond ratings could have a particularly large ripple effect: Five million employees work at big companies excluded based on their junk or unrated status. A smaller number, about two million, work at medium-size firms left out for their debt levels.
About 1.1 million are at companies that are technically eligible for the Paycheck Protection Program because of their industry classification, but are unlikely to tap it because they have access to other capital markets and the Treasury has tried to deter such firms from using the program, Mr. Hanson said.
Mr. Stein and Mr. Hanson said they would recommend broadening the Fed’s programs to include some, but not all, lower-rated companies.
While the Fed has shown some willingness to consider lending to some riskier companies — the Boston Fed president, Eric Rosengren, has said the central bank may expand the Main Street program — there would be challenges to providing much broader help through central bank lending.
The Fed is not legally allowed to gamble on companies that are insolvent, an imprecise term but one that could soon apply to many businesses that have faced months of reduced revenues. It could also be the case that more debt, the only medicine the central bank can offer, is not a good solution for already-floundering companies.
Groups focused on workers point out that the Fed lending programs lack toothy employment requirements, so it is possible that even if the central bank could find a way to support such companies, it would help shareholders without leading to worker retention.
“You don’t want to pay off owners of zombie companies, or people who took big risks on oil and gas corporations and they didn’t pan out,” said Marcus Stanley, the policy director at Americans for Financial Reform.
Friday’s U.S. jobs report from the Labor Department is expected to show U.S. employers shed nearly 30 million positions from payrolls this spring as a result of <a style="color: purple;" href="https://www.wsj.com/articles/coro