[Senate Hearing 116-459]
[From the U.S. Government Publishing Office]






                                 ______



                                                        S. Hrg. 116-459

 
     THE STATUS OF THE FEDERAL RESERVE EMERGENCY LENDING FACILITIES

=======================================================================

                                HEARING

                               before the

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                     ONE HUNDRED SIXTEENTH CONGRESS

                             SECOND SESSION

                                   ON

   RECEIVING UPDATES ON THE FEDERAL RESERVE 13(3) EMERGENCY LENDING 
     FACILITIES AND THE STATE OF THE COMMERCIAL REAL ESTATE MARKET

                               __________

                           SEPTEMBER 9, 2020

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban Affairs
  
   [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]    
   
   
   
   


                Available at: https: //www.govinfo.gov /
                
                
                      ______
 
              U.S. GOVERNMENT PUBLISHING OFFICE 
 44-818PDF          WASHINGTON : 2023
 
 
 

            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                      MIKE CRAPO, Idaho, Chairman

RICHARD C. SHELBY, Alabama           SHERROD BROWN, Ohio
PATRICK J. TOOMEY, Pennsylvania      JACK REED, Rhode Island
TIM SCOTT, South Carolina            ROBERT MENENDEZ, New Jersey
BEN SASSE, Nebraska                  JON TESTER, Montana
TOM COTTON, Arkansas                 MARK R. WARNER, Virginia
MIKE ROUNDS, South Dakota            ELIZABETH WARREN, Massachusetts
DAVID PERDUE, Georgia                BRIAN SCHATZ, Hawaii
THOM TILLIS, North Carolina          CHRIS VAN HOLLEN, Maryland
JOHN KENNEDY, Louisiana              CATHERINE CORTEZ MASTO, Nevada
MARTHA McSALLY, Arizona              DOUG JONES, Alabama
JERRY MORAN, Kansas                  TINA SMITH, Minnesota
KEVIN CRAMER, North Dakota           KYRSTEN SINEMA, Arizona

                     Gregg Richard, Staff Director

                Laura Swanson, Democratic Staff Director

                        Catherine Fuchs, Counsel

                Brandon Beall, Professional Staff Member

                    Tanya Otsuka, Democratic Counsel

           Corey Frayer, Democratic Professional Staff Member

                      Cameron Ricker, Chief Clerk

                      Shelvin Simmons, IT Director

                    Charles J. Moffat, Hearing Clerk

                          Jim Crowell, Editor

                                  (ii)


                            C O N T E N T S

                              ----------                              

                      WEDNESDAY, SEPTEMBER 9, 2020

                                                                   Page

Opening statement of Chairman Crapo..............................     1
    Prepared statement...........................................    37

Opening statements, comments, or prepared statements of:
    Senator Brown................................................     2
        Prepared statement.......................................    37

                               WITNESSES

Hal S. Scott, Emeritus Professor, Harvard Law School, and 
  President, Committee on Capital Markets Regulation.............     6
    Prepared statement...........................................    39
    Responses to written questions of:
        Senator Cortez Masto.....................................    79
        Senator Sinema...........................................    79
Jeffrey D. DeBoer, President and Chief Executive Officer, the 
  Real Estate Roundtable.........................................     7
    Prepared statement...........................................    45
William E. Spriggs, Professor of Economics, Howard University, 
  and Chief Economist, AFL-CIO...................................     9
    Prepared statement...........................................    75

              Additional Material Supplied for the Record

Letter submitted by the CATO Institute, Center for Monetary and 
  Financial Alternatives.........................................    81
Letter submitted by the International Council of Shopping Centers    86

                                 (iii)


     THE STATUS OF THE FEDERAL RESERVE EMERGENCY LENDING FACILITIES

                              ----------                              


                      WEDNESDAY, SEPTEMBER 9, 2020

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee met at 10 a.m., via Webex, Hon. Mike Crapo, 
Chairman of the Committee, presiding.

            OPENING STATEMENT OF CHAIRMAN MIKE CRAPO

    Chairman Crapo. This hearing will come to order.
    This hearing is another remote hearing by video, and a few 
of the traditional videoconferencing reminders again.
    Once you start speaking, there will be a slight delay 
before you are displayed on screen. To minimize the background 
noise, please click the ``Mute'' button until it is your turn 
to speak or ask questions.
    If there is any technology issue, we will move to the next 
Senator until it is resolved, and I remind all Senators and the 
witnesses that the 5-minute clock does still apply.
    You should all have one box on your screens labeled 
``Clock'' that will show how much time is remaining, and I will 
try to remember to gently tap the gavel to remind Senators 
about 30 seconds before their time is up.
    To simplify the speaking order process, Senator Brown and I 
have again agreed to go by seniority for this hearing.
    With that, today we welcome to this virtual hearing the 
following witnesses: Mr. Hal Scott, president, the Committee on 
Capital Markets Regulation; Mr. Jeffrey DeBoer, president and 
chief executive officer of the Real Estate Roundtable; and the 
Honorable William Spriggs, professor of economics at Howard 
University and chief economist of the AFL-CIO.
    It has been 5 months since the passage of the Coronavirus 
Aid, Relief, and Economic Security Act, or CARES Act, and its 
being signed into law.
    Title IV of the CARES Act provided a $500 billion infusion 
into the Exchange Stabilization Fund in order to support the 
Federal Reserve's emergency lending facilities.
    This amount has been leveraged to provide trillions of 
dollars in liquidity back into the markets, supporting credit 
flow and helping to stabilize the economy.
    Currently, there remains about $250 billion left from the 
CARES Act funding.
    Today we will receive testimony from each witness providing 
an update on the Federal Reserve 13(3) emergency lending 
facilities, including recommendations on how the Main Street 
Lending Program and the Municipal Liquidity Facility could be 
changed to improve access to and demand for the programs as we 
move forward.
    We will also hear an update on the state of the commercial 
real estate market; why the CRE market lacks access to needed 
support, including through Main Street; and recommendations for 
options to get support to commercial real estate.
    The Federal Reserve established the Main Street Facilities 
to support lending to small- and medium-sized businesses and 
nonprofit organizations that were in sound financial condition 
before COVID-19.
    The Main Street Program includes five facilities: the Main 
Street New Loan Facility, the Main Street Priority Loan 
Facility, the Main Street Expanded Loan Facility, the Nonprofit 
Organization New Loan Facility, and the Nonprofit Organization 
Expanded Loan Facility.
    Treasury's equity investment of $75 billion into the Main 
Street Program is estimated to provide up to $600 billion in 
credit to eligible businesses.
    However, there has been broad concern around the lack of 
broad access to the Main Street Program, and so far its uptake 
has been slow.
    One of the most significant industries to lack access to 
Main Street is the commercial real estate market.
    On July 31, I sent a letter to Secretary Mnuchin and 
Chairman Powell urging them to quickly expand the Main Street 
Program by setting up an asset-based lending facility and to 
address commercial real estate either through access to the 
Main Street Program or in a separate facility.
    During this hearing, I look forward to hearing more about 
the state of small- and medium-sized businesses in industry 
across the United States and their access to financing, 
additional ways the facilities could be improved and expanded 
to provide access to more industries, and recommendations for 
the use of the remaining Title IV funds.
    As I noted in the hearing on Title IV implementation this 
Committee held on June 2, I am still concerned that 
incorporating widespread restrictions in these facilities could 
render the facilities ineffective and leave businesses and 
their employees without critical resources they desperately 
need.
    The work to get these facilities up and running has been of 
immense importance, and now it must be ensured that they are 
structured to achieve the greatest impact for those in need.
    I appreciate each one of you joining us today to share your 
perspectives on these important issues.
    Senator Brown.

           OPENING STATEMENT OF SENATOR SHERROD BROWN

    Senator Brown. Thank you, Mr. Chairman, and thank you to 
Professor Scott, Professor Spriggs, and Mr. DeBoer for joining 
us.
    More than 150 years ago, President Lincoln observed, ``It 
has so happened in all ages of the world that some have 
labored, and others have, without labor, enjoyed a large 
portion of the fruits. This is wrong, and it should not 
continue.''
    This pandemic is revealing just how true Lincoln's words 
are today.
    This week we celebrate Labor Day, a day when we honor the 
people who make our country work--all workers, whether you 
punch a clock or swipe a badge, whether you work for salary or 
work for tips, whether you are taking care of an aging parent 
or raising children. All workers.
    But workers deserve more than empty words in a tweet or in 
an email message.
    For months we have seen advertisements and PR campaigns 
from big corporations proclaiming how dedicated they are to the 
essential workers that are keeping our country running. But 
statements that are not followed up by increased pay or safer 
workplaces ring hollow, whether they are from companies or from 
Government officials.
    This Labor Day, this country is not living up to its 
promise to workers.
    Whether it is ending a month ago the $600-a-week 
unemployment insurance that kept millions of families afloat, 
or just the simple promise that families will not lose their 
homes in the middle of a pandemic, under President Trump our 
Government has given up on its support of our workers.
    We are on the precipice of another Great Depression.
    If you have the privilege to work from home and you have 
been watching your stock portfolio slowly rebound, and you are 
thinking right now, ``This guy is being alarmist,'' I have news 
for you: You do not understand the real economy.
    No matter how well the stock market is doing, no matter how 
high bank profits and corporate profits are, if workers cannot 
work--and I say ``cannot work,'' not ``will not work''--because 
workers are desperate to get back on the job safely, then our 
economy cannot work. The President's failure to get this 
pandemic under control is keeping tens of millions of Americans 
who want to go to work sitting on the sidelines of our economy.
    If people cannot go to work, if they cannot pay their rent 
or their mortgage, if they cannot pay their car payment or 
credit card bills, the bottom will fall out of this economy.
    It has been over 6 months since we passed comprehensive 
coronavirus relief for working Americans, as the Chairman said, 
and because of the President's failed leadership, things have 
only gotten worse. He has allowed the virus to rage out of 
control. Nearly 190,000 Americans--190,000 Americans--have died 
in less than 6 months. You all know the statistics. We are 4 
percent of the world's population. We account for 22 percent of 
the world's deaths.
    School districts have been forced to make impossible 
decisions: reopen and put students and teachers and custodians 
and cafeteria workers at risk, or continue to teach remotely, 
putting an unbearable load on working parents and widening the 
achievement gap. State and local governments try to step in and 
help, but their tax revenues are down because taxpayers have 
lost jobs, businesses have had to cut back, operate with fewer 
customers, or shut their doors. That is only going to mean more 
layoffs of good middle-class jobs, extending this cycle of 
misery.
    After Leader McConnell and President Trump allowed the $600 
expanded unemployment benefits to expire and refused to pass 
additional stimulus checks and refused to pass housing 
assistance and refused to support local communities, the 
emergency lending programs we are talking about today are 
really the only programs left operating to prop up our economy. 
And none, as Mr. Spriggs will point out, none of these Fed 
lending programs are actually helping workers.
    Dividends are still getting paid; CEOs are still getting 
their salaries and bonuses. The stock market continues to get a 
lift. So if you make your money from a brokerage statement, the 
Government is still helping you. In fact, you are pretty much 
the only one the Government is actually helping.
    But that help does not down from big banks and corporations 
to the people who make their money from a weekly paycheck--the 
vast, vast majority of the American people.
    It should be obvious to everyone by now that those benefits 
to the wealthy never ``trickle down'' to the workers who make 
this economy run. They did not with the corporate tax cut 2 
years ago; they are not now.
    Instead, these programs help corporations, many of which 
continue to lay off workers and have cut hazard pay for those 
who are still risking their lives on the front lines of this 
pandemic, if they even bothered to pay those workers hazard pay 
to begin with.
    Mr. Chairman, we are going about this backwards.
    Every dollar we give to working families goes directly to 
supporting the real economy, when those families pay their rent 
and their bills, when they buy groceries and school supplies 
and spend money at local businesses. In fact, if we put 
families and workers first, if the Senate would actually do 
that, if the President cared enough to put families and workers 
first, we would not have to bail out corporations at all. The 
market that so many in this Committee profess to put so much 
faith in would take care of that.
    Of course, we know our economy will not fully recover while 
the virus is still not under control.
    The CARES Act that we passed in March was designed to be 
temporary relief--to get our workers and their families through 
the immediate economic hardships while we marshaled all our 
country's vast resources and talent to stop a pandemic. 
Clearly, the President failed to do that. Now what we thought 
would be a relatively short economic disruption has dragged on 
month after month after month, with no end in sight.
    We still have no mask mandate; we still have no national 
testing strategy; we still have no effective contact tracing. 
We are seeing another resurgence across 22 States. And as I 
said, 4 percent of the world's population, 22 percent of the 
world's deaths.
    Imagine, Mr. Chairman, and particularly the Republicans on 
this Committee, imagine if the President back in March, instead 
of dismissing the virus as ``it will go away,'' had taken this 
seriously. Imagine if he had said we should all wear masks. 
Imagine if he had modeled good precautions we should take. 
Imagine if he had said we are going to mobilize America's 
manufacturing talent and make enough tests to test every public 
school by the summer. Imagine where we would be as a society 
right now.
    Instead, the President has simply given up on controlling 
this pandemic at all until a vaccine is developed. Given the 
scale of his incompetence and his failures thus far, we can 
only assume he will fail just as badly at distributing a 
vaccine once that day comes if he is still in office.
    The economy will not recover until this President and his 
Cabinet and his friends in Congress take governing seriously.
    Later this month, Mr. Chairman, we will have a hearing with 
Secretary Mnuchin and Chairman Powell. Unlike today's hearing, 
that one will be conducted in person. That is because the 
President has told his top officials they must testify in 
person, in his continued attempts to gaslight the American 
people about the danger of the virus.
    We should be conducting, as you have done, Mr. Chairman, 
whenever you can, all hearings remotely, not just to protect 
Senators and Administration officials, but to protect the 
cafeteria workers and the custodians and the staff at this 
Capitol, the police officers, all who are forced to show up and 
put themselves at risk. Then they worry with the anxiety when 
they return home that they may spread it to their families.
    After 6 months of failures, I am honestly surprised, Mr. 
Chairman--I have been here a long time, but I am honestly 
surprised that the President's friends in Congress continue to 
let him get away with it.
    Mr. Chairman, we need your help; we need your leadership. 
You have done the right thing by conducting our hearings 
remotely. We need you to demand that the White House sends the 
right message about taking the coronavirus seriously. Tell 
Secretary Mnuchin he needs to testify remotely. I have no doubt 
that Chair Powell would be happy to do so if you asked.
    And, Mr. Chairman, we need your help and we need everyone 
on this Committee's help in convincing Leader McConnell to 
extend direct support for families while we fight this virus. 
The House has passed a bill that would take care of workers and 
renters and homeowners and students and veterans and seniors 
and local governments. We all know this, shall we say, 
``emaciated'' McConnell proposal is not going to help these 
families keep food on the table.
    When something is not right, we speak up. That is the job 
we signed up for. Right now thousands of people are dying every 
week in this country, and Republicans are not speaking out.
    The best way Congress could celebrate Labor Day is by doing 
our job. We need your help to tell President Trump and Leader 
McConnell it is time to do their jobs, let us get back to work. 
We have wasted far too much time already.
    Thank you, Mr. Chairman.
    Chairman Crapo. Thank you.
    We will now move to our witness testimony, and we will 
begin in the order I introduced you. So we will begin with Mr. 
Scott. You may proceed.

  STATEMENT OF HAL S. SCOTT, EMERITUS PROFESSOR, HARVARD LAW 
 SCHOOL, AND PRESIDENT, COMMITTEE ON CAPITAL MARKETS REGULATION

    Mr. Scott. Thank you, Chairman Crapo, Ranking Member Brown, 
and Members of this Committee, for inviting me to testify 
before you. My focus is on the Treasury/Federal Reserve Main 
Street Lending Program, and my testimony today regarding Main 
Street is based on the September 3 statement of the Committee 
on Capital Markets Regulation, CCMR as abbreviated. With 
respect to other issues, the testimony is my own and does not 
necessarily represent the views of my Committee.
    CCMR believes that small- and medium-sized businesses will 
need financial support for several years to recover from the 
impact of the COVID-19 pandemic. While our economy is 
improving, given the depth to which it fell, there is still a 
long way to go. Small business revenues continue to be well 
below prepandemic levels, and the recovery has stalled since 
July. A key part of this financial support should come from the 
Main Street Program authorized by the CARES Act.
    So far, the three for-profit business facilities of the 
Main Street Program, which have been operating for over 2 
months, have fallen far short of their desired results. 
Secretary Mnuchin has estimated that between $25 and $50 
billion in loans will ultimately be issued through Main Street, 
significantly below its existing lending capacity of $600 
billion and what is actually needed for economic recovery.
    CCMR has, therefore, recommended that Main Street be 
significantly restructured to take on more credit risk by 
providing that the Federal Reserve make 100 percent of each 
loan rather than 95 percent as presently provided, leaving 
banks and other eligible financial institutions as processors. 
If banks take on any loans or any portion of a loan, they will 
apply normal credit standards that many needy businesses cannot 
meet.
    Second, these loans should be at the low market rates, 
lower interest rates, and longer maturities, coming close to 
equity, without actually requiring capital restructuring.
    Congress has already appropriated $454 billion in the CARES 
Act to back Fed lending facilities. Depending on how one 
counts, $251 billion or $351 billion is used. If you look at 
money that the Secretary has said he would commit but has not 
committed, there is actually $351 billion available. And much 
of this is unused and could be used to provide additional 
backing for Main Street.
    It is critical that the Fed and Treasury revise and deploy 
the Main Street Programs now as the congressional authority for 
the Fed to make new Main Street loans likely expires on 
December 31st under the CARES Act.
    The Main Street loans should be made on a first-come, 
first-serve basis, based on available data and objective 
criteria, to ensure that the Government is not picking winners 
and losers and that the prospective borrowers have a reasonable 
chance to survive. And loans should not be available to 
businesses that can get market rate funding from their own 
banks. The Fed must also--and this is quite important--reach 
out to the hardest-hit and underserved communities so that they 
can take advantage of the program.
    It is indisputable that small- and medium-sized businesses, 
the backbone of our economy, have been very hard hit. A V-
shaped recovery, meaning that the economy will within the next 
year bounce back to pre-COVID levels, is unlikely. According to 
the latest economic projections from the Fed, the economy will 
contract by anywhere between 4 percent and 10 percent this 
year. Most officials do not expect the economy to recover 
completely until 2022.
    While the latest unemployment figures have improved, the 
level is still very high at 8.4 percent, and as Chairman Powell 
observed last week, there are still 11 million fewer Americans 
working than there were in February.
    CCMR specifically recommends that Congress enact Senator 
Crapo's proposed amendment to remove any doubt that Congress' 
intent in enacting the CARES Act was for the Treasury to take 
credit risk. If such legislative action cannot be achieved, we 
would recommend that the Senate Banking Committee clarify 
Congress' intent in a bipartisan letter to Secretary Mnuchin.
    There is no guarantee that our recommendations will succeed 
in saving American small- and medium-sized businesses. But the 
current approach has been tried and found wanting; our 
recommendations would give many of these businesses a fighting 
chance. The time to act is now.
    Thank you.
    Chairman Crapo. Thank you, Mr. Scott.

 STATEMENT OF JEFFREY D. DeBOER, PRESIDENT AND CHIEF EXECUTIVE 
              OFFICER, THE REAL ESTATE ROUNDTABLE

    Mr. DeBoer. Good morning, Chairman Crapo, Senator Brown, 
and Members of the Committee. I want to start by simply 
thanking you, Mr. Chairman, for your reference at the start of 
the hearing about the need to address commercial real estate 
and the problems that our industry is having on the rest of the 
economy.
    I also want to thank you, Senator Brown, for your focus on 
the need for rental assistance for individuals and families. 
That is very, very important.
    And, finally, I would like to comment that Senator Warner 
and Senator Toomey and other Members of this Committee were 
very instrumental in trying to create a very good program, the 
Main Street Lending Program.
    I am here today on behalf of the Real Estate Roundtable and 
the 19 national real estate trade associations that are 
referenced in my written testimony.
    People out of work and businesses shuttered and denied 
income for months have suffered immensely in this pandemic 
through no fault or action of their own. Many of these people 
in businesses have struggled to pay for food, struggled to pay 
for housing, and struggled to pay the rent for their 
businesses.
    For owners of apartment buildings, retail facilities, 
hotels, office buildings, senior housing, and other buildings, 
the situation is dramatically affecting their ability to pay 
their payroll and causing layoffs of building maintenance and 
security personnel for them. It is impacting their ability to 
meet their debt service obligations, which increases pressure 
on financial institutions, pension fund investors, and others. 
And it is pushing property values down to the detriment of 
local governments. It is causing much stress in pools for 
commercial mortgage-backed securities. It is threatening to 
result in countless commercial property foreclosures. The 
situation must be addressed.
    I want to thank Congress and the Administration for the 
quick, deep, bipartisan COVID relief action taken this past 
spring. Without that action, the situation for the Nation's 
economy would be much worse. But many of those programs, as 
well intentioned and desirable as they are, did not reach 
beyond a relatively narrow definition of small business. That 
role was left to the well-intended, Fed-administered Main 
Street Lending Program. Its goal was to provide capital to mid-
sized businesses with COVID-related economic problems that 
cannot obtain capital elsewhere.
    Unfortunately, as Mr. Scott just mentioned, the Main Street 
Program is not lending. The result: Countless mid-sized retail 
businesses, restaurants, hotels, commercial multifamily 
building owners are moving closer to shutting their doors 
forever.
    As these Main Street businesses run out of reserves, they 
miss their rent, utility, and tax payments. They furlough and 
lay off employees. They begin to look to bankruptcy and 
abandonment as solutions. The Main Street Lending Program is 
simply far too risk averse, as Mr. Scott said, to respond to 
the rapidly developing conditions for many Main Street 
businesses.
    These Main Street businesses need assistance now. They are 
risky, but not because their product or their business line is 
risky. They are bearing a huge somewhat immeasurable new risk 
that is based on governmental policy, the ability to keep 
clients, customers, and guests healthy, and, in particular, the 
timing of finding a vaccine. These are the businesses that 
Congress wanted the Main Street Lending Program to serve. They 
cannot get capital elsewhere. They are disproportionately 
minority-, women-, and veteran-owned businesses, and they are 
increasingly running out of options. Why? Because there is no 
incentive for banks under the program to market these loans and 
make the loans. In addition, the program's eligibility, 
affiliation, and underwriting rules are not designed to meet 
the needs of the businesses that increasingly need this 
assistance. Both of these problems could be addressed 
administratively without additional appropriated funds.
    We should move, as was suggested, the loan--100 percent of 
the loan instead of 95 percent of the loan should be moved to 
the Fed. The banks should continue to service the loan to 
maturity, and like a pool servicer, it should be compensated by 
the bond holders--in this case, the Treasury Department. 
Perhaps regulators should be instructed not to criticize banks 
to make Main Street risky loans, as they currently are 
criticizing them.
    Incentives for banking a loan will not solve the problem, 
though. Administrative action is also needed to reform the 
mixture of misapplied Small Business Administration lending 
eligibility rules that bar assistance, for example, to any 
commercial real estate business. We need to deal with 
inappropriate leverage limits that hamper the usefulness nearly 
to all retail stores and restaurants. And the underwriting 
rules that are in place now simply do not work for any asset-
based borrower, whether that is a manufacturer, a restaurant, a 
retail, commercial, or multifamily owner. We need incentives, 
and we need eligibility rules that make sense.
    Congress, though, should take more action as well. We urge 
that Congress provide additional rental assistance to 
residential and business tenants. We think the Tax Code should 
promote healthy workplaces. We want to facilitate debt 
workouts. There's going to be a tremendous amount of debt on 
all kinds of businesses that will need to be worked out. We 
need to provide reasonable liability protection against COVID 
lawsuits that are unnecessary in many cases. And we need to 
develop a Federal pandemic risk insurance program.
    These actions are by no means simple and by no means small. 
We understand that. But together they will help America's 
families and businesses recover, and they will allow this job 
creation to move forward.
    Thank you, and I look forward to your questions. Thank you 
very much.
    Chairman Crapo. Thank you, Mr. DeBoer.

STATEMENT OF WILLIAM E. SPRIGGS, PROFESSOR OF ECONOMICS, HOWARD 
            UNIVERSITY, AND CHIEF ECONOMIST, AFL-CIO

    Mr. Spriggs. [inaudible] and Ranking Member Brown--did I 
unmute? I am sorry.
    Chairman Crapo. You are on now.
    Mr. Spriggs. OK. Thank you. I apologize. Thank you, Chair 
Crapo and Ranking Member Brown, for this invitation to give 
testimony before your Committee today on the issue of where the 
economy stands with the status of the Federal Reserve's 
emergency lending facilities. I am happy to offer this 
testimony on behalf of the AFL-CIO, America's house of labor, 
representing the working people of the United States, and based 
on my expertise as a professor in Howard University's 
Department of Economics.
    We began this year with the world facing a novel virus for 
which we lacked adequate cures and that proved more deadly than 
most flus we have encountered. The lethal potency of the virus 
and its easy spread required a new set of responses. Given the 
lack of a cure and its costly nature of care on people and 
health systems, the world adopted a policy of social distancing 
and isolation to prevent its spread. This policy proved very 
effective in reducing deaths, and for the Nations that took 
aggressive measures, like New Zealand, proved highly effective 
in ending the virus' threat.
    But despite the huge economic benefits of these policies--
and they are huge--slowing the economy to carry out social 
distancing had huge costs, too. By all measures, the benefits 
of saved lives alone far outweighed the cost of slowing the 
economy. It is important to note that in the United States 
where our implementation of social distancing policies was very 
uneven, it is also clear that the uncertainty of COVID itself 
slowed economic activity. The United States policy variation 
has clearly documented that social distancing policies are not 
the driver of the economic slowdown, but the spread of the 
disease is the cause of the economic slowdown. The difference 
is in the efficacy of the policy in slowing down the virus.
    This virus caused a great decline in economic activity, and 
the world responded in new and novel ways. Thankfully, the U.S. 
Congress took early action to sustain the economy, passing the 
Families First and the CARES Acts, and this bought time for 
policies to contain the virus to take hold. Unfortunately, 
while the economic policies were effective, the policies to 
contain the virus in the United States have lagged those of 
other countries, so our economy now enters a new phase of high 
uncertainty because of COVID without the aid of those earlier 
bold actions.
    In March, the uncertainty of COVID slowed certain economic 
activity in the United States that led to the first month of 
job loss in March, and in April brought the most dramatic loss 
of jobs in U.S. economic history. In that 1 month, we lost more 
than twice the jobs lost over the course of the Great 
Recession. While other advanced economies planned for social 
distancing by massively subsidizing payroll, America chose to 
dump workers into unemployment insurance systems. Rather than 
subsidize payroll, we chose to try and subsidize workers within 
the unemployment insurance system. To approximate preexisting 
payroll, an additional $600 was added to weekly unemployment 
benefits. This policy choice might have worked the same as with 
other advanced countries if COVID were put under control and 
sufficient economic certainty was restored for households to 
resume normal consumption.
    However, there were many challenges to using the U.S. 
unemployment insurance system. It really was not designed for 
this. Our Nation's unemployment system laws do not cover the 
workers that were most affected. In 2018, only 8 percent of 
those in leisure and hospitality received unemployment benefits 
if they were unemployed. And at the peak of the Great 
Recession, the system only needed to handle 3 million people. 
That was in May 2009, but at the end of March, it was receiving 
6 million applications weekly and 4 weeks averaged above 3 
million for 7 weeks April to May.
    Congress also granted the Federal Reserve funds and 
unprecedented latitude to devise policies to maintain liquidity 
in the capital markets. You have heard two great testimonies 
ahead of me on the problems that the U.S. Treasury imposed on 
those funds, limiting their access to minority firms and to 
make the program unable to absorb the risk that was needed at a 
time of high uncertainty. I will not review those comments. I 
will add one additional, and that is a concern to broaden the 
ability to lend to public entities.
    I want to instead concentrate on the problem facing 
households, and looking at the problem facing households, we 
are in a foot race against people being unable to make the 
payments in the real economy that sustain rent, that sustain 
investment, that make it possible to pay the loans that are 
owed. Please remember it is the real economy that matters. That 
foot race that we are in right now, we are behind because of 
the lack of support to households, and without that support, we 
face calamity.
    Chairman Crapo. Thank you, Mr. Spriggs.
    I will go with the first question today with you, Mr. 
Scott, and my question really relates to the success or lack of 
success, in your opinion, of the Main Street Facility and the 
other 13(3) facilities in terms of making capital available to 
the stressed businesses that need it.
    I understand the testimony of Mr. DeBoer and Mr. Spriggs 
about the real estate industry and the minority businesses, and 
I understand their testimony that those particular sectors have 
not been able to benefit from the Main Street Facility or other 
Fed facilities. I am also aware of a point of view that the 
other Fed facilities that have been established, like the 
Primary Market Corporate Credit Facility and the Secondary 
Market Corporate Credit Facility and the Term Asset Back 
Securities Loan Facility and others have had an impact in terms 
of making private sector capital more available to many 
businesses.
    So the question I have is: Is the issue of access to these 
funds a sectoral issue, one related to real estate or minority 
businesses or others? Or is there still a broad-based lack of 
access to the necessary capital by companies that just cannot 
get that credit in the private sector?
    Mr. Scott. First, I think for the capital market facilities 
that were extended to companies issuing bonds, for instance, 
those have been very successful. They have not had to lend very 
much money because the fact that they would be prepared to lend 
the money actually steadied the markets, so these companies can 
get the money in the private sector.
    That is not the case for Main Street. Small and medium-
sized businesses do not access capital markets. They get 
funding from banks. So there is where the access issue is 
important. And as I testified, I think it is not that the Main 
Street Facility was designed to exclude certain industries, 
although I agree with Jeff that, you know, in certain cases it 
might be that the criteria that were established effectively 
excluded certain businesses from getting access. But they were 
not designed to just support certain sectors of the economy. 
They were designed to support the entire economy.
    The problem with the facilities, as the Chairman well knows 
due to his amendment, is that these facilities were not 
designed to take on credit risk for Main Street. And, you know, 
that is in two regards. First of all, as I said in my 
testimony, if you say the banks have to take 5 percent, they 
are going to apply normal credit standards, and needy 
businesses are not going to get the money. And, second, the 
terms are too difficult, interest maturity, and so forth.
    So I do not think that there is a general discrimination 
against sectors. I think it is more of a question of the design 
of the program, what the criteria are.
    Chairman Crapo. All right. Thank you. And I am running out 
of time a little bit already, but----
    Mr. Scott. I am sorry for that long-winded answer.
    Chairman Crapo. No, it was a long question, too. But, Mr. 
DeBoer, maybe I would go to you next, and in the minute or so I 
have left--minute and a half, maybe, could you just respond? 
Both you and Mr. Scott in your description of what needs to be 
done had some pretty significant overlap in terms of how we 
could improve the Main Street Facility. And rather than focus 
on where you may or may not have any disagreement, could you 
just again summarize what you think needs to be done in terms 
of making the facility more available in your world?
    Mr. DeBoer. Thank you very much. First of all, banks are 
not incentivized to lend under this program. They have a 5-
percent retention on the loan, and they are underwriting under 
traditional--basically under traditional underwriting criteria. 
Well, traditional underwriting criteria would say these are 
lendee risky loans. They get criticized by regulators for doing 
that. They have the risk of the 5 percent loss even though we 
know that these are risky loans.
    So we share the view that 100 percent of the loan should 
move to the SPV, the Fed facility. We share the view that 
maturities should be longer, I believe. I think we share the 
view that amortization of the loan should be delayed a little 
bit longer and occur later on in the life of the loan. And I 
believe that we share the view that the underwriting rules, for 
example, requirements that tie the loans to EBITDA or that tie 
the loans to a certain leverage ratio need to be revisited 
because they simply do not respond to these risky businesses. 
EBITDA means nothing when you have no income. And so there 
should be more traditional lending criteria to accommodate 
asset-based borrowers so you have loan-to-value or you have 
loan-to-cost or loan-to-receipt, something that is different 
than what we have now. So incentivize the banks and broaden the 
eligibility.
    And if I could have just one more second, in terms of the 
eligibility and certain sectors, the Administration and the Fed 
lifted the SBA eligibility rules from their traditional SBA 
program and suddenly decided that that should be the applicable 
eligibility rules for a Main Street Lending Program, which bars 
certain companies and businesses; certainly real estate are 
barred. And there is no reason for this, and I do not believe 
that Congress intended that for this program or, frankly, for 
the PPP program where they did the same thing.
    Chairman Crapo. All right. Thank you. My time is up. This 
is helpful.
    Senator Brown.
    Senator Brown. Thank you, Mr. Chairman. And, Mr. DeBoer, 
thank you for speaking out, twice I think, in your testimony 
for emergency rental assistance, and many of us fear a wave of 
evictions in the coming weeks because of the expiration of the 
unemployment benefit.
    Dr. Spriggs, I will start with you. If we continue to 
depend on these Federal Reserve emergency facilities rather 
than providing direct support to working families, what do you 
think happens to the economy over the next several months?
    Mr. Spriggs. Well, we are in trouble. We are in a foot race 
right now. As Chairman Powell pointed out and the data we got 
last Friday pointed out, we are down over 11 million jobs from 
our peak. That is worse today. We are starting in a worse 
position than the depths of the Great Recession. We are not 
creating jobs at a fast enough level to clear that backlog. And 
so we see a rise in long-term unemployment; we see a rise in 
the job losses that are permanent job losses, in tandem with 
what saw during the Great Recession.
    So we are in a foot race in our economy because what we are 
trying to do is outrun the debt of the household sector, and we 
can only do that by putting money into the hands of workers so 
they can pay their rents, so that they can support small 
businesses, so that the small businesses pay their rents. The 
way to help the economy is to help the real economy. We have to 
put back into the system the money that we were losing from the 
loss in payroll. Other countries did that by maintaining 
payroll. We agreed we would do that by maintaining unemployment 
insurance. That $600 is necessary to keep that and so that we 
can stay in step with other advanced economies. And without 
that, we are going to face massive problems for loan holders 
when it comes to commercial real estate.
    The way to solve it is not to help the banks in the end. It 
is to help the real economy on the front side and have workers 
have the money to pay the rent. Even with eviction abatement, 
you have got to remember that people are still accruing the 
debt of owing that rent. So eviction help is necessary to keep 
them from being homeless, but we also need help to make sure 
that they have the money to pay the rent.
    Senator Brown. So to make sure I understand, and if you can 
answer this question yes or no, because I have something else I 
want to ask you. To avoid another Great Depression, Congress 
needs to take action to provide direct help to families, 
workers, homeowners, renters--in other words, regular people. 
Correct?
    Mr. Spriggs. That is correct.
    Senator Brown. Dr. Spriggs, after the 2008 crisis, despite 
spending trillions of dollars to rescue the economy, as we 
know, millions of families lost their homes, banks got larger, 
banks made record profits. Why did that happen? How do we 
avoid--two questions. Why did that happen a decade ago? And, 
second, how do we avoid that from happening during this crisis?
    Mr. Spriggs. To concentrate it so much on the last crisis 
on financial stability and thinking the Fed can solve all 
problems. The Fed can provide liquidity to keep the financial 
markets healthy and to make banks healthy. But that ignores the 
other part of the national balance sheet. The assets of the 
banks being the loans, we protected that. We did not help 
households with the liability side. So what we did was we built 
a life raft for the banks, and it pulled away, and the rest of 
us were sinking in the storm. We must help the household 
sector, and we have an opportunity to help the household sector 
now, but we will lose that ability if we do not help the 
household sector and we are confronted with banks holding bad 
loans and facing collapse because they are holding too many bad 
loans.
    Senator Brown. Let me ask one other question. Thank you, 
Mr. Chairman.
    Dr. Spriggs, I have sat on the Senate floor and heard my 
colleagues talk over and over about--my millionaire colleagues 
and billions in the President's Cabinet talk about giving too 
much to workers, unemployed workers, this unemployment 
insurance is a disincentive to return to work. I think they are 
wrong. What do you think? And why?
    Mr. Spriggs. Well, during the period that people were 
getting it, there were many studies to look at that exact 
issue. They found no negative effect. And then we had August 
where no one was getting the money, and we had final proof. 
There was no disincentive effect because we saw nothing 
happening with labor force participation to indicate that the 
$600 was keeping people out. What is keeping people out of the 
labor force is the availability of jobs at this record level of 
unemployment.
    Senator Brown. One study, Mr. Chairman, showed that 
unemployment insurance kept 12 million people out of poverty, 
and I applaud my colleagues in both parties for passing that 
$600 a week, which really kept people from being evicted, kept 
them in their homes, kept the economy going, kept the banks in 
business, helped everybody, and I am just sorry that my 
colleagues do not think that is a key part of this recovery and 
addressing the bad economy we are living in.
    Thank you, Mr. Chairman. Dr. Spriggs, thank you, Mr. DeBoer 
and Mr. Scott.
    Chairman Crapo. Senator Toomey.
    Senator Toomey. Thanks very much, Mr. Chairman. Thanks for 
having this hearing, and a special thanks to Professor Scott 
for the conversations that we have had and the thoughtful 
contributions he has made to the discussions about these 
programs.
    I want to take a few moments here to suggest some context 
about the Main Street Lending Program, Mr. Chairman, and let me 
start by saying I think it is still too soon to call this 
program a failure, much less citing it as a failure that 
justifies then some new big programs. Let me explain why. There 
are several reasons.
    First, let us remember this is still a relatively recent 
program, for better or for worse. I think the first loan was 
made in early July, and there is now very recently a big 
increase in the pipeline. I am not suggesting that I think the 
program is on track to be utilized to the extent that was 
contemplated, but there is an acceleration of utilization.
    But maybe more importantly, it is entirely possible--and I 
am still trying to get the data to determine this, but it is 
entirely possible that businesses that were intended to 
participate in this are simply accessing credit elsewhere. 
According to the NFIB's July 2020 report, they said, and I 
quote: ``Historically, loans have never been cheaper.''
    In their August report, they say, the NFIB, among their 
membership, which is the largest small business organization in 
America, probably the world, they say that only 3 percent of 
business owners surveyed said that all of their borrowing needs 
were not satisfied. That is pretty interesting. And let us 
remember, the Fed, we have thought of this as a lender of last 
resort, and it is not a failure if it turns out that other 
lenders, private lenders, have been stepping in and providing 
the credit that has been needed, whether it is banks or BDCs or 
other institutions.
    I have also heard, at least anecdotally, there are banks 
that suggest that they have been able to offer better terms to 
borrowers than the Main Street program. Again, if that is what 
is happening, that is not necessarily a failure.
    I think it is also important to think about where we are 
today compared to where we were when the CARES Act was passed. 
The CARES Act was meant, in my view, to resolve an immediate 
and very, very dangerous and frightening liquidity crunch due 
to the economic shock that we were experiencing back in March-
April. It was meant to bridge this liquidity need for a 
fundamentally solvent business to get through what we hoped 
would be a very short though certainly very severe episode.
    We are in a very different point 6 months later. 
Unemployment is much lower than it was then. Obviously, we have 
got a long way to go, but unemployment was almost 15 percent. 
Today it is just over 8 percent. The economy is overperforming 
certainly the Fed's expectations and that of most economists. 
Labor force participation is up. Wages are rising. Retail sales 
have been strong. Housing starts are off the charts. There is a 
lot of encouraging data that is happening. And as I say, the 
program was designed to provide a short-term liquidity bridge 
for a fundamentally solvent business.
    Today we are in a different place, and one of the 
challenges that I think we have to ask ourselves is: What do we 
do about the industries, maybe even sectors, where we probably 
have excess capacity? And we do not know for how long we are 
going to have it. How long is it going to take before airline 
travel resumes where it was in 2019? I do not think any of us 
knows for sure, but I do not think it is in the next few weeks.
    Likewise, what is the situation of the capacity in the 
hotel sector that has historically served business travelers? 
What about restaurants?
    The Main Street Program was not designed, was not intended 
to keep a sector afloat for months or years while we waited for 
demand to eventually come back. I think eventually demand will 
come back, but if we want to keep alive companies, broadly 
entire sectors, where there has been tremendous demand 
destruction, then I think we have to ask ourselves whether this 
is the appropriate program to do it, and I would suggest it is 
not.
    I would also point out that it is not reasonable to 
evaluate the Main Street Lending Program by the same metrics 
that we use for PPP. They are very, very different programs. 
One, we handed away money on the condition that you use it to 
keep your workforce intact. Of course, people are going to take 
up the money for that purpose. That was very successful for 
that purpose. The Main Street Lending Program serves a 
different purpose.
    Now, having said all that, I do think there are some 
modifications that we ought to consider. Some have been 
addressed already. Professor Scott, for instance, and others 
have suggested that maybe the Fed should purchase 100 percent 
of the loans. I think that is worth considering, but there is 
an obvious challenge if we do that, and that is that the 5-
percent retention that is required on these Main Street loans, 
retention by the banks that originate it, are meant to create 
an incentive for the banks to do a proper underwriting so that 
there is some limit to the amount of risk that is being taken 
here, because the idea was never to simply lend money to 
fundamentally insolvent businesses but, rather, to lend money 
to cash-strapped businesses that are actually solvent.
    Some of the things I think we should consider is--and I 
think Professor Scott alluded to this--banks may not be the 
optimal vehicle for making slightly more higher credit risk 
loans. That is not their culture. That is not the regulatory 
mandate, even though the returns are outsized because the fees 
are so generous. It is the culture and the practice of banks to 
take a kind of binary approach to extending credit. And so 
maybe we should consider institutions like BDCs that might be 
better able to--you know, extend credit more broadly because 
they can take into account the higher return.
    A second thing I think we should consider is possibly 
upward limits on the EBITDA measures, especially in some places 
like early stage growth companies. I think the Fed should 
consider and I have advocated considering an asset-based 
lending program because it has been observed that there are 
categories of our economy where asset-based lending is the 
norm.
    I also think we should ease the affiliation standards. 
Remember, the Fed adopted the affiliation standards based 
really on the Small Business Administration programs, and it is 
not clear to me that that is suitable.
    So, Mr. Chairman, I appreciate this conversation. I 
appreciate having this hearing. I appreciate the thoughtful 
suggestions that are being made. I just wanted to provide that 
context, and with that, I will yield back my time.
    Chairman Crapo. Thank you, Senator Toomey.
    Senator Reed.
    Senator Reed. Well, thank you very much, Mr. Chairman. 
First, I have to recognize Professor Scott. Professor Scott was 
one of my professors at Harvard Law School, and if occasionally 
I say something that is semi-intelligent, he gets the credit. 
The rest is all mine. But, professor, thank you for your 
wonderful testimony today.
    I also want to recognize Jeff DeBoer, who I have had the 
privilege to work with for many, many years. Thank you, Jeff.
    I have some questions for Dr. Spriggs. Dr. Spriggs, I was 
particularly taken by your emphasis on the uncertainty which is 
plaguing the economy because of COVID. And one of the most 
uncertain aspects that I am hearing about back in Rhode Island 
is just the status of jobs. People do not have the jobs, or 
people are on furlough, but they do not expect to be called 
back. We did have, as Senator Brown pointed out, a very, I 
think, appropriate unemployment compensation program. That is 
no longer on the books. We have to get it back on the books, in 
my view.
    But there is something else that seems to be happening, 
too, for uncertainty particularly for working people, and that 
is the cost of living seems to be going up, including 
essentials. CPI has just shown that the price of pantry 
essentials, as they describe it, for example, flour has 
increased by 4.5 percent; canned vegetables, 6.4 percent; beans 
by 7.4 percent. So you are seeing not only the uncertainty of 
will I have a job, but also the uncertainty of will I be able 
to afford even basic essentials for my home.
    So, Dr. Spriggs, does this make another case for a very 
aggressive unemployment compensation program?
    Mr. Spriggs. Absolutely. It is the uncertainty that workers 
are facing that meant even with the $600, there was no 
disincentive to take a job. Workers are faced with such 
uncertainty around the job market that you cannot refuse a job 
offer because it is not clear when the next one would occur, 
and as you are pointing out, the workers who are currently 
unemployed disproportionately are Black, Latino, Asian 
Americans. These are households with no wealth and no 
liquidity. The $600 is necessary to reassure them that they 
actually can spend because they are looking exactly at the 
issues you talked about, which is food security.
    So a smaller amount of money is not going to provide them 
with that comfort that I can spend now when they are looking 
down the road at increased food prices. For households under 
stress, while the general CPI, the inflation rate, may not be 
rising very much, they are really looking at those food prices. 
That is most immediate to them. And so that is why the $600 
ends up being necessary. We did not see a downside in terms of 
labor force participation. We saw every upside that was 
necessary to keep consumption flat. That was a remarkable 
achievement, and as Senator Brown pointed out, we are going to 
avoid a high level of poverty despite this economic calamity 
because of that.
    Senator Reed. Let me follow up, too. In terms of 
uncertainty, we passed the first bill with a time limit and ran 
out, and so if we do that again, I think people are going to be 
sitting back saying, you know, my job might not come back 
within the 10 months of this legislation, so I am OK, I am a 
bettor. So do you think it is important that we put in criteria 
so that we do not repeal the unemployment until financial 
conditions return, either the unemployment rate comes down to a 
certain state, to an acceptable level, something like that?
    Mr. Spriggs. Well, we certainly shocked the household 
sector with Congress refusing to extend the need, even with a 
high employment rate, even with unemployment duration 
increasing, even with the shift in jobs from being temporarily 
off to permanently off. And so, yes, you need to give the 
household sector a sense that Congress gets the message and 
understands the plight of the household sector so that they can 
return to some sense of normalcy. So hard deadlines that ignore 
the state of the economy are going to not--will not provide the 
certainty that households need to go back to spending.
    Senator Reed. Now, let me shift gears. We are talking about 
uncertainty. I know the focal point is on the Federal Reserve's 
program, but one other area which the Fed really does not have 
the kind of role to play is what the States are doing. We 
created a coronavirus relief fund for the States and gave them 
money, and that now seems to be in need of replenishment and 
more flexibility so they can spend it in different ways.
    Do you think that is appropriate, that we should put more 
money to the States to--in fact, they might even be more 
flexible and more adaptable to dealing with some of these 
problems we have talked about, like homelessness and other 
things, than the Federal Reserve program that is going to be 
using banks to lend to traditional borrowers.
    Mr. Spriggs. We have to give money to the States, and that 
is not something the Fed can do. As Senator Toomey was pointing 
out in his comments to this, we did not envision this would be 
a long-term problem. It has now lapsed over into the fiscal 
year change for State and local governments. They are going to 
implement austerity, and we need the State and local 
governments as partners in solving the COVID crisis. We cannot 
have them withdraw from the field. We need them to give us safe 
schools and safe workplaces to return to. That is at the State 
and local level where people are confronting these issues. The 
Fed cannot lend them the money. This is against the State 
Constitutions. This has to be something that Congress 
addresses, and immediately, because we are in the new State and 
local government fiscal years.
    Senator Reed. Thank you very much, gentlemen, for your 
testimony.
    Thank you, Mr. Chairman, for your graciousness. Thank you.
    Chairman Crapo. Thank you.
    Senator Scott? I believe Senator Scott may have had to step 
away. And, therefore, we will go to Senator Rounds. Senator?
    Senator Rounds. Thank you, Mr. Chairman.
    Let me begin with a question for Mr. DeBoer. First of all, 
I want to say thank you to everybody just for participating 
today. Given the requirements associated with the Fed's Main 
Street Lending Facility and the challenges of taking on more 
debt, one alternative approach that has been suggested to 
assist businesses in need would be to allow Treasury to buy 
preferred equity stakes instead. This would be particularly 
helpful in sectors like hospitality and tourism that have high 
overhead and real estate expenses. It would also provide much-
needed capital without further stressing balance sheets.
    I understand that Congressman Van Taylor in the House and 
Senator Moran have been working on different but similar 
preferred equity approaches.
    My question: Could you discuss the advantages and 
disadvantages of preferred equity purchases compared to the 
Main Street Lending Facility? Mr. DeBoer.
    Mr. DeBoer. Thank you, Senator. As a native South Dakotan, 
it is great to see you, and best wishes to you.
    Let me just say that the preferred equity option comes up 
because typically for loans that--hotel loans, restaurant 
loans, lodging loans and so forth that are packaged in 
commercial mortgage-backed securities, those loans, those 
transactions cannot allow additional equity--or additional debt 
to be put on them. They can only have equity. And so that is 
the advantage of using a preferred equity approach.
    The problem, as I see it, is simply whether a business 
wants to, in effect, give equity to the U.S. Government in 
their business, and I am not sure whether the appetite is 
really there. But I will say this, that the focus and the 
efforts by Congressman Taylor, by Senator Moran, by you and 
others in the Senate to look at this is very, very important.
    This problem will not go away. Some businesses have too 
much debt on them and cannot take any more. Some businesses do 
not have any more collateral or inventory to pledge for more 
loans. And as I said, some businesses' loans are tied up in a 
package, a pool, which will not allow any more debt.
    So we are very open to exploring this with you and other 
Senators and Members of Congress. Something has to be done to 
assist these businesses.
    I would say that I think that Senator Toomey is correct in 
saying that a lot of businesses can get traditional financing, 
but those who cannot are really out on a limb, and they have 
nowhere to go, and those businesses are the ones we just 
described--restaurants, retail space, hotels, real estate 
companies in certain sense of the word. And so I thank you for 
your focus and your question, sir.
    Senator Rounds. Thank you. And I have just a real quick 
question for Mr. Scott. Just in listening to the discussions on 
the PPP program, Main Street businesses larger--you know, those 
that were not eligible, my question: Why not take a look at the 
possibilities since Republicans and Democrats both agree that 
the PPP was successful and it allowed people to stay on 
payroll, their benefits continued on and so forth? What is the 
possibility that for some of those Main Street businesses that 
were restricted away from PPP because of their size, any value 
in looking at some sort of a PPP as an alternative for some of 
those larger Main Street businesses? And that would not only be 
able to take and keep workers on payroll, keep benefits in 
place, but may very well be able to allow those other larger 
businesses to stay in business and get through the next several 
months. Mr. Scott?
    Mr. Scott. Yes, Senator, I think the revised PPP or renewed 
PPP should work side by side with the better Main Street 
Facility. They are different in their terms. PPP is a 
forgiveness program, and PPP was designed for really small 
businesses. The Main Street Facility can be used by medium-
sized businesses and is a lending facility. And when you look 
at the cost of one versus the other, obviously a forgiveness 
program is going to be more expensive than a lending program. 
We recommend that risk be increased under Main Street. But they 
are still loans that are being extended from the Fed to the 
private sector, and a lot of these loans will be repaid. Under 
a forgiveness program, of course, you know, you are forgiving 
the loan.
    So, in my view, from the beginning we had both of these 
programs working side by side, and we should continue that 
approach.
    Senator Rounds. Thank you, Mr. Scott.
    Thank you, Mr. Chairman.
    Chairman Crapo. Thank you.
    Senator Menendez.
    Senator Menendez. The Bureau of Labor Statistics' last job 
report found that State and local governments have already laid 
off nearly 1.5 million public workers. If Congress does not act 
soon to help State and local governments, they are going to 
have to cut life-saving services, lay off or furlough more 
teachers, public safety, emergency health personnel, or raise 
taxes.
    So, Dr. Spriggs, let me ask you, if State and local 
governments continue to lay off workers, will that create a 
substantial drag on any economic recovery?
    Mr. Spriggs. There will be a very substantial drag, and 
that is the head wind we face for the final two quarters of 
this year, and it is, again, dangerous for an economy. State 
and local government helps to support so much economic 
activity, and even if they do not cut more people, their cut in 
activity will hurt local businesses. But the number you cited 
is bigger than all the jobs lost in State and local government 
during the entire Great Recession. These jobs are not going to 
come back quickly. They are not going to bounce back unless 
Congress steps in to help State and local governments.
    The lesson learned from the Great Recession unfortunately 
at the State and local level is that austerity is the wisest 
policy because Congress refuses to bail you out. If we have a 
national macroeconomic event, Congress ignores the problems 
that State and local governments face. So if you are a Governor 
or a mayor, you will cut expenditures, and you will be slow to 
reinvest, and we cannot afford that. We need them to continue 
investment in K-12 education and higher education and, as we 
see, in our public health system. So we need them as active 
partners. Slowing them down threatens our economy tremendously.
    Senator Menendez. Thank you.
    Mr. DeBoer, what would the impact be on the real estate 
industry if States, cities, counties had to cut investments in 
infrastructure and education, public health, safety, raise 
property taxes to continue paying for essential services?
    Mr. DeBoer. Thank you, Senator. Well, it would be bad. I 
mean, real estate and State governments' infrastructure are all 
intertwined. The health of real estate is critical to State and 
local governments' health, and the health of State and local 
governments are critical to real estate's health. So we are 
intertwined. And I also wanted to say because commercial real 
estate employs so many people, real estate employs so many 
people, it pays so much taxes, in many cases around 70 percent 
of local budgets are derived from revenue from commercial 
property taxes of transaction fees, as our marketplace 
deteriorates and cannot get credit and the tenants and our 
business deteriorate and cannot get credit. That will put more 
pressure on what you are rightfully flagging for everyone is 
already a problem, and it could get worse as tenants are unable 
to pay rent, as landlords are unable to make debt service, and 
as values drop.
    Senator Menendez. And, of course, in the real estate 
industry, the quality of life or the work environment is 
critically important, and these services go to the very essence 
of that in terms of adding value to where real estate property 
is located and what they can demand for price. Isn't that fair 
to say?
    Mr. DeBoer. Absolutely fair to say, and I would add to it, 
given the current situation and the world we live in now, how 
States are able to help keep their transportation systems clean 
and healthy so that workers feel confident going to and from 
their place of business and so forth is very, very critical, 
and that is an added expense for State and local governments--
as well as businesses, by the way.
    Senator Menendez. Dr. Spriggs, let me ask you, many of us 
have been disappointed by the ineffectiveness of the Fed's 
Municipal Liquidity Facility. It would be a massive policy 
failure if we failed to get money into the hands of State and 
local governments, as we have just discussed, especially those 
who are the very epicenter of fighting the virus, which is 
critical.
    Currently, loans under the Municipal Liquidity Facility 
would have to be paid back within 3 years. Wouldn't you agree 
that just like in the Great Recession the fiscal pressures on 
States and localities are probably going to still be there 
several years beyond that?
    Mr. Spriggs. Yes, the maturity on those loans has to be 
greater to really provide the smoothing of income that the 
State and local governments need. So extending the maturity and 
lowering the fees--the Fed is putting too high an interest 
payment on State and local governments through that facility.
    Senator Menendez. Thank you.
    Thank you, Mr. Chairman.
    Chairman Crapo. Thank you.
    Senator Scott.
    Senator Scott. Thank you, Mr. Chairman, very much, and 
thank you to the panel for being with us this morning on a very 
important topic.
    I will start with Mr. Scott, asking you a couple of 
questions. One relates to the CDFIs and the important role that 
it plays in underserved communities and low-income communities. 
We have all seen the reports around the fact that we saw a 22-
percent drop in businesses from February through April, and 
that is a significant drop in businesses. But when you think 
about Hispanic-owned businesses, it is 50 percent higher, 
nearly. It is around a 32-percent drop; and African-American 
businesses, about 100 percent higher, around 41, 42 percent. It 
seems to me that it is clear that it is imperative that our 
most vulnerable and underserved populations are not left out of 
the economic recovery, and it seems to me the CDFIs can play a 
significant role in providing that liquidity and access to the 
liquidity that so many of these communities businesses 
desperately need.
    So, Mr. Scott, what are some changes the Fed and Treasury 
should consider to better facilitate Main Street Lending 
Program's participation by CDFIs that serve these low-income 
and underserved communities?
    Mr. Scott. Senator, I agree with the thrust of your 
question and that we need to increase the role, but this is not 
something I have looked into in any detail. I am really unable 
to give you a good response.
    What I would say is that we need to make funds available by 
CDFIs as well as by the Fed. We should not abandon the Fed's 
role here. The Fed has tremendous capability. It has got the 
backing of the Treasury. It has got the ability to make loans 
if the program is correctly designed. The problem up to now is 
that it is not designed correctly. We are asking banks to take 
credit risk, which they do not want to take, and the terms are 
not good enough for the neediest borrowers. They cannot meet 
normal credit standards.
    Now, this is something the CDFIs could address, but I 
think, you know, we should also focus on redesigning the Main 
Street Facility as it now exists so the Fed can do more as 
well.
    Senator Scott. Well, Mr. Scott, you bring up a very 
important point perhaps around the redesign of the Main Street 
Lending Programs. I would ask a question that when you look at 
the response to the last several months, larger firms have had 
access to assistance; smaller firms have obviously had the 
Paycheck Protection Program, and if there is another bite at 
the apple, I think that would be wise. We have been flirting 
with the concept of a 20-year 1 percent loan, up to $100 
billion in that fund. But what seems to be obvious and missing 
is that mid-sized business and the lack of access to capital 
that they are experiencing.
    How do you think reducing the minimum loan size from the 
Main Street Lending Program, from, you know, the $250,000 
level, how would that create more access to resources for those 
mid-sized businesses? And, relatedly, how might the Fed and 
Treasury reconsider the program's administrative fee models to 
better incentivize lenders and small service borrowers--
providers?
    Mr. Scott. Well, I think decreasing the minimum loan size 
would be really essential for the smallest businesses because 
their needs are often less.
    I think on the medium-sized businesses they would probably 
need, you know, at least $250,000. It is not as big a problem. 
I think the problem for the mid-sized businesses is the general 
terms about how long the maturity is, how long they get to pay 
it back, what the interest rates are, et cetera. I think these 
are more the problems with the mid-sized, and my committee has 
recommended kind of a realignment of those terms to make them 
more attractive to mid-sized businesses.
    By the way, I think Senator Toomey raised the point that 
maybe these mid-sized businesses do not need this facility 
because they can go to the private sector. Maybe that is true; 
maybe it is not. I doubt it, because I think there is a lot of 
need out there for mid-sized businesses that is not being met 
by the private sector.
    Under the committee's recommendations, we say that no 
borrower should be able to borrow from Main Street if they can 
get funding in the private sector. So if Senator Toomey is 
right, we will be OK.
    Senator Scott. Let me use my last 12 seconds, Mr. DeBoer, 
to ask you a question that you will not have time to answer, 
but I will ask you to answer it quickly, and that has to do 
with creating access for our commercial real estate market. 
There is no doubt that the leverage limit set forth in the Main 
Street Lending Program term sheets will not work for most 
commercial real estate companies. How can additional 
flexibility help create more resourcing of those commercial 
real estate companies and investors?
    Mr. DeBoer. I will try to be very quick, Senator. First of 
all, because the Treasury and the Administration use the 
historic definition of a small business under the SBA loans for 
both the PPP and the Main Street Lending Program without any 
authorization or instruction from Congress to do so, they 
picked up these historic definitions. Those historic 
definitions redline out certain business activities, definitely 
including renting real estate, developing real estate, leasing 
real estate. So point number one, get rid of these 
inappropriate eligibility rules for both the PPP and the Main 
Street Lending Program. They have no application here. They 
should not be allowed.
    And point number two is the affiliation rules, and this 
really is not a real estate direct concern, but the affiliation 
rules which have received so much publicity certainly should 
not apply in the case of these mid-sized businesses, 5,000 to 
10,000, as Congress has suggested.
    And then, finally, you raise the underwriting criteria and, 
again, certainly EBITDA has no place in an asset-based lending 
program, and it should be set aside.
    And, finally, I would say this: If we are asking the Fed to 
make loans to businesses that otherwise cannot get financing, 
which is what I think we all want, those loans are per se 
risky. And when a bank makes a per se risky business under 
current and normal operating conditions, regulators criticize 
it and mark it down and require more capital. Those things 
should be addressed here. We should be encouraging and 
incentivizing banks to make these loans where they are not 
right now. They are required to retain 5 percent. That is too 
much. They do not get paid enough to service the loans. That is 
no good. And they are open for criticism when they do make the 
per se risky loans that we always want them to make.
    I hope that answers it. I am sorry for going long.
    Senator Scott. Thank you very much. I think we need more 
time, but maybe we will have a second round.
    Thank you so much, Mr. Chairman, for your indulgence.
    Senator Brown [presiding]. I believe that Senator Crapo 
went to vote. Senator Tester is next.
    Senator Tester. Thank you, Senator Brown. I appreciate it 
very much, and I want to thank the witnesses for being here 
today.
    I want to refer back very quickly to Senator Reed's 
testimony when Senator Reed talked about the increases mainly 
in foodstuffs, and coronavirus has pointed out something else. 
As we have seen good prices go up in the grocery store, very 
little of that money has gone to the farm gate, and it points 
out the fact that we have got another problem in this country, 
and it is called ``consolidation and processing'' that we need 
to get fixed and fixed soon. Otherwise, our food chain for 
grocery store items is going to continue to demand that it goes 
up.
    Look, I have been concerned about the debt for a long, long 
time. I have watched this President in good times infuse about 
$1 trillion a year in borrowed money into this economy and then 
brag about the fact the economy is doing really, really well 
when you see that kind of infusion from previous 
Administrations simply was not the case. Then, last, we are in 
difficult times right now economically and with the pandemic, 
and we have to do things, and it is going to involve borrowing 
money.
    This question is for all the witnesses, and I would ask you 
to be as brief as possible. If you were in a position where you 
could say I have got a couple two or three programs that need 
to be funded absolutely unequivocally to keep our economy on 
track, where would you target those resources? And I will start 
with you, Dr. Scott.
    Mr. Scott. There are two targets here. There is the 
stimulus, which I think Dr. Spriggs has talked about, getting 
money to individual people.
    The second target is helping small business, and that 
should be done through two ways, through the PPP program, maybe 
redesigned in some way, and through Main Street.
    So those are the three programs that I would focus on.
    Senator Tester. Thank you very much.
    Mr. DeBoer?
    Mr. DeBoer. Yes, sir, thank you for that question. I would 
first point out that the recommendations that I have made on 
the Main Street Lending Program and that I believe Dr. Scott 
has made really require no additional funds from the Federal 
Government. They are administrative. They could be done 
tomorrow by the Treasury and the Fed if they wanted to.
    Second, I would reload the PPP to help small businesses, 
and, remember, in effect, that is a supplemental unemployment 
check, too, because much of that money passes through to 
employees.
    And, third, I would set up a rental assistance fund for 
troubled residents and business tenants so that if they could 
demonstrate severe economic hardship, they could tap those 
funds and pay their rent. The PPP could then use more of the 
money to pay payroll and utilities and taxes, and you would 
have the Main Street Program helping mid-sized businesses. And 
I think you would have a much better environment if you did 
those three things?
    Senator Tester. Dr. Spriggs.
    Mr. Spriggs. Thank you, Senator. Well, we are at such a bad 
point with the disease, I would say we should think about what 
other countries did, which is to subsidize payroll directly and 
restore certainty to households about what is ahead. And we 
need to keep households that have lost jobs whole.
    But the number one thing we have to do is fight the virus, 
and we need far greater deployment of our resources at fighting 
the virus. We need to make sure that State and local 
governments have all the resources that they need, and we need 
to ramp up the hiring that it takes at the State and local 
government level to do tracing, to do testing, to get the tests 
in place, all of those things so that we can contain the virus 
and have State and local governments provide us with clean, 
safe transportation and maintain our transit systems. And as 
you rightly pointed out, Senator, we need this because we have 
to worry about competitive balance coming out of that. As you 
pointed out, we already have a problem with competitive 
balance. It is going to be worse coming out of this if we do 
not plan ahead on how we are going to maintain it.
    Senator Tester. Amen.
    A quick question for Jeff DeBoer. Jeff, right now there are 
no Federal programs for rental assistance, and I do not believe 
there are any Federal programs for folks who own rental 
property when those rents do not get paid. Could you just very 
briefly talk about the impacts if we do not do anything, when 
folks cannot pay their rent, and not only the folks that will 
be put out on the street that cannot pay their rent, but the 
folks who own the property that is the rental property? Because 
a lot of these owners are not rich corporations. They are 
families that may own a duplex or a fourplex that have rented 
it out for additional income or for retirement income. Could 
you talk about that just briefly?
    Mr. DeBoer. Sure, Senator. Thank you for the question. I 
think it is tremendously misunderstood what rent goes for and 
what it is used for, and the rent--what we call the ``rent 
obligation chain'' in the economy is extremely important, and 
it begins with the renter, the business, or the person being 
able to put housing for themselves and their family or to house 
their business. They pay the landlord. The landlord then pays 
for maintenance workers, for security workers, for other things 
to keep the building safe and healthy. It pays for the 
utilities. It pays for State and local taxes. It meets its debt 
service to the lenders, and the lenders in turn, whether they 
are--maybe they are banks, but they might also be pension funds 
or what have you, and those pension funds or banks in turn pay 
the bond holders or the pensioners a return.
    As this rent is not paid, the weakness will continue to 
erode the ability of owners to pay their payroll, to pay their 
taxes, to pay their debt service. Financial institutions will 
weaken. Pensioners will not get the return that they want. 
State and local governments will lose tax revenue because 
properties will be revalued in this new world that is based on 
rent receipts. If you do not receive rent, you do not really 
have much of a value.
    So this is extremely important with the underlying part of 
our economy. I appreciate it very much. And, Senator, I do want 
to thank you for cosponsoring the RESTART bill. A number of 
Senators are cosponsoring that bill by Senator Young and 
Senator Bennet, and that bill would do an awful lot of what you 
are talking about as well. For example, the conversation on 
CDFI, the RESTART bill directly authorizes the use of CDFI to 
move this money through. So I thank you for that, and I thank 
you for the question.
    Senator Tester. Thanks, Jeff.
    Thank you, Mr. Chairman.
    Senator Brown. Thank you, Senator Tester.
    Senator Cotton is next.
    Senator Cotton. Thank you, and, gentlemen, thank you for 
appearing before the Committee.
    At a time when we still have millions of working-class 
Americans who are struggling because of major increases of 
unemployment and job insecurity due to the pandemic, Senator 
Schumer and Speaker Pelosi are currently demanding that 
Congress provide massive tax breaks for the rich. Namely, they 
want to repeal the limitations on the deduction for State and 
local income taxes. According to one study, 62 percent of the 
benefits of repealing that cap would go to the richest 1 
percent and 86 percent would go to the richest 5 percent. 
Repealing that $10,000 cap on the deduction for State and local 
taxes would result in a windfall for the richest 1 percent of 
more than $38,000.
    Professor Spriggs, given that 98 percent of the benefits 
for repealing the cap on State and local income tax deduction 
would go to the richest 20 percent of Americans, do you believe 
that Congress should include a repeal of that cap in any virus 
legislation that might pass?
    Mr. Spriggs. Yes, Senator, I think Congress should. Some 
things that benefit the rich do not trickle down. This is an 
instance where the philosophy of State and local government 
comes into play. State and local governments often benefit 
those high-income families by not taxing them. The ability of 
State and local governments to raise taxes is threatened by 
this inability, and removing that lets State and local 
governments tax more efficiently. And so it may appear that 
they get a benefit, but it is on the other end that the rest of 
us benefit from higher revenues and higher investment in State 
and local government.
    Senator Cotton. How many AFL-CIO members do you think are 
affected by the $10,000 cap on State and local government 
taxes?
    Mr. Spriggs. Well, our largest affiliate is AFSCME, those 
State and local government workers who depend on having State 
and local governments have adequate revenues to make the 
investments that are necessary to sustain our local 
governments.
    Senator Cotton. But how many----
    Mr. Spriggs. They benefit directly because in those States 
that have very low tax rates, there are not the resources to 
maintain proper public services and end up with lower 
investment. So our teachers who are members of the American 
Federation of Teachers depend highly on State and local 
governments making the proper investments. That takes revenue, 
and that means you have to be able to tax people in your 
community.
    So it removes a Federal tax burden, but it allows State and 
local governments to put the tax where it needs to be.
    Senator Cotton. How many AFL-CIO members on their own 
income tax returns are hurt by the $10,000 cap on the deduction 
for State and local taxes in your estimate?
    Mr. Spriggs. I apologize. I cannot give you the precise 
number, but in New York State, which is our largest AFSCME 
affiliate, a large share of them do, in fact, get hit by that 
because with overtime there are members of some of the 
affiliates who are not able to make the deduction. Some of them 
are high-income workers.
    Senator Cotton. OK. So your position then is that Congress 
should repeal the cap on the deduction for State and local 
income taxes which disproportionately benefits the rich in any 
virus relief bill so States and municipalities can raise taxes 
on their own citizens. Is that correct?
    Mr. Spriggs. So that they can have progressive tax regimes, 
because, otherwise, it puts more pressure on taxes to be 
collected from those who are low-income and middle-income. That 
is the problem. So it is a shift to tax incident toward our 
members. Our members pay higher taxes because those at the high 
end do not pay the taxes that they should at the State and 
local level. State and local level taxes tend to be very 
regressive. This provision allows for greater progessivity at 
the State and local government level.
    Senator Cotton. Thank you, Professor. I think that was an 
illuminating conversation.
    I yield back my time.
    Senator Brown. Senator Warner.
    Senator Warner. Thank you, Senator Brown, and let me just 
quickly add that one of the reasons that I think the State and 
local tax deduction issue comes up and is needed is because, 
unfortunately, proposals that have come from the White House 
and the proposals that have come from my Republican colleagues 
have been so skimpy toward giving relief to State and local 
governments during the middle of a pandemic. I would simply 
point out that while we did give some funds in the first CARES 
bill to State and local government, there was, I think, a 
completely absurd restriction put on those funds that would not 
allow it to be used for lost revenues. We gave billions of 
dollars for the airlines for lost revenues. We gave billions of 
dollars appropriately to small business for lost revenues. To 
somehow say a State and local government could not use the 
CARES dollars for lost revenues I think was a policy mistake. 
And I think when you see some of the proposals that are coming 
forward that also exclude any additional assistance for State 
and local government, it is very disappointing.
    I have got a couple of questions. Mr. DeBoer, I want to 
start with you. I agree with a lot of proposals in the Main 
Street fixes that you have put out. As somebody who was very 
involved in those negotiations, along with Senator Brown and 
others, I was pretty disappointed with the ultimate facility 
that it was not as flexible as we approached, and I think it 
left firms and workers really unable to take advantage of that 
program.
    You pointed out that hotels and retail have withstood some 
of the largest declines, and that actually then translates into 
that if the landlords are not paid, they cannot make their debt 
service, that is going to really trickle into the CMBS market, 
and we could have a crisis similar to what we had in earlier 
decades.
    So if you want to spend a little bit of time--and I do want 
to get to CDFIs--on some of your proposals around a preferred 
equity structure that you suggested, and my understanding is 
that preferred equity structure, the ability to invest would 
recently be irregardless of what kind of loan portfolio the 
developer or real estate entity had. Is that correct?
    Mr. DeBoer. Frankly, my proposal--and, by the way, Senator, 
earlier I expressed my appreciation for your involvement on the 
Main Street Lending Program to begin with. It is a much-needed 
thing. There are a variety of proposals on the preferred equity 
side of things. I think that my point of view here is that it 
should not apply to every potential borrower out there, but 
should be targeted to borrowers who have loans that are tied up 
in CMBS pools, because it is there that you cannot put 
additional debt, the borrower cannot assume additional debt 
relative to those loans. That is where the program is needed.
    Again, I am not an expert in this area, Senator. I am 
sorry, and maybe I could get back to you with more----
    Senator Warner. If you could get back, I think, you know, 
as we are trying to explore, you know, while we give rental 
forbearance, which I think is appropriate at this point, if we 
simply pushed the problem up the food chain, you know, we are 
going to have to grapple with it at some point.
    In my last minute or so, I want to at least get to you, Dr. 
Spriggs. I think my friend Senator Tim Scott pointed out the 
question earlier. I have been working a lot on a structural 
change around investing into CDFIs. This pandemic has 
disproportionately hurt Black businesses, Brown businesses. I 
have seen as many as 440,000 Black businesses closed their 
doors, oftentimes because they were not able to participate in 
PPP because they did not have those long-term banking 
relationships. And I really want to thank Senator Brown and 
Senator Crapo and so many Members on both sides of the aisle on 
this Committee for working on the Jobs and Neighborhood 
Investment Act, which we have even found some support from the 
Administration on. Part of that component--and this is where we 
are having some of the biggest rub. There seems to be a lot of 
consensus about the direct equity investment, but the ability 
to actually use a Fed 13(3) facility. Dr. Spriggs, do you 
believe that the Fed can and should, consistent with its 
mandate, better target the minority community and through that 
CDFIs and MDIs? That is a relatively narrow piece of the 
financing pie, but when we are talking about a third of America 
being disproportionately hit, it seems to me that would be 
appropriate for the Fed. Dr. Spriggs, can you comment on that?
    Mr. Spriggs. Yes, and the Fed has started to figure out a 
way that it can interface with the CDFIs. The problem is, as 
with the banks, it is a cultural problem. The Fed is not used 
to dealing with the CDFIs. This is encouraging them to do it, 
and I think more encouragement from your office and from the 
Senate to have them do that is a good thing. We still have to 
address the underlying discrimination that has been revealed in 
the banking system. This is a serious problem. There is a Fair 
Credit Lending Act, and it needs to be enforced. We need equal 
access to capital. These are proper steps in the interim of 
getting the banking culture to be correct.
    But looking at our recovery, it is going to be vital that 
we figure out how do we get capital to the necessary sectors so 
we can have a balanced recovery, we can restore competitiveness 
in our system. And I think it will be important looking 
forward, as we get out of this, to think: How do we do this? 
Because if we just flood the capital markets, as we have seen 
here, that does not reach the people we need it to reach in 
order to get our competitive balance back.
    Senator Warner. Well, I want to just say thank you for 
that, Dr. Spriggs, and I want to thank all my colleagues on the 
Committee on both sides of the aisle who helped work with this. 
This would at least increase--it would be short-term relief, 
but it would be structural change. It would be north of $100 
billion in additional lending capacity.
    Thank you, Mr. Chairman.
    Chairman Crapo [presiding]. Thank you, Senator Warner, and 
I want to thank Senator Brown for covering while I went to 
vote. And, Senator Kennedy, you are next.
    Senator Kennedy. Mr. Chairman, can you hear me OK?
    Chairman Crapo. We hear you, yes.
    Senator Kennedy. Mr. Chairman?
    Chairman Crapo. Yes. Can you hear us?
    Senator Kennedy. I can hear you.
    Chairman Crapo. We can hear you. Go ahead.
    Senator Kennedy. I have my little ear bud things on.
    Gentlemen, I have listened to the testimony with interest. 
I gather that all three of our witnesses are suggesting that 
Congress provide more relief. In the first four bills, I think 
we spent a little over $3 trillion. I voted for those bills. 
Did we do the right thing? I think we did, but we will not know 
until we have the benefit of hindsight. One thing I think we 
all can agree on is that our debt now is staggering at $26 
trillion.
    Mr. DeBoer, how do you suggest Congress reduce this debt?
    Mr. DeBoer. Well, first of all, let me just say that, 
again, the administrative changes that we are suggesting for 
the Main Street Program will not cost the Federal Government 
any more money.
    Senator Kennedy. I understand.
    Mr. DeBoer. OK. So you start that. Let us make it work.
    As far as the deficit and debt going forward, I think this 
is an extremely serious problem, and our industry, which is 
very interest rate sensitive, is very concerned over time about 
the deficit. I believe that----
    Senator Kennedy. How do you think we should reduce it?
    Mr. DeBoer. Well, right now I do not think now is the time 
to reduce it. I think now is the time----
    Senator Kennedy. How do you think we should reduce it?
    Mr. DeBoer. When the time comes, sir?
    Senator Kennedy. Yes.
    Mr. DeBoer. When the time comes, I think that revenue 
options need to all be on the table, and I think spending 
reduction options need to be all on the table. But, again, 
right now this economy is teetering on the edge and needs 
assistance.
    Senator Kennedy. I get it. Let me move to Mr. Scott. What 
do you think, Mr. Scott? How do you think we ought to reduce 
this debt once the time comes? Spending, I think we have got 
that part.
    Mr. Scott. Senator, I totally agree with your concern. We 
need to reduce debt in the future. But I agree with Mr. DeBoer 
that now is not the time to do it. How we do it in the future 
really depends on the situation. Hopefully, you know, when our 
economy does recover in the future--and I think it is important 
that we work now to make it recover--revenues will increase, 
tax revenues will increase, and that will have a major impact 
on the reduction of the deficit.
    Senator Kennedy. How much more do you think we can borrow 
until we get into dangerous territory?
    Mr. Scott. You know, that is a very hard question. I think 
usually the dangerous territory is inflation, Senator. And, you 
know, we are living in a very anti-inflationary environment and 
have been so for some time. The debt service cost today is 
obviously much less than it would be if we had more inflation. 
So we need to keep our eye on that issue.
    Senator Kennedy. Let me stop you, Mr. Scott. Here is what I 
am trying to get to. You are all very accomplished 
professionals, but I am looking for your expertise. I get the 
idea that by raising revenue or lowering costs, it takes care 
of the deficit. I get that part. How do we do that? We get 
advice every day to spend more money. The obvious question is--
and I am not saying we should not. But how much more? At what 
point do we get in dangerous territory? I understand the 
Phillips curve may be losing credibility, but, I mean, at what 
point do you think if we spend this money, inflation will come 
back? At what point, if we keep borrowing money, will we 
undermine the sanctity of the dollar? That is what I am looking 
for as opposed to just, you know, general concepts.
    How about you, Professor? How do you think we ought to pay 
this money back?
    Mr. Spriggs. Is that directed to me, Senator?
    Senator Kennedy. Yes, sir, Professor. I am sorry.
    Mr. Spriggs. Well, this is a war. We are in a war with the 
virus. The last time we had debts at this level was when we 
were in World War II. And in a crisis setting, we do not want 
to create the uncertainty that we lack seriousness in winning 
the war. So we do not want people to think that we are going to 
back away from getting the virus under control, and I think 
that premature discussions make people believe we do not want 
to win.
    Senator Kennedy. Professor, I get all that. How do you 
think we ought to pay this money back?
    Mr. Spriggs. We paid down the debt of World War II--and we 
are getting close to the equivalent to that--by ensuring that 
we had rising wages, rising productivity, but most importantly, 
rising wages, and then as Mr. Scott said, we had increased 
revenues because we had broad-based, broadly shared economic 
recovery. And we had much different tax rates. We had tax rates 
that had much higher levels at the top. That is how we paid 
down the debt of World War II, and we have to be thinking about 
an economy that can generate that kind of broad income growth 
as we saw after World War II. So we have to institute those 
institutions that ensure that wages of workers are rising with 
productivity. We have to increase the minimum wage. We have to 
give workers back the power to organize. We have to put those 
things that were in place in the 1950s so that we can see 
incomes rise dramatically.
    Senator Kennedy. Right. OK, thanks.
    Chairman Crapo. Senator Van Hollen.
    Senator Van Hollen. Thank you, Mr. Chairman. And thanks to 
all the witnesses.
    Let me start with Dr. Spriggs. We know that there has been 
a lot of discussion about putting in place eviction 
moratoriums, both at the State level and the national level. Of 
course, the House HEROES Act has an evictions moratorium. The 
Trump administration has attempted to put in place some form of 
a moratorium, and I do not think any of us want to see tenants 
evicted at any time, but during this pandemic it would be 
especially dangerous.
    However, I think many of you have testified to the fact 
that that simply kicks the can down the road. In the end, 
tenants are still going to have to make their rent obligations. 
They will have to face a balloon payment at the end, which, you 
know, given the current trajectory, people are not going to be 
able to afford, which is why the Ranking Member Senator Brown 
and myself and others put in legislation for emergency rental 
assistance. The House HEROES Act also has the rental assistance 
provision.
    Dr. Spriggs, can you talk a little bit about, you know, the 
fact that an eviction moratorium without that additional rental 
assistance help simply puts tenants in a untenable position at 
the end of the road and immediately, as others have said, 
including Mr. DeBoer, puts the landlords who have their own 
debts to pay in a difficult position? Can you talk to that?
    Mr. Spriggs. Yes, Senator, and exactly the point that Mr. 
DeBoer has been raising. We stem off a financial crisis by 
making sure that people are making the payments they are 
supposed to make and help out the balance sheet in that way. 
And as you said, an eviction moratorium is good because we do 
not want homelessness, but we need the support for people to 
pay the rent. We need landlords to get their money. We need 
shopkeepers to have money so they can pay their rents. And this 
is the important thing for us to get ahead of the game rather 
than wait for foreclosures to take place and banks to be in 
trouble.
    So this is a foot race, and we are losing the foot race 
because the debts are mounting and we are not letting 
individuals get ahead of the race on that debt level. That is 
what has to take place. And without that, we are going to get 
to January, and we will find banks having problems because the 
landlords have problems and the loans that the landlords are 
paying will be in default.
    Senator Van Hollen. Right. Mr. DeBoer, can you comment 
quickly? There is a vote on. I am going to have to run. But 
this seems to be an area of common ground, and I wish there was 
broader recognition that getting funds into the hands of 
tenants, you know, to pay their landlords on the residential 
side but also, as you point out, on the commercial side, is 
something that would be very important at this moment.
    Mr. DeBoer. Yes, and it is only going to get worse. The 
Multi-Family Housing Council has their numbers out on rent 
payments for this month. They have dropped another 5 percent, 
and that, of course, is connected with the burning off of 
Federal assistance. So that problem is only going to get worse, 
and you correctly point out that the moratorium does not solve 
the problem. It creates a bigger problem once the moratorium is 
lifted without rental assistance.
    So I very much favor rental assistance, and I think these 
moratoriums, to the extent that they are done--and some have 
been overly broad. To the extent that they are done, they 
should only apply to residents who have some economic hardship 
due to COVID. They should not be blanket moratoriums on 
eviction. So thank you for that.
    And I would also add, I did not mean to speak over Senator 
Kennedy. That was rude. And I just want to--I was trying to 
get----
    Senator Van Hollen. I am going to, unfortunately, run and 
vote now, but I want to thank all of you. We have some common 
ground on rental assistance. Take care.
    Chairman Crapo. Thank you.
    Senator Cortez Masto.
    Senator Cortez Masto. Thank you. Gentlemen, thank you. This 
has been a great conversation.
    Dr. Spriggs, let me start with you. In your testimony, you 
noted that the greatest job losses in April, almost 8 million, 
were in the leisure and hospitality industry, obviously Nevada 
being hardest hit and a major concern of ours as well. So let 
me ask you this: What policy mechanisms and tools can Congress 
prescribe for a swift recovery for those industries and workers 
who are hardest hit?
    Senator Brown. Senator Cortez Masto is going in and out.
    Mr. Spriggs. The first thing we have to do is get very 
serious about fighting the virus so that people can feel 
comfortable in returning to normal economic activity. That is 
number one. And all efforts have to be directed at giving us an 
assurance that we are in a serious fight to get the virus under 
control so we can have safe travel and feel confident that we 
can stay safely in hotels and businesses feel comfortable with 
having their representatives out on the road without returning 
and infecting their workforce. So that is number one.
    We have to maintain the incomes of workers now so that when 
we do have that relief, people are not heavily indebted and 
trying to balance their household sheets, and that will delay 
their ability to return to travel. And Congress is going to 
have to pay great attention as we come out of this to 
competitiveness balance. We need a vital transit system. We 
need to have airlines back functioning. We have to have tourism 
working. That is one of our greatest sources of trade balance, 
is through our tourism, through foreign students who come to 
the United States. And we have to think through how are we 
going to restore competitiveness balance as we come out of 
this. Americans do not have paid leave. The rest of the world, 
August is vacation month. It is not in the United States. We 
have to give serious consideration to how are we going to do 
this with a workforce that does not get leave.
    There are a number of steps that we need to start 
considering now so that we are in agreement as we come out of 
this to restore balance to these industries.
    Senator Cortez Masto. Dr. Spriggs, thank you. And thank you 
all. I appreciate your comments to Senator Tester's question 
about what we need to do, because it goes back to what you just 
said, Dr. Spriggs, the balance. We have got to look to assure 
that individuals are receiving relief, businesses are receiving 
relief, everybody should be receiving relief right now, and 
nobody should be left behind. And that is why I appreciate this 
conversation because I think we also--part of this is how we 
address the concerns for some of our mid-sized business, large 
businesses, and our smaller businesses as well, because at the 
end of the day you need the businesses to employ the workers, 
and you need the workers for the businesses. They go hand in 
hand.
    So, Mr. DeBoer--and thank you for your conversation as 
well--you made the comment that Main Street Lending 
Facilities--we do not need to invest any more money or inject 
any more money into it. What we need is structural change. And 
I think I have heard that consistently from all of you. But let 
me ask you this--and I agree with you. I think there needs to 
be structural change. Would you support, though, clawing back 
any of the unused money in the Main Street Lending Facilities? 
Or do you think it should still be there to be used as part of 
this restructuring?
    Mr. DeBoer. Frankly, I think it should be given an 
opportunity to work the way that Congress wanted it to work. 
And you have given the money. It has been hamstrung. You should 
take off those restrictions and let it work, because these 
businesses, whether you claw back or not, these businesses need 
assistance, and this is the only program geared to provide 
them.
    So I would favor keeping the program. I would make it work, 
though. I would use that money.
    Senator Cortez Masto. So if we were to put a bill on the 
floor of the Senate this week that actually says that that 
money that is unused should be clawed back beginning next year, 
what kind of signal is that sending to businesses in general 
about where we stand or what we are thinking here in Congress?
    Mr. DeBoer. Well, I think the signal is many signals. One 
of them is that there is not the will to force the regulators 
to make the program work the way that you intended it to work, 
and I think that is a bad signal. But, again, if you could only 
do some things, you have got to do what you can get done. I 
also think that people understand that this bill is a part of 
the legislative process, and that as it moves along, hopefully, 
you know, the PPP can be recapitalized and this money can stay 
at Main Street. So I am not sure that this one vote or bill on 
the floor is the end of the world.
    I would also say it is a pleasure to be here with Dr. 
Spriggs. Frequently, business and employees and workers are 
viewed by the press and others as being in conflict. We are not 
in conflict. We work together with our workers, with our 
employees, and it is great to have the points of view 
articulated by Mr. Spriggs here today. Thank you.
    Senator Cortez Masto. Well, let me just say this: From the 
conversation that we had today, I do not think any of you are 
in disagreement. I think the goal here is everybody is in 
agreement that there needs to be another comprehensive package. 
We all have to be thinking about the relief in a comprehensive 
manner here. Nobody should be picking and choosing winners and 
losers.
    Mr. DeBoer. By the way, we have talked a lot about 
opportunities, and all of us, I think have opened our eyes 
wider to the lack of opportunities that certain parts of our 
economy and country have, and it is worth noting that since the 
COVID crisis started, 5 percent of businesses owned by White 
business owners have failed while 19 percent of businesses 
owned by Black owners have failed. That is not right. And many 
of those businesses are these Main Street businesses that 
currently cannot get this access to financing, and that is just 
another reason why I would put that money to work downtown and 
not let it sit idly in a vault somewhere.
    Senator Cortez Masto. Thank you.
    Chairman Crapo. Thank you.
    Senator Jones.
    Senator Jones. Thank you, Mr. Chairman. Thank you to all 
our witnesses. I really appreciate it.
    Mr. DeBoer, I am just going to kind of follow up on that 
last comment. First of all, let me thank you. You and the 
realtors have been very helpful with my staff and offices on a 
number of things that we have been successful on and others 
that we are thinking about, so thank you personally for the 
work that we have done together.
    But I would like to follow up on that question for you and 
the other panelists to weigh in, and that is access to capital. 
We have seen that early on minority businesses had trouble 
accessing the PPP program. I have not seen the latest 
statistics on that, but we had to make some carveouts to help 
with that. We have seen the businesses fail. As you mentioned, 
19 percent of Black-owned businesses have failed compared to 
only 5 percent of their White counterparts.
    I understand taking some of the money that we have, that is 
left over, to maybe help infuse and actually stimulate those 
businesses. But this is a long-term problem. This is not 
something that the pandemic caused. You know, minority 
businesses and the struggles that they have are really--they 
have been ongoing for a long time, and the pandemic just put a 
spotlight on those.
    So how best going forward can we ensure that minority 
businesses have access to capital? How can we ensure that they 
are as structurally strong as their White counterparts? And I 
will start with you, Mr. DeBoer, since you just mentioned it, 
but I would like to get the others to weigh in as well on this 
question. I think it is incredibly important for America.
    Mr. DeBoer. Senator, it is incredibly important, and I will 
be very brief. It is complicated, and it is a long-term answer 
to how we address the problem that you have described. But one 
thing that you might consider--and I again do not want to say 
it is the greatest--well, let me just put it this way: Senator 
Menendez has a bill that would encourage businesses to 
provide--they would be measured more by the types of 
opportunities and investments that they make into minority-, 
women-, and veteran-owned businesses. And having a benchmark, a 
structure, a metric that people and businesses could be 
measured against in that bill--and the bill also passed the 
House. I believe Congressman Meeks put a bipartisan bill over 
there. I think having something that businesses would be 
measured on in their ESG statements or in their filings to the 
SEC would be very, very helpful in this regard. And I want to 
tell you that my experience talking to CEOs around the country 
in a variety of businesses, everyone seems aware and intent and 
focused on doing what they can do to address this problem. We 
will see, but they certainly seem to be willing right now.
    Mr. Scott. So, Senator, I think it is imperative that if we 
have Government programs to support our economy that they reach 
minority businesses or minority people. Many of the people are 
unaware of these programs, so we have to do a much better job 
of reaching out. And our committee has advocated that any 
revised Main Street Program do so, and I would generalize that 
point to all Government programs that we have. Part of the 
problem is that the Government is not reaching out sufficiently 
to make these programs known in many of our communities. So 
that is one practical step I think we could take.
    Senator Jones. Great. Dr. Spriggs?
    Mr. Spriggs. Thank you so much for the question, Senator, 
and, yes, this has now raised to you see a consensus among a 
panel of business and labor economists on this point. The 
Government can play its own role through its contracting. The 
Government needs to debundle as many contracts as possible so 
that it is the Government doing direct contracting rather than 
having subcontracts. This will ensure that the Government knows 
that it is maintaining competitive balance in our economy and 
gives greater access to minority-owned firms because they get 
to deal directly with the Government rather than having to deal 
with these bundled contracts. Business-to-business contracting 
is the greatest level of discrimination that takes place in our 
economy, and this has revealed the discrimination within the 
banking system.
    The Federal Reserve has to be held far more accountable for 
its responsibility in ensuring there is not discrimination in 
lending, and what this has shown is that banks do discriminate, 
and that has to stop. And the Fed has to be questioned 
repeatedly about what steps it is taking to monitor that. We 
have an eye on mortgage lending through the Federal home 
mortgage data system. We need a system similar for business 
lending so that we make sure that there is reporting and 
accountability on that level, and when Congress hears from the 
Fed Chair, to make sure that is part of what he responds to, is 
how inclusive is our banking system in making these loans 
available, broadly speaking. And we need business to step 
forward and looking at its supply chains. There is a National 
Minority Supplier Development Council, and we need businesses 
to be participating in it and holding themselves accountable, 
as we hold the Government accountable through changing its 
contracting or making sure that they are using small- and 
minority-businesses as much as possible.
    Senator Jones. Dr. Spriggs, thank you for that, and I know 
my time is running out. I cannot see the clock, but I would 
like to call everyone's attention, both my colleagues' as well 
as this panel, to a program that was started by Mayor Woodfin 
in Birmingham with some of the largest companies in Birmingham, 
Alabama, and it does just that. It recognizes that every 
business has to seek minority vendors, minority-owned 
businesses, bring in folks on their board, and also be more 
transparent in mentoring. I think the private sector has a role 
in this as well as the public sector.
    So thank you all, and, Mr. Chairman, I probably have gone 
over time, which I apologize for, but I cannot see the clock. 
So thank you very much, Mr. Chairman.
    Chairman Crapo. Thank you. We will make sure we get that 
clock bright on your screen next time.
    That concludes the Senators. Senator Brown has asked if he 
could ask one more question, and then we are going to have to 
run to our next vote, which should be starting any second now. 
So, Senator Brown, please go ahead.
    Senator Brown. Thank you, Mr. Chairman, for doing that. I 
was really taken today by we all came--three people came in 
with differing views on a lot of things, and there is broad 
agreement that we need obviously a real stimulus package.
    My only question is really a yes or no for Professor Scott. 
Do you think Congress providing direct help to households is 
critical for helping the economy recover, correct? His sound is 
not on.
    Mr. Scott. I have got to unmute myself. OK. The answer is 
yes.
    Senator Brown. Thank you. And I was taken, as I pointed out 
to Mr. DeBoer, who came in here representing businesses, 
obviously, also spoke repeatedly about rental assistance. So, 
Mr. Chairman, there is broad--and, of course, Dr Spriggs is 
making the case, the main part of his testimony, about 
unemployment insurance and local government assistance and 
others. So there is broad agreement the economy is in trouble. 
The best way to address it is through direct help to 
households. It means unemployment insurance. It means rental 
assistance. It means support for State and local governments. 
The House already passed a bill back in May, as we know, that 
would take care of workers and renters and homeowners and 
students and seniors and veterans. We should act on that bill. 
But all the economic support in the world cannot solve our 
problems if the President does not start taking the coronavirus 
seriously. It might be uncomfortable, but it is time for my 
Republican colleagues here in Congress, especially in the 
Senate, to hold the President accountable, to speak to Senator 
McConnell who said he saw no urgency in this, to speak to him, 
to hold the President accountable despite the President's 
continued attempt at gaslighting the country. Everybody on this 
Committee, everybody in this Senate understands the pandemic 
will not go away just because we decide to ignore it.
    So thank you, Mr. Chairman.
    Chairman Crapo. Thank you. And that does conclude the 
questioning for today's hearing. Again, I want to thank each of 
our witnesses for your counsel today and for being willing to 
come and discuss this important issue with us.
    For Senators who wish to submit questions for the record, 
those questions are due to the Committee by Wednesday, 
September 16. And to the witnesses, we ask that you respond to 
these questions as quickly as you can after you receive them.
    Again, we appreciate you being here, and this hearing is 
adjourned.
    Senator Brown. Thank you all. Good to see you all. Thanks 
to all three of you.
    [Whereupon, at 12:02 p.m., the hearing was adjourned.]
    [Prepared statements, responses to written questions, and 
additional material supplied for the record follow:]
               PREPARED STATEMENT OF CHAIRMAN MIKE CRAPO
    Today we welcome to this virtual hearing the following witnesses: 
Mr. Hal Scott, President, Committee on Capital Markets Regulation; Mr. 
Jeffrey DeBoer, President and Chief Executive Officer, The Real Estate 
Roundtable; and The Honorable William Spriggs, Professor of Economics 
at Howard University and Chief Economist, AFL-CIO.
    It has been 5 months since the passage of the Coronavirus Aid, 
Relief and Economic Security Act, or CARES Act, was signed into law.
    Title IV of the CARES Act provided a $500 billion infusion into the 
Exchange Stabilization Fund, in order to support the Federal Reserve's 
emergency lending facilities.
    That amount has been leveraged to provide trillions of dollars in 
liquidity back into the markets, supporting credit flow and helping to 
stabilize the economy.
    Currently, there remains about $250 billion left from the CARES Act 
funding.
    Today, we will receive testimony from each witness providing an 
update on the Federal Reserve 13(3) emergency lending facilities, 
including recommendations on how the Main Street Lending Program and 
Municipal Liquidity Facility could be changed to improve access to and 
demand for the programs moving forward.
    We will also hear an update on the State of the commercial real 
estate (CRE) market; why the CRE market lacks access to needed support, 
including through the Main Street Program; and recommendations for 
options to get support to commercial real estate.
    The Federal Reserve established the Main Street Facilities to 
support lending to small- and medium-sized businesses and nonprofit 
organizations that were in sound financial condition before COVID-19.
    The Main Street program includes five facilities: the Main Street 
New Loan Facility, the Main Street Priority Loan Facility, the Main 
Street Expanded Loan Facility, the Nonprofit Organization New Loan 
Facility and the Nonprofit Organization Expanded Loan Facility.
    Treasury's equity investment of $75 billion into the Main Street 
Program is estimated to provide up to $600 billion in credit to 
eligible businesses.
    However, there has been broad concern around the lack of broad 
access to the Main Street Program, and so far its uptake has been slow.
    One of the most significant industries to lack access to the Main 
Street Program is the commercial real estate market.
    On July 31, I sent a letter to Secretary Mnuchin and Chairman 
Powell urging them to quickly expand the Main Street Program by setting 
up an asset-based lending facility, and to address commercial real 
estate either through access to the Main Street Program or in a 
separate facility.
    During this hearing, I look forward to hearing more about the State 
of small- and medium-sized businesses in industry across the United 
States and their access to financing; additional ways that the 
facilities could be improved and expanded to provide access to more 
industries; and recommendations for use of the remaining Title IV 
funds.
    As I noted in the hearing on Title IV implementation this Committee 
held on June 2, I am still concerned that incorporating widespread 
restrictions in these facilities could render the facilities 
ineffective and leave businesses and their employees without critical 
resources they desperately need.
    The work to get these facilities up and running has been of immense 
importance, and now it must be ensured that they are structured to 
achieve the greatest impact for those in need.
    I appreciate each one of you joining us today to share your 
perspectives on these important issues.
                                 ______
                                 
              PREPARED STATEMENT OF SENATOR SHERROD BROWN
    More than 150 years ago President Lincoln observed, ``It has so 
happened in all ages of the world that some have labored, and others 
have, without labor, enjoyed a large portion of the fruits. This is 
wrong, and it should not continue.''
    This pandemic is revealing just how true that still is today.
    This week we celebrate Labor Day, a day when we honor the people 
who make our country work--all workers, whether you punch a clock or 
swipe a badge, whether you're raising children or caring for an aging 
parent.
    But workers deserve more than empty words in a tweet or an email 
message.
    For months we've seen advertisements and PR campaigns from big 
corporations proclaiming how dedicated they are to the essential 
workers that are keeping our country running--but Statements that 
aren't followed up by increased pay or safer workplaces ring hollow, 
whether they're from companies or Government officials.
    This Labor Day, the country isn't living up to its promise to 
workers.
    Whether it's ending the $600 a week unemployment insurance that was 
keeping millions of families afloat, or just the simple promise that 
families won't lose their homes, under President Trump, our Government 
has given up on support for workers.
    We are on the precipice of another Great Depression.
    And if you have the privilege to work from home and you've been 
watching your stock portfolio slowly rebound, and you're thinking right 
now, ``this guy's being alarmist,'' I have news for you--you don't 
understand the real economy.
    No matter how well the stock market is doing, no matter how high 
bank profits and corporate profits are--if workers cannot work--and I 
say ``can't work,'' not ``won't work,'' because workers are desperate 
to get back on the job safely--our economy can't work. The President's 
failure to get this pandemic under control is keeping tens of millions 
of workers who want to go to work sitting on the sidelines of our 
economy.
    If people can't go to work, can't pay their rent or mortgage, can't 
pay their car payment or credit card bills--the bottom will fall out of 
this economy.
    It has been over 6 months since we passed comprehensive coronavirus 
relief for working Americans, and because of the President's failed 
leadership, things have only gotten worse. He's allowed the virus to 
rage out of control. Nearly 190,000 Americans have died in less than 6 
months.
    School districts have been forced to make impossible decisions--
reopen and put students and teachers at risk, or continue to teach 
remotely, putting an unbearable load on working parents and widening 
the achievement gap. State and local governments are trying to step in 
and help, but their tax revenues are down because taxpayers have lost 
their jobs and businesses have had to shut their doors or operate with 
fewer customers. And that's only going to mean more layoffs of good 
middle-class jobs, extending the cycle of misery.
    After Leader McConnell and President Trump allowed the $600 
expanded UI benefits expire, and refused to pass additional stimulus 
checks and housing assistance and support for local communities, the 
emergency lending programs we are talking about today are really the 
only programs left operating to prop up our economy--and none of these 
Fed lending programs are actually helping workers.
    Dividends are still getting paid, and CEOs are still getting their 
salaries and bonuses. The stock market continues to get a lift. If you 
make your money from a brokerage Statement, the Government is still 
helping you--in fact, you're pretty much the only one the Government is 
helping.
    But that help is not trickling down from big banks and corporations 
to the people who make their money from a weekly paycheck--the vast, 
vast majority of the American people.
    It should be obvious to everyone by now that those benefits to the 
wealthy never ``trickle-down'' to the workers who make this economy 
run. They didn't with the corporate tax cut 2 years ago, and they 
aren't now.
    Instead, these programs are helping corporations--many of which 
continue to lay off workers and have cut hazard pay for those who are 
still risking their lives on the front lines of this pandemic, if they 
even bothered to pay those workers hazard pay, to begin with.
    We are going about this backwards.
    Every dollar we give to working families goes directly to 
supporting the real economy, when those families pay their rent and 
their mortgages and their bills, and when they buy groceries and school 
supplies and spend money at a local business. In fact, if we put 
families and workers first, we wouldn't have to bail out any 
corporations at all--the market that so many in this Committee profess 
to put so much faith in would take care of that.
    Of course, we also know our economy will not fully recover while 
the virus is still not under control.
    The CARES Act that we passed in March was designed to be temporary 
relief--to get our workers and their families through the immediate 
economic hardships while we marshalled all of our country's vast 
resources and talent to stop a pandemic. The President failed to do 
that, and now what we thought would be a relatively short economic 
disruption has dragged on for months and months, with no end in sight.
    We still have no mask mandate, we still have no national testing 
strategy, we still have no effective contact tracing. We are seeing 
another resurgence across 22 States. As a result, we're just 4 percent 
of the world's population and 22 percent of the world's deaths.
    Imagine if the President had taken this seriously in the spring. 
Imagine if he'd said we should all wear masks and had modeled good 
precautions we should all take. Imagine if he'd said we are going to 
mobilize America's manufacturing talent and make enough tests to test 
every public school by the summer. Imagine where we could be as a 
society right now.
    Instead, the President has given up on controlling this pandemic at 
all until a vaccine is developed--and given the scope of his failures 
thus far, we can only assume he will fail just as badly at distributing 
a vaccine once that day comes if he's still in office.
    The economy will not recover until this President, and his cabinet, 
and his friends in Congress, take governing seriously.
    Later this month, we'll have a hearing with Secretary Mnuchin and 
Chair Powell. Unlike today's hearing, that one will be conducted in 
person. That's because the President has told his top officials they 
must testify in person, in his continued attempts to gaslight the 
American people about the dangers of the virus.
    We should be conducting all hearings remotely, not just to protect 
Senators and Administration officials, but to protect all of the 
workers in the Capitol--the janitors, Capitol police officers, and food 
service workers who are forced to show up and put themselves at risk, 
and then worry they are bringing the virus home to their families.
    After 6 months of failures, I am honestly surprised that the 
President's friends in Congress continue to let him get away with it.
    Mr. Chairman, we need your help and your leadership. You have done 
the right thing by conducting the rest of our hearings remotely, and we 
need you to demand that the White House sends the right message about 
taking the coronavirus seriously--tell Secretary Mnuchin he needs to 
testify remotely. I have no doubt Chair Powell would be happy to do so 
if you asked.
    And we need your help convincing Mitch McConnell to extend direct 
support for families while we fight this virus and get our country back 
on track. The House has already passed a bill that would take care of 
workers, renters, homeowners, students and seniors, and veterans. We 
all know this ``emaciated'' McConnell proposal isn't going to help any 
of those families keep food on the table.
    When something isn't right, we speak up--that's the job we signed 
up for. And right now thousands of people are dying each day, and 
Republicans aren't speaking up.
    The best way Congress could celebrate Labor Day this year is by 
doing its job. And we need your help to tell President Trump and Mitch 
McConnell that it's time to get to work. We have wasted too much time 
already.
    Thank you.
                                 ______
                                 
                   PREPARED STATEMENT OF HAL S. SCOTT
  Emeritus Professor, Harvard Law School, and President, Committee on 
                       Capital Markets Regulation
                           September 9, 2020
    Thank you, Chairman Crapo, Ranking Member Brown, and Members of 
this Committee for inviting me to testify before you today on the 
Treasury/Federal Reserve Main Street Lending Program (MSLP). My 
testimony today regarding the MSLP is based on the September 3 
Statement of the Committee on Capital Markets Regulation (CCMR), of 
which I am the President. With respect to other issues, the testimony 
is my own, and does not necessarily represent the views of CCMR.
    CCMR is an independent 501(c)(3) research organization, financed by 
contributions from individuals, foundations, and corporations. CCMR's 
membership includes 37 leaders drawn from the finance, business, law, 
accounting, and academic communities. CCMR's Cochairs are R. Glenn 
Hubbard, Dean Emeritus of Columbia Business School, and John L. 
Thornton, Chairman Emeritus of the Brookings Institution. Founded in 
2006, CCMR undertook its first major report at the request of the 
incoming U.S. Secretary of the Treasury, Henry M. Paulson. Almost 15 
years later, CCMR's research continues to provide policymakers with an 
empirical and nonpartisan foundation for public policy.
    CCMR believes that small- and medium-sized businesses (SMEs) will 
need financial support for several years to recover from the impact of 
the COVID-19 pandemic. A key part of this support should come from the 
MSLP authorized by the Coronavirus Aid, Relief, and Economic Security 
Act (CARES Act). The MSLP comprises five facilities, three of which are 
targeted at for-profit business and two of which are targeted at 
nonprofits. My testimony is focused on the three for-profit facilities. 
So far these facilities, which have been operating for over 2 months, 
have not delivered the anticipated results.
    CCMR therefore recommended that MSLP be significantly restructured 
to: (1) take on more credit risk, by providing that the Federal Reserve 
make 100 percent of each loan, rather than 95 percent as presently 
provided, leaving banks and other eligible financial institutions as 
processors; and (2) provide below market terms for borrowers who are 
unable to obtain credit from their existing lenders. The MSLP loans 
from the Federal Reserve should be on a first-come first-serve basis, 
based on objective criteria, to ensure that the Government is not 
picking winners and losers. Policymakers must also reach out to the 
hardest hit and underserved communities so that they can take advantage 
of the program. Extraordinary Federal intervention such as the MSLP 
must end as soon as the need for such a program has dissipated. CCMR 
supports the current end-date of December 31, 2020, which can be 
reevaluated in the coming months.
    The need for expanded support for small- and medium-sized 
businesses has been intensified by the current congressional deadlock 
over new appropriations for these firms. Congress has already 
appropriated $454 billion in the CARES Act to back Fed lending 
facilities. This appropriation should be used now to help Main Street.
1. Small- and Medium-Sized Businesses (SMEs) Need Government Help
    Small businesses have been hard hit by the COVID-19 pandemic. Dun & 
Bradstreet's Small Business Health Index reported a decline for June 
2020 reflecting an increase in business failure and payment delinquency 
rates at small businesses during Q2 2020. Certain sectors have been 
disproportionately affected by the pandemic: as of mid-August, revenues 
at transportation businesses had declined by 67 percent compared to the 
same week last year; revenues at arts and entertainment business had 
decreased by 44 percent; and revenues at restaurants had declined by 19 
percent. Also through mid-August, 64 percent of local arts and 
entertainment businesses and 39 percent of bars and lounges had not 
processed a single transaction for three straight days. In a recent 
letter, more than 100 current and former CEOs of some of America's 
largest companies, major trade associations and small businesses warned 
that without longer-term support from the Federal Government, small 
business owners are facing financial ruin.
    Medium-sized businesses have also been hard hit. Moody's Analytics 
reported that, as of mid-June, middle market corporations had 
experienced across-the-board increases in their expected default 
frequency. And the default rate on private debt rose to 8.1 percent in 
Q2 2020 from 5.9 percent in Q1, according to the Proskauer Private 
Credit Default Index, which measured 546 private loans issued mainly to 
private-equity-backed mid-sized businesses.
    As credit conditions at middle market firms deteriorate, these 
companies are finding it harder to borrow to meet their liquidity 
needs. The Federal Reserve--July 2020 Senior Loan Officer Opinion 
Survey on Bank Lending Practices reported that 71 percent of 
respondents reported tightening their lending standards on loans to 
large and medium-size firms, making it harder for these firms to obtain 
bank financing. The Fed's survey also reported that demand for such 
loans from borrowers had decreased, likely due to the unattractive 
terms that banks must offer to offset the credit risk posed by such 
loans. Indeed, the Association for Corporate Growth has reported that 
81 percent of its middle market members that tried to get a loan though 
the MSLP could not.
    A V-shaped recovery, meaning that the economy will within the next 
year or so bounce back to a pre-COVID level, is unlikely. Such a 
recovery is inconsistent with the predictions of the Federal Reserve 
and most economic forecasters, given the path of the virus, elevated 
unemployment and concern over a possible cascade of business failures 
in the services sector. According to the latest economic projections 
from Fed officials, the economy will contract by anywhere between 4 
percent and 10 percent this year. Most officials do not expect the 
economy to recover completely until 2022. While the latest unemployment 
figures have improved, the unemployment level is still very high at 8.4 
percent, and as Chairman Powell observed last week, there are still 11 
million fewer Americans working than there were in February.
    The generally buoyant U.S. public equity market is not a sign that 
all is well. The market indices are dominated by large-capitalization 
firms, some of which--especially in the technology sector--remain 
strong despite the pandemic lockdown. Sectors that have been hardest 
hit by the pandemic, such as department stores, airlines, and travel 
services, make up a small fraction of the major market indices, and the 
vast majority of SMEs are not publicly traded at all. Moreover, while 
Fed liquidity and low interest rates might help support public equity 
values, they do not necessarily portend a quick economic recovery.
    Some have expressed concern that distressed SMEs will not want to 
borrow from the MSLP. While it is true that in many cases their 
condition has worsened since the enactment of the CARES Act, SMEs, if 
solvent, will likely still borrow if it is their only hope of 
maintaining their business as a going concern. Of course, such loans 
will be risky but, as I shall shortly expand upon, the Treasury needs 
to be prepared to take that risk.
    In summary, SMEs face prolonged balance sheet stress and need 
financial support from the Government. Given the importance of these 
firms to the U.S. economy--middle market businesses, in particular, 
represent one-third of private sector GDP and employ approximately 44.5 
million people--such support is key to economic recovery.
2. The MSLP and Credit Risk
    When the CARES Act was enacted over 4 months ago, Treasury 
Secretary Steven Mnuchin and Fed Chairman Jerome Powell said the Act's 
$454 billion in appropriations could be levered by the Fed to support 
up to $4 trillion of loans. The Treasury subsequently announced that it 
would set aside $75 billion of this appropriation to support $600 
billion in loans to SMEs under the Main Street facilities on April 9. 
These programs, after several revisions, became operational on July 6. 
As of September 2, the Fed had purchased about $1.2 billion in loans 
through the MLSP, implying that $1.3 billion in loans had been made 
under the MSLP. The Federal Reserve currently discloses transaction-
specific data about the MSLP monthly. As of July 31, 2020, the program 
had only purchased participations in 13 loans, ranging in size from 
$1.5 million to $50 million. Secretary Mnuchin has estimated that 
between $25 and 50 billion in loans will ultimately be issued through 
the MSLP. This level of lending, if it does occur, will be far short of 
the MSLP's lending capacity of $600 billion and what is needed for 
economic recovery.
    One of the major reasons for the performance shortfall, has been 
the policy of the Treasury to avoid taking credit risk. While the Main 
Street facilities are operated by the Fed, the Treasury, pursuant to 
Dodd-Frank amendments to Section 13(3) of the Federal Reserve Act, must 
approve them and therefore controls their terms. Secretary of the 
Treasury Mnuchin Stated in April, ``I think it's pretty clear if 
Congress wanted me to lose all of the money, that money would have been 
designed as subsidies and grants as opposed to credit support.'' The 
terms of the MSLP reflect the Treasury's view by requiring lenders to 
retain 5 percent of all loans and to apply normal credit standards 
(which they would do anyway given their exposure).
    On August 4, Chairman Crapo offered the following amendment to the 
``shell'' rescue bill submitted by Senate Majority Leader McConnell, 
which would amend the CARES Act to provide: ``In making loans, loan 
guarantees, and other investments . . . the Secretary shall prioritize 
the provision of credit and liquidity to assist eligible businesses, 
States and municipalities, even if the Secretary estimates that such 
loans, loan guarantees, or investments may incur losses.'' Senator 
Crapo and Congressman Patrick McHenry have also written to Secretary 
Mnuchin and Chairman Powell, urging them to use funds appropriated 
under the CARES Act to expand the MSLP.
    CCMR strongly supports Senator Crapo's amendment, to remove any 
doubt of congressional intent. We urge the use of unallocated CARES Act 
funds to backstop potential losses from the MSLP. Government-backed 
loans to borrowers that cannot meet normal credit standards unavoidably 
involves credit risk, but taking such risk is necessary to support an 
economic recovery that would be slower without such lending.
3. Required Changes in MSLP
    For the MSLP to support SMEs in an effective manner, two major 
changes need to be made: (a) the Fed should make 100 percent of the 
loans with financial institutions acting as only processors; and (b) 
the terms for borrowers must be below market.
a. Fed and Treasury Bear Credit Exposure, Lenders as Processors
    For the MSLP to work, lenders cannot be required to hold 5 percent 
of each loan. The requirement that lenders bear credit risk is a major 
obstacle to the effectiveness of the MSLP. Lenders are unwilling to 
lend to the neediest borrowers who are uncreditworthy under normal 
standards. And borrowers that can meet normal credit standards do not 
need the MSLP at all.
    As of August 10, only 522 financial institutions had registered to 
participate in the MSLP. That number represents less than 5 percent of 
eligible lenders. Moreover, of those 500 financial institutions, just 
160 of them stood willing to publicly accept loan applications from new 
customers that lack a preexisting relationship with the lender. Larger 
banks had played a minimal role in MSLP lending as of early August; 
more than 90 percent of lenders registered to participate in the MSLP 
had less than $50 billion in assets and those lenders were responsible 
for more than 95 percent all MSLP loans.
    Once saddled with credit risk, lenders will rightly apply normal 
credit standards, with the effect that the borrowers who need financial 
assistance will not qualify for loans. While 5 percent of each loan may 
not seem significant, multiple small stakes in risky loans add up. We 
therefore agree with the recommendation of Senators Loeffler, Braun, 
Cornyn, and Tillis, in their August 4 letter to Secretary Mnuchin and 
Chairman Powell, that the most effective solution to the bank credit 
standard obstacle is to eliminate the risk retention feature 
altogether.
    To the extent that the infrastructure already put in place by the 
Federal Reserve is sufficient, the Fed could lend to borrowers 
directly, circumventing banks entirely. If that is not feasible, then 
banks--and other nonbank financial institutions certified by the Fed--
should remain in place solely as processors. Banks and other financial 
institutions that act as processors should be paid a reasonable fee, 
based on their costs, for processing loans.
b. Specific Terms
    As for specific terms, CCMR suggests the following, consistent with 
the below market approach:

    Loans should be unsecured, since the most distressed 
        borrowers do not have collateral.

    The maximum loan size should be increased. Under the 
        current terms, which tie maximum loan size to the borrower's 
        outstanding debt relative to earnings, many SMEs are excluded 
        from participation as a result of their current high leverage. 
        One way of avoiding such disqualification is to tie the maximum 
        loan size to the borrower's business expenses as reflected on 
        its most recent Federal tax return.

    The minimum loan size should be reduced to $100,000 (from 
        $250,000), consistent with the average size of PPP loans.

    The interest rate on MSLP loans should be lowered to a 
        fixed interest rate of 1 percent per annum (currently, MSLP 
        loans have an adjustable rate of LIBOR plus 3 percent) with no 
        fees charged to borrowers (currently, borrowers can face fees 
        of up to 200 basis points).

    The term should be extended to 10 years (from 5 years).

    Prepayment should be without penalty (consistent with 
        current terms).

    Amortization should be on a 30-year schedule, with the 
        balance due after 10 years.

    Eligible borrowers should be required to certify that:

      they are solvent;

      their need for credit arises from the pandemic;

      the amount borrowed is related to their actual cash 
        business needs;

      the funds borrowed will be spent on their business; and

      they could not obtain funds in the amount applied for 
        under the MSLP from their existing bank (this certification 
        would prevent creditworthy borrowers to which banks would 
        otherwise lend from obtaining below-market loans from the 
        MSLP).

    Loan documentation, which is currently complex and lengthy, 
        should be simplified. Currently, borrowers have to digest more 
        than 160 pages of documentation, supply more than 140 data 
        fields, and are subject to quarterly reporting requirements. 
        These information and reporting requirements are a significant 
        obstacle for smaller borrowers and exceed what borrowers 
        typically provide to banks for standard business loans.

    Some have suggested that what is needed for the most distressed 
firms is an equity injection rather than increased lending. In 
principle, this may be true but it is impractical to restructure the 
capital of SMEs on any scale in a timely way. That would require the 
consent of existing investors and significant legal costs. The terms we 
recommend for the Fed's debt would be similar to patient equity, given 
the significant risk of nonpayment.
    Another potential concern is that extending loans on below-market 
terms will lead the Fed to prop up businesses that are no longer 
viable. But the risk that viable businesses will go under en masse 
without additional support generally warrants greater risk-taking by 
the Fed and Treasury. And the Fed can mitigate the risk of lending to 
nonviable businesses by consulting private data, including from 
providers like Dun & Bradstreet, to screen out businesses that are 
unlikely to survive even with additional credit support. The Fed, or 
the banks and financial institutions acting as processors, can ensure 
that borrowers meet viability requirements, although such requirements 
must be clear and objective to avoid confusion and delay. In addition, 
the borrowers must make certifications as to their solvency and that 
the amount borrowed is related to their cash needs and will be used in 
the business--such certifications will be difficult to make for 
unviable businesses.
    The MSLP must ensure that owners cannot siphon off the proceeds of 
Government loans to themselves through executive compensation, 
dividends, or share repurchases. The CARES Act establishes certain 
limits on owners from doing so. Businesses that receive MSLP loans are 
prohibited from paying dividends or repurchasing shares until 1 year 
after the loan is no longer outstanding. During the same period, MSLP 
borrowers cannot pay annual compensation, over any 12 consecutive 
months, to officers or employees in excess of the sum of $3 million 
plus half the amount by which an officer or employee's 2019 
compensation was over $3 million. MSLP borrowers also cannot increase 
compensation over any 12-month period for any employee that was paid 
more than $425,000 in 2019. In addition, as set forth in the CCMR 
proposed terms, borrowers should be required to certify that they will 
use the proceeds of any MSLP loan solely for the benefit of the 
borrower's business. The proceeds of an MSLP should not be used to 
repay liabilities of the company which are personally guaranteed by any 
of the shareholders.
    CCMR generally opposes Government intervention in private business. 
Extension of MSLP loans should therefore only be tolerated in the 
short-term. CCMR therefore supports the CARES Act's time-limited 
approach to the MSLP, as funds appropriated under the CARES Act can 
only be used to backstop loans made before December 31, 2020.
4. Expansion of Treasury Support for MSLP
    Given the increased credit risk that would result from our 
suggested redesign of the MSLP, Treasury may have to increase the $75 
billion in equity that it has committed to the program. Fortunately, 
the Treasury has ample ability to do so. As of September 2, the CARES 
Act facilities, apart from Main Street, held only $17 billion in loans 
backed by $65 billion in Treasury funds. The existing backing of non-
Main Street facilities is excessive given the low number of loans, so 
some of this backing could be redeployed to Main Street.
    Apart from this existing backing, the Treasury has $351.5 billion 
in CARES Act funding that it has not yet used--a significant portion of 
this unused amount can be added to support a redesigned MSLP.
5. Ensuring Targeted and Equitable Access to Credit
    According to one estimate, businesses eligible for the MSLP employ 
an estimated 45 million workers, almost 40 percent of all private-
sector workers. Yet the MSLP has seen limited take-up. That is in part 
attributable to the program's current terms, which warrants the changes 
we recommend. But it is also, in part, a product of a widespread lack 
of knowledge about the MSLP; many small businesses do not even know 
about the MSLP or that they are eligible for it. One recent survey of 
middle-market companies found that more than one-fifth of respondents 
were unaware of the MSLP; others know about it but mistakenly think 
they are ineligible. This is a particular problem for minority-owned 
businesses. Using data supplied by Dun & Bradstreet, about which 
businesses would benefit most from access to the MSLP and those for 
which such borrowing is too late, the Treasury and Federal Reserve 
should coordinate, along with private lenders, outreach to and 
enrollment assistance for eligible borrowers with a chance of survival.
6. Loans for New Businesses
    The COVID-19 pandemic may permanently alter the structure of the 
U.S. economy. But this is not a reason for Treasury and the Federal 
Reserve to sit on the sidelines while SMEs fail because of cash-flow 
disruptions. Rather they should seek opportunities to facilitate a 
quicker transition to a new, postpandemic economy. To that end, the 
Treasury and Federal Reserve should also explore the possibility of 
adding a new facility, perhaps under the MSLP, to support access to 
credit for new businesses. A facility of this sort would not provide 
equity to new startup businesses; but once a new business has secured 
equity financing from private sources it could be eligible for debt 
financing on appropriate terms.
7. Conclusion
    Main Street's recovery is crucial for the U.S. economic recovery. 
CCMR recommends that Congress enact Senator Crapo's proposed amendment 
to remove any doubt that Congress's intent in enacting the CARES Act 
was for the Treasury to take credit risk. If such legislative action 
cannot be achieved, we would recommend that the Senate Banking 
Committee clarify Congress's intent in a bipartisan letter to Secretary 
Mnuchin.
    There is no guarantee that the extraordinary measures recommended 
by CCMR will succeed in saving American small- and medium-size 
businesses. But the current approach has been tried and found wanting; 
the recommendations set out here would give many small- and medium-
sized businesses in America a fighting chance. Each day that we wait to 
help Main Street further damages the prospect for economic recovery.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]




                PREPARED STATEMENT OF WILLIAM E. SPRIGGS
Professor of Economics, Howard University, and Chief Economist, AFL-CIO
                           September 9, 2020
    Thank you, Chairman Mike Crapo and Ranking Member Sherrod Brown, 
for this invitation to give testimony before your Committee today on 
the issue of where the economy stands with the status of the Federal 
Reserve's emergency lending facilities. I am happy to offer this 
testimony on behalf of the AFL-CIO, America's house of labor, 
representing the working people of the United States, and based on my 
expertise as a professor in Howard University's Department of 
Economics.
    We began this year with the world facing a novel virus for which we 
lacked adequate cures and that proved more deadly than most flus we had 
encountered. The lethal potency of the virus and its easy spread 
required a new set of responses. Given the lack of a cure and its 
costly nature of care on people and health systems, the world adopted a 
policy of social distancing and isolation to prevent its spread. This 
policy proved very effective in reducing deaths, and for the Nations 
that took aggressive measures, like New Zealand, proved highly 
effective in ending the virus' threat.
    But, despite the huge economic benefits of these policies, slowing 
the economy to carry out social distancing had huge costs, too. By all 
measures, the benefits of saved lives alone, far outweighed the cost of 
slowing the economy. It is important to note, that in the United States 
where our implementation of social distancing policies was very uneven, 
it is also clear that the uncertainty of COVID itself, slowed economic 
activity. The United States policy variation has clearly documented 
that social distancing policies are not the driver of the economic 
slowdown, but the spread of the disease is the cause of the economic 
slowdown. The difference is in the efficacy of the policy in slowing 
down the virus spread.
    This virus has caused the greatest decline in global economic 
activity since World War II. It has affected the Gross Domestic Product 
of every advanced economy according to the Organization for Economic 
Cooperation and Development. In response to this tremendous and 
unprecedented slowdown, economic policymakers everywhere have responded 
with swift, large, and bold actions. The U.S. Congress took early 
action to sustain the economy this Spring. Two quick acts of Congress, 
the Family First and the Cares Acts, bought time for policies to 
contain the virus to take hold. Unfortunately, while the economic 
policies were effective, the policies to contain the virus in the 
United States have lagged those of other countries, so our economy now 
enters a new phase of high uncertainty because of COVID without the aid 
of those earlier bold actions.
    In March, the uncertainty of COVID slowed certain economic activity 
in the United States that led to the first month of job loss, ending 
its record string of growth. But April brought the most dramatic loss 
of jobs in U.S. economic history. In that 1 month, we lost more than 
twice the jobs lost over the course of the Great Recession. While other 
advanced economies planned for social distancing by massively 
subsidizing payroll, America chose to dump workers into our 
unemployment insurance system. Rather than subsidize payroll, we chose 
to try and subsidize workers within the unemployment insurance system. 
To approximate preexisting payroll, an additional $600 was added to 
weekly unemployment benefits. This policy choice might have worked the 
same as with other advanced countries if COVID were put under control, 
and sufficient economic certainty were restored for households to 
resume normal consumption.
    However, there were many challenges to using the U.S. unemployment 
insurance system. The greatest job losses in April, almost 8 million, 
were in the leisure and hospitality industry. Our Nation's unemployment 
insurance laws were not well designed for these workers, and in normal 
economic times, workers in those industries are the least likely to 
receive unemployment benefits when they become unemployed--fewer than 8 
percent in 2018. And, at its peak during the Great Recession the system 
handled a little over 3 million in May 2009, but received over 6 
million at the end of March 2020, and had a 4-week average above 3 
million for 7 weeks from April to May. This overwhelmed the system and 
created backlogs, delays and confusion for American households that had 
lost labor income.
    Congress also granted the Federal Reserve funds and unprecedented 
latitude to devise policies to maintain liquidity in the capital 
markets. This let the Fed take steps to ease blockages in public 
finance and corporate borrowing that had frozen markets for those 
needed lines of liquidity. In periods of heightened uncertainty, a 
primary function of the Fed is to reduce uncertainty so the financial 
markets can function. But this case was different because the 
uncertainty from COVID were high and affected a broad range of economic 
actors, many that do not rely on Wall Street, but need access to 
liquidity from the commercial banking sector. Here the Fed was met with 
restrictions from the U.S. Treasury on how to devise plans to help 
those firms that live on Main Street. As with the Payroll Protection 
Plan loans overseen by the U.S. Treasury, banks were the primary 
financial intermediary. And, as with the PPP program, the banking 
sector proved both inadequate to the task and a reluctant participant. 
The banking sector also showed the problems of discrimination that 
plague banking, and access to minority-owned firms was greatly limited. 
Further, rather than let the Fed take advantage of the funds from 
Congress to assume room for risk in making loans, the U.S. Treasury 
limited this possibility, resulting in the program under the Fed's 
control as far more limited than would have been desirable given the 
uncertainty we faced.
    However, at this point, it is not clear whether the primary concern 
should rest with the Fed. The economic scarring of the downturn is 
taking hold on the economy. The initial plans of the Family First and 
Cares Acts to bide the economy over the COVID fight, now confront 
unemployment levels looking like the Great Recession. It is no longer 
the case that the best set of policies are in deepening the debt 
position of companies or households. Increased debt burdens in those 
sectors would lead to a weakened recovery as both the household and 
business sectors would engage in balance sheet consolidation during the 
early stages of a recovery, slowing down the economic rebound. In fact, 
most companies have already leaned toward increasing their cash 
balances, given the uncertainty that COVID has created. And, initially, 
those households with the greatest discretion used their Economic 
Impact Payments to consolidate their balance sheets as well, paying off 
debts or increasing their cash balances, too.
    The jobs report we got from the U.S. Bureau of Labor statistics for 
August was very revealing in respect to where the economic challenges 
now stand. First, the report was the first since the end of the $600 
weekly Federal Pandemic Unemployment Compensation payments to the 
unemployed. This gave a final test of whether those payments had 
distorted labor market participation by encouraging lower wage workers 
to stop seeking employment opportunities. Several studies looking at 
the effect of the FPUC showed there was no effect on labor force 
participation, with some showing it had a positive effective, mostly 
because the additional benefit encouraged many low wage workers to 
apply for unemployment benefits and thus get and remain engaged in the 
labor market. In normal economic times, low wage workers are the least 
likely to apply for unemployment benefits. And, research has shown 
unemployment insurance benefits help workers remain in the labor 
market, rather than become discouraged and drop out of the labor force. 
Clearly in August, there was no spike, or break in trend with labor 
force participation, putting to final rest the payments were a 
disincentive to returning to work.
    This new information we have on the performance of the FPUC is key 
because it showed clearly in the data from the U.S. Bureau of Economic 
Analysis the role the FPUC had in offsetting the significant drop in 
aggregate payroll for personal income. Without that money channeled to 
households, the economy will have a hole it cannot make up. Available 
evidence on spending patterns, clearly showed that the FPUC and the EIP 
payments kept consumption smooth for the bottom 75 percent of American 
households. Absent that support, to offset lost payroll income, we are 
heading into the final quarters of this year facing a huge headwind.
    Second, the report showed a slowing down in the job bounce back 
from April's decline. In May, with some key hotspots under better 
control, like New York city, employment was able to return quickly. 
Spikes in COVID activity around the country after Memorial Day, however 
have slowed the employment rebound. We remain down over 11 million jobs 
from our peak in February of this year. That is greater than the depths 
of the Great Recession. The number of workers losing jobs permanently 
is rising in step with the pattern of the Great Recession, as is the 
number of workers unemployed over 26 weeks. The rate of net job 
creation is too slow to get those numbers down, and those losses mount 
on personal household balance sheets. A feedback loop can set in to 
slow the recovery in aggregate demand and slow the recovery in jobs. 
So, this adds to the affect of the missing $600 FPUC payments in 
unemployment checks.
    The share of unemployed workers who are from households with little 
wealth and no liquidity is rising. The initial recovery for jobs has 
been far more rapid for White households than for Black and Hispanic 
families. Black and Hispanic families have significantly less wealth 
and liquidity than White households. The result is that a $1 drop in 
labor income leads those households to experience a greater than drop 
in consumption than for White households. The extra $600 the FPUC 
provided to unemployment benefits is needed for these households to 
maintain spending and keep aggregate demand at levels to sustain the 
macroeconomy. And, because Black and Asian American workers face 
discrimination in the labor market, they have the longest duration of 
unemployment spells. The loss of job for them has far greater financial 
risks. Consequently, the $600 FPUC does not carry the same work 
disincentive, as they face much lower probabilities of an unemployment 
spell ending with a job; meaning, their prospective loss of income from 
refusing a job offer is much higher. This dimension of racial equity 
underscores another important element of the FPUC.
    Other advanced economies that chose to subsidize payrolls, have 
much lower levels of unemployment than the United States. They will 
enter the final quarters of the year with healthier household balance 
sheets and they have managed to do a far better job of containing the 
virus. For the United States to enter the final quarters in a similar 
position will require maintaining personal income as best possible. 
Having chosen the path of using our unemployment system as the avenue 
of maintaining payroll employment levels, we have little choice but to 
continue down that path by keeping the FPUC up.
    The Fed cannot maintain personal consumption, or solve the COVID 
mystery. So, it must rely on the Congress to take actions to maintain 
household incomes. That can only be done through fiscal actions.
    Similarly, State and local governments are constrained by State 
constitutions in borrowing money to balance their fiscal issues. They 
are essentially, public actors under a single currency. As such, State 
and local governments must look to the Federal Government and Congress 
to act to provide stability in the face of macroeconomic uncertainty. 
In this economic situation, State and local government austerity will 
be counter-productive to an economic recovery, and further complicate 
the situation because they are playing a vital role as partners in 
getting COVID under control. At this point we need State and local 
governments to increase their investment in the safe return of workers 
to employment, and students to their schooling; while maintaining State 
and local government investments in the rest of our Nation's 
infrastructure. The great lesson of the Great Recession was the drag 
that State and local government austerity can play on economic 
recovery. As we enter the final quarters of this year, we will be 
facing the new fiscal years for State and local government. An 
additional headwind of drag from public investment austerity will make 
recovery even more difficult.
    We are heading into the final quarters of this year with a more 
severe labor market than the depths of the Great Recession while facing 
headwinds from the household and public sector. This is dangerous. We 
rely on households to pay rents, make mortgage payments and to buy the 
goods that let small businesses pay their rents and workers. 
Ultimately, the health of our financial sector rests on the real 
economy, and households making the payments that repay the loans the 
financial sector has made. Currently, the Fed has taken the actions it 
must to reassure the financial markets there is sufficient liquidity 
for businesses to borrow to keep up business. But the Fed cannot pay 
off the loans that banks make.
    What we are risking at this point is a failure of the real economy 
that increases uncertainty that loans will be repaid. That is something 
that Congress alone can address. It can keep to its course of 
maintaining payroll through adequate unemployment insurance payments, 
and keep the household sector afloat until the uncertainty of COVID is 
reduced and households return to normal consumption patterns, or it can 
watch personal consumption collapse and try and deal with the fall out 
that may contaminate the solvency of the financial sector. Congress can 
maintain the State and local government sector, its vital partner in 
getting COVID under control, or face disappoint in deploying a vaccine 
when, and if, one becomes available and the needed steps for safe 
opening of more workplaces.
    Congress should hope the Fed can maintain the economy while it 
waits to act. The Congress can ask the Fed to be as aggressive as 
possible in making lending available to restart the economy. Congress 
can direct the U.S. Treasury to loosen the reigns and let the Fed be 
more creative in getting funding to Main Street, recognizing this is a 
period of higher risk but also where more risk must be taken to ensure 
that when the recovery takes hold we have the greatest competitive 
balance our economy can maintain.
    But, in conclusion, Congress must act. It cannot pretend that jobs 
will magically appear and the labor market will heal itself before the 
loss of payroll income collapses demand. It cannot wish the job crises 
away, anymore than it can wish COVID away. Actions are needed on both 
fronts, and a full economic recovery is not possible without actions on 
both fronts.

               RESPONSES TO WRITTEN QUESTIONS OF
             SENATOR CORTEZ MASTO FROM HAL S. SCOTT

Q.1. Should the Federal Reserve lower the minimum loan size for 
the Main Street Lending Facility to encourage participation by 
smaller businesses?

A.1. Yes, to $100,000.

Q.2. Should the Federal Reserve consider extending the loan 
terms for the Main Street Lending Facility for a year or more?

A.2. Yes, there should be 10 year maturity on the loans.

Q.3. Should the Federal Reserve continue to require banks 
retain 5 percent of the loan through the Main Street Lending 
Facility?

A.3. No, it should make 100 percent of the loans. Banks are 
very reluctant to loan if they bear credit risk for less worthy 
but more needy borrowers.

Q.4. Do you think the employee retention provisions in the Main 
Street Lending Program are adequate?

A.4. Yes.
                                ------                                


 RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA FROM HAL S. 
                             SCOTT

Q.1. In August 2020, it was reported that the Primary Market 
Corporate Credit Facility (PMCCF) had yet to make a single 
purchase and the Secondary Market Corporate Credit Facility 
(SMCCF) was only holding around $3.6 billion of the Facilities' 
combined $750 billion corporate debt-buying capacity. It has 
also been reported that while some of this debt was purchased 
from struggling companies, the SMCCF has also purchased from 
cash-heavy companies performing well in the stock market. The 
Federal Reserve argues that buying bonds from massive companies 
keeps major employers in a healthy position. Others argue the 
emergency funding is going to the wrong place.
    What do you make of these criticisms?

A.1. Do not have an opinion.

Q.2. How have current eligibility requirements for PMCCF and 
SMCCF affected overall uptake of these programs?

A.2. Do not know.

Q.3. What do you think are the biggest barriers to entry for 
companies looking to participate in the Federal Reserve's debt-
buying program?

A.3. Do not know.

Q.4. Some of the 13(3) Facilities, such as the PMCCF and SMCCF, 
require applicants to have ratings from nationally recognized 
statistical rating organizations (NRSROs) that are accompanied 
by one of three ``major'' credit rating agencies. The Federal 
Reserve also requires some applicants to obtain ratings no 
later than the date a facility was stood up. I've recently 
partnered with Senator Tim Scott to introduce the Access to 
Emergency Credit Facilities Act, which would mandate the 
Federal Reserve open up the programs to all qualified NRSROs 
registered with the Securities and Exchange Commission.
    Do you think limiting ratings to one of the three major 
NRSROs has limited access to the Federal Reserve's corporate 
bond purchasing and other relief programs for small- and mid-
size companies?

A.4. Do not know.

Q.5. Do you think opening up these programs to other credible 
ratings agencies will help the Federal Reserve purchase more 
debt from those most in need?

A.5. Do not know.

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