[Congressional Record Volume 166, Number 202 (Tuesday, December 1, 2020)]
[Senate]
[Pages S7124-S7126]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]



                           CARES Act Funding

  Mr. TOOMEY. Madam President, I rise this afternoon because while we 
were away for our Thanksgiving break, there were some very important 
developments on an important piece of legislation that we passed 
earlier this year, the CARES Act. Specifically, what I am referring to 
is the decision that was made by the Treasury Secretary, Secretary 
Mnuchin, to not extend the 13(3) lending facilities that we 
dramatically expanded in the CARES Act.
  By way of reminder, let me summarize these facilities. When the 
economy first began to close down back in March-April, one of the 
things that started to happen was a collapse of our credit markets. I 
will get into that in a little bit.

[[Page S7125]]

  In response to that, we in Congress passed the CARES Act, which, 
among other things, appropriated just under half a trillion dollars--
$500 billion--for the Treasury to use to capitalize special purpose 
vehicles, which would be set up as entities from which the Federal 
Reserve would lend money, buy securities, and provide liquidity to the 
marketplace. Those facilities were scheduled to end by the end of the 
year.
  In keeping with the written statute and certainly the intent of 
Congress, Secretary Mnuchin announced that these programs will, in 
fact, end as they are supposed to. I commend him for making the right 
decision, and I commend Chairman Powell for agreeing to a subsequent 
request from the Treasury Secretary to return the unused money.
  As it happened, the program, the concept, worked so well that the 
mere announcement and the mere creation of the capability on the part 
of the Fed to provide this liquidity was enough to restore functioning 
capital markets.
  It was an extraordinary amount of trust that we put in both Treasury 
Secretary Mnuchin and Chairman Powell, giving them extremely powerful, 
unprecedented emergency and temporary tools. I commend them both for 
working together with those tools, for achieving the intended purpose, 
and for putting them away once the purpose had been achieved.
  Some of our Democratic colleagues have been extremely critical of 
this decision on the part of Secretary Mnuchin not to extend these 
programs. I want to address some of the arguments and why Secretary 
Mnuchin, in fact, did exactly the right thing.
  Let's go back and take a hard look at what we were facing in March of 
2020. Unprecedented turmoil in the credit markets were threatening the 
ability of virtually every business, State, and municipality in America 
to obtain credit--a real threat to the financial plumbing, so to speak, 
of our entire economy. Credit markets were on the verge of shutting 
down. There was a mass flight of investors out of any kind of financial 
instrument and into cash. People were trying to sell everything they 
had. Prices were dropping in a free fall. In many instances, there was 
no buyer; there was no price at which one could sell an investment Of 
course, that meant that a borrower couldn't sell a bond or couldn't 
issue a commercial paper. This was the freeze-up in our financial 
markets that we were right on the verge of, and we were very 
desperately afraid that, if this happened--if our financial markets 
came to a grinding halt and you could neither borrow nor lend either in 
the capital markets or in the private lending markets of banks--then 
that would almost assuredly accelerate the downward spiral of our 
economy and could even lead to a severe depression that could last, 
potentially, a very long time.

  You don't have to take my word for it. A very well-stated summary of 
what was happening comes from Kent Hiteshew, who was the Deputy 
Assistant Director for Financial Stability at the Federal Reserve. He 
was a senior executive at the Federal Reserve, who, in his testimony 
before the congressional oversight committee, had this to say:

       The conditions that prevailed during March were 
     unprecedented--far worse than during the onset of the 
     financial crisis in late 2008 or even in the days after 9/11, 
     when the municipal market was briefly closed. Interest rates 
     soared . . . mutual fund investors pulled over $41 billion of 
     assets out of the market in less than three weeks, and market 
     functioning deteriorated to the point that buyers and sellers 
     had difficulty determining prices. Ultimately, this meant 
     that state and local governments were effectively unable to 
     borrow, with most new issues canceled for lack of investor 
     demand.

  That was the problem that Congress was seeking to address--a complete 
freezing up of our capital markets, the inability to borrow or lend. 
That is the lifeblood of business, which is the source of employment in 
this country. If we had not done anything at that moment, who knows how 
many more millions of Americans would have lost their jobs or how many 
more millions of businesses would have gone under. The economic 
devastation would have been very, very hard to imagine had we not done 
anything. Fortunately, we did do something.
  Congress decided that this problem could be fixed by providing enough 
liquidity until the crisis had passed. We would make sure that 
operations of this liquidity exercise would extend no later than 
through the end of 2020, and that is what we did in the CARES Act. Just 
last week, every Republican member of the Senate Committee on Banking, 
Housing, and Urban Affairs sent a letter to Secretary Mnuchin and 
Secretary Powell that reaffirmed that this was Congress's intent--a 
short-term, temporary facility to restore functioning private markets.
  I am pleased to report that these emergency facilities absolutely 
achieved the intended purpose--again, the purpose to stabilize our 
credit markets, restore the normal flow of credit to borrowers, and 
allow private capital to continue to resume funding our economy. It 
worked even better than we had hoped. Markets didn't just improve, and 
we didn't just see liquidity return; we saw record volumes of new debt 
issuance, new investor interest, municipal bonds, investment grade 
corporate bonds, high-yield corporate bonds--volumes that were off the 
chart in response to these facilities. The credit spreads at which 
these instruments were issued were very tight, and interest rates were 
near a record low.
  On the banking side, regional banks reported that their commercial 
borrowers drew down lines of credit so that they had the cash they 
would need to get through a very difficult period. In fact, many of 
them have been able to start paying that cash back. According to 
various surveys of businesses across America, unmet demand for credit 
among creditworthy borrowers is almost nonexistent. In other words, as 
to the creditworthy corporate borrowers--businesses large and small in 
America--if their credit is strong, they are able to access the 
facilities they need, the credit they need. That is exactly what we had 
hoped would happen by virtue of setting up these facilities.
  Despite that, some have said that we can't end these facilities that 
are called the 13(3) facilities because that is a section of existing 
law under which the Fed is authorized to conduct these activities. 
People have suggested: Well, you can't end these because the markets 
depend on them for their normal, smooth functioning. The markets now 
depend on these facilities. That was what we were told as a reason the 
Treasury had to extend these, presumably indefinitely, but, in fact, 
what we saw proved that the naysayers were completely wrong.
  In fact, it was on November 19 that Treasury Secretary Mnuchin 
announced that he would not be extending these programs. How did these 
financial markets respond? With a yawn. There were no adverse 
developments whatsoever. They continued their smooth, liquid 
functioning because, by November 19--in fact, many months prior to 
November 19--the markets had recovered on their own. They were 
functioning on their own. They were no longer in need of this fallback 
facility that we had created. Yet we did need it back in March. Equity 
markets have hit all-time record highs. Municipal debt and corporate 
debt volume is very high, and yields are low. The market is functioning 
very, very smoothly. Clearly, those of us who were advocating for 
actually following the law and ending these programs were right in that 
the markets were not actually depending on them anymore.
  Other people have said: You shouldn't end the 13(3) facilities for 
other reasons, one of which was, Who knows what risks may be out there 
or what bad things might be on the horizon for our economy that would 
cause us to want to have these facilities? That is a very bad reason 
for giving indefinite lending authority to the Fed to make direct loans 
to businesses in America.
  First of all, there has never been a day in the history of the 
Republic that you couldn't imagine some bad thing that could possibly 
happen on the horizon. That is no reason to create a taxpayer-sponsored 
backstop for all financial activity--none whatsoever. Sure, a bad thing 
could happen. Nobody knows. If it does, there is an answer. If such a 
disaster were to occur in the future and our financial markets were in 
danger once again of freezing up, then the Fed and Treasury should come 
back to Congress and ask for whatever authority they think is 
appropriate for those circumstances. Based on what we did in

[[Page S7126]]

March, Congress is quite likely to respond by granting the tools 
necessary to deal with whatever hypothetical crisis may emerge down the 
road.
  Others of our friends say: You can't get rid of these facilities, and 
you can't terminate these facilities because there are industries that 
are failing in America. Let me be clear. It is true that there are 
industries that are in a world of hurt. We know what they are. The 
travel industry--much of the tourism and hospitality, which is 
generally the hotels and restaurants--and a lot of the entertainment 
venues have been devastated like we have never seen them before. That 
is a true fact
  I think you can make a strong argument that Congress ought to do 
something to respond to the circumstances that these folks find 
themselves in through no fault of their own, but they are in the 
situation they are in because, in many cases, their Governors closed 
their States. In other cases, it is because people are just prudently 
concerned about being in a crowded setting. So there is a problem 
there--there is a challenge--and we may very well decide we want to 
address it. Yet having the Federal Reserve lending money to 
fundamentally insolvent companies is not the role of these facilities. 
It never was. It is not contemplated in the underlying 13(3) statute, 
and it is not in the CARES Act. That is not what this program, what 
these facilities were meant to address.
  Let's be clear about what the advocates for continuing these 13(3) 
facilities are really all about. What is going on here with regard to 
these programs--this massive, massive amount of money that is at the 
discretion of the Fed and the Treasury to lend--is they want to use 
political pressure on the Fed and the Treasury to lend these facilities 
to favored political constituencies at terms they find appealing or 
attractive depending on their circumstances. This is exactly the 
opposite of what a central bank should be doing--capitulating to 
political pressure to lend to preferred constituents at whatever terms 
the politics dictate. That could not be anything further from the role 
the central bank ought to be playing.
  To my colleagues who are advocating that we do exactly that with 
these 13(3) facilities, I couldn't disagree more. If we want to be in 
the business of picking industries or sectors and subsidizing them or 
giving them money or treating them in some unusual way, we can have 
that discussion, but that is fiscal policy. That is a decision that, 
ultimately, needs to be made by the politically accountable branches of 
government--the Congress and the President--not by the central bank, 
which is supposed to be independent and apolitical.
  The fact is that I think we deserve congratulations. Even more so, I 
think the Treasury Secretary and the Chairman of the Fed deserve 
congratulations for setting up the facilities that have made it 
possible for our economy to begin a record recovery from a very, very 
deep trough that we hit in the late spring of last year.
  We all know that we are not at the end goal in that we are not back 
to full employment yet. We have, as I said before, many companies that 
are in deep trouble and many that have gone out of business altogether. 
We have a lot of problems, and we need to deal with them, but we do 
know this recovery has been occurring at a faster pace than anyone 
projected. Most economists, including at the Fed, thought that we would 
be lucky if the unemployment rate dipped below 10 percent by the end of 
this year, but it was at 6.9 percent at the end of October. We have a 
long way to go before we get back to the barely above 3 percent 
unemployment rate that we were enjoying before this pandemic hit, and 
by all means, we need to stay at it until we get there, but we won't do 
that by turning the Fed into the allocator of credit based on political 
demands. That would be a very, very bad idea. It would lead to worse 
economic outcomes and all kinds of distortions, and it would erode the 
independence of the Fed.
  As I say, I congratulate and commend the Treasury Secretary for 
making the right decision and the Chairman of the Federal Reserve for 
returning the unspent money. These programs have been remarkably 
successful. They have served their purpose. Their purpose is now behind 
us, and we need to continue the policies that will allow us to have the 
economic recovery we need without these programs continuing.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Texas.