Mnuchin’s Bailout Mistakes Keep Multiplying
(Bloomberg Opinion) -- “I guess I should take that as a compliment that I look like a villain in a great, successful James Bond movie. … I was very excited of having my signature on the money. It’s obviously a great privilege and a great honor and something I’m very proud of, being the secretary, and look forward to helping the American people.” — Treasury Secretary Steven Mnuchin, 2017
The massive federal bailout of workers, families, businesses, local government and other social institutions in the wake of the coronavirus pandemic has offered a monumental test of that proposition. And the rollout of the Paycheck Protection Program, a $669 billion effort that represents one of the biggest chunks of the $2.7 trillion bailout, keeps offering evidence that these guys are pretty inefficient and inept themselves.
Remember, the primary goal of the PPP program was to help entrepreneurs keep workers on their payrolls so they could ride out what policymakers hoped would be a relatively brief downturn. Protecting jobs to keep small businesses afloat was what it was all about.
Yet the federal government, captained in this effort by Treasury Secretary Steven Mnuchin, doesn’t really know whether borrowers who received bailout money through the Small Business Administration used it to cover workers’ wages. And why not?
“Banks said the problem with the jobs data is that neither the PPP application nor SBA’s electronic system that lenders use to submit applications required an input for ‘jobs retained,’” noted an eye-opening Bloomberg News report Monday. “The application had a box for ‘number of employees,’ and some lenders said they submitted that number while others said they left it blank.”
About 4.9 million PPP loans were distributed, and at least 878,000 of those are unreliable benchmarks for job retention because of a mishmash of perplexing, non-standardized responses in the loan applications. Other reporting problems mean that jobs numbers associated with at least 20% of the PPP loans are dubious. “The anomalies cast doubts about the accuracy of the data for the centerpiece of the $2.2 trillion relief package enacted in March, including whether it supported the 51.1 million jobs that the administration has touted,” the Bloomberg reporters observe.
Note to future architects of historic bailouts: If you’re spending billions of dollars on a program designed to retain jobs, make sure that loan applications have a prominent feature marked “JOBS RETAINED.” Also, figure out how to effectively audit the ways in which businesses spend taxpayers’ money, just as a matter of basic financial prudence. Details like these matter, particularly if you’re serious about a public program doing what it’s intended to do.
The Bloomberg story is loaded with other unsettling details. Data collected from the PPP program is so riddled with errors that its overall efficacy is murky. “The data issues make it difficult to evaluate how well the program worked, especially because the names of borrowers were redacted for smaller loans that account for about 87% of the number of loans,” the story notes.
One PPP recipient the story profiles, a sole proprietor in Tennessee named Herb Miller, received $3,700, but the government said he received $5 million. Miller, an accountant, correctly surmised that “something is screwed up there.” What, exactly? “This whole thing is a farce,” he told the Bloomberg reporters.
I wouldn’t go that far. It was important to put a floor beneath workers and the economy once the ravages of the pandemic became clear. The federal government needed to move quickly before the financial and social hemorrhaging became unstoppable. But as my Bloomberg Opinion colleague Nir Kaissar and I have argued in a series of recent columns, efficacy shouldn’t have been sacrificed for speed. It’s fine to move quickly if that helps solve the problem. Lofting hundreds of billions of dollars into the unknown without proper oversight or structure, however, is pointless — and deeply reckless.
It’s not clear why the Treasury Department didn’t simply make direct PPP payments to workers rather than bring in business owners, the SBA and banks as intermediaries. Banks earned significant fees as part of that process, and the first round of funding was dominated by bigger or more resourceful businesses that already had relationships with the banks. The most vulnerable small businesses, particularly those owned by women and entrepreneurs of color, missed out on the first round of PPP lending. And a meaningful assessment of the overall gender, race and ethnicity of those assisted by the PPP program isn’t really possible because, you guessed it, the reporting standard for that information was lax. The SBA decided to leave it up to applicants to disclose demographic information rather than making it a requirement.
Mnuchin has kept the names of the bulk of PPP recipients under wraps to protect borrowers’ privacy, he says, though it might actually be due to his low regard for transparency. After stonewalling for months, he recently publicized the names of only the biggest borrowers — about 13% of the entire PPP pool. That disclosure wasn’t reassuring, alas. It revealed that well-heeled insiders in Washington and the business community — including borrowers with links to prominent Republicans, Democrats and President Donald Trump — benefited from the program.
PPP is also an act of faith. It was predicated on a belief that fallout from the pandemic would be relatively finite. If that’s not the case, and the economy goes into another tailspin, workers, families and businesses are likely to get walloped again. Will the federal government come up with the resources and the will to tackle this again if programs like PPP turn out to have largely missed their targets?
A lengthy profile of Mnuchin just published in the New Yorker calls him “one of the most consequential policymakers in the world” and says he “has the power to determine which industries and which companies will survive the crisis, which groups of Americans will get through it with relatively little long-term economic damage, and how equitable the recovery will be.”
For all of that, Mnuchin has no meaningful record of public service, and his career in the private sector was far more slender and opportunistic than were those of most of those who’ve preceded him as Treasury secretary. Nothing in his past suggested he’d be the right person to play a pivotal role in a crisis like the current one, and the PPP experience suggests he lacks the basic skills and dedication to be an effective steward of taxpayers’ money.
The hundreds of billions the government is spending now will burden taxpayers for generations. Younger Americans will have to contend with the realities and shortcomings of the bailout long after Mnuchin has left the Treasury Department. He’s given no indication that matters to him.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Timothy L. O'Brien is a senior columnist for Bloomberg Opinion.
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