Robyn Shultz was awaiting approval for his $ 40,000 small business loan last week when the government’s first-come, first-served loan program ran out of cash.
Shultz, 60, owns Quality Electric Co. in Birmingham, Alabama, with her husband, Steve Bearden. She said that using the Small business administration Paycheque Protection Program would have helped keep six full-time employees on the payroll. Now she says time is running out. The additional $ 320 billion approved by Congress Thursday may be too late. She is not sure she can stay afloat.
“Small businesses like us are probably going to be washed under the carpet,” Shultz said.
The rapid and unprecedented response of the US government and the Federal Reserve at the coronavirusThe economic spinoffs don’t mean much to people like Shultz, who see help coming too late or not at all.
Policymakers in Congress, the Treasury Department, and the central bank learned a lesson from the last financial crisis 12 years ago when ordinary Americans were left to fend for themselves and millions of people lost their house. This time, they included individuals and small businesses in their aid programs in a way they did not do in 2008, when bank bailouts, even as they saved the system from the collapse, sparked an uproar on the sloping playgrounds for the rich and sparked backlash that shifted the political direction of the country.
But if one of the lessons of 2008 is to help Main Street as well as on Wall Street, the lesson seems to have been learned only in part. Americans live in two separate and unequal worlds, and the bailouts reflect that.
The awkward and slow rollout of aid to small businesses comes as aid to the financial system flows freely. In early March, the Fed under President Jerome Powell reacted swiftly to the freeze on the U.S. debt market, embarking on a wave of purchases that would add $ 1.25 trillion in treasury securities to its balance sheet next month. It kept cash flow – and limited losses for some billion dollar hedge funds that bet the wrong way with borrowed money. For some, what might be called the triumph of the Fed’s efficiency could also be interpreted as a contrast of priorities.
“In 2008, they forgot Main Street and I was only thinking of Wall Street, ”said Lawrence Jacobs, director of the Center for the Study of Politics and Governance at the University of Minnesota. “In 2020, they made a parade Main Street and I forgot to leave the treats.
The federal government and the central bank have committed more than $ 2.6 trillion to save the U.S. economy from the fallout from the coronavirus. This includes the two PPP credits and $ 77 billion for the SBA’s economic disaster loans. Mid-sized companies are targeted with $ 600 billion from both Main Street Ready installations, not yet in operation.
Glenn Hubbard, a professor at Columbia University who served as chairman of the Council of Economic Advisers under President George W. Bush, said he believed the Treasury Department had heard the resentment over the 2008 bailout and was determined to expand the number of beneficiaries in this emergency.
“A lot of the pressure came from outside of government, and I think the Treasury was very sensitive to it,” Hubbard said. “The bad press of 2008, not dealing with owners, was probably on people’s minds. “
Neighborhood business owners, many of whom have done the right thing by shutting down their doors to help stop the spread of the virus, had to hit it dry for weeks. Some of the 1.7 million applicants approved for PPP loans describe bureaucratic workarounds. Those like Robyn Shultz are sweating, waiting for the Treasury Department to calm the confusion and for additional congressional resources to arrive.
“It seems like the left hand doesn’t know what the right hand is doing,” Shultz said. “I don’t know where to turn for advice. “
Introduction to Federal Reserve Covid-19 Response Facilities
Small businesses are a anchor of the American economy. They provide almost half of the country’s jobs, about 45% of national production, and almost all of job growth. So it was disappointing for Alex Steed, who co-owns a video production company in Portland, Maine, when he couldn’t reach the SBA helpline after applying for a loan.
“I was told I was calling number 1403, and that it would take about three hours to wait,” Steed said. “I stayed on the line for several hours before it went out. I never ended up connecting with anyone.
Government-backed PPP loans are made by banks and other lenders. They cap at $ 10 million and will be forgiven if companies spend at least 75% of the amount to retain workers.
Melissa White has only one employee: herself. She has owned and operated Extensions of You, a hair extension salon in San Antonio, Texas, for 18 years. Most of her clients struggle with illnesses that have caused hair loss. She said no one has been able to give her clear answers about PPP.
“The government and the people are bragging about how they put together this program, but from my perspective there is just a big lag,” White said. “Everyone is confused.
Many small businesses say they are angry with large companies who have obtained PPP loans and not, especially at a time when borrowing options are narrowing. Catering and hospitality companies were able to divide their workforce in smaller units, as long as each location had fewer than 500 employees. A major donor to President Donald Trump with three hotel chains secured a total of $ 59 million from the program.
Companies receiving the maximum loan amount of $ 10 million include Hallador Energy Co., a coal company based in Terre Haute, Indiana, which had more than 900 employees at the end of last year; Based in San José, California Quantum Corp., a technology company with more than 800 employees in December; and Potbelly Corp., which operates 428 sandwich shops. A spokesman for Potbelly said Congress allowed restaurant funding because their workers are “vital to our economy.” Hallador and Quantum did not respond to requests for comment.
Ruth’s parent Chris Steak House, Ruth’s Hospitality Group Inc. received two loans of $ 10 million each because it owns two holding companies. Ruth’s owns 83 restaurants and employs 5,740 people. He decided on Thursday to return the money, a few days later Shake Shack Inc., the national burger chain, said it return the $ 10 million she received from the SBA.
On April 19, several small businesses filed a trial in Los Angeles federal court against four lenders – Wells Fargo & Co., Bank of America Corp., JPMorgan Chase & Co. and US Bancorp – accusing them of first approving large loans.
“When I think of small businesses, I think of family stores with a handful of employees,” said Alex Gonzalez, an energy consultant in Odessa, Texas, who applied for but did not get an SBA loan. “We wonder how much of this money that was intended for companies with 3, 4, 5, 6, 10 or 20 employees was left aside.
The majority of PPP loans, but only about 17% of the total, were under $ 150,000, according to a Treasury Department. presentation Last week.
Meanwhile, big companies are getting some lifelines. Delta Air Lines Inc. is expected to receive $ 5.4 billion in government funds, and United Airlines Holdings Inc. $ 5 billion. Both said they were planning to downsize.
After pushing private equity and real estate companies, the Fed also said it would buy high yield bonds, a bailout of troubled debt markets and their investors.
Some billion-dollar hedge funds have also benefited from quick action by the Fed. A number of them, including Millennium management and ExodusPoint Capital Management, practices what is called relative or base value trading: buying treasury bills in cash while betting against treasury futures contracts with borrowed money that overshadows their own investments until 50 times. These traders have become a important part buyers of Treasury debt securities, according to the Bank for International Settlements.
In early March, investors baffled by the rise in Covid-19 cases bought Treasury futures contracts. The basic trade was able to tank. The large leveraged holdings of hedge funds have hampered “the smooth functioning of the market,” according to the BIS. A 30-year veteran said he had never seen anything like it: an inability to trade in the $ 17 trillion market. The Fed responded by limiting losses. Millennium and ExodusPoint declined to comment.
Profits and losses of highly leveraged hedge funds have little effect on the wider US economy, other than the havoc they can cause in financial markets. Shultz, the electrical contractor from Alabama, has other worries like staying employed, staying in business and staying alive. The bailout was a further source of unease for her and for many others, threatening to deepen the alienation that split American society after 2008.
“I really have no faith,” Shultz said. “I have no faith in the system. In this government. In that direction.
– With the help of Donal Griffin