Why 'Main Street program has been a failure': Expert

Congressional Oversight Commission Member and Corporate Power Program Managing Director at the Roosevelt Institute, Bharat Ramamurti, joins Yahoo Finance’s Brian Cheung and Kristin Myers to discuss the outlook on the CARES act amid COVID-19.

Video Transcript

KRISTIN MYERS: Well, in the CARES Act, that was the first coronavirus aid package, Congress authorized roughly $3 trillion to help people and businesses impacted by the pandemic. One part of that act was the Main Street Lending Program, which was created by the Fed, to help small and medium-sized businesses that were impacted by the coronavirus pandemic. So to chat this, we're joined now by Bharat Ramamurti. He's commissioner of the Congressional Oversight and Corporate Power Program and managing director of The Roosevelt Institute. We're also joined now by Yahoo Finance's Brian Cheung for this conversation.

So Commissioner, I want to start on that Main Street Lending Program. You called it a failure. Can you take us through why?

BHARAT RAMAMURTI: Sure. So four months ago, Congress authorized money to be spent to help medium-size and small businesses. The Treasury and the Fed set up this Main Street Lending Program and said that it would have a lending capacity of $600 billion-- billion with a B. And as of today, four months later, it has done $100 million worth of loans-- million with an M-- which is about point 0.001% of the lending capacity that it was set up for.

So I think that the data shows quite clearly that it's been a failure. We've had small and medium-sized companies struggling for the last several months. We've had tens of thousands of companies close their doors. We've had millions of people fired. And yet, this program that was supposed to help exactly these companies has barely done anything. And I think fundamentally, it's a problem with the design of the program.

BRIAN CHEUNG: Bharat, it's Brian Cheung here. Thanks for joining us. So it seems like based on the commentary from Boston Fed President Eric Rosengren, who is testifying today, there's been some hesitancy from the Federal Reserve to make this anything more than a backstop and that the preference might be for letting private banks do the lending themselves, as opposed to originate these Fed loans. There's been talk that it's been the Treasury that's been pushing the Fed to be more conservative here because it was concerned about taking losses. What's your perspective on that? Would you like to advocate for the Fed to be a little bit more bold and being able to take losses under this program if it means getting more credit out there?

BHARAT RAMAMURTI: Well, I think the fundamental problem is that this is a program that offers loans. And frankly, there isn't a lot of appetite for loans. Either you have a company that isn't reasonable enough shape that it can get a loan through the normal channels, through a bank, or a company that is struggling so much that a loan is not the answer right now. And so this company that's somehow in between, where it's struggling just enough that it can't qualify for a private loan but it's not struggling so badly that it doesn't need a loan at all, that's a very small part of the marketplace right now. And that's the only thing that this program is capable of targeting.

So I think fundamentally, the problem is that the Federal Reserve can only do loans. And what we need to do right now is for Congress to intervene directly and provide support in the form of grants to medium-sized companies, the way we did it for PPP and, again, to have that money come with real strings attached to make sure that the money goes to support payrolls, to support workers, to keep people attached to their jobs, attached to their health insurance in the middle of this pandemic.

BRIAN CHEUNG: So I guess if I'm hearing you right, it's OK if the uptake of the Main Street Lending Program is OK, as long as the fiscal policymakers are helping to keep some of these borrowers whole, which as we know, with phase four still being negotiated, might not be the case. What do you think the proper distribution is of responsibility for the Federal Reserve and for fiscal policymakers to be handling what is that a credit crunch on Main Street? And do you think the Fed is living up to the expectation? Should it be doing more, should it be doing less, based on the conditions out there?

BHARAT RAMAMURTI: Well, I think in this instance, Congress has asked the Fed to do a job that it's really not capable of doing, not because of incompetence or laziness at the Fed, but because of the tools and the statutory restrictions that the Fed operates under. The Federal Reserve is allowed to do loans. And again, the problem here is that loans are not the answer to the problem that we're facing. What we need to do is provide direct financial support to companies. That's something that Congress and the Treasury Department can do together, but it is going to require a new act of Congress.

You know, one thing that I've suggested is that initially, Congress allocated $500 billion to this joint Treasury and Fed program. As of today, $200 billion of that is totally uncommitted and untouched. It's just sitting there in the Treasury Department not doing anything in the middle of a historic economic crisis. My suggestion would be that Congress should take some or all of that money and reallocate it towards direct fiscal support for medium-sized businesses and the people who work there.

Remember, 45 million Americans work at these mid-sized companies. They represent about 1/3 of private sector GDP in the United States. They're some of our most innovative firms, some of our big-- our best manufacturing firms fall into this mid-size category. And I think it's important that we provide them with support, the same type of support we happen to provide to smaller companies through PPP.

BRIAN CHEUNG: So as we've seen, there have been some proposals about maybe putting in a fix, whether or not to handle the rest of that unused money or to change the, I guess, mandate for how the Fed is using this CARES Act money. We've seen a proposal from Senate Republicans that would include language that says, quote, "they should prioritize-- the Fed being-- the provision of credit and liquidity that such loans may incur losses." Is that enough of a fix? What other types of things would you recommend they include in that phase four deal to maybe address those problems you just laid out?

BHARAT RAMAMURTI: Yeah, unfortunately, I don't think that's going to solve the problem because it's still going to require the Fed to do loans. And even if those loans-- or if they're willing to take on a little bit more risk, maybe that marginally solves the problem, but I don't think it gets us all the way there. Again, what we need to provide is direct financial support to these companies.

I look at what happened in some other countries that have taken this approach. You look at a country like Denmark, for example, where the government stepped in early in the crisis and said, we are going to take over the cost of payroll at these companies, whether you're small or medium or you're big. And you look at the unemployment rate in Denmark, it went from about 4% to about 5% today. In the United States, the unemployment rate went from 4% to about 20%, and it's still in double digits as of today. I think it's not too late to try and adopt a similar approach, but we're running out of time.

KRISTIN MYERS: All right, Bharat Ramamurti, commissioner of the Congressional Oversight and Corporate Power Program, thank you so much for joining us. And of course, thank you to Yahoo Finance's Brian Cheung.