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| The Fed needs to set clear rules for its new lending program. And then get the money flowing. | The Fed needs to set clear rules for its new lending program. And then get the money flowing. |
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| ANNOUNCED APRIL 9, the Federal Reserve’s Main Street Lending Program represented an extraordinary response to an extraordinary situation. Armed with $75 billion in Treasury funds approved by Congress in the Cares Act, the Fed pledged to leverage $600 billion in credit to the private sector. In contrast to previous Fed liquidity programs, which targeted commercial paper or asset-backed securities, the Main Street program will pump money not into the financial system but into the “real economy.” Those eligible for loans ranging from $1 million to $25 million will include solvent industrial, commercial and service-providing businesses with up to 10,000 employees or $2.5 billion in annual sales. | ANNOUNCED APRIL 9, the Federal Reserve’s Main Street Lending Program represented an extraordinary response to an extraordinary situation. Armed with $75 billion in Treasury funds approved by Congress in the Cares Act, the Fed pledged to leverage $600 billion in credit to the private sector. In contrast to previous Fed liquidity programs, which targeted commercial paper or asset-backed securities, the Main Street program will pump money not into the financial system but into the “real economy.” Those eligible for loans ranging from $1 million to $25 million will include solvent industrial, commercial and service-providing businesses with up to 10,000 employees or $2.5 billion in annual sales. |
| Full coverage of the coronavirus pandemic | Full coverage of the coronavirus pandemic |
| This expanded lender-of-last-resort function is necessary and appropriate; if anything, the Fed may be too cautious in the face of the expanding economic meltdown. In addition to the risk of not doing enough, the Fed faces the risk of favoritism and arbitrary selection, actual or perceived, in the allocation of credit. Anyone who doubts this risk is real needs only read some of the 2,000 interest-group comment letters the Fed has received on its initial plan. The gist of most: “We love the plan, but it would be even better if it advantaged us more.” The higher-education lobby wanted access for colleges and universities. The independent oil and gas industry pleaded for “flexibility” to use lower-cost Fed loans to pay off its old borrowings. The U.S. Chamber of Commerce, not surprisingly, chafed at limits on stock buybacks and corporate compensation. Financial reform groups, meanwhile, insisted, understandably, that the Fed stiffen guarantees that firms will use the money to keep workers on payroll. Groups all across the board raised technical concerns, such as the Fed’s imposition on banks of a new interest-rate benchmark instead of the more familiar London Interbank Offered Rate. | |
| The Fed needs to stay focused and move forward. The main objective is to inject as much money as possible, as quickly as possible, into areas of the economy that need it most while minimizing unwarranted discretion. The central bank should be willing to put taxpayer money at risk right up to the maximum $75 billion; minimizing loss is not as high a priority as it was in the 2008 financial crisis, which, unlike this situation, resulted in part from the excesses of the same Wall Street businesses that sought government support. For example, the Fed could probably safely tweak its eligibility criteria and minimum loan amounts so that companies that might be too large for the separate Small Business Administration Paycheck Protection Program can still qualify for the Fed’s lending. Stock buyback and dividend limits, however, are a reasonable constraint for the sake of public support. | The Fed needs to stay focused and move forward. The main objective is to inject as much money as possible, as quickly as possible, into areas of the economy that need it most while minimizing unwarranted discretion. The central bank should be willing to put taxpayer money at risk right up to the maximum $75 billion; minimizing loss is not as high a priority as it was in the 2008 financial crisis, which, unlike this situation, resulted in part from the excesses of the same Wall Street businesses that sought government support. For example, the Fed could probably safely tweak its eligibility criteria and minimum loan amounts so that companies that might be too large for the separate Small Business Administration Paycheck Protection Program can still qualify for the Fed’s lending. Stock buyback and dividend limits, however, are a reasonable constraint for the sake of public support. |
| The Opinions section is looking for stories of how the coronavirus has affected people of all walks of life. Write to us. | The Opinions section is looking for stories of how the coronavirus has affected people of all walks of life. Write to us. |
| No matter what, some sector or individual company that wants in to the Fed’s program will be left out. And that could lead to undue political pressure on the central bank. The Fed’s best bet to avoid getting bogged down in such conflicts is to set clear and consistent rules right from the start — then get on with the program. | |
| Read more: | Read more: |
| The Post’s View: The Fed puts its balance sheet at the service of the private sector | The Post’s View: The Fed puts its balance sheet at the service of the private sector |
| David Ignatius: Powell’s success at the Fed is a reminder of the importance of expertise | David Ignatius: Powell’s success at the Fed is a reminder of the importance of expertise |
| Megan McArdle: The Fed can only buy us a little time | Megan McArdle: The Fed can only buy us a little time |
| Megan McArdle: | Megan McArdle: |
| Insurers can’t cover the cost of the pandemic shutdown — and shouldn’t be asked to | Insurers can’t cover the cost of the pandemic shutdown — and shouldn’t be asked to |
| Helaine Olen: Unemployment is a national emergency. Why aren’t we treating it like one? | Helaine Olen: Unemployment is a national emergency. Why aren’t we treating it like one? |