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This is the start of a thread. I wrote about the federal economic response to coronavirus and its effects on different segments of society. The rich got richer, in large part because even tools for backstopping the real economy enrich Wall St. first 1/x https://www.nbcnews.com/politics/congress/richer-poorer-uncle-sam-s-coronavirus-response-widened-gulf-n1234073
In theory, Fed has a dual mandate to stabilize markets and employment. But the Fed is limited by law and by expectation, and its response to coronavirus made borrowing a LOT cheaper for banks, drove investors into stocks and had minimal effect for people who don't own things. 2/x
If you look closely, you'll see the Fed has bought about $2.3 trillion in treasuries and mortgage-backed securities, thrown in a bit for corporate debt, lent hundreds of billions through programs ("facilities") billed as for little guys that start with liquidity for big guys. 3/x
The very good news is that the entire U.S. economy didn't fall off a cliff. One question is whether there were other ways to accomplish that goal. A second question is whether the Fed has the ability to pursue such options. Most of its tools are blunt and Wall Street-oriented.4/x
One way to think about the most blunt tool is this: The Fed lowers fed funds rate to about zero. Banks now borrow for free. An upper middle class homeowner can get a 30-year fixed mortgage at 3%. A payday borrower borrows at 36%. Yeah, consumers get a deal, but not like banks.5/x
Now, flood the market with deals like that in response to a crisis to the tune of several trillion dollars and counting -- actually, it's impossible to count because a lot of the activity spurred by Fed actions isn't directing spending or lending by the Fed. Good/bad & true. 6/x
The Fed, by the way, appears to understand all of this. If you look at what Powell and others at the Fed have said recently, including a quote in my story pulled from a recent public appearance by Daleep Singh, they are concerned about effects of policies and feel limited. 7/x
I get that the Fed is mysterious and daunting, but its actions are why really rich people got really richer when so much of the country was out of work. And yeah, if you kept your job and you had investments, you probably saw some incremental gain, but I'm talking big $ 8/x.
BTW, there's nothing stopping Congress from telling the Fed to design programs that support employment or finance small business more directly. These are choices made and not made. And while there is an ongoing crisis, it's been going on now for several months. 9/x
OK, so you're bored by all this talk of the Federal Reserve. I get that, too. Let's talk about something easier to get your arms around. 10/x
The story linked above starts with the contrast of two guys on the Connecticut coastline. One, a black Army vet who makes Southern barbecue, and one an art collector, real estate developer and polo club founder. PPP gave a loan to the polo guy, but not the chef. 11/x
The polo guy turned around a few weeks later and borrowed $20M-plus from JP Morgan to buy a $47 million house in Palm Beach. When I talked to him, he said his CFO handled the details of the PPP loan. 12/x
How did I find the polo guy? Several weeks ago, @SRuhle and I did a story on a jet management firm that got a PPP loan and offered its clients a credit based on the loan. I took the names of the LLCs that owned the jets and crossed them with LLCs that got PPP loans. 13/x
The polo guy named his airplane LLC the same thing as his estate-buying LLC. I hate to say he should have registered everything in Delaware, but ... 14/x
Ok, there are 5 million PPP loans, of course there are going to be some that went to wealthy folks who were eligible but might not have need them, you say. 15/x
CEO Dan Eberhart said his PPP loan saved jobs AND
"From my vantage point the process favored medium-sized businesses with an existing lending relationship. If you were a small biz or one that had never borrowed money, it was an uphill battle to get your application submitted"16/x
"From my vantage point the process favored medium-sized businesses with an existing lending relationship. If you were a small biz or one that had never borrowed money, it was an uphill battle to get your application submitted"16/x
That is, throw out the extreme examples for a minute and look at what the program actually created incentives around 17/x
As I wrote in the story, SBA ignored the Senate's request to advise banks to lend to disadvantaged companies first. That was a green light to banks to lend first to advantaged businesses in the earliest days when the most vulnerable were at greatest risk. 18/x
SBA, as its inspector general wrote, also declined to require banks to collect information on racial and ethnic backgrounds of business owners, making it virtually impossible to fully track demographic effects. 19/x
Virtually, but not totally. Of the loans where data is available, the vast majority went to white-owned businesses and about .002 went to Black-owned businesses. Rob Fairlie of UC Santa Cruz estimates # of Black-owned small-biz is down 20%. There are other estimates. 20/x
VCU's Elsie Harper-Anderson told me that Black business owners were less likely to even seek PPP loans.
"People don't even go to banks and apply anymore because historically they have not been able to go down that road," she said. 21/x
"People don't even go to banks and apply anymore because historically they have not been able to go down that road," she said. 21/x
So, because Black people have not been able to get loans from banks for forever in this country, Black business owners tend to borrow from family and friends to start businesses. For those who did seek PPP loans, banks were lending on the basis of existing relationships. 22/x
You know who PPP was really good for? MEMBERS OF CONGRESS. And no, not because they all benefited from PPP loans (though some did). 23/x
There are exactly 435 House districts and 50 states in which PPP loans were made. In many districts, we're talking thousands of loans between $150,000 and $10M. Mitch McConnell and Ben Ray Lujan are among those featuring recipients in campaign ads already. 24/x
Maybe congressional pressure on SBA to disclose loans was about transparency. But it sure seems like there was another reason. Speaking of which, there are still 4.5 million loans under $150,000 that haven't been disclosed -- and there's no real explanation for that. 25/x
Some members of Congress want all of them forgiven without disclosure or even an internal review. How much you want to bet there are more members of Congress tied to some of those loans? How much you want to bet some of them don't meet the smell test? 26/x
Ok, back to what the government did for people who weren't elected to office. 27/x
There were stimulus checks and extra unemployment benefits, at a cost of roughly $500 or $600 billion, that were a temporary salve to keep families fed and sheltered. That's income, not wealth. 28/x
By most accounts, the Economic Injury Disaster Loan program has, itself, been a disaster, and I write about it a little. One guy who asked for a $2 million loan got a $2,000 grant. He runs a platform that keeps recovering addicts connected. He can't get SBA on the phone. 29/x.
I've done a lot of reporting on federal contracts. This one is interesting ... 30/x
Parkdale Mills in Gastonia, N.C., got a $531.9 million contract to make gowns for the government and then, within a week, bought out its minority stakeholder for $60 million, according to Securities and Exchange Commission records for the second company. 31/x
I really hope you'll read the story, though, because a) I worked very hard on it. b) I think it's very good. c) It's hard to put it all in a Tweet thread. d) I have ADD and my stories are better organized than my threads.
Which reminds me... I forgot something... 32/x
Which reminds me... I forgot something... 32/x
If you don't believe me on the very early part of this thread about the Fed's effects, take it from The Fed, a former top Trump economic adviser and two former Obama economic officials. They're all in the story. 33/x
"They’re buying financial assets," Casey Mulligan, who was chief economist for Trump's council of economic advisers said of the Fed. "If you look at who owns financial assets, disproportionately richer people, way disproportionate." 34/x
OK, if you made it this far, just click on the link and read it. Thanks for bearing with me. -- Jon https://www.nbcnews.com/politics/congress/richer-poorer-uncle-sam-s-coronavirus-response-widened-gulf-n1234073
