America’s Main Street Bailout Is Failing

published on July 2, 2020

america is facing an economic crisis

the federal government and the federal

reserve have promised to help

but while wall street is recovering

small businesses

are waiting for their money

[Music]

welcome back to america uncovered i'm

chris chappell

large parts of the us economy are still

shut down because of the coronavirus

now three weeks ago we told you how the

federal reserve

was planning to print money to jump

start the economy

as it worked and in particular how well

have the fed and various government

agencies helped

small businesses mcineze is back with

more

matt thanks chris a few weeks ago i said

that the us economy was facing

two major crises because of the

coronavirus lockdown

the first is the main street crisis with

small businesses shut down

and people out of work the second is the

wall street crisis

where the stock market tanked and

investors lost

billions well i've got good news and bad

news

the good news is wall street is back

baby

the stock market is making a quick

rebound

that's largely thanks to the bailout

from the federal reserve

aka the fed investors may have lost

billions of dollars after the

coronavirus lockdown

but the fed is printing billions of

dollars to make up for it

a regional fed chairman explained this

process on 60 minutes back in march

can you characterize everything that the

fed has done this past week

as essentially flooding the system with

money yes

exactly and there's no end to your

ability to do that

there's no end to our ability to do that

now the federal reserve is the group

officially tasked with issuing us

currency

it's not actually a government agency

even though it sounds like it is because

it's called the federal reserve

it merely has a government mandate the

fed is supposed to be working in the

public interest

but ultimately it's a private

corporation made up of bankers that acts

independently

with no public oversight well it's a

little more complicated than that since

the

us president appoints the board of

governors and okay

that's not a rabbit hole i want to go

down in this episode

at any rate the fed is bailing out wall

street by

flooding the system with money i spoke

over skype this week with thomas wade at

the american action forum a conservative

think tank

he told me that the fed has injected

more than a trillion dollars into the

economy

since mid-march things like buying

corporate bonds

propping up the stock market and much

more the fed has done more

in the last couple of weeks than it has

done in a previous century of operation

it has been a breakneck

number of programs and

monetary policy authorities that the fed

has rolled out in response to this

crisis

and with the fed rolling out all these

programs and flooding the system with

money

the economic problems facing america

have been solved

and by america i mean this guy and this

guy

and definitely this guy but what about

this guy

and this guy that's the bad news

even though wall street is on its way to

a fast recovery thanks largely to the

fed bailout

main street is still suffering a lot of

small businesses have been closed under

lockdown orders for more than a month

even those that are still open like

restaurants are hit hard when they can

only do pick up and delivery

although arguably some restaurants

should just stay closed

but at any rate the us government and

the federal reserve

have promised to help main street the

fed said in march that they would

implement programs

supporting the flow of credit to

employers consumers and businesses

by working with the treasury department

they also said

they would establish a program to

support the flow of credit

to consumers and businesses including

loans

guaranteed by the small business

administration but it turns out

helping main street is a lot more

complicated than helping wall street

and it's not something the fed has ever

really tried to do before

that's why the fed is working with the

small business administration and the

treasury

both of which are government agencies on

coordinated plans

to help small businesses it works like

this on march 27th

congress passed the cares act it's a two

trillion dollar stimulus bill that

includes among other things

349 billion dollars to support small

businesses

that have been hit by the coronavirus

recession that's a big deal because

small businesses

are responsible for about half of all

jobs in the us

but small businesses have also been hit

the hardest right now

especially those considered

non-essential like the souvenir shop in

manhattan

forced to close down you know for safety

even though

30 feet away there's a giant target

which is allowed to stay open

and target sells literally the same dumb

shot glasses

and snow globes and t-shirts and

postcards

as the local souvenir shop while also

doing a terrible job of social

distancing

but i mean who's to say which businesses

are essential

state governments they say new york

state has decided that

if for example you're a grocery store

you get to stay open

so a mega store like target qualifies as

essential

because they sell groceries even though

target

mostly sells stuff that new york state

does not consider essential

like clothing in games

okay obviously some of this is essential

so it's no surprise that target the

nation's eighth largest retailer has

seen its stock climb back up by 25

percent since the crash at the end of

march

now i'm not ragging on target they do

provide stuff that americans need right

now

and they employ several hundred thousand

people on top of that

they gave all their frontline workers a

two dollar an hour raise during the

coronavirus crisis

my point is only that many large

corporations are doing okay

and even if they're not doing okay as

long as they're run properly

it's fairly easy for them to borrow

short-term money from big investors

but small businesses tend to be hit

harder

including those that sell some of the

same stuff as target but they specialize

in one thing like clothing

so they don't qualify as essential

businesses and they have to stay

closed and it's harder for them to get

financing in a crisis

but as i said the federal reserve and

the federal government

have promised to help those small

businesses that includes a new program

from the small business administration

called

the paycheck protection program and the

paycheck protection program

is a loan designed to provide a direct

incentive

for small businesses to keep their

workers on the payroll

and the small business administration

will forgive loans if all employees are

kept on the payroll

for eight weeks and the money is used

for payroll rent

mortgage interest or utilities in other

words it would be a loan for main street

businesses

that they don't have to pay back and

that will ultimately be financed by the

fed

it's a bit like the bailout that wall

street gets well the difference is that

main street businesses need to keep all

their employees to qualify for the

bailout

whereas that requirement does not apply

to the fed's wall street bailout

also here's the thing many small

businesses

are not actually getting the bailout

money at all

one problem is that the paycheck

protection program ran

out of money the program began taking

applications on april 3rd but

it was off to a very rocky start a lot

of small businesses never got notified

that they were eligible

and then by april 16th all 349 billion

dollars authorized by congress

had been loaned last week congress

approved an additional 310 billion

but that money could run out soon too so

how do hundreds of billions of dollars

get snapped up so fast

that's the second problem commercial

banks are responsible for actually

making each individual loan

and the banks have not been making the

loans in the way

the paycheck protection program intended

banks were supposed to process

applications on a first-come

first-served basis

but in reality some banks gave priority

to bigger clients and

existing clients it turns out banks

could make a lot more money

loaning to bigger clients these are the

treasury department's guidelines for

lenders ie

the banks it outlines how the bigger the

loan the bigger the fee the bank gets

for example if a bank makes a small

business loan of twenty thousand dollars

they get a processing fee of five

percent which is one thousand dollars

but if they make a loan of say 199

million dollars they get a processing

fee of

3 percent which is nearly 60 000

which is to say banks make way more

money by giving a big loan to a big

small business

than a humble loan to a mom-and-pop

small business

even though in either case it's roughly

the same amount of paperwork for the

bank

and even though all these loans are 100

backed by the small business

administration and the fed

so the banks take on absolutely no risk

anyway given how the banks get

compensated it should be no surprise

that banks have been giving priority to

bigger companies

or that nearly 40 publicly traded

companies received payroll protection

program loans

worth at least 243 million dollars

publicly traded companies that means a

big chunk of the bailout

meant for main street instead went

directly to wall street

this is the exact opposite of what

congress and the treasury department

intended the intent of this money was

not for big public companies that have

access to capital

yes the intent was for small businesses

but the road to an economic breakdown

is paved with good intentions for

example an oil services company called

dmc global

that's worth 250 million dollars got a

small business loan of 67 million

dollars

and shake shack a publicly treated

company worth nearly 2

billion dollars got a 10 million dollar

small

business loan while also laying off a

thousand workers

now look i like shake shack it's no in

and out burger but

it's fine but shake shack taking 10

million dollars of bailout money

meant for small businesses seems

ridiculous

the good news is that shake shack dmc

global and several other publicly listed

companies

have said they will return the money on

the other hand a lot of other public

companies

have said they'll keep it but can you

blame those companies for keeping the

money they got

well sure you can but the stimulus bill

allows companies with fewer than 500

employees per location

to get the small business loans shake

shack has more than 6 000 employees

overall

but each location each restaurant has

fewer than 500

so companies like shake shack

technically did not violate any law by

getting the loans

this is just the way the stimulus bill

was written and remember big companies

provide jobs too

but the american public wants the money

to go to actual

small businesses that don't have access

to other financing which is why shake

shack

felt pressure to return the money how

about the banks can you blame the banks

for how they handled the loans

well sure you can and that's why two

companies in california

filed a class action lawsuit against jp

morgan chase bank

alleging unfair business practices

towards some small businesses that

applied for these loans

they say they have evidence that banks

prioritized applications for the largest

loans early on

in other words banks prioritized the

loans that brought in the biggest

fees now this is not to say that no

small businesses got loans

so far 16 million american businesses

have received loans through the paycheck

protection program

that sounds like a lot but it represents

less than six percent of small

businesses who sought funding

and there are close to 30 million other

small businesses

that haven't gotten funding and may

never get funding

so why don't the banks just make more

loans to small businesses

well as i mentioned the funds from

congress are limited

it's not an infinite money printing

thing like what the fed is doing for

wall street

and also making new loans requires

paperwork

especially when you're dealing with

literally millions of clients

each time a bank gets a new customer

they're required by law

to do certain background checks that

make sure they're not say a terrorist or

a money launderer

that being said the banks are already

getting a fed bailout

and they're getting a commission on each

loan they make and they don't have to

take on any risk for the loans

so if america's biggest banks have to do

a little more paperwork to bring in new

clients

i don't feel that bad for them in fact

how about they use the money they're

making from these loans

to hire more people to do the paperwork

now how about the federal reserve can

you blame the federal reserve

remember the federal reserve said they'd

worked with the treasury department

to support the flow of credit to

consumers and small businesses

and it's not that they haven't done it

they have

but it's been far far from enough to

truly bail out main street

and while the fed has the power to force

the banks to make certain types of loans

the fed hasn't done that but then again

how powerful do you want the federal

reserve to be

as i mentioned the federal reserve is

more or less a private corporation

that has the authority to print money

from thin air do we really want to give

the fed even more control

over who gets money and who doesn't of

course there's a lot more to the fed but

that's not a rabbit hole i want to go

down in this episode

the point is you can blame anyone you

want for the small business situation

but ultimately we're in a crisis we've

never had before

and everyone from the fed to congress to

the banks to businesses

even if they have the best of intentions

they're scrambling to make it work

millions of americans need help and

there's no simple solution

back to you chris wait what about china

can't we blame the chinese communist

party for their cover-up that led to the

coronavirus spread in the first place

you're absolutely right but is that

really a rabbit hole you want to go down

not in this episode thanks matt for more

coverage of china

watch our other show china uncensored

and america uncovered is supported

mainly through contributions from

viewers like you

who contribute to the crowdfunding

website patreon

go to patreoncom america uncovered to

learn more

i'm chris chapple see you next time

[Music]

you

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