Governments are dumping unprecedented amounts of cash in hopes of avoiding a pandemic-induced economic slump, but the rush to get cash into the economy is turning into a major payday for scammers and shady politicians.
The national debt has skyrocketed past $26 trillion since COVID-19 touched down stateside, but it’s unclear just how much of the billions spent on fiscal relief has found its way into the right hands. Since the government launched its stimulus programs a few months ago, there have been numerous reports of shady deals that raise serious questions about how these programs are being administered.
One of the earliest examples of the government’s COVID-19 bailout programs is the Paycheck Protection Program. The government’s figure-it-out-on-the-fly approach towards PPP is a characteristic of how it’s managed most of the coronavirus stimulus programs. Since its inception as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the program has received over $650 billion in government funding. However, recent events have led many to question whether that money is going where it was intended.
The funds were intended to help small businesses keep their employees on the payroll with forgivable government loans. Policymakers hoped that the PPP funds would help small businesses keep paying their employees, thus limiting the strain on state unemployment programs. However, the Treasury Department’s initial PPP guidelines had some glaring loopholes that greedy multibillion-dollar companies were more than happy to exploit.
PPP loans are restricted to businesses with fewer than 500 employees, but there was an exception for companies in the restaurant and hotel businesses. The exception was skillfully disguised with legalese, so the average person reading it wouldn’t have noticed it. However, corporate America quickly picked up on the loophole:
During the covered period, any business concern that employs not more than 500 employees per physical location of the business concern and that is assigned a North American Industry Classification System code beginning with 72 at the time of disbursal shall be eligible to receive a covered loan.
In plain English, this well-disguised clause opened up PPP funding for businesses in the restaurant and hotel industry, regardless of size. Pretty soon, large publicly-traded companies were rushing in to raid the government’s piggy bank. Ruth’s Chris of steakhouse fame landed $20 million in forgivable PPP loans. Shake Shack – a $1.8 billion company – received $10 million in government loans while smaller businesses struggled to get a dime. It took a public outcry and a strongly-worded letter from the Treasury Dept. to shame many of these large companies into returning their PPP loans, but it’s unclear how many decided to take their chances and keep the money.
Most incredibly, the CARES act included no stipulations that barred elected officials from receiving PPP loans. Politico recently conducted an investigation that found that at least four bipartisan lawmakers have close connections with businesses that have received generous PPP loans. The companies in question are either managed by family members of elected lawmakers or employ their spouses in senior roles.
Republican lawmakers Reps. Roger Williams (TX) – who is one of the wealthiest members of Congress with a reported net worth over $27 million in 2018 – and Vicky Hartzler (MO) have close connections with businesses that received PPP loans. Spokespersons for the two GOP lawmakers say they went through the proper channels to receive the loans, though they wouldn’t reveal how much they received. Unsurprisingly, both legislators voted against a bill that would’ve forced the Small Business Administration to identify companies that received loans larger than $2 million.
On the left side of the aisle, Reps. Susie Lee (NV) and Debbie Mucarsel-Powell (FL) are tied in with two companies that received PPP loans. Marcarsel-Powell’s husband was a senior executive at Fiesta Restaurant Group, who initially received a whopping $15 million loan before opting to return it, and Lee’s husband runs Full House Resorts, who received $5.6 million from the program.
The suspicious lending practices have led to a legislative push to unmask major recipients of PPP funds, but the effort stalled on the House floor. Treasury Secretary Steve Mnuchin says there are no plans to reveal the identities of organizations that received PPP funding.
However, PPP is small potatoes compared to the Federal Reserve’s massive $2.3 trillion lending effort, a program with much fewer stipulations than PPP. The Fed’s big business lending program includes no stipulations for companies to retain payrolls, nor does it restrict share buybacks, dividends, or other forms of executive pilfering. Some experts have expressed concerns that the program doesn’t include enough oversight.
Bharat Ramamurti, a member of the Congressional Oversight Commission for the CARES Act, wrote an op-ed piece in the New York Times to voice his concerns about the program. The woefully understaffed five-person committee is tasked with overseeing trillions of dollars in loans facilitated with government money, and Ramamurti says he sees big problems with the program’s guidelines.
“At a time when millions of people are filing for unemployment each week, why would the Treasury and the Fed use public money to support companies that could turn around and slash payroll while paying giant executive bonuses and directing billions to shareholders?” Ramamurti wrote in April. The Fed program has also been criticized for being too Wall Street-friendly, and it includes provisions that allow the central bank to purchase risky debt from companies with poor credit ratings, commonly referred to as “junk bonds”.
While the rich rush to cash in on COVID-19 stimulus, many small businesses are being left behind. Millions of Americans are out of work, and draconian government reopening restrictions are forcing many small businesses to operate at a loss. The government sold the American people on the idea that this money was desperately needed to stave off an imminent economic catastrophe, but it’s starting to feel like the whole thing was rigged from the start.