Unsanitized: The COVID-19 Report for July 7, 2020

The PPP Witch Hunt is Misplaced
The banks were the problem, not a handful of companies

 

Jovita Carranza, the head of the Small Business Administration. Her
outsourcing of the Paycheck Protection Program to private banks
guaranteed its inequities. (Al Drago/Pool via AP)

First Response

Monday was a great day for accountability journalism, or rather
"accountability journalism," sarcastic quotes intentional. Every
reporter in America was given the same spreadsheet
of a list
of 650,000 names of recipients of forgivable Paycheck Protection Program
small business loans over $150,000, and the mission to go strike a blow
for transparency and find the "undeserving" among the list. Fully 86
percent of the loans were for under $150,000, and the biggest chunk of
the money went to restaurants. But that usually got explained away in
exposition after serving up the tribute of the undeserving.

The resulting stories (NYT
,
WaPo
,
WSJ
,
ProPublica
,
Daily Beast
,
Politico
)
reflect more about how many researchers these organizations have on
staff and who can read Twitter fast enough, rather than shoe-leather
reporting. We even made one of the roundups
;
I disclosed

on the day that the Prospect received a PPP loan that we got it and why.
So solid gotcha there from CNBC.

If 1/10,000th of this coverage has been devoted to actual big businesses
enjoying the Fed's asset-inflation program
,
maybe there would be something equitable and noble going on. Instead we
have bread and circus distracting from real issues.

The important thing to keep in mind here is that, as of yesterday
afternoon, $521 billion has been sent out

for the program, out of $660 billion authorized. Some of that goes to
bank fees, but there's around $125 billion left to distribute, and
it's been at roughly that level for a month. In other words, not a
single dollar given to "undeserving" companies crowded anyone out
from receiving the forgivable loans. Other factors did, which I'll go
into. But the name and shame game just confuses the effort to understand
why the PPP failed and who was responsible.

I'd also add that, because of the under-subscription, nearly every one
of the $30 billion already handed back due to public pressure in the
great PPP witch hunt was taken from the hands of a worker, who got a
pass-through as a condition of making the loan forgivable. (Some
businesses didn't obtain the loans for forgiveness, just to get the
low 1 percent interest rate, but that was a small number; generally I
find people like free money, even if they had to distribute some to
workers). Because it didn't go back out into other businesses, that
just took $30 billion Congress approved out of the economy, and made
more people unemployed. That's all these "accountability" efforts
will do; they are mass firing displays.

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Does this signal that there's no demand for PPP loans? I've heard
from plenty of people still waiting for their applications to be
processed. A disturbing report from Small Business Majority finds that
2,500 businesses just in California got less than $1,000 from PPP, 290
got less than $100, and some got literally $1. These numbers are so low
as to be impossible, given that the program is supposed to pay out 8
weeks of payroll plus 25 percent. One in four survey respondents to
Small Business Majority, however, got less than they requested
.

So what's going on here? Why did Kanye West's company and high-end
sushi joint Nobu

and political elites close to the president

and high-powered law firm Boies Schiller

and haters of big government

like Grover Norquist's outfit and the Ayn Rand Foundation (OK that's
pretty funny) get these loans, while actual small business struggle? The
answer is simple: the delivery mechanism.

Big banks initially preferred those with whom they had a trusted
relationship and gave them special service
.
They saw the program as a nuisance that didn't work for them unless
they could cross-sell the businesses. After the first wave a lot of
businesses that needed the help closed up while waiting. Wells Fargo
shuttered its lending weeks before the deadline (which was extended last
week). Running this program through private banks and expecting it to be
equitable, in short, was completely foolish.

Payroll protection has been an important function in other developing
countries, and the government administered it by itself. It was an
afterthought here, and it was mismanaged and perverted. An emergency
basic income

that requires payroll maintenance would have made a lot of sense; this
was a mess.

But the focus on the businesses that worked within a bad system
misplaces the fault. For example, the NYT's bravely bold coverage
notes that states like North and South Dakota and Nebraska "saw loan
approvals of at least 90 percent of their eligible small-business
payroll, even though they rank among the least-affected states
in terms of
unemployment claims during the crisis." I didn't realize that there
was a minimum death count or jobless rate for loan approvals. But the
real problem is that the Times doesn't understand the underlying
factors: the Plains states have higher concentrations of community banks
(and in the case of North Dakota, a public bank that facilitates them)
which actually managed to serve their customers well. Highlighting it in
this fashion makes it seem like community banks did something wrong.

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The problem with PPP was the terrible private-sector delivery mechanism,
thanks to the hollowing out of this public sector. This is an old story;
the SBA has been a historical failure
. Oh, and a
bunch of the data is apparently corrupted and incorrect
,
because "listing names in a spreadsheet" is beyond SBA's
capabilities.

It's also not clear what PPP was supposed to do
; it
operated at cross-purposes with boosting unemployment, was in direct
competition when it came to sole proprietors who were eligible for UI,
and didn't give enough money to actually save any businesses. As a
result we got a program wielded by banks for their own interests. In
this sense it mirrors HAMP, the financial crisis-era program that banks
perverted to steal homes.

PPP's failures represent a failure of government to maintain the power
to achieve anything. But picking out a few bad apples from a 5
million-loan pool makes it look like those businesses are the problem.
It's despicable and misplaced. And it explains a hell of a lot about
why this country has such a threadbare universal benefit structure. I
expect conservatives to find the undeserving welfare queen and use that
to smear government intervention. It's sadder when the left exhibits
the same tendency. If we don't avoid this Puritanical streak we're
never going to get a single universal program through in this country.
The saddest thing about PPP is what it revealed, not about a few
businesses, but about ourselves.

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Odds and Sods

[link removed]

For our next issue of the Prospect I did a review of Pelosi
,
the new biography by Molly Ball. But it's really a review of Pelosi,
the Speaker, and her leadership in pandemic response. Much of it will be
familiar to readers of Unsanitized, but I try to make the point that
what Pelosi does with power she accumulates is extremely untimed to this
moment. Give it a read
.

Also at the Prospect, Brittany Gibson notes

the struggles of Working America, which canvasses working-class voters
to persuade them to vote their economic interests, during a pandemic
that makes canvassing impossible.

And it's not pandemic-related but this Jonathan Guyer story

about the Biden foreign policy team and the sleazy world of "strategic
consultants" is fantastic.

Days Without a Bailout Oversight Chair

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101
.

We Can't Do This Without You

Today I Learned

* Trump administration using new rules on online learning to deport
masses of foreign students
.
This is abhorrent. (Wall Street Journal)

* A serology study in Spain

shows that herd immunity just isn't going to save us without a
vaccine. (El Pais)

* Great Rachel Cohen piece

on guardianships and the crisis. (The Intercept)

* There's no plan to reopen schools in the fall. Willing it like
they're doing in Florida

isn't a plan. (WTXL)

* Permanent job loss is falling faster now

than during the Great Recession. (Calculated Risk)

* Not corona-related but Richie Neal getting tagged

for his support for monopolists. (HuffPost)

* A childcare facility outbreak

in Texas. (CNN)

* I'm a bit late to it, but this piece on the human cost of your
Fourth of July meal

is good. (Buzzfeed)

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