Unsanitized: The COVID-19 Report for July 18, 2020

Government Gives out Negative $3 Billion
in PPP Loans in Three Weeks
What's happening to the small business loan program

 

Small Business Administration head Jovita Carranza, whose agency has
overseen negative $3 billion in lending in its key crisis response
program since June 30, has some fun. (Erin Scott/Pool via AP)

First Response

On June 30 the Paycheck Protection Program expired. At the time the
Small Business Administration listed on its website

that the program had delivered $521.4 billion to over 4.88 million
borrowers. This was far less than the $670 billion provided by Congress
for the program. If you sub out the bank fees there was still over $130
billion left on the table.

Then a great miracle happened
.
Senate Democrats offered an extension of the program to August 8, and
Republicans accepted it. The extension sailed through the House and was
signed by the President. Now all small businesses locked out or confused
by the program would have several weeks more to get their piece of that
$130 billion. The August 8 deadline was strategically placed, as it
lined up with the last day of the Senate's work session for the
summer; whatever would happen with the PPP would fold seamlessly into a
new coronavirus response bill. But in the meantime, businesses could get
the loans they need.

Here's how that's going. As I said, on June 30, PPP had given out
$521.4 billion in loans. As of close of business on Friday, July 17, PPP
had given out... $518.2 billion
.

Some of this reflects loans given back after the revelations of who got
them in early July. (Those revelations are continuing; scam companies

running Ponzi schemes and other bad actors received large loans, for
example.) And without a doubt, very little that the SBA releases
statistically should be trusted as precise. But even factoring all that
in, a program aimed to get money out to businesses who need it
delivering negative $3 billion in almost three weeks is not, let's
say, a national model of efficiency. And this is a time where
coronavirus surges have led to more shutdowns and uncertainty for local
businesses.

You'd think free money from the government would be easy to hand out.
(And increasingly, it does appear that it will be free money; Treasury
Secretary Mnuchin floated this week that the 86 percent of the loans
under $150,000 should just be automatically forgiven
,
a concession to reality; there's no capacity in the SBA to process
loans, let alone audit them.) Why exactly are we talking about a "next
round" of PPP funding when there's seemingly no ability to unload the
rest of this round?

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I don't really know what to make of this, but let me suggest a few
things. Banks really ramped up their efforts to process loans in the
initial flood of PPP applications. Those efforts have spun down. You'd
have to be pretty knowledgeable to know that there's any PPP money
left, and you'd have to find a bank willing to execute that loan.
Nobody's really advertising that willingness.

Second, small businesses typically have weeks, not months, of reserves,
and PPP really offers little for their survival, with most of it being a
pass-through to employees. If you didn't get your loan in April
you're probably not around in July, or you've managed to stick
around through some jury-rigged miracle that would not be aided by PPP
in its current form. So demand is clearly gone.

Congress is discussing using the next bill to allow companies with
severe revenue shortfalls to apply for a second round of PPP support;
restaurants might be prime candidates. But the fact that the odometer is
running backwards should trigger some introspection into what this
program actually accomplished.

Amanda Fischer of the Washington Center for Equitable Growth has an
issue brief

on that subject, finding that the frequency of loans depended on the
makeup of banks in the area (something this space has stressed
), meaning that areas hard-hit by the virus did not
correlate with high levels of PPP recipients. Community banks saw PPP as
an opportunity, and big banks saw it as a chore. That, more than
anything, drove the response. Areas with high levels of community banks
are likely exhausted of businesses needing funds, and therefore demand
has crashed.

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Fischer concludes that PPP "was a successful liquidity backstop for
firms that may have needed marginal help meeting payroll during the
worst of the mandatory lockdowns, but it did not prevent layoffs."
Funding rolled out disproportionately to firms already inclined to keep
workers on staff. That's a damning assessment that should call into
question what the point of this exercise was.

A universal program of payroll support that kept workers attached to
employers while keeping them out of harm's way would have been far
more sensible; likewise with wage subsidies and shared-work programs.
Maybe a program that offered support for actual small business needs,
like plexiglass shields and other coronavirus response measures, or one
that gave higher percentages for overhead costs in high-rent areas like
big cities, would have made sense. Cutting banks out of the delivery
mechanism certainly would have been better. And of course, the best
policy action for small businesses would entail actually suppressing the
virus.

The actually existing PPP does none of these things (and don't even
get me started about the SBA's disaster loans, which are aptly named
because many businesses approved for them didn't even get them
).
With the program going backwards, it's time to radically rethink our
response.

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Days Without a Bailout Oversight Chair

113
.

We Can't Do This Without You

Today I Learned

* Bad news: antibodies for the virus appear to fade quickly
,
calling into question a vaccine's long-term effectiveness. (San
Francisco Chronicle)

* Good news: T-cell production actually looks robust
.
(Science)

* The fallout in higher education

has begun; expect a tremendous amount of layoffs. (New York Times)

* BlackRock is doing well
,
particularly in bond funds, precisely what the Fed is propping up with
BlackRock's technical expertise. Hmm. (Wall Street Journal)

* Interesting piece on the death of middle-market creative personnel

in Hollywood. (New Republic)

* I'm a little late to this, but here's Rachel Cohen
on coronavirus
and your fitness tracker, and the uncertain promise of wearable
technology. (GQ)

* RIP John Lewis
. (NYT obit)

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