The Washington PostDemocracy Dies in Darkness

The Finance 202: The Treasury Department and the Federal Reserve will spend $500 billion bailing out businesses. Big questions remain about how.

with Brent D. Griffiths


Treasury Secretary Steven Mnuchin secured an eye-popping $500 billion in corporate aid as part of the $2.2 trillion emergency coronavirus relief package that became law Friday. Now comes the hard part: putting it to use to salvage teetering companies.

The task will require Mnuchin to work hand-in-glove with Federal Reserve Chair Jerome H. Powell, employing some novel strategies that come with the highest stakes and no clear road map.

Meanwhile, even as policymakers race to fill in details of the mammoth bill they just approved, they already are considering what to include in a fourth relief measure, the Wall Street Journal's Jacob Schlesinger and Joshua Jamerson report. Debate on that package, shifting focus from stabilization to stimulus, should start taking shape late next month. 

The basic idea is to use most of the sum, $454 billion, to backstop the Fed as it props up mid- to large-size businesses by buying their bonds. Because the central bank only needs to keep a dollar on its books to lend $10, the strategy should allow it to inject more than $4 trillion of liquidity into the economy. 

Per the New York Times’s Jeanna Smialek, “The central bank designs and runs the programs, but Treasury consults on the broad-brush outline and must sign off on any plan… Depending on how much the money is leveraged — which in turn depends on the credit risk of the programs it supports — it could result in trillions of temporary support for companies and local governments.”

But there are more questions than answers for now about just how far that money will go, which firms will benefit, and how it will be overseen. “The language is very confusing,” Politico’s Mike Grunwald, author of a book on the 2009 stimulus, writes of the portion of the emergency bill providing for the corporate rescue.

He points to a threshold decision facing the Fed and Treasury: How much of a risk they are willing to take on less creditworthy businesses. “If these bonds are more likely to default, the money might not stretch as far as Congress hopes… One can imagine Treasury and the Fed using the $454 billion in a relatively conservative way, backstopping relatively safe municipal and corporate bonds. That would reduce the initial risk of default, but might not provide much help to the most desperate precincts of Corporate America, which could create a wave of bankruptcies and deepen the crisis.” 

Treasury is set to divide the remainder of the corporate rescue money between the airlines, which will get $29 billion in loans and loan guarantees, and Boeing, in line for $17 billion, per reporting by my colleagues. Those taking help will be barred from buying back their own stock or paying dividends until a year after they’ve repaid the aid; they must retain 90 percent of their employees; and executives would see their compensation capped based on 2019 levels. 

Mnuchin has also indicated the government would take equity stakes in the companies in return for direct grants, a position White House economic advisor Larry Kudlow backed up in an appearance on Fox News's “Sunday Morning Futures. ”I do feel, in return for the direct cash grants, which is somewhat unusual, we should have a piece of the equity there," Kudlow said. “And I think that will help to anchor this whole story.”

But the administration already is pushing back on attempts by congressional Democrats to keep tabs on how it disburses the aid. Democrats insisted the taxpayer help come with a new inspector general, authorized to notify lawmakers immediately if the administration “unreasonably” withholds information. President Trump challenged the constitutionality of that provision in a signing statement, a move that could “presage a major battle between the White House and Capitol Hill as the Trump administration moves to implement the new law,” the Post’s Jeff Stein and Devlin Barrett write.

More: “Trump has signaled he wants certain industries, such as hotels and cruise ships, to have access to the taxpayer-backed funding. The Treasury Department has not said so far how it will decide who receives money and what the terms will be. Trump said Friday night that his aides would be consulting with top Wall Street executives to make some of the decisions.”

House Speaker Nancy Pelosi (D-Calif.), in a Friday night appearance on MSNBC, said Congress would establish its own panel to monitor decision-making on the funds. But the administration has a track record of defying congressional subpoenas. And as Jeff and Devlin write, it’s “unclear what other steps Congress could take if Trump seeks to weaken the new inspector general.” A lawsuit, for example, would likely take months, with no guarantee of a resolution.

The flood of money Washington is about to unleash is already creating paydays for lobbyists — and those who specialize in corporate restructuring, according to the Times


In the United States:

White House extends social distancing through April: “Days after [Trump] said he hoped the country would be ‘opened up and raring to go' by Easter, he instead announced on Sunday an extension of federal guidance on social distancing through April, in a continued effort to slow the spread of the novel coronavirus,” my colleagues Ian Duncan and Felicia Sonmez report.

“Calling his previous statements targeting Easter ‘just an aspiration,’ Trump said he now expects the covid-19 death rate to peak in two weeks, around the same time as the holiday. The president’s comments came after a top medical adviser to the White House and state governors said in television interviews Sunday that they could not envision an easing soon of measures designed to slow the virus’s spread, warning that the outbreak will continue taxing hospitals and could kill thousands more people.”

Experts begin to coalesce around a plan to return to more normal life: “The plan divides coming months into four phases and sets ‘triggers’ for states to move from one phase to the next. Given the uneven spread and stages of outbreak, not all states would move through the phases at the same time. While the overall peak of the epidemic may occur in late April or early May, the timing may be different in different states. New York, the current epicenter, may see a decline in infection rates as other states have an increase,” my colleagues Laurie McGinley and William Wan report.

  • Phase 2: A state “should see a sustained reduction in new cases for at least 14 days, and its hospitals need to be able to provide care without being overwhelmed … States moving into phase two would gradually lift social distancing measures and open schools and businesses, while increasing surveillance. The key goals thereafter would be accelerating the development of new treatments and deploying tests to determine who has recovered from infection with some immunity and could rejoin the workforce.”
  • Phase 3: “Occurs when the nation has a vaccine or drugs to treat covid-19 in place and the government launches mass vaccinations.”
  • Phase 4: “Involves rebuilding the nation’s capacity to deal with the next pandemic by building up its scientific and public health infrastructure.” 
  • Tony Fauci says 100,000 to 200,000 deaths are possible. The nation's top infectious disease expert, appearing on CNN, also said the U.S. will have “millions” of cases.
  • Trump wants to change the GOP's signature tax law: “Trump called on Congress to restore the full tax deduction for meals and entertainment in response to the [pandemic],” Reuters's David Shepardson reports. “As part of a wide-ranging 2017 tax reform measure, Congress eliminated the corporate tax deduction for entertainment expenses, but taxpayers were allowed to continue to deduct 50 percent of the cost of client business meals.”
  • States encounter a beleaguered national stockpile: “The federal cache has been overwhelmed by urgent requests for masks, respirators, goggles, gloves and gowns in the two months since the first U.S. case of covid-19 was confirmed. Many state officials say they do not understand the standards that determine how much they will receive,” my colleagues Amy Goldstein, Lena H. Sun and Beth Reinhard report.
  • The Class of 2020 is set to enter a very different job market: “Graduation ceremonies scheduled for May are canceled, three million people have filed for unemployment as businesses shutter to stop the spread of disease and many of the soon-to-be degree holders who don’t yet have jobs are wondering whether they should even bother looking,” the WSJ's Kathryn Dill and Patrick Thomas report.

Corporate fallout: 

  • Cigna and Humana waive treatment costs: “The insurers said the waiver applies to all medical costs related to the treatment of coronavirus, including FDA-approved medications and vaccines when they become available,” CNBC's Bertha Coombs reports. Last week, CVS Health's Atena “became the first major carrier to waive cost-sharing on Covid-19 hospitalization at its in-network health systems.”
  • We are seeing a historic shift in the labor market: “Around the world, former hotel, restaurant and airline staff are moving to grocers, online retailers and hospitals as parts of the economy are shuttered to prevent the spread of the disease — and essential goods and services are strained,” the Wall Street Journal's Ruth Bender and Matthew Dalton report.
  • Manufacturers seek help in deciding where to ship scare medical supplies: “So far, the Trump administration hasn’t provided the companies with formal guidance about where to distribute their products, leaving them to make such decisions on their own,” the WSJ's Rebecca Ballhaus and Andrew Restuccia report. Companies say this has led them to continue with their usual shipments, unsure whether their products are reaching the places that need them the most.
  • There are concerns about a global condom shortage: “Malaysia’s Karex Bhd makes one in every five condoms globally. It has not produced a single condom from its three Malaysian factories for more than a week due to a lockdown imposed by the government to halt the spread of the virus,” Reuters's Liz Lee reports.
  • Mall owner is telling tenants they still need to pay their rent: “Taubman announced earlier this month that all of its properties will be closed through at least the end of March, except for two centers, which are open-air,” CNBC's Lauren Thomas reports.
  • Jefferies Group CFO dies from virus-related complications: “Peg Broadbent, the longtime chief financial officer of its main subsidiary, has died from complications tied to coronavirus, marking one of the first deaths among senior Wall Street executives from the pandemic. He was 56,” Bloomberg News's Jennifer Surane and Hailey Waller report.

Washington quietly prepares a bank rescue — just in case (Politico)

International fallout:

  • Australia plans to subsidize wages for private businesses: “The payment will be a flat rate of 1,500 Australian dollars — more than $920 — every two weeks, Prime Minister Scott Morrison and Treasurer Josh Frydenberg told reporters, with any firm that has suffered a 30 percent decline in revenue able to take part,” my colleague Adam Taylor reports.
  • Japan or South Korea, which path should the U.S. follow?: “It's a debate over tactics that has profound implications in the United States and elsewhere, as health officials struggle to find the best methods to track and contain the virus,” my colleagues  Simon Denyer and  Carolyn Y. Johnson report from Tokyo. South Korea has favored mass testing, while Japan has taken a more targeted approach.
  • Meanwhile, South Korea announced 78 new cases: “The country has seen a steady rate of new cases for almost two weeks, with roughly 100 new cases each day since March 11. The total number of deaths from the country’s outbreak is 158 so far,” my colleague Adam Taylor reports.
  • Xi spotted in public sans mask: “Chinese leader Xi Jinping appeared in public without a face mask for the first time since the novel coronavirus outbreak began in the country, Chinese media stated [earlier today],” my colleague Adam Taylor reports.
  • Brazil is opening an iconic soccer stadium to coronavirus victims: “The country’s most famous stadium, the iconic Maracanã sports complex in Rio de Janeiro, will become a temporary hospital,” my colleague Cindy Boren reports of movement to retool a handful of stadiums that were upgraded before the 2014 World Cup.


Futures are jumpy; oil hits 18-year low. WSJ's Joe Wallace and Joanne Chiu: “U.S. stock futures wobbled and oil dropped sharply Monday as investors grappled with the mounting economic toll after U.S. government officials signaled that measures to contain the coronavirus pandemic may remain in place for an extended time. Futures tied to the S&P 500 index wavered between gains and losses, suggesting that U.S. shares could be headed for another volatile trading session at the start of the week. U.S. crude-oil futures dropped to their lowest level in over 18 years.”

Creator of Wall Street's “fear gauge” sees wild volatility continuing: “…The most important thing is to resolve the uncertainty, which may be determining a peak in coronavirus cases.  If you get any good news on that front, the VIX will drop very quickly,” Robert Whaley, director of the Financial Markets Research Center at Vanderbilt University, told CNBC's Bob Pisani

Whaley created the original Cboe Volatility Index (VIX) in 1992. “[Last week], despite a massive rally that saw the S&P rise nearly 20% from its Monday low to its Thursday high, the VIX remained stubbornly high, in the 60s, all week. These are levels that have been rarely since its inception in 1993.” 

JPMorgan strategists say the worst of the selloff is over. Per Bloomberg News's Joanna Ossinger: "Conditions that JPMorgan had set for market stabilization and revival have largely been met, with recession-like pricing, a reversal in investor positioning and extraordinary fiscal stimulus, strategists led by John Normand wrote in a note Friday. Coronavirus infection rates remain a “wild card,” as they remain high even if they’re “slowing” in the U.S. and Europe.

Don't be so sure, Mohamed El-Erian writes in a piece for Bloomberg Opinion: "There is simply too much uncertainty about the severity and duration of the underlying disruptor — the spread of the coronavirus — the extent of damage already done to economies and markets, and the smoothness of the eventual process to restart the economy. Based on the partial information I have been assembling and updating continuously, I fear that this is more likely to prove a temporary exception to what, unfortunately, is still an outlook for high stock market volatility around a still-downward trend.”


Economists and investors are flying blind through a pandemic (CNN Business)


Justice reviews lawmakers' stock trades. CNN's David Shortell, Evan Perez, Jeremy Herb and Kara Scannell: “The Justice Department has started to probe a series of stock transactions made by lawmakers ahead of the sharp market downturn stemming from the spread of coronavirus, according to two people familiar with the matter. The inquiry, which is still in its early stages and being done in coordination with the Securities and Exchange Commission, has so far included outreach from the FBI to at least one lawmaker, Sen. Richard Burr, seeking information about the trades, according to one of the sources.”



  • Habit Restaurants, McCormick, ConAgra and Blackberry are among the notable companies reporting their earnings, per Kiplinger


  • The Institute for Supply Management releases its March manufacturing survey


  • The Labor Department releases its weekly report of initial unemployment claims
  • Walgreens Boots Alliance, Dave & Busters, Carmax and Chewy are among the notable companies reporting their earnings


  • The Labor Department releases the monthly jobs report



From accusing hospitals of wasting masks to calling a reporter "threatening," here are five contentious moments from President Trump's March 29 update. (Video: The Washington Post)