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The Finance 202: Economists and banking analysts debate whether new small business money will be enough

with Brent D. Griffiths

The Senate just passed a new infusion of cash for the small business loan program designed to keep businesses afloat as the coronavirus pandemic batters the economy.

But economists and banking industry leaders already want to know: is the new $310 billion for the Paycheck Protection Program – which brings the total for PPP to $660 billion – big enough?

Many big-bank executives and lobbyists point to their knowledge of those still waiting in line and say it is not. Some economists point to back-of-the-envelope estimates of the need and say the new funding should at least be close. Either way, they agree, the money probably will go fast, so the answer should be at hand soon, too.

Each side has its own math. 

The original PPP pot of $349 billion in forgivable loans — aimed at helping businesses with fewer than 500 employees keep them on the payroll until June — ran dry last week. The funding boost – which the House is expected to approve Thursday and President Trump pledged to sign -- would bring the total up to about $660 billion for smaller companies.

That gets the program in the neighborhood of the $720 billion it needs to keep eligible companies afloat until early summer, according to calculations by economists at the University of Chicago Booth School of Business. Analysts at Goldman Sachs reach a similar conclusion, finding the second round of funding will “cover close to all PPP-eligible expenses,” which they peg at $750 billion.

The teams rely on similar methods, pulling census and Internal Revenue Service data to estimate the number of eligible businesses and their expenses.

The sector’s top Washington hands see a wider gap. “Banking industry representatives say the program has a burn rate of $50 billion per day and needs closer to $1 trillion to meet demand, with hundreds of thousands of applications pending,” Politico’s Zachary Warmbrodt reports. He notes Rep. Derek Kilmer (D-Wash.), who leads the business-friendly New Democrat Coalition, has sponsored a bill to add $900 billion in funding for the program and extending it for the length of the national emergency.

Bank of America economists likewise find the program needs a total sum closer to $1 trillion. Their math: The first tranche provided about $350 billion to 1.6 million firms; there are about 6 million eligible businesses in the entire country, of which they expect 70 percent will seek relief; extrapolating from the first payout brings that amount to $900 billion.

“Time is of the essence: according to surveys, if companies are closed for 1 month, the likelihood of surviving through December without any assistance was 72%,” Michelle Meyer and Stephen Juneau wrote at the end of last week. “If closed for 4 months (through mid-summer), the probability was only 38%.”

Unknowns cloud the view of the program’s next round.

University of Chicago economist Michael Minnis acknowledges there “could be a very wide confidence interval” around his team’s projection. He tells me arriving at a total price tag of $1 trillion for the loan program is a stretch and unknowns could pull the Chicago estimate in either direction. More sole proprietors showing up to make claims would nudge it up, for example, while businesses that have already laid off staff deciding to skip the process altogether could tug it down.

Dialing up the urgency for policymakers, Senate Majority Leader Mitch McConnell (R-Ky.) indicated this will be the last batch of emergency economic relief from the pandemic until Congress is set to return on May 4. 

The administration appears keen to respond to the popular backlash against the first round. 

Bigger and better connected companies, including more than 70 that are publicly traded, elbowed to the head of the first line. “Whether a firm made the cut often came down to how and where it banked,” the Wall Street Journal reported. Among others, Ruth's Chris Steak House, valued at $250 million, reported receiving $20 million from the program. Wells Fargo, Bank of America, JPMorgan Chase, and US Bancorp face lawsuits from small firms that charge them with prioritizing bigger loans.

For the second round of funding, “Treasury Secretary Steven Mnuchin said Tuesday that larger firms would now be blocked from using the program, and Trump called on some big companies that had already obtained taxpayer-backed loans to return the money,” Erica Werner and Seung Min Kim write. Mnuchin said “there are severe consequences” for businesses that abuse the program. 

And policymakers added new strictures on the second tranche to help smaller outfits get access, including reserving $60 billion for lending by small and medium-sized financial firms, per Erica and Seung Min.

“Other provisions would require participation by lending institutions serving minority or underserved areas, such as Community Development Financial Institutions and minority depository institutions, language sought by the Congressional Hispanic Caucus and others,” they write. “An additional $11 billion is included for administrative costs, meaning the total PPP spending in the bill is $321 billion.”

Market movers

Oil prices continue to slide, and markets down with them.

The Dow fell 600 points: “A global oil glut sent prices so low Monday that sellers holding U.S. crude contracts paid buyers as much as $30 per barrel to take it off their hands. The collapse went international Tuesday, with futures prices for the global benchmark, Brent crude, dropping to a fraction of the $50 or so needed for a producer to make money. It was an ominous sign, suggesting that oil markets and the world economy may not stabilize for months,” Thomas Heath reports.

“The broader Standard & Poor’s 500 dropped 86 points, or 3 percent, to end at 2,736.56. The tech-heavy Nasdaq plunged nearly 298 points, or 3.5 percent, to 8,263.23. All three indexes had pared back even deeper losses. IBM, Apple, Intel and Microsoft were among the big drags on the Dow. All 11 S&P 500 stock sectors were negative.”

  • The crisis has spread to individual investors: They have "piled into risky products like the United States Oil Fund, a popular exchange-traded fund designed to track the price of crude, despite warnings that such products are unsuitable for inexperienced traders. Hundreds-of-millions of dollars have flowed into the fund in recent days, even with its price collapsing,” the WSJ's Amrith Ramkumar reports. “The U.S. Oil Fund’s operator, United States Commodity Funds LLC, said Tuesday it has issued all registered shares and suspended the ability of purchasers to buy new creation baskets... The move will essentially make the ETF a closed-end fund with a fixed number of shares for now. That could make it even more volatile, because its price can now diverge from the fund’s total asset value.”
Trump vowed to take action to shore up the industry.
  • He tweeted he has “instructed the Secretary of Energy and Secretary of the Treasury to formulate a plan which will make funds available so that these very important companies and jobs will be secured long into the future!”
  • Meanwhile, his top economic adviser said the dip was unsurprising: White House economic adviser Kevin Hassett said … the current dip in oil prices is due to a ‘very short-run thing’ and markets will find a new normal,” Reuters's Doina Chiacu and Lisa Lambert report. “Hassett also acknowledged that a decline in second-quarter U.S. gross domestic could be the biggest on record.”
  • The president is also being urged to pressure the Chinese: “China is falling behind in its promise to spend $52.4 billion buying U.S. energy over two years — even as it is filling its storage tanks with Russian and Saudi crude — independent oil producers warned the Trump administration,” Bloomberg News's Jennifer A Dlouhy reports.

Coronavirus fallout

In the U.S.:
  • There have now been at least 813,000 reported cases in the U.S., and the death toll is closing in on 45,000. 
  • Trump to suspend immigration for 60 days: “The president provided a rationale for the unprecedented decision that was primarily economic, arguing that he wants Americans to have access to work as millions of people have lost their jobs amid the coronavirus crisis,” Nick Miroff, Maria Sacchetti and Tracy Jan report.
  • CDC director warns of second wave: "There’s a possibility that the assault of the virus on our nation next winter will actually be even more difficult than the one we just went through,” CDC Director Robert Redfield said in an interview with The Post. “And when I’ve said this to others, they kind of put their head back, they don’t understand what I mean.”
  • Governors chart different courses for reopening: “South Carolina, Georgia, Texas, Tennessee and Florida have announced limited easing of business and recreational closures and social gatherings, to start between this week and the end of April," Karen DeYoung, Miriam Berger and Katie Mettler report. “None has charted the sustained, 14-day ‘downward trajectory’ outlined in federal guidelines issued last week.”
  • The testing gap means not all states are equal: “When it comes to battling the spread of the novel coronavirus, Kentucky and Rhode Island might look similar on paper. They’ve done comparable numbers of diagnostic tests and lost similar numbers of residents to the disease,” Juliet Eilperin and Chris Mooney report. “But there’s one key difference. Kentucky has more than four times Rhode Island’s population, meaning it has tested 0.7 percent of its residents, compared with Rhode Island’s 3.7 percent, the highest per capita testing level in the United States.”
Corporate impact:
  • Coca-Cola CEO says that reopening might not stick: “People must recognize that the economic restart must be done in phases, [Coca-Cola CEO James] Quincey said, " ‘and also be cognizant that there could be steps backward in some countries as the virus flares up again,’ ” CNBC's Kevin Stankiewicz reports.
  • Netflix adds whopping 16 million subscribers: “The number, which Netflix provided in its quarterly earnings report is double what most Wall Street analysts expected for the period and is by far the biggest quarterly add since Netflix became a mature business several years ago. It suggests that people stuck at home due to coronavirus fears are signing up for the service at a record rate,” Steven Zeitchik reports.
  • Boeing workers begin to return to factories: “Workers came back to their jobs this week after a three-week furlough intended to halt the spread of the coronavirus through the workforce,” Gregory Scruggs and Christian Davenport report from Renton, Wash. “They returned to new hand-washing stations, to managers asking them about their health, to more signs warning of the dangers of the coronavirus — as if the workers needed the reminder, after scores of their colleagues had fallen ill during the pandemic, forcing Boeing to close some of its biggest manufacturing plants across the country.”
  • Department stores are struggling to hang on: “At a time when retailers should be putting in orders for the all-important holiday shopping season, stores are furloughing tens of thousands of corporate and store employees, hoarding cash and desperately planning how to survive this crisis. The specter of mass default is being discussed not just behind closed doors but in analysts’ future models,” the New York Times's Sapna Maheshwari and Vanessa Friedman report.
  • Home sales tumble: “Sales of previously owned homes decreased 8.5% in March—the biggest month-over-month decline since November 2015—from the prior month at a seasonally adjusted annual rate of 5.27 million, the National Association of Realtors said Tuesday,” WSJ's Harriet Torry and Nicole Friedman report, as the pandemic weighed on another area of economic activity.
  • Mortgage servicers get a break: “A federal housing regulator announced a plan on Tuesday to provide financial relief to dozens of mortgage servicing firms caught between investors looking to get paid and homeowners who don’t have money” because of the pandemic, NYT's Matthew Goldstein reports. “The Federal Housing Finance Agency said the firms had to make just four months of cash payouts to bond investors in mortgages that homeowners have stopped paying.” After that, Fannie Mae and Freddie Mac will cover the payments for up to eight months. 
Around the world:
  • Some exporters pledge to avoid disrupting the global food supply: “In order to prevent a food crisis, a group of nearly 50 governments is preparing to sign a pledge aimed at ensuring supply chains remain orderly and that officials exercise restraint with any trade restrictions,” Bloomberg News's Bryce Baschuk reports. “As of Tuesday afternoon, the U.S., China, India and Russia had not signed on to the initiative.”
  • Parliament votes to remain virtual: “British politicians from across the political spectrum voted to go virtual, even as they insisted that the measures be temporary and last only long enough to get through the crisis. The new arrangements were first raised by the opposition Labour Party and agreed to by the ruling Conservatives,” William Booth reports from London.

Trump tracker

The Trump Organization is asking the Trump administration for virus relief.

Trump's D.C. hotel is mostly empty: “In recent weeks, the president’s family business has inquired about changing its lease payments, according to people familiar with the matter, which the federal government has reported amount to nearly $268,000 per month,” the Times's Ben Protess, Steve Eder and David Enrich report.

“The Trump Organization owns and operates the luxury hotel, but it is in a federally owned building on Pennsylvania Avenue. As part of its deal to open the 263-room hotel, the company signed a 60-year lease in 2013 that requires the monthly payments to the General Services Administration. Eric Trump, the president’s son, confirmed that the company had opened a conversation about possible changes to the terms of the lease, which could include adjustments to future monthly payments. The Trump Organization has said it is current on its rent.” Eric Trump says the company wants to be treated like any other tenant.

Jared's moves at FEMA prompt concern: “White House senior adviser Jared Kushner in March launched an effort under the government’s emergency powers to enlist private-sector volunteers in the coronavirus pandemic response,” the WSJ's Rachael Levy reports.

“A FEMA spokeswoman said the help was welcome given the seriousness of the pandemic and FEMA’s need to buy medical supplies … But the move also prompted concerns from some FEMA employees over the volunteers’ roles in interacting with vendors on the government’s behalf. They did so with personal Gmail accounts, sometimes not copying government addresses, leading some vendors to question the authenticity of the outreach, according to FEMA employees.”

A Trump megadonor is aggressively pushing to reopen Wisconsin: “An unusual email greeted employees at a Wisconsin shipping-supply company on Friday. It urged them to support a petition for the recall of the state’s Democratic governor, Tony Evers, saying he was violating their constitutional right to work during the coronavirus pandemic,” Bloomberg News's Anders Melin and Polly Mosendz report.

Pocket change

Federal prosecutors allege that Chipotle's food sickened more than 1,000 people over three years.

Chipotle to pay $25 million fine for food poisoning: “It’s the largest fine ever imposed in a food-safety case, according to a statement Tuesday by the U.S. attorney’s office in Los Angeles,” Bloomberg News's Edvard Pettersson reports of allegations by federal prosecutors that the company's food sickened more than 1,100 people across the United States from 2015 to 2018.

“The criminal charges pertain in part to norovirus outbreaks at Chipotle restaurants. The highly contagious virus can be transmitted by infected food workers handling ready-to-eat foods and their ingredients, according to the statement. It can cause severe symptoms, including diarrhea, vomiting and abdominal cramping … Prosecutors alleged that four norovirus outbreaks were caused by employees showing up to work sick, in violation of company policy, and by food products being stored at the wrong temperatures.” 

Activist investor eyes Nintendo: “Activist investor ValueAct Capital Partners LP has built a stake of over $1.1 billion in Nintendo, according to a letter seen by Reuters, a bet that digital software distribution and the development of new entertainment products will fuel growth at the Japanese consumer electronics company,” Svea Herbst-Bayliss reports.

“ValueAct, which first began buying the stock in April 2019, grew the position in Nintendo, known for its gaming consoles and for having turned characters like Mario and Donkey Kong into international hits, during the stock market sell-off in February and March, according to the letter sent to its investors.” 

Chart topper

Americans have soured on this economy much faster than they did during this century's other two downturns, per the Pew Research Center: 



  • Biogen, Quest Diagnostics,  AT&T, Delta Air Lines, O’Reilly Automotive, Spirit Airlines, Discover Financial Services, Las Vegas Sands, Boston Beer and Alcoa are among the notable companies reporting their earnings


  • Eli Lily, Southwest Airlines, Domino's Pizza, Aaron's, Union Pacific, Intel, Blackstone and Capital One Financial are among the notable companies reporting their earnings


The funnies

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