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Treasury Secretary Mnuchin denies trying to hinder incoming administration

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WASHINGTON — Trea­sury Sec­re­tary Steven Mnuchin denied that he is attempt­ing to lim­it the choic­es Pres­i­dent-elect Joe Biden will have to pro­mote an eco­nom­ic recov­ery by end­ing sev­er­al emer­gency loan pro­grams being run by the Fed­er­al Reserve.

Mnuchin said his deci­sion was based on the fact that the pro­grams were not being heav­i­ly uti­lized. He said Fri­day that Con­gress could make bet­ter use of the mon­ey by re-allo­cat­ing it in anoth­er direc­tion to sup­port grants to small busi­ness­es and extend­ed unem­ploy­ment assis­tance.

“We’re not try­ing to hin­der any­thing,” Mnuchin said in a CNBC inter­view. “We don’t need this mon­ey to buy cor­po­rate bonds. We need this mon­ey to go help small busi­ness­es that are still closed.”

How­ev­er, crit­ics saw pol­i­tics at play in Mnuchin’s deci­sion, say­ing the action would deprive the incom­ing admin­is­tra­tion of crit­i­cal sup­port the Fed might need to prop up the econ­o­my as coro­n­avirus infec­tions spike nation­wide.

“There can be no doubt, the Trump admin­is­tra­tion and their con­gres­sion­al toad­ies are active­ly try­ing to tank the U.S econ­o­my,” Sen. Sher­rod Brown, D‑Ohio, said in a pre­pared state­ment Fri­day. “For months, they have refused to take the steps nec­es­sary to sup­port work­ers, small busi­ness­es and restau­rants. As the result, the only tool at our dis­pos­al has been these facil­i­ties.”

Mnuchin on Thurs­day had writ­ten Fed­er­al Reserve Chair­man Jerome Pow­ell announc­ing his deci­sion not to extend some of the Fed’s emer­gency loan pro­grams, which had been oper­at­ing with sup­port from the Trea­sury Depart­ment. The deci­sion will end the Fed’s cor­po­rate cred­it, munic­i­pal lend­ing and Main Street Lend­ing pro­grams as of Dec. 31.

The deci­sion drew a rare rebuke from the Fed, which said in a brief state­ment Thurs­day that the cen­tral bank “would pre­fer that the full suite of emer­gency facil­i­ties estab­lished dur­ing the coro­n­avirus pan­dem­ic con­tin­ue to serve their impor­tant role as a back­stop for our still-strained and vul­ner­a­ble econ­o­my.”

The U.S. Cham­ber of Com­merce also crit­i­cized the move. “A sur­prise ter­mi­na­tion of the Fed­er­al Reserve’s emer­gency liq­uid­i­ty pro­gram, includ­ing the Main Street Lend­ing Pro­gram, pre­ma­ture­ly and unnec­es­sar­i­ly ties the hands of the incom­ing admin­is­tra­tion and clos­es the door on impor­tant liq­uid­i­ty options for busi­ness­es at a time when they need them most,” said Neil Bradley, the chamber’s exec­u­tive vice pres­i­dent, in a pre­pared state­ment.

Pri­vate econ­o­mists argued that Mnuchin’s deci­sion to end five of the emer­gency loan facil­i­ties rep­re­sents an eco­nom­ic risk.

“While the back­stop mea­sure have been lit­tle used so far, the dete­ri­o­rat­ing health and eco­nom­ic back­drop could shine a bright light on the Fed’s dimin­ished reces­sion-fight­ing arse­nal and prompt an adverse mar­ket reac­tion,” said Gre­go­ry Daco, chief U.S. econ­o­mist at Oxford Eco­nom­ics.

Under law, the loan facil­i­ties required the sup­port of the Trea­sury Depart­ment, which serves as a back­stop for the ini­tial loss­es the pro­grams might incur.

In his let­ter to Pow­ell, Mnuchin said that he is request­ing that the Fed return to Trea­sury the unused funds appro­pri­at­ed by Con­gress.

He said this would allow Con­gress to re-appro­pri­ate $455 bil­lion to oth­er coro­n­avirus pro­grams. Repub­li­cans and Democ­rats have been dead­locked for months on approval of anoth­er round of coro­n­avirus sup­port mea­sures.

In pub­lic remarks Tues­day, Pow­ell made clear that he hoped that the loan pro­grams would remain in effect for the fore­see­able future.

“When the right time comes, and I don’t think that time is yet, or very soon, we’ll put those tools away,” he said in an online dis­cus­sion with a San Fran­cis­co busi­ness group.

The future of the Main Street and Munic­i­pal Lend­ing pro­grams has tak­en on greater impor­tance with Pres­i­dent-elect Joe Biden’s vic­to­ry. Many pro­gres­sive econ­o­mists have argued that a Demo­c­ra­t­ic-led Trea­sury could sup­port the Fed tak­ing on more risk and mak­ing more loans to small and mid-sized busi­ness­es and cash-strapped cities under these pro­grams. That would pro­vide at least one avenue for the Biden admin­is­tra­tion to pro­vide stim­u­lus with­out going through Con­gress.

Nei­ther pro­gram has lived up to its poten­tial so far, with the Munic­i­pal Lend­ing pro­gram mak­ing just one loan, while the Main Street pro­gram has made loans total­ing around $4 bil­lion, to about 400 com­pa­nies.

Repub­li­cans includ­ing Sen­ate Bank­ing Com­mit­tee Chair­man Mike Crapo of Ida­ho and Sen. Pat Toomey of Penn­syl­va­nia sup­port­ed Mnuchin’s move.

“Con­gress’ intent was clear: These facil­i­ties were to be tem­po­rary, to pro­vide liq­uid­i­ty and to cease oper­a­tions by the end of 2020,” Toomey said in a state­ment. ”With liq­uid­i­ty restored, they should expire, as Con­gress intend­ed and the law requires, by Dec. 31, 2020.”

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