The Fed’s coronavirus aid program lacks restrictions Congress placed on companies seeking financial help under other programs.
By Jeff Stein and Peter Whoriskey April 28, 2020 at 12:58 p.m. EDT
A Federal Reserve program expected to begin within weeks will provide hundreds of billions in emergency aid to large American corporations without requiring them to save jobs or limit payments to executives and shareholders.
Under the program, the central bank will buy up to $500 billion in bonds issued by large companies. The companies will use the influx of cash as a financial lifeline but are required to pay it back with interest.
Unlike other portions of the relief for American businesses, however, this aid will be exempt from rules passed by Congress requiring recipients to limit dividends, executive compensation and stock buybacks and does not direct the companies to maintain certain employment levels.
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Critics say the program could allow large companies that take the federal help to reward shareholders and executives without saving any jobs. The program was set up jointly by the Federal Reserve and the Treasury Department.
“I am struck that the administration is relying on the good will of the companies receiving this assistance,” said Eswar Prasad, a former official at the International Monetary Fund and economist at Cornell University. “A few months down the road, after the government purchases its debt, the company can turn around and issue a bunch of dividends to shareholders or fire its workers, and there’s no clear path to get it back.”
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Treasury Secretary Steven Mnuchin defended the corporate aid program, saying that the lack of restrictions on recipients had been discussed and agreed to by Congress. “This was highly discussed on a bipartisan basis. This was thought through carefully,” he said in an interview with The Washington Post. “What we agreed upon was direct loans would carry the restrictions, and the capital markets transactions would not carry the restrictions.”
Democrats asked for restrictions on how companies can use the money from the central bank’s bond purchases but were rebuffed by the administration during negotiations about the Cares Act, said a spokesman for Senate Minority Leader Charles E. Schumer (D-N.Y.). The spokesman said Democrats won meaningful concessions from the administration on reporting transparency in the final agreement. (Transparency requirements do not apply to the small-business loans, the biggest business aid program rolled out to date.)
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