April 21, 2020
ICYMI: SUPERINTENDENT LINDA A. LACEWELL'S OP-ED IN DAILY NEWS: HELPING MAIN STREET, NOT WALL STREET, RECOVER FROM THE CORONAVIRUS
Now, as in 2008, New York is the epicenter of a crisis with seismic financial repercussions, and New Yorkers are fighting to protect our households and small businesses. But as the federal government tries to stimulate the economy, Main Street is once again taking a backseat to Wall Street.
We can’t let this happen again. If Washington does not learn from the past, then it will be doomed to repeat it — at the expense of those who have the most to lose. As the superintendent of Financial Services of New York State, I am calling on Congress to protect our individual households and small businesses, instead of bailing out large corporations, investment funds and other institutions that are wealthy enough to weather this storm.
During this health and economic crisis, we must put people first, as we are doing in New York under Gov. Cuomo’s leadership. But once again, Washington is putting profit over people.
The CARES Act signed on March 27 contained $2.2 trillion in relief programming to ensure all households have food on the table and all small businesses can reopen once the country is ready. But large corporations have found ways to divert these funds into their own well-funded accounts.
This echo of the 2008 financial crisis bailouts is particularly clear in the new law’s two most high-profile programs. The CARES Act provides one-time payments to all households that qualify. Direct relief to households is critical. But because Congress did not protect these funds from garnishment by banks or private creditors, households with negative balances or court judgments against them risk having their funds snatched away from them. The qualifications also primarily rely on tax filings, which means many of the nation’s poorest households, with incomes so low they do not file taxes, will not automatically benefit. Many independent contractors, self-employed and gig workers were also left out.
Any future direct payments to households must require protections against all forms of garnishment. And Congress should prioritize households that too often are overlooked, particularly low-income individuals and communities of color and other minorities that have historically been excluded or marginalized by both the healthcare system and financial sector.
The Paycheck Protection Program (PPP), created by the CARES Act and administered by the Small Business Administration, was supposed to be a lifeline for Main Street by providing payroll funds to small businesses with fewer than 500 employees.
But in less than two weeks, every cent of the $350 billion was exhausted. The PPP grossly favors companies with great resources, including large conglomerates who have laid off staff, and even hedge funds and private equity firms. Large conglomerates are also allowed to count each franchise as an independent business when applying for funds. And because the program had limited funds and operated on a first-come, first-served basis, it created a race for relief in which the little guy was, as in the Great Recession, left behind.
A plan that truly benefits small businesses cannot grant loans to wealthy corporations. It should also set aside funds to be distributed by community banks, which have strong connections with local businesses; close the loophole that allows franchises of global conglomerates to be treated as small businesses; and establish sufficient funding to prevent a chaotic race to file applications.
Additionally, Congress should create a similar program operating through the federal Community Development Financial Institution Fund, as CDFIs are well-situated to deploy emergency funds in the communities that need them the most.
Unless Congress acts to avoid repeating past mistakes, We are likely to see more echoes of 2008 as the CARES Act continues to be implemented.
New York State government is working with private and non-profit partners to identify the areas of greatest need and to design recovery blueprints. I urge Congress to do the same. If Washington only hears from lobbyists and doesn’t engage directly with the citizens that need help the most, then it is dooming us to repeat the past, with more devastating consequences than the Great Recession.
Lacewell is superintendent of New York’s Department of Financial Services.