As congressional Democrats hammer out a deal with the Trump administration over a bill that would allot $500 billion for the Treasury Department to bail out companies affected by the coronavirus pandemic, progressives are divided on the best strategy for shaping the final legislation.
House Speaker Nancy Pelosi (D-Calif.) has said the package, which would also provide less-controversial aid to hospitals and direct cash payments to households, will include the appointment of an inspector general and a congressionally appointed five-person panel to monitor the distribution of the funds.
Progressives active in corporate and economic policymaking have expressed everything from cautious optimism to outright hostility toward the bill. The more optimistic camp is focusing its energy on ensuring that oversight of the bailout funds is as robust as possible, while the more pessimistic contingent wants members of Congress to try to strip out the corporate giveaways or, barring that, kill the entire bill.
Indivisible, a network of liberal activists that arose in response to Donald Trump’s election, said it was heartened by the prospect of formal oversight. The group is still demanding that companies that accept federal money adopt a $15-an-hour minimum wage and tough disclosure requirements on political giving, while also prohibiting executive bonuses, stock buybacks, dividends and other investor-targeted payouts until bailout money is repaid. And Indivisible wants strict provisions barring the distribution of bailout money to companies owned by Trump.
The bill “cannot be a no-strings-attached taxpayer-funded giveaway to Donald Trump and his friends,” said Meagan Hatcher-Mays, Indivisible’s director of democracy policy.
Alex Lawson, executive director of the progressive lobbying group Social Security Works, expressed a similar view, insisting that legislation creating any would-be panel should ensure it is not a “rubber-stamp operation” for Treasury Secretary Steve Mnuchin. Lawson is calling for an organized labor official or another worker representative to be assured one of the five seats.
“The foreclosure king cannot be in charge of the response to this current economic crisis,” said Lawson, referencing Mnuchin’s previous stint as owner of a foreclosure-heavy mortgage bank.
In addition, progressives want to ensure that any panel has, at a bare minimum, the power to subpoena ― or compel ― testimony and the release of key documents, and the authority to call hearings to inform the public about their investigations.
An inspector general, they insist, must have the authority to pursue criminal prosecutions against people or entities that violate the terms of the bailout. Tougher whistleblower protections for government employees might ensure that Trump, Mnuchin or other political leaders are less able to silence those who would speak out about corruption, these advocates say.
But several progressive experts do not see a scenario where an oversight panel would have any ability to stop misconduct before it starts.
“This is a disaster,” said Matt Stoller, a former Capitol Hill financial policy aide who is now research director of the American Economic Liberties Project, a think tank promoting antitrust regulation. “It will hand the country to big business and not help the pandemic.”
That’s especially true under the Trump administration, which has routinely refused to comply with congressional subpoenas and used the courts to delay compliance, noted Jeff Hauser, who runs the Revolving Door Project, the Center for Economic and Policy Research’s executive branch accountability initiative.
“It’s an impossible task to write an oversight panel in 2020 that is capable of reining in Mnuchin and Trump’s worst instincts,” Hauser said. “It’s not an issue of draftsmanship. It’s an issue of mission.”
“Democrats are doing their best to give Trump a fighting chance in November,” he added.
It’s an impossible task to write an oversight panel in 2020 that is capable of reining in Mnuchin and Trump’s worst instincts. Jeff Hauser, Revolving Door Project
The bailout bill could open the door to trillions of dollars in additional relief from the Federal Reserve, worries Amanda Fischer, policy director for the think tank Equitable Growth who previously served as chief of staff to Rep. Katie Porter (D-Calif.).
Under section 13.3 of the Federal Reserve Act, the central bank has authority to authorize emergency loans to corporations, provided that the companies meet a certain list of conditions, including that they are financially solvent. Funds that the Treasury distributes to those companies could shore up a company’s balance sheet and thus serve as a kind of down payment on much larger loans from the Fed with no conditions attached.
Stoller, Hauser and Fischer all argued that Congress should pass a bill that provides immediate aid to hospitals, families, small businesses and other essential entities — and strip out assistance for big business.
The Federal Reserve has already been using drastic measures to prop up markets without additional congressional action, so there is time to slow down and get a potential corporate bailout right, Fischer maintained. “The corporate bailout piece does not seem urgent,” she said.
It is unclear whether progressive members of Congress are more likely to try to improve the bill or are marshaling the votes to kill it, since they do not appear to have a coordinated message or strategy.
Sen. Bernie Sanders (I-Vt.) has been speaking out against the corporate bailouts under consideration and promoting his own plan to provide $2,000 a month to all families for the length of the pandemic. A Sanders spokesperson said they’re waiting on the legislative text before saying how they’ll vote.
Sen. Elizabeth Warren (D-Mass.) has published the draft text of legislation requiring corporations to use at least 95% of the bailout money to meet payroll. Warren’s Senate staff did not immediately respond to an inquiry about whether she would push to be on any bailout oversight panel that emerges, given her past role as an overseer of the 2008 bailouts, or whether she plans to withhold a “yes” vote on a bill that does not meet key conditions.
And members of the Congressional Progressive Caucus, led by Reps. Peter DeFazio of Oregon and Lloyd Doggett of Texas, sent a letter to Pelosi and House Majority Leader Steny Hoyer (D-Md.) on Friday demanding, among other strict conditions on bailout money, that bailout recipients reserve a seat on corporate boards for workers. Asked whether the CPC was corralling votes to stop a bill that did not have those provisions, a spokesperson for the CPC did not immediately respond.
Rep. Alexandria Ocasio-Cortez, the influential freshman Democrat from New York, blasted the emerging terms of the corporate bailout on Twitter, where she has over 6.6 million followers.
“The developments of this Senate relief bill are concerning,” she wrote. “We are hearing lots of vague statements, but not a single member of Congress has seen actual bill text.”
A spokesperson for Ocasio-Cortez would not say whether she plans to vote down a corporate bailout bill in its present form, let alone whether she is whipping her colleagues to that effect.
The prospect of a massive corporate bailout bill that would grant unprecedented authority to the Treasury has inevitably elicited comparisons to the bank bailouts of 2008. At the time, the administration of Republican President George W. Bush requested and received from the Democratic-controlled House and Senate broad authority to create and distribute a $700-billion financial bailout fund known as the Troubled Asset Relief Program, or TARP.
The bill failed on the first vote in the House, eventually passing on the second attempt after the addition of provisions designed to assuage Democrats who wanted to ensure that distressed homeowners got their share of the relief.
As Congress considers creating an inspector general and congressional oversight panel to monitor the distribution of a new corporate bailout, it is looking for inspiration from similar bodies created to oversee the 2008 bailout.
Congress confirmed former federal prosecutor Neil Barofsky to serve as special inspector general for TARP, or SIGTARP, in September 2008. The following month, then-Senate Majority Leader Harry Reid (D-Nev.) named Warren, at the time a bankruptcy law professor and financial policy expert, to serve as head of a five-member congressional oversight panel of TARP.
Warren and Barofsky became ferocious critics of both the Bush and Obama administrations’ management of the bailout funds. As Warren leveraged her perch to convene hearings to grill bank executives and administration officials, Barofsky used his investigative power to compile criminal cases against alleged financial malefactors.
Warren would go on to shepherd into existence the Consumer Financial Protection Bureau and in 2012, launched a career in the Senate, where she became a fierce Wall Street foe. For his part, Barofsky published a scathing tell-all about his experience as SIGTARP, “Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street,” before embarking on a career as an attorney in the private sector.
In the end though, neither Warren nor Barofsky succeeded in ensuring that homeowners, many of whom had been sold predatory loans ― legally and illegally ― got their promised share of TARP funds.
The Obama administration declared that its $50-billion Home Affordable Mortgage Modification Program, or HAMP, would help 3 to 4 million families obtain mortgage modifications such as lower payments that would allow them to keep their homes. The program was so poorly designed that it wound up providing just 800,000 mortgage modifications. For comparison, Americans lost 10 million homes to foreclosure from 2006 to 2014.
In his book, Barofsky recalls warning then-Treasury Secretary Tim Geithner that HAMP would not provide relief to homeowners unless there were tougher rules and enforcement for the institutions that received the funds. Geithner replied that rather than prevent foreclosures, the program was designed to “foam the runway” for banks inundated with foreclosures so they would have adequate time to process them, Barofsky wrote.
“We got some reports saying [the bailout] was corrupt,” Stoller said.
But since they were unable to stop some of the worst abuses, he concluded, “Barofsky and Warren failed.”
“In a month, when the oversight mechanisms speak up and say it’s corrupt, Democrats are going to whine,” he added. “But this is the moment when it matters.”
It’s got to be very clear upfront that [the watchdogs] are going to have unimpeded access. Neil Barofsky, former special inspector general for TARP
Warren and Barofsky were one-of-a-kind public servants who leveraged the sense of shame that the Bush and Obama administrations felt about perceived cases of unfairness, according to Hauser. He is not sure that the Trump administration ― or the Republican Senate ― would appoint people of similar integrity, or that this White House is capable of being shamed.
“If Trump’s superpower is shamelessness, the entire premise of oversight is undermined,” Hauser said.
In an interview, Barofsky emphasized that Congress should also write tough conditions on the aid into the text of the law, rather than rely solely on oversight bodies.
Barofsky declined to weigh in on the merits of different versions of legislation under consideration, but he said that the success of an inspector general and an oversight panel depend heavily on personnel and the power they have. He called on Congress to provide a special inspector general and oversight panel with as much authority as possible and to appoint fierce watchdogs to serve on them.
“It’s got to be very clear upfront that they are going to have unimpeded access,” he said.
And Barofsky cited the Federal Reserve as an example of an institution that heeded his agency’s warnings, unlike Geithner’s Treasury Department. When Barofsky’s office produced a report showing that the Fed’s planned Term Asset-Backed Securities Loan Facility program lacked adequate anti-fraud provisions, the central bank postponed the program’s rollout and invited Barofsky and his team in to help improve it.
“That’s where it works best: where you have knowledgeable people who understand how to put in the right type of anti-fraud provisions to make these things safe and you have willing policymakers who are willing to listen and compromise and come up with the most effective programs possible ― all in the bright light of day,” he said.
Jen Bendery contributed reporting.