“Main Street” Loan Program to Benefit Neither Main Street or Workers

SK Ashby
Written by SK Ashby

It's my frequently-stated opinion that the Paycheck Protection Program overseen by the Small Business Administration is an unaccountable boondoggle, but I had not considered the possibility that the program may look relatively good when something worse come up,

The Federal Reserve is about to open access to the so-called "Main Street Lending Program" that will dole out up to $600 billion in funds appropriated by Congress in March, but to actually call it a 'Main Street' program is evidently very misleading.

Unlike the Paycheck program intended for small businesses, the "Main Street" program is ostensibly intended for medium businesses, but it probably won't benefit them either.

ProPublica reports that the program has no requirements for how the money is spent -- meaning companies who receive funding can still cut jobs -- and the Fed's definition of a "medium" business includes very large businesses.

If the Main Street program is useful, it won’t be for businesses on literal Main Streets across America. The minimum loan amount of $500,000 makes it inaccessible to the small businesses — the local pizzeria or day care center — currently gasping for cash across America. And the Fed’s idea of what constitutes a midsized business is many orders larger than is commonly meant by the term; the National Center for the Middle Market at Ohio State University, for example, defines the upper bound as $1 billion in revenue.

But in the Main Street program, there’s not much limit on how large a company can be. On the high end, the loans will be available to companies with up to 15,000 employees or annual revenue of up to $5 billion. According to Fortune, only 539 individual companies in the entire country brought in more than $5 billion last year.

ProPublica also reports that while Congressional Democrats did inset language into the CARES Act intended to prevent this from happening, the actual legal language of the bill is open to interpretation and that has left Treasury Secretary Steve Mnuchin and the Federal Reserve to their own devices.

In the CARES Act, lawmakers wrote that Treasury Secretary Steven Mnuchin should “endeavor to seek” to create a loan program for medium-sized businesses that would require several conditions: Companies could not oppose union organizing or break their union contracts; recipients would be required to restore 90% of the company’s workforce as of Feb. 1; and they could not outsource or offshore jobs until two years after the term of the loan. [...]

In fact, those conditions were little more than suggestions, which the Trump administration and the Fed quickly cast aside. The Fed’s Main Street program includes none of those protections; instead, it requires companies only to make “commercially reasonable” efforts to keep employees.

It may be fair to say that Congressional Democrats are partially to blame for passing funding for another program that won't help those who need it most, but I remind myself that all of this was done with speed in mind. Writing regulations is a slog and members of Congress left much of that duty up to the Treasury so they could pass something as quickly as possible.

Was that the right move? I don't know. In hindsight, probably not -- but a significant portion of the country including members of Congress were panicking in March when the bill passed. You don't have the benefit of hindsight while things are in motion.

In any case, the cost of two rounds of funding for the Paycheck program and one round of funding for the "Main Street" program totals about $1.2 trillion. We could have set up recurring, direct monthly payments to Americans (including all the people who work on actual Main Street) for the same cost or less.