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Biden’s Economic Team Suggests Focus on Workers and Income Equality

WASHINGTON — President-elect Joseph R. Biden Jr. formally announced his top economic advisers on Monday, choosing a team that is stocked with champions of organized labor and marginalized workers, signaling an early focus on efforts to speed and spread the gains of the recovery from the pandemic recession.The selections build on a pledge Mr. Biden made to business groups two weeks ago, when he said labor unions would have “increased power” in his administration. They suggest that Mr. Biden’s team will be focused initially on increased federal spending to reduce unemployment and an expanded safety net to cushion households …

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Mnuchin Cites Principles in Clawing Back Fed Money. Democrats See Politics.

WASHINGTON — Treasury Secretary Steven Mnuchin broke sharply with the Federal Reserve this week, choosing to end a variety of programs aimed at helping markets, businesses and municipalities weather the pandemic and asking the central bank to return the funds earmarked to support those efforts.

Mr. Mnuchin said his decision was driven by a deference to what he believed was Congress’s intent when it allocated the funding, a desire to repurpose the money toward better uses and a belief that markets no longer needed them. But his actions, which will limit the incoming Biden administration’s ability to use those programs at scale, seem driven by politics.

“The law is very clear,” Mr. Mnuchin said in an interview on CNBC Friday. He defended his decision and suggested that the programs were no longer needed, because market conditions “are in great shape.”

But that view is not shared by the Fed, which quickly issued a statement expressing disappointment with the decision, calling the economy “still-strained and vulnerable.” It is worth noting that Mr. Mnuchin only publicly took the position that Congress meant for the programs to end after Dec. 31 once it became clear that President Trump had lost the election to Joseph R. Biden Jr.

By ending the programs — which have been funneling loans to medium-sized businesses and backstopping municipal and corporate bond markets — Mr. Mnuchin is taking away a source of economic support just as the new administration comes into office and as rising virus cases dog the recovery. By asking the Fed to return the money that enables the emergency efforts, he could make it harder for Democrats to restart them at a large scale and on more generous terms.

Chair Jerome H. Powell indicated the Fed would return the funds, in a letter to Mr. Mnuchin on Friday afternoon.

“It’s not just closing the store down for Biden,” said Ernie Tedeschi, a policy economist at Evercore ISI. “It’s burning the store down.”

Mr. Biden’s transition team criticized the move as trying to hamstring his ability to help the economy.

“The Treasury Department’s attempt to prematurely end support that could be used for small businesses across the country when they are facing the prospect of new shutdowns is deeply irresponsible,” Kate Bedingfield, a spokeswoman for the transition, said in a statement.

Mr. Mnuchin’s decision came as a surprise to Mr. Trump, who was alerted to the decision shortly before Mr. Mnuchin’s letter was released on Thursday and who, on Friday morning, expressed some concern that the move could have a negative impact on the stock market, according to a person familiar with the matter who was not authorized to speak publicly. Asked if Mr. Trump had instructed Mr. Mnuchin to end the programs, Mr. Mnuchin’s spokeswoman said that it was “solely a Treasury decision based on what the law and congressional intent required.”

Here is a rundown of how these programs work, why Mr. Mnuchin says he is killing them, and why his arguments leave unanswered questions.

Mr. Mnuchin is pulling the plug on a set of Fed emergency lending programs, which the central bank can use to keep credit flowing in times of crisis. After the 2008 recession, Congress insisted that the Treasury secretary sign off on such efforts.

The Fed is loath to take credit losses, so Treasury has been providing a layer of money to cover any loans or purchases that go bad. It initially used the Exchange Stabilization Fund, a pot of unused money. But in March, Congress beefed up the Treasury’s capacity.

Mr. Mnuchin and lawmakers earmarked $454 billion to support Fed lending when they cut a deal on a government pandemic response package. The Fed can make money out of thin air, and it only needs a little bit of backing — $1 of insurance can be turned into as much as $10 in bond buying or business loans. The programs offered a big potential bang for the government’s buck.

Mr. Mnuchin ultimately earmarked $195 billion for specific loan programs. Not much of that capacity has been used. Some programs calmed market conditions merely by reassuring investors. The small and medium-sized business loan program had restrictive terms.

When Mr. Mnuchin said Thursday that he would end the five appropriation-backed programs at the end of 2020, he asked the Fed to give back all but $25 billion, which he is leaving to support already-made loans and bond purchases.

Mr. Mnuchin has said “it is very clear in the law” that the allocation-backed programs must end Dec. 31. That is not true.

The law states that the Treasury should not hand out money from its $454 billion pot after the end of 2020 — but it allows already-dedicated funds to remain available. Because the Treasury had handed hundreds of billions of dollars in insurance money to the Fed, the central bank theoretically has lots of capacity left to make loans and buy bonds.

The Fed’s lawyers have interpreted the law to mean that they can keep the programs running into 2021, supported by the existing Treasury backstop, as the central bank’s statement on Thursday indicated.

Mr. Mnuchin himself had previously suggested that the programs could be extended past the end of the year, writing in an October letter that the decision would hinge on market conditions.

A Treasury spokeswoman said on Friday that Mr. Mnuchin had always believed Congress meant for the funding to sunset, and had planned to use Exchange Stabilization Fund money — plus the $25 billion that he is leaving with the Fed to cover existing loans — to extend the programs if needed.

That logic is hard to follow given Mr. Mnuchin’s belief that the law prevents new Fed lending backed by Congress’s money after Dec. 31. If that’s the case, it should also prevent new lending against the $25 billion, which comes from the same congressional pot, said Peter Conti-Brown, a lawyer and Fed historian at the University of Pennsylvania.

Mr. Mnuchin also suggested that taking back the earmarked money would allow Congress to reroute it to other purposes in ways that “won’t cost taxpayers any more money.”

But the Congressional Budget Office, in assessing the budget impact of the money dedicated to Fed programs, found it to be nearly free of cost. The idea was that the loans the money backed would eventually be returned, and fees and interest earnings would cover any expenses. So if the money is clawed back and repurposed for spending — not lending — it would add toward the deficit for accounting purposes.

Top Republicans have suggested that leaving the programs operational for too long could distort markets, which is a genuine concern with such backstops. In his letter announcing his intent to close the programs, Mr. Mnuchin noted that normal market conditions prevail.

It’s true that corporate bond issuance has been rapid and states and localities are able to fund themselves at low rates. But virus cases are also spiking, suggesting that conditions could worsen and Fed backstops might again be needed.

Over the summer, Mr. Mnuchin agreed to extend the programs until Dec. 31 at a time when coronavirus infections were much lower than they are today, markets were functioning well, and companies were issuing bonds at breakneck speed.

Treasury’s move to claw back the funding limits Mr. Biden. The Fed and the next Treasury secretary can use the Exchange Stabilization Fund to back up bond purchases and business lending.

But it contains much less money than the government would have had with the congressional appropriation. That could hamper a goal that had been percolating among Democrats: to restart the programs, make them more generous and use them as a backup option if additional stimulus was tough to get through Congress.

Senator Mitch McConnell of Kentucky, the majority leader, said the request to end the programs and return the money was “fully aligned with the letter of the law and the intent of the Congress.”

Democrats reacted with outrage.

“It is clear that Trump and Mnuchin are willing to spitefully destroy the economy and make it as difficult as possible for the incoming Biden Administration to turn this crisis around and lead the nation to a recovery,” Representative Maxine Waters of California said in a letter.

Jim Tankersley contributed reporting.

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Mnuchin Plans to End Some Emergency Fed Facilities

WASHINGTON — Treasury Secretary Steven Mnuchin said he does not plan to extend several key emergency lending programs beyond the end of the year and asked the Federal Reserve to return the money supporting them, a decision that could hinder President-elect Joseph R. Biden Jr.’s ability to use the central bank’s vast powers to cushion the economic fallout from the virus.

Mr. Mnuchin on Thursday said he would not continue Fed programs, including ones that support the markets for corporate bonds and municipal debt and one that extends loans to midsize businesses. The emergency efforts expire at the end of 2020, but investors had expected some or all of them to be kept operational as the virus continues to pose economic risks.

The pandemic-era programs are run by the Fed but use Treasury money to insure against losses. They have provided an important backstop that has calmed critical markets since the coronavirus took hold in March. Removing them could leave significant corners of the financial world vulnerable to the type of volatility that cascaded through the system as virus fears mounted in the spring.

By asking the Fed to return unused funds, Mr. Mnuchin could prevent Mr. Biden’s incoming Treasury secretary from quickly restarting the efforts at scale in 2021.

“The Federal Reserve 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 central bank said in a statement.

The emergency programs were backed by $454 billion that Congress appropriated in March as part of a broader pandemic response package. Because of the way the Fed’s emergency lending powers work, Jerome H. Powell, the Fed chair, needs the Treasury secretary’s signoff to make major changes to the programs’ terms. Extending the end date counts as one of those changes that need approval.

The decision to close the various programs and remove the funding appeared to come as a surprise to the Fed, which received a letter announcing the Treasury’s desire to claw the money back on Thursday afternoon.

“I am requesting that the Federal Reserve return the unused funds to the Treasury,” Mr. Mnuchin said in the letter. He noted that he had been “personally involved in drafting the relevant part of the legislation” and believed it was Congress’s intent that the programs stop at the end of the year.

Earlier this month, Mr. Powell had said the central bank and Treasury were just beginning to discuss whether to extend the programs.

Mr. Mnuchin did agree to extend other emergency loan programs that are not backed by the congressional appropriation, including ones that service the short-term market for corporate debt, one for money market funds, and one that backstops government small-business loans.

The Fed avoids taking credit losses when extending loans, and throughout the pandemic crisis it has asked for Treasury backup for its riskier programs. If it returns any unused money that the Treasury has already dedicated to support the programs, as Mr. Mnuchin requested, the Biden administration will have less financial backup to restart the programs.

That’s because the congressional appropriation — $195 billion of which has been earmarked to specific Fed programs — cannot be used to make new loans after the end of the year. But while the law prohibits the Treasury from putting money into the Fed’s facilities after 2020, it does not obviously prevent the Fed from using already-earmarked Treasury funding to insure its own loans and bond purchases.

“The loans, loan guarantees and investing that the Treasury does is the applicable language,” said Peter Conti-Brown, a lawyer and Fed historian at the University of Pennsylvania. He said that while it may be possible to read the law as preventing new Fed loans, that is not the “obvious reading.”

The Fed and the next Treasury secretary do have an alternative to continue the programs: They could use money in the Treasury’s Exchange Stabilization Fund, which still contains about $74 billion in uncommitted funds, to back the programs. It is unclear exactly how much of the fund can be used, but the programs have not to date needed substantial capacity.

Mr. Mnuchin’s move could leave the government with fewer options to help the economy just as the new administration takes office.

“Treasury is right that a limited set of objectives have been achieved in terms of stabilizing bond markets,” Jason Furman, a prominent Democratic economist, said on Twitter. “But what is the downside to continuing them as insurance against worse developments?”

Many of the Fed’s programs, including one that buys state and local debt and another that encourages banks to lend to small- and midsize businesses, have been lightly used. But that is because they were designed as backstops — meaning that borrowers would likely only use them when times are bad.

And it is Mr. Mnuchin himself who has been conservative in setting the program’s terms. With a more permissive head at the Treasury, the terms could have been made more generous.

In fact, Democrats had been eyeing both the municipal bond-buying program and the Main Street lending effort for small- and medium-size businesses as potential backup options if it proves difficult to pass additional government relief. Without them, businesses and state and local governments would have one less potential source of help.

With coronavirus cases on the rise, the economy may sour again, making the programs more necessary. As recently as Tuesday, Mr. Powell warned of the potential for economic scarring and said that the economic recovery had “a long way to go.” But Treasury officials have expressed optimism that the economy is poised for a steady rebound and that the likely rollout of a vaccine by the end of the year further improves the economic picture.

Senator Patrick J. Toomey, Republican of Pennsylvania, who had been pushing Mr. Mnuchin to end the programs, applauded the decision.

“These temporary facilities helped to both normalize markets and produce record levels of liquidity,” Mr. Toomey said in a statement. “Congress’s intent was clear: These facilities were to be temporary, to provide liquidity, and to cease operations by the end of 2020.”

Treasury’s move prompted concern from Democrats, some of whom said the Fed should simply refuse to return the money — a route it is unlikely to take.

Bharat Ramamurti, a Democrat who sits on the congressional oversight body in charge of reviewing the various Fed and Treasury programs, suggested on Twitter that, legally, the Fed was under no obligation to give back the funds.

“Under its contracts with Treasury, the Fed can and should reject the request,” he said. “While Secretary Mnuchin claims congressional intent was to halt all new loans at year-end, the text of the CARES Act doesn’t say that. At a minimum, the Fed can continue to make loans using the $195 billion in equity Treasury has already committed.”

Emily Cochrane contributed reporting.

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For Millions Deep in Student Loan Debt, Bankruptcy Is No Easy Fix

With two mortgages, three children and $83,000 in student loan debt, the financial strain finally became too much for George A. Johnson and Melanie Raney-Johnson.

New bills kept piling up: The couple had to buy another car when Mr. Johnson wrecked one in a snowstorm, but their insurance didn’t fully pay off the totaled vehicle. Old debts never seemed to get any smaller, either: A mortgage modification they spent months working on fell through when the bank lost their paperwork.

And their student debt, an albatross born of aspiration, grew heavier each month.

Bankruptcy was the only way out.

“It was not an easy decision,” Ms. Raney-Johnson said of filing for bankruptcy in 2011. “It was a feeling of despair, for sure.”

Bankruptcy gives over 700,000 debtors a fresh start every year. Bills for credit cards and medical expenses can be wiped away by a few strokes of a judge’s pen, and debts that don’t vanish are reduced.

But student loan debts don’t go away as easily. For decades, politicians have slowly made them harder to discharge, while differing standards in courts across the country mean a debtor’s chances can depend on where he or she lives.

The few debtors who attempt it are subjected to a morality play unlike anything else in the world of personal finance: so-called adversary proceedings, where they must lay themselves bare in court as opposing lawyers question how much they pay for lunch or give to their church.

The Johnsons tried anyway. They had borrowed about $45,000 for Mr. Johnson’s degree in sociology at the University of St. Mary in Kansas and Ms. Raney-Johnson’s pursuit of a bachelor’s degree from the University of California, Davis. Unable to pay, they had received permission to put off their payments, but their balance nearly doubled as interest charges continued to pile up.

Mr. Johnson lost his job after they filed for bankruptcy and, unable to afford a lawyer, Ms. Raney-Johnson prepared their case. She remembers how she felt when they arrived at the Robert J. Dole Federal Courthouse in Kansas City, Kan., on a sunny September day seven years ago.

“My heart was beating, and I was sweating,” said Ms. Raney-Johnson, now in her mid-40s and a billing supervisor for a federal agency.

In 2015, the year the Johnsons got their ruling, 884,956 personal bankruptcy cases flowed through the courts. Only 674 sought to discharge student debt, according to a recent analysis by Jason Iuliano, assistant law professor at Villanova University.

The New York Times reviewed dozens of cases in which a judge issued a published opinion — the Bankruptcy Class of 2015 — to understand the pains and payoffs five years later. Some debtors are on a better course. But for others, the struggles never went away — or came back after they thought they were free.

Bankruptcy begins with debt, and student loans are the second-biggest form of household debt in the United States. More than 43 million borrowers hold over $1.6 trillion in student loans, a sum that has more than tripled in 13 years. It exceeds what Americans owe on credit cards or auto loans and trails only mortgages.

Sixty-two percent of students who graduated from nonprofit colleges in 2019 had student loan debt, according to an Institute for College Access & Success analysis. Their average balance was $28,950 — not including borrowing by their parents.

Many struggle mightily to pay: Before the government’s coronavirus relief efforts paused federal student loan payments, 7.7 million borrowers were in default and nearly two million others were seriously behind.

The solution has been a public-policy patch job.

About eight million additional borrowers use income-driven repayment plans, which can be challenging to enter. And while the plans lower payments, borrowers accrue interest on the unpaid difference. The debt is eventually forgiven — usually after 20 or 25 years — but the forgiven amount is taxable income.

A related program forgives the federal student loan debts of public-service workers, tax free, after 10 years, but it has been deeply troubled. Borrowers have made payments for years only to learn they were in the wrong kind of payment plan. It got so bad that Congress had to create a separate pot of money to try to fix it.

Although some lawmakers have proposed changing bankruptcy rules to treat student loans as if they were any other consumer debt, there is no broad bipartisan support for any existing proposal. A bill in the House has one Republican co-sponsor, Representative John Katko of New York, but the Senate version, led by Senator Richard J. Durbin of Illinois, has only Democratic support.

Election Day did little to change the fraught nature of student debt in Washington, where the Trump administration has explored shortcomings in the bankruptcy law but his Education Department has strongly opposed relief for indebted students — even if their schools defrauded them — and Joseph R. Biden Jr. once voted to make private loans harder to discharge, though he has vowed to try to reverse the rule.

All that debt poses a problem. Its weight, experts say, has macroeconomic effects, dragging on homeownership and small-business formation. But the fallout goes beyond simple economics.

There is also a mental toll.

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Credit…Terry Ratzlaff for The New York Times

Noelle DeLaet earned a bachelor of fine arts degree from Nebraska Wesleyan University in 2008 — the teeth of the Great Recession. She tacked on another year for a degree in English to make herself more attractive to employers. Perhaps in publishing, she thought.

She left school with $110,000 in debt: roughly $27,000 from the federal government and the rest in private loans co-signed by her mother. The $810 monthly bill, set to climb when the payment plan on one private loan expired, soon overwhelmed her.

Ms. DeLaet, now 34, landed in the child welfare field as a foster care review specialist in Lincoln, Neb. — rewarding, but not lucrative. She sent out hundreds of résumés for better-paying jobs and pleaded with her lenders to reduce her payments. Soon, the creditors started in on her mother and put her on the verge of bankruptcy, too.

Ms. DeLaet’s breaking point came in May 2012 when she ran up against the $4,000 limit on her credit card while trying to buy a burrito at a Mexican grocery. She felt so helpless at times that she considered suicide.

“I looked all over Google for some sort of support group for others going through this,” Ms. DeLaet said. “I felt like there was no way out.”

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When Ms. DeLaet squared off in court against her student-loan creditors, they quibbled with the $12 she spent each month on recycling. She should have tried harder for a promotion, they argued. Or moved somewhere else for more money.

Judge Thomas L. Saladino bristled at that idea. In his opinion, he wrote that she lived in the state’s second-largest city, “as good a place as any to seek a better-paying job.”

The judge discharged about $119,000 in private loans, and an additional $23,000 was forgiven by one of her lenders. But her $27,000 in federal loans stuck: She’s paying those back through an income-driven repayment plan costing about $260 a month. Because she works at a nonprofit, her debt should eventually disappear via the Public Service Loan Forgiveness program.

For Ms. DeLaet, the process was worth it: She has married her boyfriend, had two children and bought a home. Her mother is an “amazing” grandmother, she said, although they still cannot discuss the past.

“It is an untouchable subject,” she said.

The transformation in the bankruptcy rules began in 1976, with unfounded rumors.

A handful of legislators claimed to have heard about a parade of young doctors and lawyers who were trying to game the system and shed their debts while embarking on lucrative careers. The lawmakers toughened the rules, largely preventing borrowers from seeking a discharge within five years of graduation. The rules only got tougher over the next three decades.

Borrowers must show that their student loans are an “undue hardship” — a standard interpreted differently, depending on where you live. Some judicial circuits, including those in Nebraska, where Ms. DeLaet filed, have the judge review a “totality of the circumstances” for the debtor and make a decision.

Other jurisdictions employ a less flexible standard, the Brunner test, named for the case that established it. Judges must answer three questions affirmatively to discharge the debt. First, has the debtor made a good-faith effort to repay the loans? Second, is the debtor unable to maintain a minimal standard of living while making the payments? And, finally, is the debtor’s situation likely to persist?

But even jurisdictions that use the Brunner test apply it differently. Some require the judge to find that the borrowers have a “certainty of hopelessness” in paying off their debt. Other jurisdictions do not.

Here, the Johnsons may have benefited from geographic good fortune.

Lawyers for the Educational Credit Management Corporation — a nonprofit that collects defaulted loans on behalf of the federal government — examined how the Johnsons spent their $2,100 monthly income.

Every expense was scrutinized, including Ms. Raney-Johnson’s $35 monthly union dues, her $100 retirement contribution and $215 to repay loans from her retirement plan. None, the nonprofit’s lawyers argued, were necessary to maintain a “minimal standard of living.”

In his opinion — written more than a year after hearing arguments — Judge Robert D. Berger disagreed. He wrote that the U.S. Court of Appeals for the 10th Circuit, which covers Kansas, had shifted from the most rigid interpretation of the three-part test, which he described as “an unfortunate relic.”

Judge Berger wasn’t sure how the Johnsons were subsisting at all based on their income, and he said courts shouldn’t rely on “unfounded optimism” about a debtor’s future.

“It is disconsonant with public policy and bankruptcy’s fresh start to leave debtors in virtual lifetime servitude to student loans,” he wrote.

The judge discharged their student loans: $83,000 in debt, wiped away.

“I was ecstatic,” Ms. Raney-Johnson said of the moment she received the decision letter. “I probably said some curse words.”

Their good fortune didn’t last.

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Credit…Joseph Rushmore for The New York Times

Opposing lawyers — whether they work for the federal government or for private lenders — are tenacious. Their approach can feel like bullying, if not humiliation.

When Pamela Monroe went to an Arkansas bankruptcy court in 2015, she was 57 with a student-loan balance of about $56,000. She was working in the fragrance section of a Dillard’s department store, and her lunch habits — like $6.10 at Taco Bell and $12.72 at Olive Garden — were a focus of intense interest.

Eating out, Ms. Monroe testified, was her primary form of recreation and a midday necessity: Co-workers would sometimes steal colleagues’ lunches from the break room.

“They laughed about that when I told them,” she said. “I felt at that moment like I was a cornered animal and they were poking sticks at me.”

Ms. Monroe said she had spent her life making choices that others seemed to dictate — marrying two years out of high school and becoming a mother, as her parents seemed to want. After two divorces, she reached for higher education in a bid for independence.

She graduated from the University of Arkansas-Fort Smith with a communications degree and pursued a master’s in speech language pathology. She didn’t finish that program, leaving her with the debt but not the advanced degree. And she couldn’t seem to break out of low-paying work.

“I would have loved to pay them back,” Ms. Monroe said. “But I never could, because nobody ever saw any value in me.”

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Credit…Joseph Rushmore for The New York Times

Judge Ben Barry found Ms. Monroe’s restaurant spending excessive, but noted that she had changed jobs frequently seeking higher pay. Her income, he wrote in his opinion, about doubled between 2010 and 2015, to over $26,000.

But even a reduced budget he outlined would not leave her enough money to make her student loan payments, so he discharged just over half of her student loans.

She would most likely have been paying that off until she was in her 80s. But last year, Ms. Monroe, now 63 and dealing with osteoarthritis and other health problems, received a disability discharge for the rest of her debt.

Now all she wants to do is live out her days in her $510-a-month apartment in a retirement community. “It has a sprinkler system and an elevator, very safe,” she said.

But she hasn’t stopped thinking about the way the system and its actors — like the lawyer on the opposite side in her case — seemed to render judgment on her life choices.

“I didn’t do anything wrong,” she said. “I was just living, but I got in trouble for eating.”

In 2016, the Johnsons learned their loan discharge was being appealed by lawyers for Educational Credit Management Corporation.

Paradoxically, they were worse off because their financial situation had improved: Ms. Raney-Johnson earned a promotion, and Mr. Johnson, now in his mid-40s like his wife, found a stable government job. A year after discharging their loans, Judge Berger concluded that the couple could now “easily” maintain a minimal standard of living and reinstated their debt — which had ballooned even more because of interest charges.

Preparing to send their own children to college, the Johnsons requested another forbearance. Their balance continues to grow: It’s roughly $104,000 today.

Ms. Raney-Johnson took the final class she needed for her biology degree over the summer. But the debt was already piling up for the next generation. Their oldest, a college sophomore, expects to owe about $45,000 when she graduates. Their middle child, a high school senior, is looking at colleges now. Ms. Raney-Johnson said she and her husband — who are putting about $5,000 a year toward their daughter’s tuition — would try to remain in forbearance for now.

In August, they received a notice about an income-driven repayment plan, which would start out costing about $550 a month. From there, the cost depends on many factors, including job changes, raises and eligibility for forgiveness programs. If they’re able to get into the public service program, the debt could go away a decade after they start paying. If not, the bills could continue coming for about 20 years — right around the time the Johnsons will be trying to retire.

The experience, Ms. Raney-Johnson said, has been “disheartening.” She and her husband had run up against opposition that could keep going with little regard for time or expense, knowing that they couldn’t.

“It feels like getting screwed over by someone with a lot more power and money,” she said.

Susan Beachy contributed research.

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Fed Holds Rates Steady and Signals Continued Wariness

WASHINGTON — The Federal Reserve chair, Jerome H. Powell, said on Thursday that the labor market’s recovery was only halfway complete and that more government support would likely be needed to return the economy to full strength, calling the recent rise in virus cases “particularly concerning.”

In remarks after the central bank’s November meeting, Mr. Powell reiterated that the economic outlook is “extraordinarily uncertain” and pledged to continue supporting growth for as long as needed.

Economic progress has exceeded initial expectations amid state and local reopenings, but the recovery remains incomplete, progress is moderating and risks loom ahead. Mr. Powell noted that the U.S. is “a long way from our goals, and we’re halfway there on the labor market recovery, at best.”

The Fed is trying to coax the economy back to full health. It left interest rates unchanged at its November meeting, having slashed them to near-zero in March, and it reiterated that it plans to keep them low for the foreseeable future. The central bank has also been buying huge quantities of government-backed bonds — about $120 billion a month, recently — in an attempt to keep markets functioning smoothly and to stimulate demand. It said it would keep the purchases up at that pace “at least.”

Low rates do seem to be powering a recovery. Housing has been a bright spot, for instance, as buyers scramble to purchase new and existing houses. But government spending programs have also been an important driver of the rebound so far, keeping money flowing to businesses and households.

Now further economic progress is teetering on a precipice as U.S. coronavirus cases rise and those government support programs run dry. The outcome of this week’s presidential and congressional election remains uncertain, making it hard to guess whether and when the government will renew programs that created forgivable small business loans, expanded unemployment insurance and provided other safeguards that have helped to keep businesses and families afloat.

Mr. Powell said the two biggest economic risks right now are the “further spread of the disease” and the likelihood that households will run through the savings they were able to accumulate as a result of government programs early in the pandemic, including stimulus checks and enhanced unemployment benefits.

“The fiscal policy actions that have been taken thus far have made a critical difference,” Mr. Powell said. “Even so, the current economic downturn is the most severe in our lifetimes.”

While the Fed is prepared to act as needed to support the recovery, Mr. Powell reiterated that more fiscal support may be needed to mitigate looming dangers, which also include bankruptcies and long-term labor market scarring.

“We’ll have a stronger recovery if we can just get at least some more fiscal support, when it’s appropriate and at the size Congress thinks is appropriate,” he said.

The Fed studiously avoids weighing in on politics in an effort to protect its independent status, which is one reason Mr. Powell is hesitant to be prescriptive when it comes to what Congress should do. Asked about the still-undeclared presidential election and whether it came up during policy deliberations, Mr. Powell said “the election comes up now and again, but it is not at all a central focus of the meeting, not at all.”

There is still more that the Fed could do to stimulate the economy, and Mr. Powell, in response to a question, said the central bank is not “out of power or out of ammo.”

While Mr. Powell did not commit to any new efforts, he noted that the Fed could tweak its bond-buying program. The central bank is pondering what that might look like, and the November meeting was about “having a good discussion about how to think about those various parameters,” he said.

Economists say officials could reinforce their pledge to keep interest rates low for an extended period of time. They could also change up the communication around the Fed’s bond purchases, or shake up the program’s composition so that purchases tilt more toward longer-dated debt, all with the goal of making credit cheaper and keeping money flowing into the economy.

Yet such measures are no panacea. They benefit people who are in a position to buy houses and cars and can help the economy to recover in the medium to long term. Fed policies are not suited to get money straight into the hands of the workers who have lost their jobs. Such targeted relief would have to come from Congress and the White House.

Mr. Powell also faced questions about the central bank’s suite of emergency lending programs. Several of the efforts are backed by funding from the Treasury Department and are set to expire in December, unless Mr. Powell and Treasury Secretary Steven Mnuchin agree to extend them.

“We’re just in the process of turning to that question,” Mr. Powell said, noting that it’s a decision that they “have to make and will make” jointly with the Treasury Department.

Mr. Mnuchin suggested in a recent response to congressional questioning that he favors allowing at least one facility, which buys municipal bonds, to expire.

If a coronavirus vaccine is being rolled out in the coming weeks, that could mean that the Treasury Department would be less inclined to extend the facilities. It is also possible that if Mr. Trump’s re-election bid fails, he could block the facilities from being reauthorized so that Joseph R. Biden Jr. has fewer economic stimulus tools at his disposal.

The Treasury Department did not respond to a request for comment.

Alan Rappeport contributed reporting.

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Recession’s Silver Lining: American Households Are Doing Better Than Expected

For months, Americans have barely dined at restaurants or traveled for vacation. There have been no ballgames or concerts to attend. Gym and other memberships mostly remain frozen.

Forced into lockdown mode by the coronavirus, people put big purchases on hold and scaled back their spending. Around the same time, mortgage lenders, student loan collectors and other creditors offered struggling borrowers a break on payments. And stimulus checks from the government arrived.

These trends have come together to form an unlikely silver lining to the economic recession, which set in eight months ago: Despite the pandemic’s economic devastation, which has tipped millions of people into unemployment, many American households are in relatively good shape. Since April, consumer savings have increased, credit scores have surged to a record high and household debt has dropped. The billions of dollars that banks set aside at the start of the crisis to cover anticipated losses on loans to customers have been largely untouched. And lending at pawn shops and payday lenders, where business tends to boom during downturns, has been unexpectedly slow.

“Everything was upside down,” said John Hecht, an analyst at the investment bank Jefferies. Usually, in times of distress and unemployment, more people find themselves with deteriorating credit and are forced to seek high-interest, or subprime, loans, Mr. Hecht said, but not this year.

The pain may still be coming. Banks and other consumer lenders are bracing for financial stress next year, as millions of people remain out of work and the labor market’s rebound shows signs of stalling. A third surge of coronavirus cases has taken hold in the United States, and lawmakers in Washington are mired in fights about the terms of additional stimulus. The number of people in America living in poverty has grown by eight million since May — though their financial woes often aren’t captured by credit and loan data because they’re out of the financial mainstream. And longer-term consequences like wage stagnation, reduced entrepreneurship and the accumulated cost of interest-bearing debt could linger for decades.

But for now, households are weathering the turmoil largely because of the unusual nature of the current downturn. The pandemic ended America’s longest economic expansion on record, meaning that people came into this recession in better shape than they were in when the Great Recession took root in 2008. Back then, risky mortgages metastasized into a crisis that upended the banking industry; this time, banks and borrowers aren’t facing that kind of structural threat.

This time, too, the government’s rapid aid efforts blunted a bigger crisis. Expanded unemployment benefits, $1,200 stimulus payments and aid to small businesses had an immediate impact this spring. Those who lost their jobs used the money to keep up with rent and other bills. Others used it to pay down debts, or socked it away in savings.

“The quick, coordinated response of government stimulus and lender relief was unprecedented, and had a huge influence,” said Ethan Dornhelm, FICO’s vice president of scores and predictive analytics.

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Credit…Desiree Rios for The New York Times
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Credit…Libby March for The New York Times

Since he lost his job as a toy designer in March, Daniel Brennan has been holding things together through a combination of aid money and loan relief programs. A six-month forbearance on federal student loan collections reduced his monthly expenses by $280. (He began getting bills again this month but requested an extension, which his servicer granted until February.)

Mr. Brennan, who is separated and had moved into his own apartment shortly before the pandemic took root, gave up that apartment and returned to the house he owns in Willow Grove, Pa., with his soon-to-be ex. Their mortgage lender, Wells Fargo, let them defer their payments until at least the end of the year. Because interest still accrues, that will increase the total amount they owe over the life of the loan. That break, though, has given Mr. Brennan enough cash flow to stay current on his car loan and credit card bills and buy essentials like groceries and gas.

“Not paying the mortgage is making everything work,” said Mr. Brennan, who is 46. He’s leery of what will happen when that forbearance ends if he has not yet found another job.

Those who have held onto their jobs without having their hours or wages cut often ended up financially stronger than they were at the start of the year. Daniel Zeccola, 36, an emergency and internal medicine physician in Denver, took advantage of a 90-day forbearance on his private student loan from Laurel Road to shift his normal $5,000 monthly payment into his savings account instead.

The rate he earns on that savings account is higher than the interest rate on his loan, netting him an extra $90 a month, said Mr. Zeccola, who is saving for a down payment on a house. “I feel kind of guilty,” he said. “I’ve been protected from the downsides of what so many other people have experienced.”

Even as the swell in household liquidity provided by the government’s relief efforts starts to ebb and spending picks up again, creditors remain optimistic about consumers’ ability to keep up with their bills. The personal savings rate soared this spring, peaking in April, when Americans stockpiled $6.4 trillion — about a third of their disposable income. It has declined since, but stayed far higher than it was a year ago, according to the latest government data.

Credit card spending nose-dived, thanks in part to the reduced temptations of a locked-down economy. Balances plunged by $76 billion in the year’s second quarter, the largest drop ever recorded by the Federal Reserve Bank of New York. Total household debt fell that quarter for the first time since 2014, according to the regional bank’s research.

Credit card issuers and other consumer lenders have not seen a rash of defaults — for many lenders, they’ve actually dropped below normal levels — thanks mainly to the stimulus checks and expanded unemployment insurance. Most creditors don’t expect that to change until the second half of next year, at the earliest.

The average American credit score has also steadily increased this year, reaching a record 711 in July, according to FICO. Credit scores can be a lagging economic indicator — in the Great Recession, they didn’t bottom out until late 2009, months after the recession ended, although they started dipping much earlier. But this time around, consumer debt levels and missed payments have actually dropped, which explains why the scores are rising.

“Over all, consumer customers are holding up well,” JPMorgan’s chief financial officer, Jennifer Piepszak, said on her bank’s earnings call this month.

Still, many lenders have protected themselves by doing what they always do in a downturn: cutting back on their riskiest lending. Large credit card issuers reduced some customers’ credit lines, turned away new customers and, in some cases, shut down entire product lines. Wells Fargo and JPMorgan stopped offering new home equity credit lines in April.

Lenders outside the financial mainstream, who cater to those without access to credit cards and traditional loans, haven’t yet seen the pickup they usually do when the economy deteriorates. Payday lending started sliding in early March and even in October, remained down more than 40 percent compared with last year, according to data from Veritec Solutions, which tracks small-dollar lending for several state regulators.

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“Demand is still well below normal,” said Ed D’Alessio, the executive director of INFiN, a payday industry trade group. “What we’ve seen during the pandemic is that consumers have come in and paid off their loans,” and not borrowed afresh.

Many pawn shops had a record number of customers reclaim their items, leaving some stores with bare shelves even as retail demand surged from shoppers stuck at home and looking for bargains on items like TVs, video game systems and power tools for home-improvement projects.

“Our showcase has never looked emptier,” said Jordan Tabach-Bank, who owns three luxury-goods pawn shops in New York, Chicago and Los Angeles. “Instead of needing loans from us, people are redeeming their loans, picking up their collateral and paying it off.”

The big economic question right now is whether a consumer crisis has been averted or merely delayed. Economists and credit analysts see two big unknowns that make it hard to forecast where things go from here. The first is whether a resurgence of the virus will force further lockdowns, which would prolong and intensify the recession. The second is whether the government — under the leadership of whichever candidate wins the presidential election — will inject trillions more into the economy through new stimulus and relief measures.

Banks that set aside billions to cover potential losses have slowed the rate at which they’re building their reserves, but they’re keeping the emergency cushion. Asked by an analyst whether the government’s efforts had reduced the likelihood of losses or simply postponed them, Ms. Piepszak, JPMorgan’s finance chief, said the bank simply didn’t know.

Federal relief measures were “a bridge, and the question is whether the bridge will be long enough and strong enough to bridge people back to employment and bridge small businesses back to normalcy,” Ms. Piepszak said on the earnings call. The government’s actions might only “delay rather than change” the looming possibility of large loan losses, she said.

The uncertainty is wearing many people down.

The $600 a week in expanded unemployment benefits helped Joël René Scoville, an actress who lives in New York City, stay current on her rent and other essential monthly bills. But those payments ended in July. Now, she’s collecting just $138.40 a week in benefits and nervously calculating how long her $4,500 in savings will last.

For years Ms. Scoville, 46, supported herself through theater work, catering gigs and a part-time administrative position at a children’s after-school program. All three of those jobs came to an abrupt end when the pandemic hit, and none seems likely to return until well into next year.

“The fear about ‘what about next month’ is always looming in my mind,” she said.

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The Fed’s $4 Trillion Lifeline Never Materialized. Here’s Why.

WASHINGTON — As companies furloughed millions of workers and stock prices plunged through late March, Treasury Secretary Steven Mnuchin offered a glimmer of hope: The government was about to step in with a $4 trillion bazooka.

The scope of that promise hinged on the Federal Reserve. The relief package winding through Congress at the time included a $454 billion pot of money earmarked for the Treasury to back Fed loan programs. Every one of those dollars could, in theory, be turned into as much as $10 in loans. Emergency powers would allow the central bank to create the money for lending; it just required that the Treasury insure against losses.

It was a shock-and-awe moment when lawmakers gave the package a thumbs up. Yet in the months since, the planned punch has not materialized.

The Treasury has allocated $195 billion to back Fed lending programs, less than half of the allotted sum. The programs supported by that insurance have made just $20 billion in loans, far less than the suggested trillions.

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The programs have partly fallen victim to their own success: Markets calmed as the Fed vowed to intervene, making the facilities less necessary as credit began to flow again. They have also been undercut by Mr. Mnuchin’s fear of taking credit losses, limiting the risk the government was willing to take and excluding some would-be borrowers. And they have been restrained by reticence at the central bank, which has extended its authorities into new markets, including some — like midsize business lending — that its powers are poorly designed to serve. The Fed has pushed the boundaries on its traditional role as a lender of last resort, but not far enough to hand out the sort of loans some in Congress had envisioned.

Lawmakers, President Trump and administration officials are now clamoring to repurpose the unused funds, an effort that has taken on more urgency as the economic recovery slows and the chances of another fiscal package remain unclear. The various programs are set to expire on Dec. 31 unless Mr. Mnuchin and Jerome H. Powell, the Fed chair, extend them.

Here’s how that $454 billion failed to turn into $4 trillion, and why the Fed and Treasury are under pressure to do more with the money.

The Fed can lend to private entities to keep markets functioning in times of stress, and in the early days of the crisis it rolled out a far-reaching set of programs meant to soothe panicked investors.

But the Fed’s vast power comes with strings attached. Treasury must approve of any lending programs it wants to set up. The programs must lend to solvent entities and be broad-based, rather than targeting one or two individual firms. If the borrowers are risky, the Fed requires insurance from either the private sector or the Treasury Department.

Early in the crisis, the Treasury used existing money to back market-focused stabilization programs. But that funding source was finite, and as Mr. Mnuchin negotiated with Congress, he pushed for money to back a broader spate of Fed lending efforts.

The central bank itself made a major announcement on March 23, as the package was being negotiated. It said it was making plans to funnel money into a wide array of desperate hands, not just into Wall Street’s plumbing. Officials would set up an effort to lend to small and medium-size businesses, the Fed said, and another that would keep corporate bonds flowing. It would go on to expand that program to include some recently downgraded bonds, so-called fallen angels, and to add a bond-buying program for state and local governments.

Congress allocated $454 billion in support of the programs as part of the economic relief package signed into law on March 27. When the Congressional Budget Office estimated the budget effects of that funding, it did not count the cost toward the federal deficit, since borrowers would repay on the Fed’s loans, and fees and earnings should offset losses.

Mr. Mnuchin and congressional leaders did not settle on that sum for a very precise economic reason, a senior Treasury official said, but they knew conditions were bad and wanted to go big.

Overdoing it would cost nothing, and the size of the pot allowed Mr. Mnuchin to say that the partners could pump “up to $4 trillion” into the economy.

It was like nuclear deterrence for financial markets: Promise that the government had enough liquidity-blasting superpower to conquer any threat, and people would stop running for safer places to put their money. Crisis averted, there would be no need to actually use the ammunition.

Still, the huge dollar figure stoked hopes among lawmakers and would-be loan recipients — ones that have been disappointed.

Key markets began to mend themselves as soon as the Fed promised to step in as a backstop. Companies and local governments have been able to raise funds by selling debt to private investors at low rates.

Corporate bond issuance had ground to a standstill before the Fed stepped in, but companies have raised $1.5 trillion since it did, Daleep Singh, an official at the New York Fed, said on Tuesday. That is double the pace last year. The companies raising money are major employers and producers, and if they lacked access to credit it would spell trouble for the economy.

While self-induced obsolescence partly explains why the programs have not been used, it’s not the whole story. The Main Street program, the one meant to make loans to midsize businesses, is expected to see muted use even if conditions deteriorate again. In the program that buys state and local debt, rates are high and payback periods are shorter than many had hoped.

Continued lobbying suggests that if the programs were shaped differently, more companies and governments might use them.

The relatively conservative design owes to risk aversion on Mr. Mnuchin’s part: He was initially hesitant to take any losses and has remained cautious. They also trace to the Fed’s identity as a lender of last resort.

Walter Bagehot, a 19th-century British journalist who wrote the closest thing the Fed has to a Bible, said central banks should lend freely at a penalty rate and against good collateral during times of crisis.

In short: Step in when you must, but don’t replace the private sector or gamble on lost causes.

That dictum is baked into the Fed’s legal authority. The law that allows it to make emergency loans instructs officials to ensure that borrowers are “unable to secure adequate credit accommodations from other banking institutions.” The Fed specified in its own regulation that loan facilities should charge more than the market does in normal conditions — it wants to be a last-ditch option, not one borrowers would tap first.

The Fed has stretched its “last resort” boundaries. The Main Street program works through banks to make loans, so it is more of a credit-providing partnership than a pure market backstop, for instance.

Yet Bagehot’s dictum still informs the Fed’s efforts, which is especially easy to see in the municipal program. State finance groups and some politicians have been pushing the central bank to offer better conditions than are available in the market — which now has very low rates — to help governments borrow money for next to nothing in times of need.

The Fed and Treasury have resisted, arguing that the program has achieved its goal by helping the market to work.

Congress is not uniformly on board with wanting a more aggressive Fed that might become a first option for credit. Senator Patrick J. Toomey of Pennsylvania, a Republican on the committee that oversees the central bank, has repeatedly underlined that the Fed is a backstop.

And replacing private creditors during times of crisis would put central bankers — who are neither elected nor especially accountable — in the position of picking economic winners and losers, a role that worries the Fed.

Such choices are inherently political and polarizing. Already, many of the same people who criticize stringency in the state and local programs regularly argue that the programs intended to help companies should have come with more strings attached.

And it could become a slippery slope. If the Fed shoulders more responsibility for saving private and smaller public entities, Congress might punt problems toward the central bank before solving them democratically down the road.

“It’s opening Pandora’s box,” said David Beckworth, a senior research fellow at the Mercatus Center at George Mason University.

Being too careful could also carry an economic risk if it meant that the Fed failed to provide help where needed. The midsize business segment, which employs millions of people, has had few pandemic relief options. Struggling states and cities are also huge employers.

Yet those entities may be past the point of needing debt — all the Fed can offer — and require grants instead. And it is worth noting that just because the Fed and Treasury are not rewriting their programs to support broader use now does not mean the Fed would stand back if conditions were to worsen.

If that happens, “it’s going to stop pointing to the fact that it has a fire hose,” said Peter Conti-Brown, a Fed historian at the University of Pennsylvania. “It’s going to take it out and turn it on.”

Alan Rappeport contributed reporting.

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Bank Earnings Show Diverging Fortunes on Wall Street and Main Street

Hundreds of thousands of small businesses are closing for good. Temporary layoffs at larger companies are becoming permanent. But the country’s largest banks, which together serve a majority of Americans through loans, credit cards or deposit services, are not raising an alarm.

In their third-quarter earnings reports this week, big banks have said they are generally prepared for a wave of loan defaults they expect in the second half of next year. And their own fortunes are just fine: A trading and investment banking bonanza on Wall Street is helping them stay profitable.

A few common themes have emerged from the reports.

The pandemic has made for a turbulent year across a wide range of markets, but all the trading that investors have done in response has kept the revenue rolling into the banks.

Goldman Sachs reported strong markets revenue on Tuesday, helping it generate profits of $3.62 billion — far surpassing analyst expectations of $2 billion. Trading of bond products linked to interest rates, corporate credit, mortgages, and the prices of oil and other commodities lifted the bond division’s quarterly revenue 49 percent higher from the same period last year. In stocks, divisional gains were 10 percent.

In a call with analysts, Goldman executives said some of the boom had come because the firm increased its share of trading activity on behalf of the market’s 1,000 biggest money managers and other active traders who give business to Wall Street.

Goldman’s asset-management operations benefited from a rally in stock prices as well. A rise in the value of its positions in companies like the online commerce platform BigCommerce (up more than 40 percent since its shares began trading in August) and the medical equipment maker Avantor (up nearly 30 percent this year) helped the division generate 71 percent more revenue.

But it was not just Goldman that benefited. Bank of America’s investment banking business had the second-best performance in its history in the third quarter, trailing only this year’s second quarter, according to the bank’s chief financial officer. At JPMorgan Chase, trading revenue rose 21 percent and investment banking revenue 52 percent from a year earlier.

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Credit…Justin Sullivan/Getty Images

Steeling themselves for widespread defaults by customers unable to pay credit-card, home-loan or other debts because of the pandemic, the biggest banks have sent vast sums of cash into special pools they will draw from to cover losses in the future. But in general, the banks say, their customers are doing better than they expected.

The reason? Bank officials pointed to the trillions of dollars the federal government has distributed in the form of enhanced unemployment benefits, forgivable small-business loans and other programs created this spring by the CARES Act.

“Recent economic data has been more constructive than we would have expected earlier this year,” JPMorgan’s chief financial officer, Jennifer Piepszak, said on a call with journalists on Tuesday. “Over all, consumer customers are holding up well. They have built savings relative to pre-Covid levels and, at the same time, lower debt balances.”

This quarter, the banks each set aside less money than in previous quarters to prepare for losses. Bank of America and JPMorgan Chase said their credit-card customers were making their payments again.

The bank with the most strained customers seems to be Wells Fargo, which said it had spent nearly $1 billion trying to help customers who were struggling to repay their loans come up with new payment plans to keep them from defaulting. Even so, the bank said, its borrowers are less likely to fall behind now than they were earlier this year.

While government relief programs have prevented serious problems so far in the financial sector, none of the banks are banking on more stimulus.

In their economic forecasting, each bank takes a range of possible outcomes into account, from better than expected to doomsday. On Wednesday, Bank of America’s chief financial officer, Paul Donofrio, said just one of the scenarios it was looking at might contain more stimulus money. And that model is based on a consensus of various Wall Street economists’ forecasts; the bank’s own internal models aren’t counting on further relief.

JPMorgan’s economic forecast accounts for the effects of a government stimulus package only until the end of 2020. No more stimulus is built into its models for 2021.

The bank’s chief executive, Jamie Dimon, and his peers have all pointed out that the industry is grappling with a great deal of uncertainty about the future. JPMorgan might be overprepared if the economy fares better than expected — but a worst-case scenario could still expose the bank to heavy losses.

Although his bank is not expecting further federal relief next year, Mr. Dimon said another round of stimulus would be important.

“There are still 12 million people unemployed. There is still a lot of pain and suffering. There are still a lot of small businesses that need help,” he said.

Indeed, calls for more government aid to struggling businesses are growing, even as an impasse in Washington seems unlikely to end as Election Day draws near.

On Wednesday, a former Goldman Sachs executive, Gary Cohn — who served for a year as President Trump’s economic adviser — urged lawmakers to get a deal done quickly.

“This isn’t a matter of politics, this is a matter of protecting our economy as we know it,” Mr. Cohn wrote on Twitter.