For decades, William Isaac’s insights on the U.S. financial system have been featured in leading news publications. Now, you can browse them all in one location.


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Letter to the Treasury Secretary from four bi-partisan Senators

Letter to the Treasury Secretary from four bi-partisan Senators

June 8, 2020

[We have added a new item to my website — a letter from four bi-partisan Senators urging Treasury Secretary Munuchin to delay implementation of the accounting convention, Current Expected Credit Losses (CECL), adopted by the Financial Accounting Standards Board (FASB), a self-anointed board without routine oversight or control by government agencies. Secretary Munuchin, as Chairman of the Financial System Oversight Committee, is authorized by the Dodd-Frank legislation to review and challenge any law that might substantially and negatively impact the economy and the financial system.

FDIC Chairman Jelena McWilliams recently expressed her concerns about the negative impact CECL is likely to have on the banking system and the economy. For example, CECL required the 200 largest banks to increase their reserves by 60% during the first quarter of 2020 compared to the first quarter of 2019, representing tens, if not hundreds of billions of capital taken out of the banking system’s capital and reducing lending capacity by eight to ten times the capital reduction — all as we might be moving into a treacherous time in the economy and banking system.]

Dear Secretary Mnuchin: 

As the nation grapples with the Covid-19 pandemic and the resulting unprecedented public health and economic crisis, appropriate planning must be made for the future and that incentives are aligned for the country to rebuild. However, we are concerned that the decision by the Financial Standards Accounting Board (FASB) to implement the new current expected credit loss (CECL) accounting standard on January 1, 2020, for mid-size, regional and national banks, credit unions, and other financial services firms will make it harder for consumers and businesses to access credit. We request that the Financial Stability Oversight Council (FSOC) conduct a study on the new standard’s impact on lending and economic consequences overall. 

Even prior to the current economic downturn, there was an insufficient understanding of the potential economic impacts of the new accounting approach on banks and the customers and communities that they serve. As banks, credit unions, and other financial services firms built new models and operational systems to adopt the CECL standard, concerns grew that it would impact their ability to lend. Worse, those affects would be pro-cyclical during an economic downturn and slow a recovery. During this debate, it was unimaginable that we would face a global pandemic leaving a devastated economy in its wake. Unfortunately, this is where we now find ourselves. 

In March 2020, Federal Deposit Insurance Corporation (FDIC) Chairman Jelena McWilliams wrote to the FASB expressing concern that the COVID-19 pandemic had caused “sudden and significant changes in the economy,” noted the “uncertainty of future economic forecasts,” and contended that the economic crisis made the sophisticated models designed to account on the day a banks books a loan for all future credit losses, as required by CECL, “potentially more speculative and less reliable at this time.”1 

The new standard’s impact can be seen on the dramatic increase on the loan-loss reserve levels of banks of all sizes. The reserves for the 200 largest banks, which have community, state, regional, and national footprints, increased by nearly 60% at the end of the first quarter compared to the quarter ending 2019, representing billions of dollars of capital that has been taken out of the system during a moment when it is most needed.2 

While it is possible to disagree about the wisdom of the timing of the CECL adoption during the pandemic, now is the optimal time to assess CECL’s economic impact, including how the policy affects products and lending decisions of financial institutions, and especially the consequences on customers in low-to-moderate income communities. For that reason, we believe FSOC should begin a comprehensive economic impact study about the economic consequences of the CECL policy over the next four quarters. 

Instead of relying on speculation and models, that look backward as much as forward, the FSOC can gather current macroeconomic data and banking metrics. The FSOC can observe a year’s worth of data and complete a report by July 2021. We look forward to its findings and expect it to better inform the debate around CECL and its impact on lending to consumers and businesses by financial institutions and financial services firms. 


Doug Jones
United States Senator

Thom Tillis
United States Senator 

Jon Tester 
United States Senator

Kevin Cramer
United States Senator 


1 FDIC Chairman McWilliams letter to FASB, “FDIC Chairman Urges FASB to Delay Certain Accounting Rules Amid Pandemic,” March 19, 2020. Available at:

2 Morgan Stanley report on 1Q 2020 Bank Earnings Update, April 2020.

Embracing Facts Over Fear: Coronavirus In Life Years by Edward J. Pinto

Embracing Facts Over Fear: Coronavirus In Life Years by Edward J. Pinto

May 20, 2020

“As of May 17, about 91,000 lives have been lost to the coronavirus. Notably, those aged 65 or older accounted for 80 percent of these deaths and residents or employees of long-term care facilities accounted for one third of all deaths. Based on life-expectancy and taking into account that 90 percent of all coronavirus deaths had one or more co-morbidity factors, an estimated 800,000 life-years have been lost.

This is about half the number of life-years lost to the 38,000 motor vehicle driver fatalities in 2018. The reason for this disparity is simple. The median age of coronavirus fatalities is 81, while the median age of driver fatalities is about 40 years.

To put it in an even clearer prospective, someone aged 45-54 has the same likelihood of dying in motor vehicular accident in one year as from the current coronavirus pandemic. And someone aged 35-44 is about one quarter as likely to die in such an accident as from the coronavirus pandemic.

It would take a doubling of deaths due to coronavirus to equal the driver life-years lost in 2018 due to vehicular deaths.

What does this mean from a policy perspective?

First, stop the multi-trillion dollar bailouts. Quit shutting down large swaths of the economy and paying people not to work. Instead, aggressively reopen the economy in those states and counties that have warmer temperatures, low case and death rates per capita, declining case levels, and minimal mass transit. And of course, we should implement best health practices and protect those living or working in nursing homes, food processing facilities, and prisons.

Second, in places historically reliant on mass transit, focus on removing the friction that prevents employees from returning to work. Consider providing a business’s employees and self-employed individuals a tax credit of up to $1000/month for 3 months to be used to pay for parking, ride-sharing and taxis, rental cars, tolls, and gasoline. And, there is a large surplus capacity for each of these today. This would also help take demand pressure off of mass transit operators. The cost would be $30 billion for say 10 million currently unemployed individuals.

Third, places like California are mired in shut down orders and slow re-openings. According to data from Safegraph, San Francisco’s level of foot traffic has recovered to only 42 percent since its low of 33 percent in mid-April. Los Angeles is in a similar situation. Compare this to Dallas, where foot traffic is at 66 percent, up from 42 percent in mid-April. Atlanta and Houston have posted similar gains. Why is this happening, given that California is 33rd and 29th lowest respectively in cases and deaths per capita?

Fourth, get the facts straight about so-called spurts in cases and deaths. A May 14 headline about Texas blared: State reports largest daily increases in cases and deaths. Ignored was that Texas, the second largest state, is 39th and 40th lowest respectively in cases and deaths per capita. Also ignored was the fact that more than 16K prisoners and staff had been checked for COVID-19 in first 3 days of self-testing. Or that, thousands of Texas nursing home residents have tested positive for coronavirus.

Fifth, accelerate access to so-called elective medical treatments. According to foot-traffic data from Safegraph, hospitals are only at about 60 percent of normal activity. Elective surgery only means you get to choose a date, not that it isn’t potentially life-threatening.

Americans want to go back to work. It is time to let them again exercise their rights to life, liberty, and the pursuit of happiness.”

A Former FDIC Chair Walks Into a Bank

A Former FDIC Chair Walks Into a Bank

May 16, 2020

It sounds like the start of a joke.

William Isaac, the chairman of the Federal Deposit Insurance Corp. during the savings and loan crisis of the 1980s, walks into a bank. It’s mid-March, and he wants cash.

He doesn’t take out a “massive amount” but “enough to get by for a month or so, if there was some problem or some issue in the economy, and the banks were not available.”

The former chairman of the insurance fund — who oversaw the closure of more than 1,000 institutions, including the first “too big to fail” bank — felt the need to withdraw cash as states began shutting down to slow the spread of the coronavirus.

That’s the joke.

“I wasn’t concerned about the banks; I know they’re safe, and what I took out was not nearly as much as I left in,” he says. “I just felt that stores may close, and banks may [reduce their] hours, and I wanted some cash on hand.”

Isaac felt the same impulse to hoard cash in a crisis that others have. The irony is that he, better than anyone, knows the consequences for banks if others follow his lead.

Too much hoarding leads to liquidity crunches in markets big and small. Enter the Federal Reserve Board and its alphabet soup of facilities.

“One thing the Federal Reserve does is trying to make sure that there’s so much money in the system that it will satisfy even the most conservative of people,” he says.

Isaac points out that regulators have never faced a crisis like this. The Fed was only five years old when the Spanish Flu broke out in 1918, and the FDIC wasn’t created until 1933.

“The Fed is basically creating pages in their playbook that nobody thought were there,” Isaac says.

It’s been two months since regulators opened their playbooks and pulled out their toolboxes, with several of the lending facilities they created already acquiring assets. This is on top of the billions that Congress has offered in two rounds of stimulus, with the potential for more.

Much uncertainty remains, but the outlook for financial markets seems to have reached a precarious equilibrium.

Now we wait. For people to get better. For cities and businesses to reopen. For it to feel safe to be near strangers again. For the toilet paper to return to shelves.

At least the banks (and William Isaac) are flush with cash.

Kiah Lau Haslett / managing editor for Bank Director

Trump wants negative rates — but what would that mean for your wallet? by Ben Popken published by NBC News

Trump wants negative rates — but what would that mean for your wallet? by Ben Popken published by NBC News

May 16, 2020
Previously seen as a sort of theoretical thought experiment and a line that should never be crossed, some countries have experimented with setting negative interest rates.

Imagine a backward world of “negative interest rates” where banks charge you to save your money and pay you to take loans. Now forget it, because that’s never going to happen, even though that seems like the back-of-the-envelope implication of the unconventional monetary policy called for by President Donald Trump in tweets and rejected by Jerome Powell, head of the Federal Reserve, which sets U.S. monetary policy.

One of the main levers the Federal Reserve uses to influence the economy is by setting the federal funds rate, the interest rate banks charge each other to borrow. This one rate is in turn used as a benchmark for banks on a wide variety of products from the credit cards in consumers’ wallets to the loan for the car they drive and the interest earned by the nest eggs in their accounts.

Loans are more expensive for a borrower when rates are high, and cost less over time when rates are low. The only thing less than zero is a negative.

That’s got some people excited that negative rates could be the secret to juicing an American economy reeling from coronavirus shutdowns, skyrocketing unemployment, and plunges in spending and risk-taking.

“As long as other countries are receiving the benefits of Negative Rates, the USA should also accept the ‘GIFT.’ Big numbers!” Trump tweeted on Tuesday.

Despite the pressure, Powell maintained his course of action, saying Wednesday that negative rates are “not something we’re looking at,” during a webcast with the Peterson Institute for International Economics.

Social media has reacted to the prospect of ever lower rates with jokes about “negative interest rate credit cards” that earn you money the more you shop.

“Will the interest rate on my credit card and student debt go negative too? Will I receive interest payments for borrowing money!!!? Is this a dream!?” tweeted Twitter user PubliusValerio.

“Stimulus for the people, everyone gets a 10K limit 25% negative interest rate credit card,” tweeted Twitter user Ken Wood.

Previously seen as a sort of theoretical thought experiment and a line that should never be crossed, the central bankers of some countries, notably slow-growing economies such as Japan and Switzerland, have experimented with setting negative interest rates.

“Negative interest rates are intended as a disincentive for people to hold cash instead of using money to purchase goods and spend money,” said William Isaac, a former Federal Deposit Insurance Corporation chairman, and co-chairman at the Isaac-Milstein Group. “The central banks of the world have gotten into a very bad place, beginning with highly unorthodox monetary policies during the crisis of 2008-2010. They don’t have many tools left to stimulate economic activity.”

These tools were effective in avoiding deflation, according to a paperby the Committee on the Global Financial System, though they did squeeze bank profits.

But “there is little if any evidence that negative rates actually stimulate growth, inflation, or improve bank lending,” said David Lebovitz, a global market strategist at JPMorgan Asset Management.

Long-term effects of negative interest rates can’t be fully determined either, the paper also warned.

It can be determined that setting rates to negative wouldn’t upend the cornerstone of banking where banks charge you interest on loans and pay you interest on deposits.

“Negative interest rates won’t filter down to the consumer level,” said Greg McBride, chief financial analyst for “No one is going to pay you to take out a loan, and banks will not charge money to put in a savings account.”

No one is going to pay you to take out a loan, and banks will not charge money to put in a savings account.

Banks could make up for the loss in lending income by increasing fees on checking accounts, overdrafts, ATM withdrawals, wealth management and mortgages.

“If we did see negative rates here, they would probably not impact the average consumer right off the bat,” Lebovitz said. “The experience in Europe suggests that only bank clients of a certain size would be subject to negative rates; everyone else would simply earn zero.”

For now, the Fed continues to push back against suggestions of a negative interest rate, and Powell said he believes it has plenty of tools left in its toolbox to help guide the economy.

Even if the rate is not negative, it does appear that a low interest rate environment is here to stay. Consumers with savings can try to stay competitive with inflation by putting their money in a high-yield online savings account.

But they should avoid money market funds, which “become an even worse alternative than they are now the lower rates go,” McBride said. “The yields are currently racing toward zero — and what happens to those funds in a negative rate environment is the trillion dollar question.”

FDIC tool to prevent bank runs goes unused vs. coronavirus by Brendan Pedersen published by American Banker

FDIC tool to prevent bank runs goes unused vs. coronavirus by Brendan Pedersen published by American Banker

May 15, 2020

WASHINGTON — Congress gave the Federal Deposit Insurance Corp. approval in March to intervene if the coronavirus pandemic triggered bank runs or other liquidity strains, but nearly two months into the crisis deposits are through the roof and the FDIC has shown no sign of acting on its expanded authority.

The culprit for now is a lack of need, analysts say. Unlike in the 2008 financial crisis, there is currently no shortage of liquidity in the nation’s banks.

“The banking system doesn’t have a liquidity problem like it normally would in an economic crisis where banks have made a bunch of bad loans,” said William M. Isaac, former chairman of the FDIC and co-founder of the Isaac-Milstein Group. “This is a crisis that started in hospitals and in nursing homes.”

Research shows that 37% of all consumers, and more than 50% of millennials, prefer to open a new account online.
The onset of the virus brought fears of deposit outflows on top of other liquidity concerns. The Federal Reserve acted quickly with emergency liquidity backstops for key areas of the financial system, such as corporate and municipal bonds.

For an added safeguard, the Coronavirus Aid, Relief, and Economic Security Act authorized the FDIC to reinstate 2008-era programs to back all noninterest bearing transaction deposits as well as bank-issued debt.

But in stark contrast to the 2008 financial crisis, the pandemic crisis hasn’t threatened bank liquidity. On the contrary, bank deposits have ballooned to unprecedented levels, likely in part because investors have fled a volatile stock market in search of safety.

“It’s possible a liquidity crisis will develop, so regulators will probably watch from the sidelines and be ready to bring out tools if they’re needed,” Isaac said. “But I’m not sure they’ll be needed.”

In 2008, the FDIC used authority it had at the time to launch the Temporary Liquidity Guarantee Program — made up of the Transaction Account Guarantee Program and Debt Guarantee Program — as the credit crunch brought on by massive mortgage losses shook the nation’s confidence in the banking system. Congress in 2010 required the FDIC to seek approval before re-launching the programs.

Yet since Congress reauthorized those backstops in March, the FDIC has not appeared to consider launching either program.

In the two months since the pandemic first took hold in the U.S., deposit levels have exploded. According to the most recent data from the Federal Reserve, deposits at commercial banks hover around $15.1 trillion dollars, up from $13.2 trillion at the start of the year, or an increase of about 14% in just under four months.

On a week-to-week basis from mid-March to late April, deposits grew at a clip never before seen in available Federal Reserve data. Since 1973, the nation’s deposits in commercial banks have grown by an average of about 0.13% a week. But in the seven weeks between March 11 and April 29, weekly growth averaged 1.57% — roughly 12 times the historic average, and the largest seven-week period of deposit growth on record.

Today’s picture of bank liquidity is a far cry from anecdotal reports of cash runs and deposit outflows that percolated in the early days of the pandemic. Fears of a cash crunch were palpable enough that the the FDIC sought to address depositors in a March 24 video bulletin from Chairman Jelena McWilliams, who told bank customers that the “last thing you should be doing is pulling your money out of the banks now, thinking that it’s going to be safer someplace else.”

Some observers pointed out that the FDIC’s nod from Congress to redeploy liquidity programs was not a mandate so much as an unlocked door.

“The CARES Act was the first major piece of the federal response and was meant to be a stabilizing force with the crisis. Part of that is going back to your old tools and making sure they’re ready when they’re needed,” said one industry source. “It was Congress’s way of saying, if you need this, we support it.”

Others cautioned that a full-fledged financial crisis as a result of the pandemic was still a distinct possibility, particularly for community banks.

“Even if the 2008 financial crisis was fundamentally different than the current public health crisis, COVID-19 could have the same ultimate impact on banks that the last crisis did if this drags out and creates concerns about the financial strength of banks in the marketplace,” said Brian R. Marek, a partner at Hunton Andrews Kurth. “Community banks are still concerned about the potential for their customers to start withdrawing large amounts of cash.”

Marek said that it was “a bit disappointing” that the regulators hadn’t signaled how they were prepared to act if any temporary liquidity action became necessary for the financial system to weather the economic slowdown.

“Some kind of action from the FDIC, especially in this low interest rate environment, that expanded deposit insurance for all non-interest-bearing accounts would be a much more persuasive sign to consumers at large that their money is safe,” he said. “This is about the FDIC demonstrating the strength of the financial system and assuring depositors that their banks are a safe haven.”

But others emphasized that given the uncertainty in the months ahead, it may be too early for measures like the FDIC’s temporary liquidity guarantees. They note that the 2008-era programs were born of a financial crisis and focused on keeping the financial system’s plumbing intact.

“Right now, the interbank lending market is working,” said Luigi De Ghenghi, a partner at Davis Polk. “The big thing about the Temporary Liquidity Guarantee Program during the last crisis was, more than almost any other tool, it allowed bank holding companies and banks to issue debt in the capital markets and helped unblock the interbank lending market.”

Isaac | Milstein Letter to Congress, May 8, 2020

Isaac | Milstein Letter to Congress, May 8, 2020

May 8, 2020



We recently shared an article with you written by us for the American Banker expressing our deep concern about the Current Expected Credit Losses standard (“CECL) and about the role played in setting accounting standards by the Financial Accounting Standards Board (“FASB”).

As you might know, FASB is a completely private sector board created in 1973 by the accounting industry without any meaningful oversight from Congress, the Administration, or the government agencies charged by Congress with regulating the financial system, including the Federal Reserve, the FDIC, the Comptroller of the Current and the Department of Treasury, and the National Association of Credit Unions.

FASB proposed in the 1990s to require financial institutions to adopt market to market accounting rules. The heads of the Federal Reserve Board (Alan Greenspan), the Department of the Treasury (Nicolas Brady), and the FDIC (William Taylor) unanimously spoke out against the proposed new accounting rules, arguing, correctly, that our nation had mark to market accounting rules before and during the Great Depression, and the rules were eliminated by President Roosevelt in 1938 because market based accounting was preventing a recovery from the Depression. There is no question in the minds of unbiased/knowledgeable observers that FASB’s mark to market rules (mislabeled by FASB as “fair value accounting”) forced regulated financial institutions to needlessly write off $500 billion of private capital at the beginning of the economic downturn in 2007-2009. This $500 billion write down created massive instability in the financial system and wiped out roughly $5 trillion of lending capacity, forcing Congress to enact the $700 billion TARP program. We need to put the accounting rules governing our nation’s federally insured depository institutions back into the hands of the SEC, which must be required to work closely in developing and overseeing these rules with the Federal agencies charged with supervising our nation’s critically important financial institutions.

Finally, we are pleased to provide another compelling article on this topic written by Scott Shay, Chairman of Signature Bank, and published earlier this week by the American Banker entitled, “Time for Congress to Put an End to CECL.” We hope you will find FASB’s usurpation of regulatory and accounting rules affecting Federally insured depository institutions of significant concern, as we certainly do. We will be available to discuss in further detail as appropriate.
Best regards and hope you are safe and healthy.

William M. Isaac
Howard P. Milstein

Time for Congress to put an end to CECL

by Scott A. Shay

The Financial Accounting Standards Board is considered by people who actually do business to be ridiculously out of touch.

Sadly, FASB has proved this again. The FASB seems to spend its time deriving increasingly more fiendish and complex accounting standards. These new rules place an even heavier burden on the private sector, with little regard for cost versus benefit or practicality for a typical company. Neither does it recognize relevance to banks and investors who use the financial statements.

The FASB standards best suit the largest corporations: those that have large accounting staffs and can afford to pay a myriad of consultants and modelers to cope with the latest pronouncements. The recent 
FASB-induced fiasco is the imposition of its so-called Current Expected Credit Losses accounting standard, with a first quarter 2020 implementation that comes at the worst possible time.

The CECL standard requires U.S. companies to pretend to employ prophets as it mandates that banks predict and set aside reserves at the closing of loans for potential losses throughout the life of the loan.

In the absence of certifiable prophets, firms must hire modelers to make predictions over extremely long-term periods. These models are typically very precise and broadly inaccurate. And the models do not relate to the changing real world, especially what is confronting businesses and the economy now — a massive recession induced by COVID-19.

According to the FASB, these models have to be constantly tinkered with over time and will presently force banks to significantly reduce their capital. With CECL, capital is reduced in bad times and increased in good times.

It is exactly the type of pro-cyclical accounting that any country should avoid for its own good.

Contrary to the objective of all the stimulus efforts being put forth by the U.S. government and the private sector, the CECL standard will likely reduce loans which could have otherwise been made during this crisis.

The CECL is built in a way in which the effects will continue to reduce lending by decreasing capital in accelerating amounts as loan loss reserves are added. Therefore, the deeper the COVID-19 recession gets, the less capital CECL will make available for lending.

Even with this clear and present crisis, FASB is moving full steam ahead with its implementation.

There are bills in Congress designed to delay or abolish CECL. But the fact that the FASB has not taken one step to at least delay CECL is astonishing.

One wonders if the FASB is so socially distanced from the real world that they think they are living on another planet, and are merely clinically curious about the crisis happening to everyone else. In fact, it is the FASB’s own actions, or inaction in this case, which will make the crisis worse.

Furthering the problem, the CECL standard could become more difficult to compare results across U.S. banks and financial institutions; or at least between the U.S. and the rest of the world.

The multitude of employed reserve methodologies make comparison almost impossible. The FASB, undeterred by any of this, seems so convinced by its own brilliance that it has ignored the groundswell of many comments from practitioners and investors who’ve overtly pointed out the obvious issues in creating such a model-intensive component of financial statements.

Congress must take action to help rebuild the economy without spending even one dollar of taxpayer funds: abolish CECL.

Scott A. Shay
Chairman and Co-founder, Signature Bank of New York


Suspend the Payroll Tax by Steve Forbes, Arthur B. Laffer, Ph.D. and Stephen Moore

Suspend the Payroll Tax by Steve Forbes, Arthur B. Laffer, Ph.D. and Stephen Moore

April 24, 2020

The best economic idea we’ve heard in response to the coronavirus crisis is a payroll-tax suspension. President Trump restated his support for it at a recent press briefing, and for good reason: It would reward work and production rather than the growth of government. Republicans should rally around the idea as the centerpiece of their next economic revival plan.

The plan we recommend would cancel all payroll-tax collections from May 1 to the end of the year. This would suspend the Social Security and Medicare tax, known as FICA, which takes 7.65% from a worker’s paycheck, with another 7.65% paid by employers, up to $137,700 of income. Self-employed Americans, usually socked with the full 15.3% payroll tax, would also find relief.

Every worker in America would get a substantial pay raise for the remainder of the year, but because the tax is regressive, lowest-wage workers would be helped the most. The majority of low- and middle-income workers pay more payroll tax than income tax. Even minimum-wage workers would see a nice boost in their paychecks while their employers would pay less too.

By reducing employer payroll costs, this plan would encourage firms to start hiring. Several economic studies document what common sense would tell us: Lowering the tax on employment leads to more of it. Because the tax relief would be temporary, businesses would gain an incentive to hurry up and hire right away, or as soon as their work resumes. There is no time to waste: The U.S. needs to put perhaps 20 million people back to work.

This would help firms without picking winners and losers. Unlike almost every other “stimulus” plan—to bail out airlines, banks, Boeing, energy companies and the rest—suspending the payroll tax provides an equal benefit to every company in America.

Also important is its ease of implementation. By simply not taking some $800 billion from the businesses and workers on Main Street, this plan cuts out the bureaucratic middlemen who plague spending programs. Our previous research leads us to expect that this would be at least 20% more efficient than collecting the money from taxpayers, running the funds through the federal maze, and then distributing them through various spending programs.

We have heard the objections. One is that this will drain the Social Security and Medicare trust funds. But the Treasury would transfer money from the general fund to these programs, fully making up the shortfall. Benefits for seniors now or in the future wouldn’t be threatened.

Another is that it would be too costly to let workers and businesses keep $800 billion of their own money. But compared with the few trillion dollars Congress would otherwise spend on more government relief programs, the payroll-tax suspension is a bargain.

The other complaint is that House Speaker Nancy Pelosi would never go for this plan. Maybe, but this would forfeit the moral high ground completely. Suspending the payroll tax would give every minimum-wage and middle-class worker—most of whom have faced great hardship this year—a swift rise in their paychecks, starting immediately. If Mrs. Pelosi and her colleagues want to oppose that, let them.

Small Business and the Crisis: What We Are Doing Isn’t Fair . . . or Smart by Brian Graham, Co-founder and Partner in The Klaros Group

Small Business and the Crisis: What We Are Doing Isn’t Fair . . . or Smart by Brian Graham, Co-founder and Partner in The Klaros Group

April 20, 2020

Last Thursday, the Small Business Administration officially announced the inevitable: the Paycheck Protection Program (PPP), the Federal government’s only large scale initiative targeting small businesses, ran out of money less than two weeks in. Untold numbers of businesses, particularly the smaller firms, were left out in the cold.

Small businesses drive just under half of jobs and the U.S. economy. Yet we allocated them only $349 billion of relief, less than 15% of the total funding in the CARES Act. What a surprise that the funding would wind up woefully short.

Through a blizzard of liquidity programs, the Federal Reserve has thrown money at the crisis as well, orders of magnitude more than Congress. Unfortunately, here too the interventions have been skewed to the disadvantage of small businesses. Thanks to its responses to the 2008 crisis, the Fed was able almost instantly to reactivate programs for interest rates, quantitative easing, bank liquidity, repos, asset backed securities, money market funds, and investment grade corporates almost instantly – delivering trillions almost overnight to big banks and corporations. The Fed’s liquidity program for PPP loans and the Main Street Lending program for middle-market companies are both a tiny fraction of the overall assistance (it is hard to calculate an exact share given the unlimited nature of some of the Fed programs but to date clearly well below 15%) and also remain very much a work in progress.

In addition to being a dollar (or, more precisely, hundreds of billions of dollars) short, our efforts to aid half the economy have sadly been a day (or, more precisely, weeks) late. It took us weeks to stand up PPP, with many banks struggling to process loans. Thank goodness for the community banks that stepped up as larger banks faltered. And, by initially freezing out the non-bank private lenders (including fintechs) and community development financial institutions that actually serve small businesses and are the best distribution channel to reach this sector, we made it unnecessarily hard for small businesses to access any assistance that was available. Of course, even if as expected Congress ultimately adds some money, the stoppage as of Thursday has injected even more delay and uncertainty.

For small businesses struggling to meet payroll, days matter and weeks can easily be the difference between survival and extinction. If they go down, so do the jobs that they have created.

There’s always a lot of rhetoric from politicians and policymakers about the importance of small business. So why would a politically potent and substantively critical sector of the U.S. economy get the short end of the stick when it comes to real relief? Drawing on experiences from past crises, I can see three basic reasons. First, in a crisis, policymakers tend first to pull out and re-purpose the playbooks they already have; in this case, their existing playbooks were created in the last financial crisis when large banks and companies were in fact the center of the problem and thus the target of government assistance. Second, again in part driven by the last crisis, policymakers tend to equate big with both risky and important. Even though small businesses, in the aggregate, are clearly hugely important and hugely at risk. Finally, it is simply easier to figure out and deliver aid to a few hundred

sophisticated large firms than to hundreds of thousands of small enterprises; like all of us, policymakers tend to do the easiest stuff first.

While this unintended but real neglect of half the economy can be explained, it should not and cannot be tolerated. According to the US Chamber of Commerce, as of the beginning of April – two weeks ago now – one in four small businesses had already shut down and another 40% expected to have to shut down within two weeks. That means that roughly two-thirds of small businesses, which again account for half of the jobs in this country, face ruin without assistance – which is to date has been both inadequate and late.

I am not arguing that large banks and corporations do not merit support; they do. But American small businesses need, and deserve, at least as much help as the banks or large companies. What we have done to date is not fair, smart, nor sustainable substantively or politically (certainly, with respect to the latter, in the long run if past fallout from crises is any guide). We have to get this right immediately, which means three simple but challenging steps:

  1. Add money to PPP. Proposals are circulating in Congress to add another $300 billion. But we probably need at least twice that amount or another $600 billion more. I could be wrong, but why would we take the risk of falling short again? So what if the SBA has unused authority that it returns. Every qualified small business should receive their fair share and have confidence that they will get it. That confidence is critical to protecting these jobs. Why nickel and dime the most important sector of our economy and risk falling short – again? Go big.
  2. Aggressively utilize responsible non-bank small businesses lenders to distribute the aid to their customers. These lenders include traditional players, fintechs and community development financial institutions. And these firms, more than large or small banks, have the connectivity and in many cases the technology chops to get it done right and quickly. Yet they have in practice to date been cut out. If every depository in the country was made eligible by default, why wouldn’t we do the same for every state licensed lender? The point is to get the aid to the small businesses fast. Shouldn’t we bend over backwards to make use of the best channels available to do that?
  3. Require the Fed to craft and implement new programs that deliver support to small businesses and the middle market. This is admittedly complex and hard. And the Fed should be commended for the scope and pace of what they have done to date in response to the crisis. But we were able to figure out rapidly how to expand the safety net in the last crisis to banks and large corporations; we can do so now for smaller businesses. The right place to start is to get the only two programs so far aimed at small businesses, the nascent PPP liquidity and Main Street Lending programs, actually out there. While both programs need big changes, and just need to be bigger, something is better than nothing at this point. And we can build from there.

Coronavirus, and the Media’s Lies, Damned Lies, and Statistics by Edward Pinto

Coronavirus, and the Media’s Lies, Damned Lies, and Statistics by Edward Pinto

April 15, 2020

[My friend Ed Pinto, Resident Fellow of the American Enterprise Institute, is one of the nation’s foremost authorities on the housing markets and the giant government  housing agencies.  Ed took time off from his day job to write the op-ed piece below on the geographic distribution in the US of the Covid-19 virus.  Ed’s analysis paints a vivid portrait of where the virus is and where it is not, which suggests which markets might be re-opened soon and which ones might remain closed for a while longer.  I found Ed’s analysis enlightening.]

“US has more known cases of coronavirus than any other country” – CNN

Reading breathless headlines such as this, one would never know that the on a cases per million population basis, the United States  is on par with Germany, often held out as European country with a low incidence of cases, and well below the rates for Spain, Italy, France, Belgium, and Switzerland.

But wait, this must be because of the US’s low testing rate, notwithstanding that our testing rate per million is above that of Spain, France, the UK, and Switzerland.

“The United States is reporting 20,000 coronavirus deaths, more than any other country” – CNN

This headline gives no hint that the US has one of the lowest death rates per million when compared to Western European countries.  In fact, the rate for Spain is about 6 times the US, with Italy, France, Belgium, and UK, being 5 times, 4 times, 6 times, and 2.5 times respectively.  Only Germany has a rate lower, at about half the US’s.

“What California is doing right in responding to the coronavirus pandemic” – CNN

Yes, California does have a low rate per million of cases and deaths.  But Texas is lower on both metrics and is little praised.  In terms of cases, California is at 572 per million, but Texas, the second most populous state, has an even lower rate of 474.  What about the much maligned state of Florida? Yes, its rate is higher at 939, but this is about half the rate in Pennsylvania, and one tenth the rate in New York.  The multiples for New Jersey, Michigan, Massachusetts, Louisiana, Illinois, Georgia, Connecticut, Washington, Maryland, Indiana, and Colorado.   Of the 16 states with the largest number of cases, Texas, California, and Florida have the lowest numbers of cases per million.

How California Has Avoided a Coronavirus Outbreak as Bad as New York’s…So Far: Earlier stay-at-home orders and a less dense population have helped state manage pandemic, but risk remains high, particularly in L.A.” – WSJ

This reporting on California seems to confuse correlation with causation. Texas’s stay-at-home order (March 31) came much later than California (March 19), yet, as already noted, its metrics are much better that even California’s. Florida’s order came a day later than Texas’s and as already noted, it has the third lowest case per million.  Its deaths per million stands at 22, only somewhat higher than California’s 16.  And Texas’ stands at 10, one of the lowest rates in the country. The facts around California, Texas, and Florida, suggest that stay-at-home orders be unnecessary in these large, less, densely populated states.  Social distancing, limits on crowd size, and a focus on vulnerable populations may be a much more sensible solution, one that inflicts much less damage on the economy and economic well-being of most American households.

Providing the complete facts to the American people is of the utmost importance as we debate and decide how and when to start reopening the economy and begin some normalization of activities.  The data demonstrate that the pandemic has been most severe in 7 states with the highest number of cases per million population: New York, New Jersey, Massachusetts, Michigan, Pennsylvania, Illinois, Louisiana, and Connecticut.  These 8 states account for 67% 0f all cases and, as recently as April 11, accounted for 71% of new cases.  With the exception of Mardi Gras –plagued Louisiana, 7 of these hard-hit states are in the Northeast and Midwest.

The sooner we begin to take measured steps in the weeks ahead to start reopening the economy and begin some normalization of activities, the sooner we will stop inflicting incalculable harm on our economy and American households.