‘We are fully prepared to take losses’ on coronavirus business bailouts, Mnuchin says

WASHINGTON — Treasury Secretary Steven Mnuchin told senators Tuesday that his department and the Fed are “fully prepared to take losses in certain scenarios” on the capital remaining to be distributed from the CARES Act.

Mnuchin did not describe the “certain scenarios” in which he is prepared to take losses, but he emphasized that the Treasury is ready to distribute the entire $500 billion initially appropriated to help struggling businesses impacted by the coronavirus pandemic.

So far, Mnuchin said, the government has committed up to $195 billion in credit support, leaving $259 billion to create or expand programs as needed. That total of $454 billion is equal to the original appropriation, minus the $46 billion specifically earmarked for airlines.

Mnuchin made the remarks in remote testimony before the Senate Banking Committee on the Trump administration’s efforts to stanch the economic bleeding caused by the pandemic. The hearing marked the first time federal officials have answered questions from Congress about the massive stimulus program.

Mnuchin testified alongside Federal Reserve Chairman Jerome Powell, and both men stressed that economic data from states that are beginning to reopen will be key to determining the next steps in the federal response.

“We’re going to see here fairly quickly how the opening goes. It’s very hard to know. We’re going to be getting a lot of information fairly quickly in terms of what might be needed,” Powell told senators.

Mnuchin and Powell also assured lawmakers that the business lending program and the municipal loan program will both begin distributing capital by the end of the month.

Financial markets were largely unaffected by the testimony, and the Dow Jones Industrial Average was down less than half of one percent at midday.

Mnuchin acknowledged the “unprecedented challenges the American people are experiencing due to the Covid-19 pandemic,” telling senators “the disease is impacting families and communities across the nation. Through no fault of their own, the American people are also enduring economic challenges.”

More than 36 million Americans have filed for unemployment during the pandemic.

Mnuchin also stressed that while there are several different models of what could become of the $500 billion loan fund, it’s possible that the government could ultimately lose all the money it plans to lend.

“There are scenarios within [the business lending programs] where we could lose all of our capital, and we’re prepared to do that. And there are scenarios where the world gets better, and we could actually make a small amount of money,” Mnuchin said in an exchange with Sen. Mark Warner, D-Va.

“Our intention is that we expect to take some losses on these facilities. That’s our base case scenario,” said Mnuchin.

Mnuchin defended the administration’s track record on disbursement of money from the $2 trillion CARES Act passed by Congress to aid struggling businesses, industries and individuals.

Article source: https://www.cnbc.com/2020/05/19/we-are-fully-prepared-to-take-losses-on-coronavirus-bailouts-mnuchin-says.html