GOP Stirs Echoes of 2008 Backlash With Scant Virus-Aid Oversight

Complaints about a lack of oversight provisions in a $2 trillion coronavirus stimulus plan proposed by Republicans have drawn comparisons to the 2008 bank bailout that included a series of supervisory boards and a special inspector general.

Democrats blocked the bill Sunday in a procedural vote with a number of them complaining about the discretion it would give the Trump administration in handing out loans and grants. Negotiations continued Monday.

Senator Elizabeth Warren, a Massachusetts Democrat, called in a Bloomberg TV interview Monday for an “oversight panel” that would ensure that “the money is spent according to the law and according to the promises that have been made, an oversight panel that has real teeth.”

The October 2008 legislation, passed weeks after the collapse ofLehman Brothers and a month before the presidential election, gave the Republican Bush administration and later the Democratic Obama administration broad discretion in handling the bailout.

Yet the bank bailout stirred a public backlash, particularly after bankers at bailed-out financial institutions received bonuses while millions of Americans lost their jobs and homes, that has shaped the political reception of the coronavirus rescue package.

“Congress, once they actually did it, they kind of regretted it, because they don’t like to give up that kind authority,” Steven Rattner, who was the so-called czar for the Obama administration’s $50 billion auto industry bailout, carried out under authority granted in the 2008 rescue package, said in an interview last week. “But that was the right thing to do then.”

The coronavirus legislation unveiled by Senate Republicans on Sunday envisions a bailout extending into many more parts of the economy as forecasters anticipate even more dramatic job losses and economic pain.Federal Reserve Bank of St. Louis President James Bullard predicted the U.S. unemployment rate may hit 30% in the second quarter, along with a 50% drop in gross domestic product.Morgan Stanley said Sunday it expects the U.S. economy to plummet 30% in the second quarter.

The Senate bill would permit the Treasury secretary to withhold identifying for up to six months the corporations, other businesses, states and municipalities receiving loans or loan guarantees, “if necessary” to promote “stability” in the markets and “safety and soundness.”

The 2008 plan required disclosure of investments and divestitures within two business days.

Austan Goolsbee, a former chairman of the White House Council of Economic Advisers under President Barrack Obama, said allegations of conflicts of interest against the current president work against giving him broad discretion.

“They just do not have the credibility to be able to promise fairness and objectivity over who will get money,” Goolsbee said.

Democrats are insisting on changes in a Republican bailout plan, including a requirement that companies that receive taxpayer money limit layoffs and restrict executive compensation for a period afterward. They also have objected to granting broad discretion to the Trump administration over which companies benefit.

Senator Chris Coons, a Delaware Democrat, said on Bloomberg TV Monday that negotiators are seeking to add an accountability board to the current bailout package.

“I don’t see that there is yet final agreement on the language of what is the scope of that accountability board,” he said.

Coons said the most recent draft version he saw still granted Treasury Secretary Steven Mnuchin “very broad discretion.” For example, he said, if a company takes a multibillion-dollar loan and simply uses it for stock buybacks and executive compensation, there is “no clear mechanism” for that to be resolved.

Despite reservations about providing relief to financial institutions whose risky business practices were widely blamed for the 2008 crisis, Congress went ahead and granted that discretion to Republican Treasury Secretary Hank Paulson, who was later succeeded by Obama appointee Tim Geithner.

Rattner argues that centralized decision-making is critical to the success of a bailout during a crisis.

Oversight Mechanisms

“A large pool of capital, that the executive branch, whether it’s Treasury or some other part of it, can allocate based on a set of rules, is the right answer for how to save the businesses — whether it’s big airlines or a restaurant,” Rattner said.

The legislation set up oversight mechanisms largely designed to give the Treasury secretary input from other financial regulators and ferret out fraud. Among them were the Financial Stability Oversight Board, which included the Federal Reserve chairman and other financial regulators.

The legislation also set up a special inspector general for the the Troubled Asset Relief Program, the official name for the bailout. President George W. Bush appointed as the first special inspector general Neil Barofsky, previously a federal prosecutor in Manhattan.

The 2008 bailout ultimately distributed $443 billion of the $700 billion allocated in assistance for banks, the insurerAmerican International Group Inc., the auto industry and mortgage assistance, most of which was repaid to the government. In many cases, the government took equity in companies to recover costs once the value of companies rebounded. The ultimate cost to taxpayers was $31 billion, according to an April 2019 report by the Congressional Budget Office.

— With assistance by Laura Davison

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