In the News

Fault lines emerge in oversight body as Toomey, former Warren aide split

Politico
04/28/2020

The congressionally appointed panel scrutinizing trillions of dollars in emergency lending is already battling over how to hold the Federal Reserve and the Treasury Department accountable.

Bharat Ramamurti, a former aide to Sen. Elizabeth Warren tapped for the oversight panel by Sen. Chuck Schumer, says the Fed should restrict stock buybacks and executive bonuses for big corporations that get loans. Midsize businesses should also face others conditions like limits on outsourcing, he says.

But Sen. Pat Toomey (R-Pa.), Senate Majority Leader Mitch McConnell’s pick for the commission, rejected the need for more strings attached to the funds. “The Fed’s role is to comply with the statute,” Toomey said. “If Congress had wanted those restrictions to be in place, it would’ve been in the statute.”


Their diverging perspectives are a sign of the fault lines that will arise within the commission, which is tasked with overseeing the lending of hundreds of billions of dollars by the Fed and Treasury to companies slammed by the fallout from the coronavirus pandemic. The panel has not even started work yet since a chair has yet to be chosen by McConnell and House Speaker Nancy Pelosi.

These divisions could hobble a panel that already lacks subpoena power, causing gridlock at a time when lawmakers are increasingly concerned about how the massive amounts of money they're spending is being monitored.

Congress has asked existing oversight entities like inspectors general and the Government Accountability Office to review coronavirus relief efforts. The House last week also established a new investigative committee with broad authority to probe the federal response.

The need for strong oversight has been underscored by the problems surrounding the rollout of an unrelated $670 billion bailout program for small businesses, which has been beset by complaints that banks favored certain loan applicants, including large, publicly listed companies that are able to raise funds elsewhere.

Ramamurti, who was appointed well before the other three current members of the commission, made his mark early, sending a letter to the Fed urging it to disclose detailed information about lending transactions and penning a New York Times op-ed calling for more conditions to be attached to the loans.

In a reflection of the central bank's sensitivity to how its pivotal role in the massive rescue is being perceived, the Fed last week pledged to release the names of aid recipients each month.

But the rest of the commissioners in interviews with POLITICO offered little criticism for the Fed’s approach thus far, saying they wanted to make sure they understood its strategy and analyze whether the money is being used to help workers and the broader economy once it starts going out the door.

“When you put this much money out you expect some mischief,” said Rep. Donna Shalala (D-Fla.), Pelosi’s choice for the commission. “But I’m not particularly interested in nitpicking as I am in seeing what’s their strategy, who are they helping and what are the details.”

Shalala — who has come under attack herself from progressives for what they say is a lack of experience in either oversight or finance and over her failure to disclose stock sales — said she will want to know whether companies receiving emergency loans have “protected their employees.”

But she also emphasized that the commission needs to work out a joint vision for how it should proceed.

“This is a commission. It’s not an individual assignment,” she said. “Until the commission sits down and talks through exactly what questions we want answers to, what information we want to ask both the Fed and Treasury for, we should not be rogue in this role.”

Now that Congress has passed a series of laws totaling trillions of dollars, attention is shifting more concertedly to how those funds are being spent.

Earlier this month, President Donald Trump sparked an outcry when he upended a newly created committee of existing inspectors general — granted broad power to oversee the massive rescue package — by effectively ousting its chairman and leaving the panel scrambling to regroup.

That and the chaos surrounding the small business lending program raise questions about how effective this particular oversight commission — tasked with overseeing the use of $500 billion in bailout money for businesses and municipalities broadly, and airlines in particular — will be.

“We don’t have subpoena power, but I know the Fed chair well enough to know that he does not want to politicize the Fed,” Shalala said of central bank chief Jerome Powell. “He wants to be probably as open as possible, and I’m hoping my read of him is true.”

Ramamurti, who emphasized that oversight is a bipartisan endeavor, said one option for the commission is to work with the House Financial Services Committee and Senate Banking Committee if subpoenas become necessary.

“We’ll have to be creative about getting the information that we need, potentially working with other oversight committees or other oversight bodies,” he said.

Toomey, himself a member of the Banking Committee, expressed confidence that the Fed and Treasury would cooperate with information requests, praising the central bank’s announcement last week that it will reveal the names of companies that borrow under its massive emergency lending programs.

“They’re thinking about this in a very thoughtful, sensible responsible way,” he said.

The senator said it was important for the Fed and Treasury to develop programs “with maximum possible transparency, without favoring certain companies or activities or industries.” He also said the Fed shouldn’t make granular decisions as to whether specific companies behaved responsibly ahead of the crisis.

“Congress could have chosen to decide which businesses are worthy,” Toomey said. “We decided not to make the distinction between companies that behaved in a worthy fashion prior and companies that did not, so since Congress chose not to do that, then the Fed shouldn’t do it either.”

He also said any lending facility should be “broad-based,” though he said he hadn’t seen Treasury Secretary Steven Mnuchin’s recent comments to Bloomberg that he was considering a facility for struggling oil companies.

Rep. French Hill (R-Ark.), a former banker chosen by House Minority Leader Kevin McCarthy for the commission, contrasted the job of the commission with an oversight board — chaired by Warren before she joined the Senate — that supervised the bank bailouts during the 2008 financial crisis, known as the Troubled Asset Relief Program.

“There’s no presumption here of wrongdoing,” Hill said. “TARP was looking at the performance of the Fed and the Treasury, but also looking at that in the context of their giving money to banks who may or may not have been contributors to the crisis. So, you have that element in it that is not present here.”

Hill said the Fed and Treasury should be thinking strategically to minimize “inappropriately benefiting someone who shouldn’t be benefiting for one reason or another.” Still, he acknowledged there would always be “imperfect decision-making in a time of crisis” and said moral hazard was to an extent unavoidable with government intervention.

Meanwhile, the commission itself is already attracting scrutiny. Shalala is facing demands from some progressive groups to step down from the panel after she admitted that she hadn’t disclosed a host of stock sales throughout 2019, as required by law. She apologized, saying she took full responsibility for the violation.

Shalala said the incident shouldn’t disqualify her from participating in the group. She said she viewed it as problematic to own individual stocks as a lawmaker and had told her broker to move her holdings to mutual funds and exchange traded funds, as well as to set up a blind trust.

“There’s nothing sinister about this,” she said. “I was trying to do the right thing.”

She also dismissed criticism that she doesn’t have deep expertise in financial policy.

“I’ve run billion-dollar institutions,” she said. “I was a cabinet secretary and I’ve long had relationships with Treasury in particular, and I’ve known almost all of the Fed chairs as well as the governors, and I understand the Fed.”

“Speaker Pelosi wants me to protect the taxpayers and these elements of oversight are right down my alley,” she added.