Having had a lot to say on these pages concerning the Fed's past Main Street lending efforts, I thought it proper to put in my 2 cents concerning its current plan, by responding to the Fed's request for comments on it.
Unfortunately, "2 cents" is an all too accurate description of what I was allowed to contribute, since the Fed's electronic comment-submission page allows me no more than 1500 characters with which to express myself.
Kindly keep that constraint in mind in reading my comment, reproduced here. You will note that my advice is similar to that offered by Hal Scott (with whom I recently exchanged thoughts on the topic) and Glenn Hubbard in their recent WSJ op-ed.
Thank you for this opportunity to comment on the Fed's Main Street lending plan.
It's notorious that many small-to-medium size businesses cannot survive the present crisis without substantial access to credit. However, such credit carries a substantial risk of default, and consequent losses. Because the Fed must guard against any unauthorized use of taxpayer funds, it can undertake such risky lending only if Congress agrees to fund those losses.
The Treasury has thus far contributed $75 billion to the Fed's Main Street Lending programs, while limiting the Fed's lending through them to $600 billion. That limit is modest in itself. And if the Fed or its partner banks are either too indiscriminate or too cautious in their lending, the Fed could fall well short of it.
To keep that from happening, the Fed should ask the Treasury to devote a substantial part of the remaining $215 billion in CARES Act funding for Fed lending programs to its Main Street efforts. Doing so will pose no greater burden on taxpayers: the cost is interest on Treasury debt in one case, and on bank reserves in the other. But Congress will gain through a more certain achievement of its goals.
Believe me, I would have liked to say more. Indeed, had I had 1500 words rather than 1500 characters to play with, I would have argued for keeping the Fed out of the non-bank lending business altogether, so as to not involve it in politically-charged decisions regarding which businesses get thrown a lifeline, and which ones are left to drown.