As Senate Democrats went to the floor Sunday night to vote — the first time they’d been there in days — they had one thing on their minds: a secret “slush fund” for Corporate America.
That’s what Democrats are calling a $500 billion “Exchange Stabilization Fund” included in the massive Senate GOP proposal to rescue the U.S. economy from the coronavirus crisis. The fund, which would come under the control of Treasury Secretary Steven Mnuchin, is designed to aid distressed industries. It includes $58 billion for U.S. airline and air cargo companies, a source of significant controversy during the last three days of closed-door talks between senators of both parties and the White House.
But the language drafted by Senate Republicans also allows Mnuchin to withhold the names of the companies that receive federal money and how much they get for up to six months if he so decides.
That was way too much for Democrats, many of whom lived through the political furor surrounding the 2008 financial-services industry bailout. They remember facing the populist backlash and being pounded by the “Occupy Wall Street” movement. They aren't going to do it again.
“We’re gonna give $500 billion in basically a slush fund to help industries controlled by Mnuchin with very little transparency? Is that what we ought to be doing?” asked Sen. Mazie Hirono (D-Hawaii.).
“We're not here to create a slush fund for Donald Trump and his family, or a slush fund for the Treasury Department to be able to hand out to their friends,” railed Sen. Elizabeth Warren (D-Mass.), who made corporate accountability a big part of her White House campaign. “We're here to help workers, we're here to help hospitals. And right now, what the Republicans proposed does neither of those. “
Even moderate West Virginia Democrat Joe Manchin lashed out at the Republicans over the lack of controls on the Exchange Stabilization Fund.
“It’s throwing caution to the wind for the average person working on Main Street, it’s balls to the walls for the people working on Wall Street,” Manchin declared. “It’s the same ol’ story from Mitch McConnell.”
Senate Democrats had other high-profile issues that also led to their Sunday vote to block the stimulus bill. They sought four months of increased unemployment insurance support, but only got three months; they sought hundreds of billions of dollars in emergency funds for hospitals and other health-care providers to combat the coronavirus, yet Republicans budgeted just $75 billion; and they asked for hundreds of billions for a “State Stabilization Fund” to help state and local governments hurt by the looming economic slowdown, while Republicans offered far less.
But the key to the unanimous set of Democratic ‘no’ votes — and what made it easy for Senate Minority Leader Chuck Schumer (D-N.Y.) to line them up — was the “slush fund” accusation.
Democrats noted that the Troubled Asset Relief Program — the formal name of the 2008 financial services industry bailout — created a Financial Stability Oversight Board, a Congressional Oversight Panel, a special inspector general and a mandate for periodic review by the General Accountability Office, Congress’ accounting arm. The legislation offered by Senate Republicans includes none of that.
Republicans argued the term “slush fund” was wildly inappropriate in this situation, while also pointing out that the current economic crisis is not at all comparable to 2008. While the banks and Wall Street firms had overextended themselves at that time, companies today are being hurt by a global pandemic that is far beyond their control.
Republicans also say that they have made major concessions to the Democrats on their demands for this stimulus package. Democrats secured $250 billion in additional unemployment insurance payments, which some top Republicans opposed. The $75 billion in new funding for hospitals was a Democratic win as well, although Schumer and Speaker Nancy Pelosi (D-Calif.) want hundreds of billions more.
Republicans are also pushing for $250 billion in direct cash payments to help struggling workers, as well as hundreds of billions for other programs. All told, it’s by far the most expensive spending bill in American history.
Senate Republicans and the White House defended the structure of the ESF program as drafted, saying they actually built on the lessons of TARP and 2008 in how they created this new initiative.
“The proposal provides desperately needed resources for affected industries and sectors in order to keep people employed and at work,” said Eric Ueland, the White House director of legislative affairs and a former top Senate aide who is closely involved in the negotiations. “This carefully drawn language contains significant pro-taxpayer and pro-consumer protections in a way unprecedented since the invention of these vehicles really 12 years ago.”
Senate Banking Committee Chairman Mike Crapo (R-Idaho) and Sen. Pat Toomey (R-Pa.) pushed for creation of the fund.
Toomey said Monday on CNBC's Squawk Box that the point of the proposal is "to provide the liquidity to get through this terrible moment."
"If this goes on much longer and we don't do anything because our Democratic colleagues won't agree to pass a bill, then some of these companies are going to start dying and they don't just come back with the flip of a switch," the Pennsylvania Republican said.
He added that Democrats should have raised concerns about the discretion issues during the negotiations and has previously emphasized that the loans will be paid back.
“The ‘Phase 3’ package takes precise and targeted measures of relief to particularly distressed industries that are at risk of hemorrhaging jobs and closing down if we don’t,” added Sen. Rob Portman (R-Ohio). “Think of the airlines that right now have seen their passengers reduced by 80 percent, some say 90 percent. Think of the hotel businesses. Think of the other travel and tourism businesses, entertainment business.”
Republicans also claim that a big problem with the TARP program was that as soon as a company disclosed it received a government loan, it got pounded by investors, which in turn hurt its chances of surviving. That in turn led to even more layoffs. So for this reason, Republicans believe a delay is appropriate between when a loan is received and when it becomes public.
“One of the lessons learned from TARP in 2008 was the concern that companies had about being identified publicly as soon as they accepted TARP assistance,” said a GOP official. “It caused an assumption that those companies might be headed for a terminal event.”
But Democrats weren’t hearing any of that, and as they ramped up their opposition to McConnell’s plan, they pounced on the “slush fund” to try to define the bill before GOP leaders and the White House had a chance to.
“It really isn’t putting workers and small businesses first, and you’ve got a $500 billion slush fund,” complained Sen. Jon Tester (D-Mont.). “I think it’s important to just target it for the people and the businesses. You just don’t throw money out like it’s confetti.”