We are now entering “bailout” Territory. In the financial crisis of ’08-09, the financial system entered turmoil because of how it disregarded valid issues of corporate greed and malfeasance from what was perceived to be an activist community. The first protests happened a little bit before the crisis, but ultimately, visibly culminated in both wings of each major party. In the Republican Party, Tea-Party Conservatives sought to abolish the United States Federal Reserve System, and in the Democrat Party, Occupy Wall Street made visible protests in New York’s Zuccotti Park. The Tea-Party Movement led to the ouster of the Bush Republican Party and the election of Donald J. Trump years later. The Occupy Wall Street movement led to the fissure of the Democrat Party and the rise of the Bernie Sanders Movement.
As Congress passes Trillion Dollar stimulus proposals, we are once again seeing issues of Corporate Greed enter the Mainstream lexicon. The Paycheck Protection Program drew the ire of Republican and Democrat supporters alike as prominent members of both parties received favorable loans from the United States Government, namely the Kushner family, their son Jared being a Senior Adviser to the POTUS. The Paycheck Protection Program not only drew criticism from top members of the Republican Party. The breadth of disbursements meant that many local business and nonprofit entities received funding through the Paycheck Protection Program likely spurring one of the greatest conflicts of interest violations in the history of the United States. For those unfamiliar, Board Members of charitable organizations often overlap with prominent business interests in a local community. If a Board Member’s charitable organization were to receive funds, AND their business or another related financial interest were to also receive funding, this would be a standard conflict of interest according to some of the most basic legal disclosure requirements in our financial sectors.
The Paycheck Protection Program’s unique disbursement directly to small business owners, in addition to burdening the entire economy with a massive conflict of interest scenario the likes with which we have never seen before, raises scrutiny over the Government procurement of its supply chain products and services. Many small businesses who received Paycheck Protection Program stimulus also do business with the United States Federal Government in some capacity as a vendor contract awardee. Because the Paycheck Protection Program funded small businesses across the United States, and in order to implement the program would need a clear account of Government contract Awardees, there is now a database of the competitive strength and weaknesses of firms who do business with the Government. The Paycheck Protection Program required in its application two key questions. First, it required applicants to submit their average monthly payroll. Second, and this requirement is quite possibly one of the most intrusive actions ever taken by the United States Federal Government into the financial activities of US-based small businesses, it required a list of all owners of the firm above a 20% equity stake!
Now the Federal Government, surprisingly led by a Republican Senate Majority, has created an extraordinary database of American small business interests, not to mention has obligated these interests into a Federal loan program, though some loans will not require repayment. This information is now one of the singular greatest sources of market competitive intelligence ever to be compiled. Those in Government responsible for administering these funds have an extraordinary competitive advantage for themselves or family-owned firms should they have access to this database of information. The United States Government must immediately anonymize this data and require consent disclosure from any Government Official who has come into contact or worked-on the Paycheck Protection Program. Anything less from the Executive is negligence in the highest order! We could write an entirely separate essay on the incredible liability burden that the United States Federal Government now bears in this mess as the creditor to firms, a small percentage likely to have engaged in their own frauds and abuses.
Here are other financial conflict of interests that must be safeguarded against during a time of bailouts and stimulus programs:
- Already, corporate Executives are abusing executive compensation and service provision during a time of crisis. For example, JP Morgan and Bank of America are slated to receive $24 Billion in fees related to distributing the Paycheck Protection Program, a gross overreach for the provision of a basic service. These banks should immediately give back to the United States Government any funds received over basic “cost” to administer this program.
- Corporate Executives continue to take Executive Compensation that is grossly overpriced given their firms’ recession-induced decline. This issue initially does not seem as prominent as during the financial bailouts of ’08-09, but U.S. Congress must act immediately to prevent abuses from occurring in Executive Pay. Actions should include a temporary cap on Executive Compensation if Executives are not willing to self-regulate compensation.
In this Essay, we have not even begun to explore the Aggregate conflict of interest imposed by the United States Federal Government when it conducts the large-scale bailout of private interests. When the Government does so, it summons a moral hazard by temporarily eliminating the equilibrium function inherent in free market economics. Without the equilibrium function, poorly managed or obsolete firms do not go bankrupt. They are propped up through an inflated monetary supply, the effects being a prolonged business cycle and market stagnation.
The malfeasance of the administration of the Paycheck Protection Program is one of the worst and most flagrant concentrations of financial information about America’s small business economy in its history. One could make an argument, though I would disagree, that the United States Congress needed to offer cash stimulus during the pandemic to one or more sectors of the economy. A very unfortunate situation that requires immediate attention, in this case immediate action during a global pandemic, also requires forgiveness given strategic error. However, the administrators of the Paycheck Protection Program, and ultimately those responsible for the Program after Congressional authorization, should be ashamed at their flagrant abuse of the small business economy. Immediately, the Executive MUST require signed disclosure from any Administration Official who participated in setting up such a flawed program.