My friend and fellow TWN Notetaker Richard Vague has recently been appointed by Pennsylvania Governor Tom Wolf to be Pennsylvania’s Secretary of Banking and Securities. Vague recently wrote this letter to a US Senator on what would be needed to deal with the economic shock of the cororavirus crisis. I asked that he let me post this on TWN.
As the debate unfolds today on the stimulus package now stuck in the US Senate, I think it’s valuable to see how Vague bridges what is happening with workers and individuals as well as what is happening on the corporate front. Reports from Capitol Hill today indicate that there are too few protections for workers at potentially financially-backed firms.
Here is his letter:
Given the critical steps already taken on our current crisis, the most important next steps are debt forbearance and payments to individuals. There will very quickly be a huge cash crunch among households and businesses. The Fed’s actions help the cash needs of banks, but it will take further action to extend that benefit to businesses and households. In fact, safety and soundness regulations actually impede banks from easing the cash crunch of borrowers. In short, we need to take temporary steps to decrease cash outflows. If we can increase cash inflows, so much the better.
I have studied financial crisis issues in depth, and don’t make these recommendations lightly. Further, I do not think they will be detrimental to the long-term economy, even considering the greater level of Federal debt that will result.
The steps I believe are appropriate to consider are:
- –– A three month moratorium on payments of mortgages, credit cards, and student debt, along with a similar moratorium policy for business loan payments. Having spent much of my career in banking, I view this approach as feasible, as long as the regulators have the guidance to allow it. Of course, it would be more effective if the Federal Government would implement such a policy for GSEs, government-guaranteed student loans, and other lending programs that have its full or partial backing.
- — A three month moratorium on all rent payments, which is only feasible if we also have the moratorium on the debt payments of the landlords;
- — A three month moratorium on all tax payments;
- — A commitment to cover all healthcare costs associated with the coronavirus, such that care providers can bill the government directly, and no forms or reimbursements are required of individuals.
- — An office will need to be established to deal with all the questions and exceptions that will inevitably arise with each of these.
- — I also strongly suggest consideration of a program of monthly checks of $1000 for at least three months to individuals above a certain age and below some income threshold, say $250,000.
- — It will also be necessary to provide capital support for select, troubled industries such as the airline industry. This does not need to be a handout. It can take the form of a preferred equity investment.
My view is that this situation will last for a while, and since all economies are highly leveraged, some type of temporary forbearance is required and in fact indispensable. Work would need to be quickly done to think through the implications of these policies and to carefully implement them.
— Richard Vague
Save this roster of suggestions that Richard Vague makes as a foil to the details of any coronavirus economic stimulus package that emerges today.
— Steve Clemons