Financial Stability Requires These Congressional & Federal Reserve Actions

March 15, 2020
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Calming fears and restoring confidence in equity markets will require joint efforts by Congress and the Federal Reserve to support businesses of all sizes impacted by the Coronavirus. Without innovative stimulus packages by both parties, the real economy and equity markets will remain on the brink.

 

The backbone of our economy are small businesses, which believe it or not, comprise more than 50% of the employment in our country. These small businesses, and their employees, are reeling from the loss of revenue due to the Coronavirus. To be fair, big businesses are hurting as well, they are just better positioned financially to sustain a prolonged period of an economic decline. The following actions are my suggestions to Congress and the Federal Reserve, to enact simultaneously, in an effort to ease the fear and panic that is building within the economy and financial markets:

  • Congress needs to expand unemployment benefits to allow immediate payments to all hourly workers, that are losing workable hours, for a period of up to 3 months. In addition, an economic package needs to be put together for small business owners. This package should allow for interest free loans, to be paid back over an extended period of time, so that these small businesses can continue to exist when revenue simply stops for two months.

  • Since the Financial Crisis of 2008-2009, the Federal Reserve has purchased assets of over $4 trillion. First, it was the Troubled Asset Relief Program (TARP) where the Fed purchased all kinds of worthless securities from banks as a bail out when the banks took on too much risk. TARP was followed by round after round of Quantitative Easing (QE), where the Fed bought U.S. Treasuries to keep interest rates at artificially low levels. These assets remain on the Fed’s balance sheet. The unrealized gains on these bonds are extreme, as U.S. Treasury prices are at all-time highs. It would be in the best interest of taxpayers for the Fed to start selling some of these Treasuries at gains and reinvesting the proceeds into the stocks of publicly traded companies at these depressed levels. This action would restore confidence in markets and help support the bigger companies impacted temporarily by the virus. The Fed has a mandate to both support stable prices and to act as a buyer of last resort.

We are at a crossroad where leaders must step up and lead with bold initiatives. We as a country got off to a slow start in this unfolding crisis, but it is still early enough where the right actions can make a big difference in the lives of many. Things can turn around with the right actions. Shame on us as a society if we bail out banks for taking on excessive risks, but we let small and large businesses, along with their employees, financially fail due to an act of God. Let’s all hope our leaders are up to the task.