McConnell Calls for Congress to Focus on Narrow Stimulus
McConnell Calls for Congress to Focus on Narrow Stimulus
ABI Bankruptcy Brief
December 3, 2020
NEWS AND ANALYSIS
McConnell Calls for Congress to Focus on Narrow Stimulus
Senate Majority Leader Mitch McConnell (R-Ky.) said that it was “heartening” that Democrats have embraced a smaller price tag for a stimulus package but gave no indication he was willing to raise his own offer to get a deal, Bloomberg News reported. McConnell again called for passing narrowly targeted relief that focuses on priorities that have broad support — such as small business aid and funding for vaccine distribution — while leaving for later debate other elements that Republicans and Democrats disagree on. House Speaker Nancy Pelosi (D-Calif.) and Senate Minority Leader Chuck Schumer (D-N.Y.) yesterday endorsed using a bipartisan $908 billion relief plan as a basis for new talks with Republicans. McConnell has pushed an alternative that’s along the lines of a previous bill of roughly $500 billion that Democrats blocked, calling it inadequate. McConnell today reiterated criticism of Democratic moves to include what he described as non-coronavirus-related items. “It’s been heartening to see a few hopeful signs in the past few days,” he said. “After months of arbitrary attachment to sky-high dollar amounts,” there is now movement “in the right direction.” Pelosi and Schumer had pushed for a $2.4 trillion COVID-19 relief plan before the election, and their shift yesterday prompted welcoming comments from Republicans as well as Democrats. President Donald Trump also expressed optimism. “I believe they’re getting very close to a deal,” he told reporters at the White House, adding that he would “absolutely” support an agreement.
States Race to Craft Their Own Economic Relief Plans
Governors and state lawmakers across the country are racing to authorize millions of dollars in new coronavirus stimulus aid, aiming to plug gaping holes in their local economies before the end of the year, the Washington Post reported. The burst of activity has intensified in recent weeks after months of false starts in Washington, where congressional lawmakers repeatedly have failed to deliver additional support for a growing number of Americans who are still out of work, struggling to pay their bills or facing severe financial straits. Michigan, for example, has sought to extend another round of enhanced payments to its unemployed residents. Minnesota has eyed one-time stimulus checks to locals under financial duress. And Colorado has mounted a wide-ranging effort to help its cash-starved workers and businesses, working on legislative proposals that could help cover rent payments, utility bills and other critical costs. The states’ redoubled stimulus efforts may offer a critical economic lifeline for millions of Americans at a time when many governors are instituting a new round of shutdown orders nationwide. But local leaders say their aid is likely to be short-lived, illustrating their financial constraints — and the urgent need for Congress to adopt a more robust relief package after considerable delay.
U.S. Jobless Claims Remain High at 712,000 as Virus Escalates
The number of Americans applying for unemployment benefits fell last week to a still-high 712,000, the latest sign that the U.S. economy and job market remain under stress from the intensified viral outbreak, the Associated Press reported. Today’s report from the Labor Department said that initial claims for jobless aid dropped from 787,000 the week before. Before the virus paralyzed the economy in March, the number of people applying for unemployment benefits each week had typically amounted to roughly 225,000. The chronically high pace of applications shows that nearly nine months after the pandemic struck, many employers are still slashing jobs. The total number of people who are continuing to receive traditional state unemployment benefits declined to 5.5 million from 6.1 million. That figure is down sharply from its peak of nearly 23 million in May. With layoffs still elevated and new confirmed viral cases in the United States now exceeding 160,000 a day on average, the economy’s modest recovery is increasingly in danger. States and cities are issuing mask mandates, limiting the size of gatherings, restricting restaurant dining, closing gyms or reducing the hours and capacity of bars, stores and other businesses. Many jobless Americans are now collecting checks under two federal programs that were set up this year to ease the economic pain inflicted by the pandemic. But those programs are set to expire the day after Christmas. When they do, benefits will end completely for an estimated 9.1 million unemployed people. The number of people collecting aid under one of those programs — the Pandemic Unemployment Assistance program, which offers coverage to gig workers and others who don’t qualify for traditional benefits — fell by 339,000 to 8.9 million for the week ending Nov. 14.
U.S. Trustee Program Reaches Settlement with McKinsey and Company to Withdraw and Waive its Fees in the Westmoreland Coal Bankruptcy Case
The U.S. Trustee Program (USTP) has entered into a settlement agreement with global consulting firm McKinsey & Company (McKinsey) requiring McKinsey to forego payment of fees in the Westmoreland Coal bankruptcy case pending in the U.S. Bankruptcy Court for the Southern District of Texas, according to a DOJ press release. The agreement, which is subject to review and approval by the bankruptcy court, resolves the USTP’s objection to the adequacy of McKinsey’s disclosures of connections and possible conflicts of interest in the Westmoreland case. The USTP previously reached a $15 million settlement with McKinsey in February 2019 to address past disclosure practices by McKinsey in three bankruptcy cases, including the Westmoreland case. The USTP had objected to McKinsey’s initial application seeking to be retained in the Westmoreland Case, and after the prior settlement McKinsey withdrew that application. McKinsey later made new disclosures in a renewed attempt to be retained in the Westmoreland case. The USTP again objected, alleging that the disclosures remained deficient because McKinsey failed to disclose the connections of all of its affiliates, failed to make adequate disclosures regarding its investments in entities that could create a conflict of interest, and failed to address inconsistencies concerning its disclosure of confidential client connections. Under the terms of the settlement, McKinsey’s application seeking employment in the Westmoreland Case will be withdrawn. As a result, McKinsey will not seek to recover any fees in connection with services rendered in the case that would otherwise be subject to review and approval of the court. While the total amount of fees it is waiving is unknown, McKinsey rendered services throughout the case and likely would have sought approval for, and reimbursement of, millions of dollars in fees and expenses. In addition, McKinsey has for the first time agreed that it will fully disclose all affiliate connections and all confidential client connections in any bankruptcy case in which it seeks to be retained in the future, unless the bankruptcy court orders otherwise.
Mnuchin in Talks with Fannie-Freddie Overseer on Rushed Redo
Treasury Secretary Steven Mnuchin said he’s made no decision on actions that might be taken at the end of the Trump administration to free Fannie Mae and Freddie Mac from U.S. control, while raising the possibility that the companies could be released before they are fully capitalized, Bloomberg News reported. Mnuchin, testifying at a House Financial Services hearing, said that he has had discussions about possible moves with Federal Housing Finance Agency Director Mark Calabria, the companies’ regulator. But Mnuchin said he hasn’t made up his mind on whether to do anything, while reiterating that he opposes ending Fannie's and Freddie’s federal conservatorships until they have “significant” capital buffers to protect against losses. “Despite the fact that the director and I are having conversations, we’ve made no decisions at Treasury whatsoever yet," Mnuchin said. "We are contemplating.” Fannie and Freddie have been under government control since the 2008 financial crisis, when the companies piled up steep losses amid the housing crash and needed a taxpayer rescue. They’ve since become profitable again and have started retaining earnings to build up their capital cushions. Still, Fannie and Freddie are far short of the roughly $280 billion that Calabria has demanded they have as fully private companies. During the House hearing, Mnuchin said that the companies could be released from U.S. control before reaching the capital requirement under a consent decree. In such a scenario, the companies would technically exit conservatorship but still have restrictions on some business activities.
Fed Economists Warn of Debt Overhang Problem from Covid Crisis
The COVID-19 crisis could be worse than the Great Recession for companies that had high levels of indebtedness at the start of the outbreak, according to economists at the Federal Reserve Bank of New York, Bloomberg News reported. Firms in industries most affected by the pandemic such as tourism, travel and hospitality could grow as much as 10 percent more slowly than in ordinary times if the current crisis plays out in a similar way to the economic decline of 2007 to 2009, Kristian Blickle and João Santos wrote in a blog post on Tuesday. Research from the two economists shows that companies with higher levels of debt experienced 3 percent slower growth during the Great Recession compared to less-indebted peers. The gap between the two groups is closer to 2 percent in normal conditions. The sharper contraction in growth that could materialize during the Covid-19 crisis is due to the combined effect of record levels of corporate indebtedness at the outset of the pandemic and the sharp revenue declines during the course of 2020, the economists said. Many of America’s most iconic companies — from Boeing Co., Carnival Corp. and Delta Air Lines Inc. to Exxon Mobil Corp. and Macy’s Inc. — aren’t earning enough to cover their interest expenses after borrowing billions of dollars over the past few months to help get them through the coronavirus, according to a Bloomberg analysis. Large debt loads can hamper the ability of companies to borrow more to finance worthwhile investments, a problem economists call debt overhang. To read the full report, please click here.
Census Bureau: Nearly One-Third of U.S. Adults Expect to Lose Employment Income
Roughly a third of U.S. adults expect someone in their household to imminently lose their job or see their pay or hours reduced, according to survey results released yesterday by the Census Bureau, The Hill reported. Almost 31 percent of respondents to the Census Bureau’s Household Pulse Survey conducted Nov. 11 through Nov. 23 said that they expected someone in their household to suffer a loss of employment income. Another 33.2 percent said they expected to face foreclosure or eviction within the next two months, 34.5 percent said they have struggled to pay basic expenses, and roughly 12 percent said there was sometimes or often not enough food to eat in their homes during the week leading into the survey. The latest data from the Census Bureau shows the deep economic turmoil suffered by millions of Americans amid the third wave of the coronavirus pandemic. COVID-19 cases, hospitalizations and deaths have shattered records across the U.S. for months, and the White House has warned that the pandemic could soon overrun the American medical system.
COVID-19 Damage to Social Security to Extend Beyond Pandemic
COVID-19’s impact on America’s older adults is set to outlast the pandemic itself as it wreaks havoc on the Social Security retirement trust fund that millions rely on for benefits, The Hill reported. The nonpartisan Congressional Budget Office projects that in the aftermath of the pandemic, the trust fund will deplete its $2.8 trillion reserve over the next decade unless changes are made. Inaction would lead to cuts of 20 percent or more to benefits starting in 2031. The decreased revenue stream stems in large part from the millions of lost jobs during the pandemic, which has led to fewer people and employers paying into the trust fund. That drop, paired with a scaling back of hours at remaining jobs, has been the biggest blow to the long-term outlook for Social Security, according to a report from the Bipartisan Policy Center (BPC). But COVID-19 has impacted the fund in several other ways. The recession has prompted older workers to retire earlier than they previously expected, meaning that they’re drawing down funds instead of contributing to them. Also, low interest rates mean smaller yields for the bonds held by the Social Security funds. Provisions in the record $2.2 trillion CARES Act passed in March are letting more people dip into their retirement savings funds sooner without penalty, raising concerns among experts that many Americans in the long run will be more reliant on Social Security. An executive order by President Trump allowing employers to defer paying into the fund for several months raised additional concerns, though it required all deferred funds be paid back in 2021, leading few to participate in the program. Depending on how long and slow the recovery is, the trust fund could run out by the late 2020s, the BPC report said.
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