'There are millions of small businesses needing help so it’s a logical challenge': Sheila Bair on the stimulus package

Former FDIC Chair Sheila Bair says, "It’s a logical challenge" to get money out the door quickly to help small businesses. She joins Yahoo Finance’s On The Move panel to discuss.

Video Transcript

- We also want to talk about the government's PPP program. That is the stimulus program that's aimed at small businesses and is being administered by banks here in the United States, the biggest banks. To talk more about that and other stimulus measures, we're joined by Sheila Bair. She is former FDIC chair. And she is joining us from Maryland.

Sheila, if you're with us today, and you could push a star six so that we can hear you, that would be great. We are getting a lot of various reports of banks that are not ready, that are overwhelmed. So I'm curious your take on the administration of these loans to small businesses, Sheila. Oh, pardon me, hit star six again. I gave you bad advice. I think you were unmuted as it was. There.

SHEILA BAIR: OK. You can hear me now. It isn't a problem. So look, it's a very difficult thing to get the money out the door quickly. There are millions of small businesses needing help. So it's a logistical challenge. I think that the legislation was properly designed to try to bypass a lot of the red tape that might currently otherwise accompany government guaranteed small business loans.

And community banks, I think, have done a good job. They've been at the ready. I think they were the first out the door with the money. So we knew there were going to be missteps. We knew it was going to be tough to do it. But I think things are moving along. And that's good, because they see small businesses, which as you know support most of our job growth in this country, are really essential to our economy. And they're really hurting right now.

RICK NEWMAN: Hey, Sheila, it's Rick Newman. In terms of the oversight for where all this money goes and how it gets used, you went through this at the FDIC in 2008 and 2009. What concerns you most about what the government needs to be paying attention to?

SHEILA BAIR: Yeah, so I will say you never want fraud or abuse in any of your government programs. But I think in a situation like this, when the timing is essential, that you need to strike an appropriate balance between, you know, running a borrower through a lot of traps, versus just hoping that they're in good faith and honest. I think the vast majority of applicants will be in getting the assistance provided.

I do think we should be prioritizing small businesses that are more the owner-operated variety. I know that's not in the legislation. But of course I've been reading, and I am sure you have too, that a lot of private equity funds are coming in now and saying, well, gee, startups that they own should be qualifying for this aid as well.

And I would think a business that's backed by deep-pocketed private equity firms could be pretty low on their priority list of where this money goes. So to the extent there's prioritization for people in need, the small owner-operators is where I hope the money will be going first.

ADAM SHAPIRO: Hi, Sheila, it's Adam Shapiro. I'm curious, we asked Kevin McCarthy on Friday if the $350 billion could run out. And we already heard Senator Rubio saying it might have to be replenished. Along those lines, could we really run out of this money? Do we need to loosen the strings for say, like, a Wells Fargo, to get this money out there and then put even more into it?

SHEILA BAIR: Yeah, well, I actually-- I'm-- look, I think the banks are better positioned to do this. They have pre-existing customer relationships with more of these small businesses already. And I think this is-- as you know, Wells Fargo is under a limit on growth by the Federal Reserve for some of the serious problems they had, especially on the consumer side.

But I think this would be a good place where the Fed could show some flexibility, because clearly, you know, and on the ground bank, like Wells Fargo, could add a lot of capacity to this program. And $350 billion sounds like a lot of money. But it may not be enough. The Fed has also offered to launch a small business direct lending facility. We've not seen that yet. They indicate-- Eric Rosengren indicated last week, it would probably be a few more weeks.

There is also another $500 billion or so in the Cares Act to support a Fed lending facility that will be for large businesses. But it will also be for small businesses. And they're going to use that as leverage, basically as an equity piece, for the facility. So with, you know, a 10 to 1 leverage, they can-- I think the amount specifically is around $425 billion. So they can do well for well over $4 trillion of lending there.

So there's a lot of money out there already. They may need to do more. There's just so many unknowns about this crisis, and how severe it's going to be, and how long it's going to last. But for now, I think they may have provided a lot of assistance. And the first priority should be to distribute what they have.

- Sheila, I want to ask you about the broader stimulus as well, because the "Washington Post" reported this morning that economic advisors at the White House are considering pushing for several additional steps, among them, according to the "Post," blanket waivers exempting businesses from liability if their workers do get COVID, a payroll tax cut, a capital gains cut, and then the infrastructure bill, potentially, which has been talked about.

What's your reaction? You know, the blanket waivers thing, I don't even know what to say about that. But a payroll tax cut and a capital gains tax cut, do you think that's the right thing to do right now?

SHEILA BAIR: Well, no. I don't. And I think, look, the payroll tax cut, this payroll tax would support Medicare and Social Security that are already having some serious financial problems. So you just really undermine their long term viability with payroll cuts. I think the other direction the Cares Act went, which is money directly, so they're giving these small business loans out. And a good chunk of that can be forgiven if it's used to support payroll.

And of course there are direct cash payments to couples earning less $150,000, individuals less than $75,000. I think that's probably, just providing that direct assistance, is a better way to go. And I don't know what in the world, a capital gains tax, that would do at this point. I mean, stocks are going to go down. Buybacks are going to be a thing of the past for a while. Some companies, a lot of them, should be suspending dividends too, including banks.

So that's just going to happen. The stock markets has been very good customers the last few years. It will come back. So I don't know why in the world they would want to be focusing on that. Infrastructure spending is always a good idea. We should have been doing that 20 years ago, probably. It's something we talk about, admire the problem, and don't launch meaningful infrastructure spending.

So yeah, once we get to the other side of this, we should do that in any event. But I don't think it's going to-- there is a long ramp up time for programs like that. And it's not going to do anything to help the current situation.

RICK NEWMAN: Sheila, Rick Newman once more. Larry Kudlow this morning talked up the idea of a COVID war bond. Do we really need any more types of US government securities? Does that seem like a good idea?

SHEILA BAIR: Well, that's right. They were issued a lot of debt already. And the Fed's committed to buy unlimited quantities of it. So no, I really don't know what that would-- I mean, you know, it's got nice optics to it. You know, there's such a patriotic element is it that. Maybe you'd stimulate a little more purchase of treasury bonds but by labeling and branding it as helping us to combat COVID.

But again, the problem is at our doorstep now. And the Fed's committed to making unlimited purchases of US treasuries. So I think we have a ready market there if we don't with the broader investor base, which hopefully will also continue. But no, I don't think-- you know, these are nice sound bites. But I really don't know what they would add to it to the current immediate need to be getting assistance out to people who were impacted.