Republicans like Senator Patrick Toomey of Pennsylvania cited the low participation and the calming effect of the existence of the programs as a justification to terminate them — the position Mr. Mnuchin has embraced. But now, as record infection levels have prompted governments to impose new restrictions across the country, this is a grave error. Indeed, to the extent that the programs have been successful, it is because of what they could potentially do rather that what they actually did.
It is precisely because participants in the bond markets know that the Fed is standing by with hundreds of billions of dollars that they confidently continue to buy and sell these bonds. It makes no sense to celebrate the programs for the success they have had in calming markets while at the same time pulling the rug out from under them at a time when they are likely to be most needed.
Terminating them also breaks from the approach taken by the last administration that was leaving office during an economic crisis. In 2008, the Treasury Department under Henry Paulson was committed to giving the incoming Obama administration maximum flexibility to influence and direct $700 billion in TARP funds.
Even though Bush administration expressed concern to me that the new administration would use TARP in ways that they would not, they understood it was important to give the newly elected administration as much flexibility as possible.
Doing so here would both provide continuing assurance to the markets and allow the incoming administration to exercise its own discretion over the programs’ reach. Taking a cautious approach, the Treasury Department has put a premium on minimizing potential losses — with a result that stricter lending terms have inhibited broader participation.
But that decision was not compelled by Congress; it was the result of Treasury’s policy choices. The incoming administration could choose a different path, like extending the programs to more borrowers and on more favorable terms. That may increase risk, but the new administration may decide that it is worth shouldering potential losses in return for directing money to struggling parts of our economy, potentially allowing municipalities and companies alike to avoid huge job losses.
The outgoing Trump administration should follow the wise precedent set by the Bush administration and not succumb to the political temptation to straitjacket its successor. It should reconsider its shortsighted decision and instead extend the programs. Given the stakes of the pandemic and its impact on the economy, the Biden administration deserves to make its own policy decisions on how best to use the CARES Act funds to stabilize the economy and support a recovery.
Neil Barofsky, the former special inspector general for the Troubled Asset Relief Program, is a partner at Jenner & Block.