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The PPP Funds Went To The Wrong Businesses

By Brendan Byrne. Originally published at ValueWalk.

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Recent Reports Show PPP Funds Went to the Wrong Businesses


Q2 2020 hedge fund letters, conferences and more

WASHINGTON, D.C. – Reports from the National Bureau of Economic Research (NBER) and Massachusetts Institute of Technology (MIT) released in recent days highlight just how badly the Trump administration has failed workers and small business owners during the COVID-19 pandemic. Trump’s poorly designed, poorly implemented Paycheck Protection Program (PPP) allowed for the exclusion of actual mom-and-pop businesses as wealthy corporations and the Trump-connected cashed in.


Q2 2020 hedge fund letters, conferences and more

PPP Funds Helped Large businesses Rather Than Smaller Ones

“The faulty design and lack of transparency in Trump’s poorly executed Paycheck Protection Program allowed wealthy, well-connected businesses to take desperately needed PPP funds, while actual small businesses were shut out — forcing many to close up shop for good,” said Kyle Herrig, president of Accountable.US. “Congress must ensure that the next relief package has strict, enforceable oversight and accountability measures to make sure assistance reaches the people who need it most.”

The new NBER report emphasizes the bias banks showed against borrowers who desperately needed PPP funds, favoring businesses with connections:

  • WELL-CONNECTED BUSINESSES WERE PRIORITIZED: “…firms with stronger connections to banks were more likely to have their applications approved, while firms more negatively affected by COVID and with less cash-on-hand were less likely to be approved, suggesting that lending to bank customers in better financial positions may have been prioritized, possibly crowding out less connected firms that would have had greater benefits from the loans.”
  • BUSINESSES IN GREATEST NEED OF FUNDS WERE SHUT OUT: “The most severely impacted firms are most likely to apply, but they are also the most likely to be denied a PPP loan conditional on application.”
    • “There are four reasons for denials. First, as discussed above, some banks initially only processed applications from existing customers. Second, some firms did not qualify under the initial program parameters put in place by the SBA. Third, some banks misunderstood the rules put in place by SBA and denied firms that should have qualified. Fourth, firms were unable to submit an application for other reasons.”
    • “The denial rate rises from 12% in the lowest severity category to 25% in the highest severity category. The approval rate is roughly the same between the least severe and the median severity category, but lower for the most severely impacted firms.”

Trump Administration’s Claims Of PPP Success

Another report from MIT found that contrary to the Trump administration’s claims of widespread success of the PPP, the program was wildly inefficient. By allowing so many wealthy companies to skim off the top, the PPP might have saved only 2.3 million jobs — as more than 40 million Americans have found themselves out of work since the start of the crisis.

  • THE PPP WAS INEFFICIENT AND FAILED TO SUPPORT WORKERS: “Noting that the PPP has so far disbursed $518 billion in aid, our benchmark estimates imply that each job supported by the PPP cost between $162K and $381K through May 2020, with our preferred employment estimate implying a cost of $224K per job supported.

The post The PPP Funds Went To The Wrong Businesses appeared first on ValueWalk.

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