Judd Gregg: Lessons for today from 2008

There is not a great deal of overlap between the financial crisis of 2008 and the health and economic crisis caused by the coronavirus today.

But there are some similarities, and they should guide the federal government as leaders try to deal with the situation.

The strength of the federal government’s response in 2008 was that it was a focused effort carried out with strong leadership from the Federal Reserve and the White House, and a firm bipartisan response from the Congress.

{mosads}This approach is needed today.

It can be accomplished.

The primary need is to restore some level of confidence on Main Street that people can make it to tomorrow and beyond without suffering massive financial loss.

This, of course, is independent of the need to have Americans feel that their healthcare system can handle the effects of the virus, which is another topic altogether.

Unlike the 2008 crisis, where the focus of attention was on the relatively few institutions that dominated the financial system, today the need for assistance is incredibly diverse.

At its heart are the 60 million people who work for, and often own, small businesses across the country.

There are also some major industries that need dramatic support now.

The airline industry is at the top of that list, as it is critical to the functioning of the entire economy. But the oil and hospitality industries are not far behind.

In 2008 terms, the airline industry is the equivalent of the banking industry in its importance and its need for strong, direct funding from the government.

However, the core concern of federal economic policy must be the folks whose livelihoods depend upon our small-business culture.

By definition this is not a monolithic group.

The response must be huge but it also needs to incorporate significant flexibility.

Its structure has to allow small businesses and individuals to self-select from a cafeteria line of support options put forth by Congress and the administration.

In other words, a one size fits all approach will not only not work, it would probably be uniquely unproductive.

The initial package proposed by the administration last week through Treasury Secretary Steven Mnuchin appeared to address these needs to some degree.

Included in the proposal were funds to stabilize the airline industry ($50 billion); address other industries under acute pressure like oil and hospitality ($150 billion); and most importantly set up a facility to help small business ($300 billion).

The headline grabber of the proposal was $500 billion of payments to low and moderate income Americans.

Paying $1,000 to each American in a type of helicopter distribution of funds will not do much to resolve the structural needs of Main Street or the people who are dependent on the jobs of small business.

But one can understand that it is an action directed at getting everyone’s attention. It certainly shows that the federal government is going all-out to confront the personal economic distress caused by the virus’ spread.

Unemployment insurance has also been increased. Coverage should be expanded to cover more people, however. This expansion should be self-terminating at the end of six months.

The Treasury Secretary must be given the authority and the funds to move quickly and with total flexibility in order to respond to the needs of the market — relative not only to liquidity but also to direct funding of elements of the economy which require money to survive and employ people.

Congress should set up a small bipartisan group made up solely of its four leaders to work with the Treasury Secretary on this so that his actions would be legitimatized and deemed appropriate.

This was the most important lesson from 2008.

Then-Treasury Secretary Hank Paulson asked Congress for $700 billion and total flexibility regarding how to use it to stabilize the financial markets. Congress basically met these requests.

This flexibility was later used by Paulson’s successor, Tim Geithner, to support GM and Chrysler — something unforeseen when the original authorization was drafted. But it worked because he had the money, the power and the flexibility required.

The Agriculture Secretary should have the same type of authority and funding as the Treasury Secretary, for the purpose of ensuring food production and that the food supply chain remains viable. This is critical and it seems to be receiving inadequate attention so far.

{mossecondads}In addition, Congress should create a new and separate lending authority under the auspices of the Commerce or Treasury Department that can essentially lend into all elements of the economy with low or no interest rates.

This should be funded with at least $2 trillion of ten-year debt, which ironically can be borrowed by the federal government at essentially no cost because we are in a zero interest rate environment. Call it the National Support Initiative.

Most of these funds should be directed at giving small- and medium-sized businesses across the country confidence that they will be there when the crisis is over.

President Trump, Secretary Mnuchin, the administration and Congress should be respected for their serious, proactive approach. But time is of the essence and we need to “go big,” as the president has suggested.  Huge should be the watchword when it comes to initiatives to stabilize the nation’s economic activity.

Congress has to work continuously until agreements have been reached and authorities passed.

Their actions so far have reflected the dire state the nation is confronting, but they need to double down on their effort.

The 2008 Troubled Asset Relief Program, or TARP, bill was drafted in a 72-hour timeframe and passed within three days of its completion. This is a template that can be replicated now.

America will come out of this if the president, the administration and the Congress come together in highly visible bipartisan cooperation, delivering a massive expansion of the federal funding commitment.

They must do so with real flexibility — and with a real awareness of how best to help the people on the frontlines.

Judd Gregg (R) is a former governor and three-term senator from New Hampshire who served as chairman and ranking member of the Senate Budget Committee, and as ranking member of the Senate Appropriations Foreign Operations subcommittee.