PPP Loans Provided Lots Of Cash Assistance With Few Questions Asked : The NPR Politics Podcast

KATIE: Hi. This is Katie (ph). I’m driving with my family up I-39 North because we’re moving from Louisiana back to our home state of Wisconsin. This podcast was recorded at…


12:42 p.m. on Thursday, January 19.

KATIE: Things may have changed by the time you hear this. But we’ll still be looking forward to celebrating Mardi Gras in the middle of Wisconsin winter. Go Tigers, and go Badgers.


KEITH: I love me a good road trip.

SUSAN DAVIS, BYLINE: She seems in good spirits, but, man, I do not like moving.

KEITH: I don’t like moving. But I do love the road trip part of it. I’m just – I’m a sucker for road trips. Hey there. It’s the NPR POLITICS PODCAST. I’m Tamara Keith. I cover the White House.

DAVIS: And I’m Susan Davis. I cover politics.

KEITH: In the early days of the pandemic, when the economy was in freefall and businesses were closing and uncertainty was off the charts, the federal government stepped in to help out. The Paycheck Protection Program, PPP, loaned businesses money so they could keep paying their employees. Those loans, in theory, could be forgiven, and most of them have been. But a new NPR investigation shows that some of the loans that have been forgiven maybe shouldn’t have been. Sacha Pfeiffer is here from NPR’s Investigations Desk to tell us more. Hi, Sacha.


KEITH: So, Sacha, PPP was created by Congress. The thought was businesses aren’t making money. Rather than employees being laid off and then having to apply for unemployment insurance, just send the businesses money to pay their workers. Keep the economy afloat. So how did the program end up working? How did businesses apply to get this money?

PFEIFFER: So businesses had to go to banks. And the two of you probably remember that banks just got deluged. They were inundated by people who wanted Paycheck Protection Program loans, so deluged that they ended up allowing financial technology companies also to give loans. These are companies like Kabbage and Womply, these…

KEITH: I’ve never heard of those.

PFEIFFER: Yeah – so, like, these high-tech companies that basically automate financial services. And a lot of the big banks at first were just serving really established customers. And a lot of small businesses and businesses run by people of color felt like they couldn’t get the attention of the banks. So they went to fintechs. The application was relatively simple. You basically had to say, I think the economic threat of the pandemic could hurt my business. And then you could get a loan. It was a 1% interest rate, but these were potentially forgivable. And a lot of people were assuming and hoping when they applied that the money would eventually get forgiven.

KEITH: And I think the idea was mainly to help small businesses. And full disclosure – the small business that my husband owned at the time took out a PPP loan. But your reporting indicated, you know, a little bit of a flaw with that. You know, there is a distinction between small and in need, and there ended up being a lot of people who maybe didn’t seem so needy. Like, for instance, Tom Brady, the football player, got a PPP loan.

PFEIFFER: Yes. And so did Khloe Kardashian. And what is so interesting about this is that need ultimately really wasn’t part of the criteria or the application process. As I mentioned, you just had to say you thought you were going to need money because of the pandemic. Officially, you were supposed to have no more than 500 workers, although the rules changed over time. And there were ways for companies that had more than 500 workers to get a loan. But really, almost anyone who applied could get them.

And so we saw people like private jet companies, country clubs, publicly traded companies. The LA Lakers got loans. This caused a huge uproar. People like the Lakers and other companies actually gave their loans back because the public relations of this was so bad. But this was part of the fallout – is that the money ended up going to companies that didn’t seem truly needy or that ultimately thrived during the pandemic yet still didn’t have to pay it back, which is a lot of the reporting I did.

KEITH: Right. So, Sue, take us back to these early days. There were these negotiations when the Trump administration and Congress – and it was a Democratic Congress. It ended up being very bipartisan. But they were trying to figure out, how do we deal with a collapsing economy?

DAVIS: Yeah. I mean, this was born out of panic. This was not a program that had months of hearings and deliberation and structure for how it would be implemented. It was really a blunt instrument. And I think that there are a lot of people in Congress who survived the 2008 financial crisis and also had to vote to approve, at that time, hundreds of billions of dollars to pump into the U.S. economy. And there was just a broad willingness to just throw money at it. There was not a ton of check and balance put into the system by design.

I think that there was a recognition that the federal government is pretty clunky as an operator, so you have to smooth the passageway to the small business owner and that, you know, bigger businesses, businesses with lawyers or business connections would probably be able to navigate a system more easily than the little guy. And the system was designed to make it easy to get to that little guy. And I would say that I think even with hindsight being 20/20 in a lot of the problems that Sacha raised in her reporting, most members of Congress look at this as a very successful government intervention in the economy, that it was a vast amount of money but that it was necessary. And I think the question that always comes up in these debates is, what would the alternative have looked like?

PFEIFFER: And that is exactly what I heard when I spoke with officials in both the Biden and Trump administrations at SBA, the Small Business Administration, in Treasury. They feel like they accomplished something really monumental. They were a little thin-skinned, honestly, when I asked them a lot of questions about why weren’t you more strict at the back end when you were forgiving applications. But one of the things they said is we had to move quickly. And here is Michael Faulkender – he was a senior Treasury official in the Trump administration – talking about what might have been if they hadn’t acted quickly.

MICHAEL FAULKENDER: Because PPP got up and running, we did not realize the catastrophe that could have taken place had we failed. What would bread lines during a pandemic have looked like? Do we want to know? I didn’t. And so we were going to get that program up and running.

PFEIFFER: I want you to hear one more piece of tape from a Biden administration current SBA official named Patrick Kelley. And, you know, he told me that he gets really frustrated when his agency is criticized over how it handled PPP because it was just carrying out a law passed by Congress. And he pointed out that Congress voted repeatedly to issue more loans and make them increasingly easy to forgive, even when problems with the program became obvious.

PATRICK KELLEY: It’s an easy sentiment to say, well, there goes the government again. Why didn’t they do it right? But, to me, it ignores the awesomeness of what did get done right. I’ve met many, many, many, many, many more people who are thankful for their PPP loan.

PFEIFFER: Now, I will add, Michael Faulkender did say to me that, in the end, he felt like this program basically became a small business grant program, which was not its original intention. It was supposed to save jobs. So even he acknowledges that the program changed over time in a way that wasn’t true to its original intent.

KEITH: Right. And so in the end, something like $800 billion in PPP loans were given out. We’ve alluded to this, but, you know, there’s this phrase that we use a lot in government – waste, fraud and abuse. How much of that money that went out the door would fall into that category?

PFEIFFER: There is a group of University of Texas researchers who have calculated that, of the roughly 11.4 million loans, 1.4 million of them show signs of fraud, totaling about $64 billion. So 64 billion of about 800 billion could have been fraudulent. There’s a separate category of people who really didn’t need the money and maybe even profited during the pandemic. They did nothing illegal. They just basically got a free government grant when they were already prosperous. The fraud is a different category.

KEITH: Right, like the program wasn’t actually designed, as you said, based on need.

PFEIFFER: It really wasn’t. I mean, you had to fill out a form saying, I think I need the money. And in the end, the forgiveness process became so lenient that you had to fill out a form that said I used the money correctly. It was basically that much of an honor system. And because the SBA and Congress wanted to make this as easy as possible, they told the banks they could be really kind of lenient in their underwriting, meaning they didn’t have to do a great deal of due diligence. They could essentially take people’s applications at face value. And human nature – you know, some people took money they shouldn’t have taken.

DAVIS: Sacha, can I say, as someone who has covered government and certainly focused on waste, fraud and abuse, I have to admit that there was a part of me when I was listening to your report where the estimates are about 1- to 12%, potentially, of the money that went out the door was fraudulent. And there’s a part of my brain that was like, huh, not as bad as I thought it could have been.


DAVIS: You know, like, if it falls somewhere in that, like, one to 10 percentage zone, there is a more cynical argument to be made that that’s pretty good by waste, fraud and abuse standards.

PFEIFFER: Although $64 billion is a lot of money…

DAVIS: It’s a lot of money.

PFEIFFER: …And could solve a lot of problems, and so not insignificant for sure.

KEITH: All right. Well, we’re going to take a quick break, and we’ll have more in a second.

And we’re back. And I’m wondering, is there a balance here between what was legal and what was moral? And I guess, like, if everyone’s doing it, then is it wrong?

PFEIFFER: I’m so glad you asked that, because I spent a lot of time thinking about exactly that – was there a moral or ethical aspect of this? And I think the answer is yes. However, there is also a very practical, pragmatic aspect, which is the government was essentially giving out free money, and would you be a fool not to take it? You can stand on principle and not, but then you’re going to watch your neighbor or your neighbor’s business take money. And you won’t, and then what have you gained? But, you know, I interviewed an art gallery owner on Cape Cod, and he said – I think his words were, what bothers me is people who took the money that didn’t need the money. It should have been for people who really needed it. Now, how do you define need?

DAVIS: Yeah.

PFEIFFER: I mean, should we have expected Tom Brady to reach into his own pocket and cover his company, TB12, the sports nutrition company, if they were closed for a while? Some people might say yes. Some people might say no. So it’s a really interesting ethical, moral debate.

KEITH: Well, and Sue, as Congress was creating it, and then later on, as Sacha reported, as Congress made the rules more and more lenient…

DAVIS: Yeah.

KEITH: …What was their intent? Did they care about whether businesses truly needed it or whether they could just get it?

DAVIS: You know, I think the intent from a really pure form was to save the economy. And I think, from the bipartisan nature of the initial design of this program, that is a factual statement. I also think that, in the loosening of the rules – and this is a dynamic that I thought was interesting about your story, too. It’s like, yes, the urgency to get it out the door, but could there have been more accountability on the back end? And from a policy perspective, I think that’s a really valid question. Like, shouldn’t Washington and Congress be more accountable for the money that goes out the door? But politically, it raises a lot of red flags to me because, on the front end, you had politicians across the board encouraging people – take these loans. Take them. Take them. Take them. Take them. Keep your businesses open. Like, the messaging was that this was basically free money, and it was yours for the taking to help your businesses – and then to maybe feel like they were changing the terms on the back end. Well, maybe they won’t get forgiven, or maybe you didn’t exactly meet the circumstances that we’ve changed our minds about. I think there was a lot of hesitance to doing that. I just don’t think politically, even if from a good governance – from a waste, fraud and abuse standpoint – that should be what happens, from a political standpoint, I don’t think many of them felt that they could encourage people to take this money and then change the terms by which that they make it tougher for them to keep the money. It just wasn’t going to happen.

PFEIFFER: I think that’s true. And we all know that businesses are a very powerful lobby, and many of them were lobbying their elected representatives to not have to pay back their loans. I spent a lot of time listening and reading to congressional hearings on PPP oversight, and there were many members of Congress who were speaking to Treasury officials, like the former treasury secretary under Donald Trump, Steven Mnuchin. They wanted to know whether their constituents were likely to have to repay the money. They were hearing from constituents who hoped they wouldn’t have to repay the money. People like Senator John Kennedy of Louisiana – we have an exchange between Kennedy and Mnuchin where we hear that exact debate.


JOHN KENNEDY: The small businesswomen and small businessmen think that the federal government is going to double-cross them on the forgiveness of these loans. You need to be mindful of that.

STEVEN MNUCHIN: In the recent bill, there is an extension from two years to five to 10 years, but I don’t expect businesses are going to need to use that because I think the majority of this money is going to be forgiven in the next few months, and that’s our intent. You know, I’d like to make this as easy as possible.

PFEIFFER: And that’s Treasury Secretary Mnuchin himself at the end. You can hear him saying, we’re going to try to make this easy. This is even as he was acknowledging that they knew they had companies that shouldn’t have taken the money take the money.

DAVIS: Sacha, one of the things that you had in your report that I think is so critical to understanding the implementation of this – but it might seem kind of boring and technical – is just how bad the infrastructure of the federal government is, that it’s operating. The operating systems of the federal government are outdated. They’re old, and they weren’t equipped to deal with this kind of an influx of a new program.

PFEIFFER: Yes. And I spent a lot of time talking with is very smart, funny, big-thinking MIT economist named David Autor. And he says a lot of people are conspiratorially concerned about the deep state. He says we should be concerned about the shallow state, and that is our antiquated, archaic, obsolete government technological systems, just like the recent flight grounding we saw where an FAA system wasn’t able to function correctly because it was so old. And he says part of the reason our targeting of the PPP money was so inaccurate is because we didn’t have the systems that could be accurate. In Europe and in Canada, their governments often know exactly what companies are paying people, exactly how many people were laid off. So if they want to compensate those companies exactly, they can do that. We can’t. So in a way, this MIT economist David Autor, would argue, even if we wanted to have gotten the money out in a better way, our systems weren’t designed to be able to do it.

KEITH: So a Republican House is coming in. They’re in, and they want to cut spending across the board. Is this the kind of thing that they could cite and say, you know, here’s an example of waste, fraud and abuse? Or are the politics not quite right to do that?

DAVIS: It’s a little tricky on this particular issue because so many of them voted for the program to begin with, right? It’s like kind of slapping yourself on the wrist. I do think the sort of broader, macro legacy here is that when push comes to shove when it comes to the economy, the animating impulse of government is to throw money at the problem. And we’ve seen that in different types of crisis. And also, I think that on the whole, the lesson for lawmakers and the economic lesson is that it’s helped, worked and that these are very imperfect, blunt instruments. But when you’re dealing with an outdated, clunky, slow federal bureaucracy, sometimes the only way to do it is to do it with the fire hose approach. And so while I do think Republicans are especially right now very focused on wasteful spending, on government overreach when it comes to specifically the pandemic response, spending in relation to crisis, there still doesn’t seem to be much of a reckoning over how to do things differently. Now, when you talk about tax cuts or any other kind of spending, it’s a different debate. But here, I still think most lawmakers look at this program and think that was a win.

KEITH: Like, it worked as designed.

DAVIS: It worked as well as it could work given the system it had to work with.

PFEIFFER: Well, and I do want to add because I do think we’re cutting the government a lot of slack, and of course, I want to be very fair. And as we said, we’ve acknowledged it was an unprecedented economic and health catastrophe. Our systems are antiquated. However, even when Congress saw that there was a lot of abuse of the system and the wrong types – undeserving businesses were getting money, they kept giving out money. They kept making it easier to get the money, and they kept making it easier to get the money forgiven. They gave money to people on the Treasury’s do-not-pay list. It essentially was an honor system. The government guaranteed the loans 100%, which meant the banks took on no risk. They told the banks – do the most superficial level of underwriting. So the banks were essentially rubber-stamping applications. And even the SBA’s own inspector general and other government oversight agencies have said there were no controls. There could have been more oversight and controls, and we didn’t. So I do think there is some fault here, and this system could have been designed with more oversight and control.

KEITH: All right. Well, we are going to leave it there for today. Sacha Pfeiffer from NPR’s Investigations Desk, thank you so much for bringing this reporting to our pod.

PFEIFFER: You’re welcome.

KEITH: I’m Tamara Keith. I cover the White House.

DAVIS: And I’m Susan Davis. I cover politics.

KEITH: And thank you for listening to the NPR POLITICS PODCAST.


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