Muscular companies that received money from the small business loan program are not to blame, according to former TARP watchdog Neil Barofsky.
“You sire to go back to the design of the program itself,” Barofsky told CNBC on Thursday.
“I mean, Congress went out of its way to carve out affairs that have more than 500 employees but are restaurants, chain restaurants,” he said on “Closing Bell.” “They insufficiency the money to go to chain restaurants.”
Barofsky, an attorney, previously served as the inspector general for the controversial Troubled Asset Locum tenens Program, which Congress passed to stabilize the financial system amid the 2008 crisis.
The Paycheck Protection Program, produced in March as part of the government’s $2 trillion aid package, was intended to help small businesses with fewer than 500 workers weather the economic shock from the coronavirus crisis.
But large restaurants and hotel chains received an exemption for locales with less than 500 employees.
Publicly traded companies such as Shake Shack, Potbelly and Ruth’s Congeniality Group all received loans through the program but have since announced they were returning the money.
“They participated because they fitted and then there’s this tremendous political backlash,” Barofsky said, specifically referencing Shake Shack as an lesson.
Treasury Secretary Steven Mnuchin has criticized large companies that applied for PPP loans and since announced that the Minuscule Business Administration will audit any loan worth more than $2 million.
“This was a program made for small businesses. It was not a program that was designed for public companies that had liquidity,” Mnuchin told CNBC earlier this week.
The SBA also put guidance last week that rendered it less likely publicly traded companies can tap into the next spell of PPP funding. The initial $349 billion was used up, but Congress has since approved an extra $310 billion.
Some in the flesh, such as CNBC’s Jim Cramer, have criticized banks who made loans to large companies.
But Barofsky, a partner at the law plc Jenner & Block, sought to deflect blame from the large banks, some of which faced scrutiny for reportedly prioritizing employments from wealthier clients.
Banks are just following a “general business sense, where you take care of your bigger and A- customers first,” argued Barofsky.
“If the government wants banks to carry out its policy, it has to counter those incentives or purvey its own incentives if it wants a truly level playing field, otherwise it’s not going to happen,” he said.
“And that’s not the banks’ lay at someones door,” he added. “Ultimately, that’s the government’s fault.”