Why Did Those Big Companies Get PPP Funding?

Everybody seems to be talking about the PPP (Payroll Protection Plan).  This program of course was originated by our federal government to help provide low interest and in some cases non-repayable loans to small businesses to help them manage throughout the pandemic.  The thinking behind this legislation was that many small businesses would have to lay off or in fact terminate employees or close entirely and that these loans would allow them to 1) keep their businesses open; 2) continue to maintain some employees and pay them. Thus it was a very good plan for a very difficult crisis we’re  going through.  

So what happened?  Well, the money was allocated.  In fact it has been allocated twice but much of the money has been loaned through the U.S. banking system to very large, corporate customers whose actual needs for these funds remain questionable.  Moreover, this has fundamentally undermined the purpose of the program which was to provide a broad spectrum of moderate funding to small and mid-size companies.

The reason this happened was because the money was distributed through the United States private banking system and most of the banks were distributing this money to their best corporate customers; that is, larger corporations who had significant holdings at those financial institutions.  So the flaws in the distribution portion of this legislation are obvious to anyone who analyzes it.

So what could we have done differently?  Quite simply we could have had a larger role for the federal government in the distribution of these funds.  In Europe for example similar programs guarantee that money is distributed to companies who need it directly from the government which eliminates the clear preference of the private banks to fund their wealthiest corporate customers.  These programs are being rolled out in Europe now and are going to be highly successful in allowing many broad-based small companies to maintain their workforce and stay open.  Unfortunately in this country, without a unified focus of a government plan to see this crisis pandemic funding gets to its most needed customers, the results have been entirely predictable.

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