MNI INTERVIEW: Pandemic Risks Financial Crisis: Ex-CFTC Head

By Ryan Hauser

     WASHINGTON - The economic downturn triggered by the Covid-19 pandemic could

trigger a wave of corporate defaults and a financial crisis, a former chair of

the U.S. Commodity Futures Trading Commission who also oversaw the TARP program

told MNI.

     "The financial system is stronger than it was in 2008, because of increased

capital, better liquidity and other measures," said Massad, but "the risk [is]

that a long and deep recession increases the default rate on corporate loans,

and corporate credit is already extremely high." He added that the Federal

Reserve's zero interest rates also put pressure on bank margins.

     "It is not yet a financial crisis, but if we don't act quickly it could

become one," said Timothy Massad, the former Assistant Secretary for Financial

Stability at the U.S. Department of the Treasury and former chair of the CFTC.

     "The main lesson of 2008 still applies: act fast and with overwhelming

force," he said.

     Massad, who oversaw the Troubled Asset Relief Program during his tenure at

Treasury, called for "aggressive government action" to contain the virus and

treat the sick; "strong fiscal measures" to "cushion the cost of the crisis and

the related economic disruptions, especially for low-income and average-income

Americans," and "actions to make sure the financial system remains stable and

there is plenty of liquidity."

     The U.S. government "needs to mobilize industry to produce whatever is

needed to remove bottlenecks and limitations on our ability to stop the spread

of the virus and treat the sick," said Massad, now a senior fellow at Harvard's

Kennedy School of Government.

     "More testing is an obvious need, but the health experts can tell us what

else," he said, adding "if that can be done in part by the federal government

providing block grants to the states, then do it that way."

     "Showing that we can contain the health crisis is the first step toward

dealing with the economic and financial repercussions."

     --TOO EARLY FOR BAILOUT SPECIFICS

     On fiscal stimulus, Massad said on Friday that "it's too early to talk

about bailouts for specific industries." He added that economic repercussions

"will be felt by businesses in many industries" and that "some will suffer more

than others," making it "difficult to draw a line and say this industry deserves

a bailout but this one doesn't, particularly at this stage."

     What the U.S. can do is "deal with the economic costs of the disruptions,

especially for lower-income Americans" by "defray[ing] the cost of testing and

treatment, sick leave and family leave pay, increased unemployment benefits,

increased nutrition assistance for kids not in school, and so forth."

     "Ideally, the government would take action to put more money in the pockets

of most Americans quickly and directly, and not worry too much about who is

'deserving' here," said Massad. "Broad based measures that get money out the

door quickly are much better than programs that condition assistance on complex

criteria, certifications or the like."

     Massad called for providing the financial system with liquidity "by ramping

up the facilities we used in 2008" and "even broadening them to corporate

borrowing." 

     "We need to be ready to take more aggressive action should this become a

full blown financial crisis," he said, adding, "Unfortunately, Congress took

away some of the most important tools we had after 2008."

--MNI Washington Bureau; +1 202 371 2121; email: ryan.hauser@marketnews.com

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