CNBC transcript: Treasury Secretary Steven Mnuchin speaks with CNBC’s “Squawk on the Street” today on supporting economy during crisis.
The following is our rough coverage of the 2021 Sohn Investment Conference, which is being held virtually and features Brad Gerstner, Bill Gurley, Octahedron's Ram Parameswaran, Glenernie's Andrew Nunneley, and Lux's Josh Wolfe. Q1 2021 hedge fund letters, conferences and more Keep checking back as we will be updating this post as the conference goes Read More
WHERE: CNBC’s “Squawk on the Street”
Treasury Secretary Mnuchin's Full Interview On Supporting Economy During Crisis
JIM CRAMER: Joining us now Treasury Secretary Steven Mnuchin. Mr Secretary, thank you so much for coming back on Squawk on The Street.
STEVEN MNUCHIN: Jim, great to be back with you.
JIM CRAMER: Okay, I want to give you a chance for a do over. We saw remarkable weekend. Resurgences in shopping, so many places and going out. Can we possibly take off the table that next month the next number will be worse than this one? Maybe leave it open that perhaps we've gotten some improvement?
STEVEN MNUCHIN: Look, Jim, I wouldn't say it’s a do over. I said it could be. So, I think the economic models are very difficult to predict the situation, since this has nothing to do with normal economic factors, this has to do with a closing of the economy and an opening of the economy. So, to me -- you know, first of all, let me just say we're very sympathetic to all the workers who this is impacting. And if the numbers are worse next month, you know, we understand that. But I think the numbers are going to be getting better, as we go into the summer and we reopen the economy. And that's the important issue here.
JIM CRAMER: Now we're just covering Phase One, pretty much being completed. We’ve got Phase two now, which is another whole level. What can we do what can the government do, how much money should the government spend to make it so Phase Two incorporates all the new rules, the new safety rules, which turn out to be quite a burden for most businesses?
STEVEN MNUCHIN: Well, Jim, the really important issue is, Congress worked very, very quickly, with the administration and the President on an unprecedented $3 trillion package. And we're just getting that money now into the economy. So, we are having the second round of the PPP actually being dispersed. We now have over 140 million Americans who got Direct Payments, either direct deposit or checks. We have lots of money going into the economy because of the facilities that the Fed has announced with the Treasury. We've unlocked the bond market, so you have companies like Boeing being able to borrow unprecedented amounts of money. And I think this is going to have a big impact on helping the economy. And now what the President has said is, let's step back for a few weeks, let's be very considerate in what we do in the next round before we go consider spending another trillion dollars or more of taxpayer money. But the President is determined, we'll do whatever we need to do.
JIM CRAMER: Well, can you tell the president first – PPP, I think it's been a phenomenal success. There were obviously some people who took advantage of it and you weeded them out. But at the same time, PPP has unveiled some situations that I think the President really would be great to step into, which is the disparity of states. You've got Elon Musk trying to open a factory, and he can't open a factory, where really punched people will be employed. Many people in New York are taking their sellers, Tennessee pledge, because we don't know how to open restaurants where we have to whip out half the chairs and you have to take somebody's temperature when they come in, ask them a series of questions. Boy, would it be great if the President gave us directives about what the White House thinks we should be doing.
STEVEN MNUCHIN: Well, the President has given directives and what we should be doing, and we put out a set of guidelines and then we're working with the states and most of the states are all cooperating. And let’s just say I, I agree with Elon Musk he is one of the biggest employers and manufacturers in California, and California should prioritize doing whatever they need to do to solve those health issues, so that he can open quickly and safely, or they're going to find this he's threatened he's moving his production to a different state.
CARL QUINTANILLA: Mr. Secretary, there's been so much debate around whether or not states that are quote been poorly run deserve as much aid as those that quote have not. Are there parameters that the White House is developing to determine how well a states been run, and whether that is a factor in ongoing aid?
STEVEN MNUCHIN: Well there's ongoing discussions on this. But you know, I've heard very clearly from the President and the Republicans that we are not bailing out state pensions and other things. And I haven't heard from the Democrats that they're willing to do what. They want to throw a lot of money at this problem, but I think it's very clear, there is not going to be bipartisan support that bails out states from previous problems. And one of the things we did last week at the President's direction, I think was very important, we gave a lot of money to the states. We created more flexibility, so we said they could use that money for firemen first responders and policemen so that in no uncertain terms, the states didn't have to lay off those people because they were having budgetary issues. We’re also very quickly opening up the, the Lending Facility that the Fed is working with the Treasury so states that have cash flow issues can borrow. And as you know with interest rates, very, very low. States can borrow this money, some of them would have to make changes because they do a balanced budget. But this is, this is a onetime situation that is quite different. But we'll be working with Congress to discuss these issues and many important issues like the liability issue. We want to make sure that as businesses open up, there's not frivolous lawsuits
DAVID FABER: Mr. Secretary, it’s David Faber. In listening to your answer to that question, it sounds like you don't view the state's fiscal problems as something that needs to be dealt with immediately. I mean, they are so many states facing significant shortfalls as a result of fallen sales taxes. And it's not just New York, obviously where the costs have been enormous. But the likes of Nevada or Florida or Louisiana. States to rely a lot on sales tax, they're facing big budget shortfalls that could require them, therefore, to lay off workers. Why isn't that something that you would view with the immediacy that this needs to be addressed?
STEVEN MNUCHIN: Well, let me be clear that the CARES Act gave a lot of money to the States. And that money was intended, not for lost revenues, it was intended for COVID related issues since that's really what the priority is. Having said that, we just gave them a lot more flexibility. So not only can they use it for direct COVID related issues, but we've given them flexibility for first responders so that in no uncertain terms, the men and women who are out there helping us fight this terrible disease, the policemen, the firemen, the hospital workers, the first responders, we want to make sure and no uncertain turns they get laid off. Now, the issue of lost revenues is a complicated issue. These are taxing authorities on their own. Different states tax different ways. Some states have more issues. Some states have less issues. So, this will be something that I continue to discuss with the President, and we discuss with Congress.
JIM CRAMER: Mr. Secretary, there's an opportunity here that you once said you would take on our show. I never thought it would happen. You said if we ever got negative interest rates, if we ever got interest rates so low basically the short-term and long-term are the same, and you would not hesitate to refinance. What an unbelievable time to do just that. You could save trillions of dollars without having to raise any taxes at all. Why not take it? You understand the bond market better than anyone that's been in the government for a long time.
STEVEN MNUCHIN: Well, Jim, we’re absolutely doing that. So, let me be clear, one of the things I've said is one of the reasons I do feel comfortable with us spending all this money is because interest rates are very low, and we're taking advantage of long-term rates. I know at times we've talked about 50 years and 100 years. And when we looked at the market, you know, there just wasn't as much demand, as we thought. But right now, we've watched the 20 years. So, between 10 years 20 years and 30 years we're borrowing an awful lot of money long-term so that we can lock in this $3 trillion for a very, very long period of time. So, we're being careful and balancing. We obviously don't want to disturb the markets too much. But we're going to take advantage of refinancing all of our debt to make sure that we have very low rates. And I think that's something that's a great opportunity for us.
JIM CRAMER: Re-finance existing debt, where you would buyback debt, capital gain free, and then use these lower rates to do that, where you would save trillions more?
STEVEN MNUCHIN: I don't think we need to buy back debt, Jim. Just because of the amount of debt that we have that short-term that does roll off, and the amount of debt that we're using for these deficits, I think we have tremendous opportunities without needing to buy back debt. But I assure you we are very much focused on low rates and taking advantage of locking this in for a long period of time.
JIM CRAMER: Mr. Secretary, could you please tell the mortgage companies, Look, we think that you wouldn't do mortgage forbearance? Perhaps lengthen the, what the mortage is? There’s some non-Fannie Mae paper out there that could lead to evictions. There are lots of retailers and restaurants that could be in a lot of trouble because they can't afford their rent. Real estate investment trusts in trouble. What a great opportunity to be able to say, you know what guys? come on. This is a time for forbearance, this is the time when you must lose some money in order to be able to save our country.
STEVEN MNUCHIN: Well, Jim, I completely agree with you, and during the mortgage crisis the financial crisis. Lenders worked with borrowers. I think Mark Calabria has done a great job at the FHFA working with Fannie Mae and Freddie Mac on forbearance guidance, and the Secretary Carson has done a great job on Ginnie Mae and FHA. And we've encouraged private market lenders and banks to follow. Now, obviously, we're not going to tell them what to do because these are private contracts. But I think the majority of the banks are following these for their own portfolios. And, on a lot of these loans, I think what they're doing is tacking on the payments to the end. So, we understand that it's going to be hard for many borrowers to kind of makeup two or three payments. So, it gets tacked on to the end. And we're monitoring the mortgage markets very carefully. So, I'm quite pleased with how this is working.
CARL QUINTANILLA: Mr. Secretary, Jim brought up negative rates. The Journal of course over the weekend said the Fed is unlikely to use it. People predicting Powell’s appearance tomorrow will essentially say as much. Does Treasury agree?
STEVEN MNUCHIN: Well, I want to be very careful. I am not going to comment on the Fed’s action on interest rates. That's up to them and that's consistent with my view. But I can assure you, we have plenty of issuance at zero that we will take advantage of at those rates. So, from my standpoint, as being a borrower, we're going to take advantage of zero rates.
DAVID FABER: Speaking of the Fed and it's David again, Mr. Secretary. Where are we on the various programs that you were helping to backstop with what was over 450 billion, where you're going to take the first loss? Some of them were allocated a lot remains unallocated, and it's not clear exactly how active the Fed has yet been on Main Street lending or aid to the states that you talked about in the form of course of credit. Give us an update here on what the Fed’s doing, and what your expectations are for those on those unallocated funds which came from Treasury?
STEVEN MNUCHIN: I think the Fed and the team of Treasury has just done an outstanding job, you know, working around the clock, getting these facilities up and running. Several of them are up and running, as you said, there's several more than we expect that will be up and running over the next couple of weeks. We have literally daily calls with the Fed on the working teams working through this, and you pointed out on purpose, I allocated half of the funds, and I kept half of the funds in reserve. Since I don't know which one of these markets is going to need more money so as opposed to allocating it out. All in advance. I bought the strategic important thing is, let's allocate a lot of money. Then we'll see where we need money. If we need to put more money in the mainstream, we obviously have the ability to do that. As I said, on the corporate facility, we wanted to provide a lot of money there. My expectation is and how the markets have opened up, we're going to need to spend a lot less money there. But I can tell you I'm authorizing a wire this morning, going into the secondary corporate facility. It is on its way out. And we expect these facilities, all to be up and running very quickly. And again, I just want to commend the amazing team of professionals at the Fed and at the Treasury who've been working around the clock to create these and market stability.
DAVID FABER: But is there one, Mr. Secretary, one of these programs that you think already the Fed has been most active in? You know, to your point, they haven't really had an intervention in the corporate bond market burn it wouldn’t seem because it opened up simply on the prospect of them actually being involved.
STEVEN MNUCHIN: Well let me be clear these, these facilities were supposed to be backstops. So, this is, this was intended to be a backstop. So you saw the initial facilities around commercial paper and money markets took in some volume. Once we did that, it quieted down. Again, it created stability in those markets. As I mentioned the corporate bond markets when we announced these corporate bond markets were completely stock. That became unlocked. You look at the PPP facility, that's up and running so small lenders are able to access the Fed facility. The Main Street facility, the new facility we expect to be up and running soon. We're working on TALF. So, look, in the perfect world we announced all these facilities the markets work, and we don't need to use them. But they're there and they're going to be ready and they're going to serve as backstops. So, we make sure that American business and American workers have access to liquidity,
JIM CRAMER: Mr. Secretary, I keep hearing one word, and it's a word that people tell me you will not use. And it has to do with PPP. 75% goes to workers, but people want flexibility they want not to give it they want to give it to the workers but, kind of, you go from law firm to law firm to law firm, businessperson to businessperson to businessperson, they don't know what to do. They need guidance. And they all want the program to succeed. But they don't know how to execute on it.
STEVEN MNUCHIN: Jim, I disagree with you completely. They do know how to execute on it. And it's working great. 99% of the loans were 2 million and less to very small businesses. As you know, there's a small number of loans around public companies and things like that. But this program is working great. It’s getting money to the workers, and on the 75%, let me just comment, the way Congress designed this, eight-weeks of payroll, plus 25% of overhead. If Congress wants to change that rule, I'm happy to work with Congress if there's bipartisan support to do that. But the 75% test was just a -- was just clarity on a test that was clear in the way that Congress designed this program. But again, like anything else that we need to make technical fixes as we see different issues, I think one of the things we're particularly sympathetic to are the restaurants. Many of the restaurants are just beginning to open up and have said that you know they'd really like to hold the money. They can’t do that, that that's not something we can do. But we’re working with a technical fix. So, we’re working very clearly. But let me just tell you, going to help about 60 million Americans back to work.
JIM CRAMER: Mr. Secretary, I could not agree with you more. I think it’s an unbelievable program. We just want -- there are certain industries that are more difficult, and they give us flexibility from Congress, it will really be a home run. Mr. Secretary, thank you so much for joining.
STEVEN MNUCHIN: Thanks, Jim.