October 15, 2020 at 5:00 am ET
One might think investors are “all-in” on the massive stimulus induced rally in stocks and other assets. The stimulus “firehose” is spraying money in all directions, in unprecedented volumes and with warp speed delivery. The problem is that increasing irregularities around where the stimulus dollars are landing, suggests the emergency flow is not always hitting the fires of economic emergency. Financial analysts are sounding the alarm on accountability, especially as policymakers look to reopen the spigot.
Chartered financial analysts recently provided feedback on a range of COVID stimulus matters, including specifics regarding the stimulus distribution, oversight and accountability.
Many investment professionals are feeling great discomfort in how markets and financial analysis have become unnervingly detached from economics. While accepting the current diagnoses of unprecedented financial emergency, concerns are intensifying over seemingly unchecked Federal Reserve Board authority to change programs, switch pools of money around and prop up almost any asset class. Meanwhile, they have designs on even more money via a fourth round of congressional programs.
Investment professionals increasingly worry that massive, unfunded stimulus being sprayed in all directions faces a serious risk of backfiring. What is wearing particularly thin with finance pros is answerability. Large majorities of survey respondents have high concern about bailout program transparency — including details about the recipient, terms of the distribution and any connection to Washington politics. Over 90 percent in some cases see huge gaps in stimulus program transparency and reporting.
Meanwhile, daily stories about criminal prosecutions of stimulus recipients confirm our fears. The Justice Department has acted on more than 50 criminal fraud cases totaling at least $177 million; those charged had already defrauded the U.S. taxpayer of $70 million. Federal law enforcement announced “several hundred” similar investigations and acting Assistant Attorney General of the Justice Department has described the scale of potential fraud as “significant.”
But this appears to be the tip of the iceberg. The government’s own ethics watchdog, the Government Accountability Office, has sounded the alarm on fraud and the need for more and better data on COVID-19 loan programs. New committees you probably have never heard of are collectively charged with overseeing coronavirus spending and stimulus program accountability, but their oversight effort is weakened by both a paucity of reliable data and the insurmountable task at hand. Perhaps it is telling that no one wants to be held responsible: The Congressional Oversight Commission set up months ago with the first CARES Act still lacks a chair.
Not surprisingly, the government agencies involved in stimulus program administration and distribution are playing coy with the overseers. Inspectors general, media outlets and a range of public interest groups have implored Congress to force disclosure, some even bringing legal action to force public records disclosure, assuming complete records exist. Meanwhile, money is going to firms who have figured out how to double -dip, government contractors, foreign companies and political contributors with few details.
All taxpayers must be asking honest questions about the government’s oversight capabilities and whether additional resources may be needed for proper origination and monitoring of stimulus distributions. As leaders consider the next trillion-dollar move, a growing chorus of market stakeholders rightly assert that stimulus must not be allowed to continue in unlimited fashion or in the shadows. Busting the U.S. budget now in the name of financial emergency must be done with full transparency, due respect for taxpayers and unquestioned integrity.
Kurt Schacht, JD, CFA, is managing director of the Standards and Financial Market Integrity division at CFA Institute, where he oversees all advocacy efforts and the development, maintenance, and promotion of the highest ethical standards of practice for the global investment management industry.
Karina Karakulova is senior manager, Capital Markets Policy AMER at CFA Institute; the capital markets group develops and promotes policy positions and research that advance market integrity, investor protection, and high ethical standards of professional conduct within the investment community.
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