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Mnuchin’s Inglorious Endgame

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Treasury Secretary Steven Mnuchin is spending his last few months in office trying to undermine President-elect Joe Biden and the American economy.

Witness Thursday’s decision to end a set of Federal Reserve lending programs established early this year to contain the economic fallout of the coronavirus pandemic.

The programs are emergency backstops for various kinds of borrowing. The central bank, for example, stands ready to buy state and local debt, but only at rates significantly higher than current market rates. If private lenders retreat, the Fed would take their place.

The Fed, and many independent experts, say the programs are still valuable. Indeed, the Fed publicly opposed Mr. Mnuchin’s decision — a remarkable departure from the central bank’s almost invariable policy of publicly maintaining a united front with the Treasury.

Jerome Powell, the Fed chair, said this week that the programs should end when they are no longer needed, “and I don’t think that time is yet or very soon.”

The programs have been lightly used, but like the safety nets stretched beneath tightrope walkers, the number of people in the net isn’t really the point.

Coronavirus case counts are surging, and there are signs that economic activity is faltering. Moreover, ending the backstops could itself unsettle markets.

Perhaps most important, Mr. Mnuchin is foreclosing any expansion of the Fed programs.

In creating the programs, the Fed insisted that the Treasury absorb any losses, and Congress provided $454 billion for that purpose. The programs were initially set up to run through the end of the year, and Mr. Mnuchin on Thursday said he would not extend that deadline. He also said that he wanted the Fed to return any money it hadn’t used.

That last point is critical. The law allows the Fed to keep lending next year, but it does not allow the Treasury to provide more money to the Fed. By requesting the return of the money, Mr. Mnuchin is preventing the next Treasury secretary from easily reversing his decision.

The Fed could have used the money to mount a more aggressive effort to reduce borrowing costs for state and local governments and for small businesses. Democrats frustrated by the refusal of Senate Republicans to approve another round of fiscal stimulus were eyeing the Fed programs as a source of aid if economic conditions deteriorated.

A new Treasury secretary still could authorize an expansion of Fed lending backed by money from other pots. The Fed could revisit its insistence that its lending programs require a Treasury backstop. Congress could provide more money. But the chance that the Fed might be able to escape from its handcuffs is not a good reason for putting on the handcuffs.

The more generous view of Mr. Mnuchin’s decision is that he is impelled by ideological motives to constrain federal support for the private sector. By limiting the tools available to the incoming Biden administration, however, he is substituting his own political preferences for those of the majority of Americans who just elected Mr. Biden.

Mr. Mnuchin’s behavior contrasts sharply and shamefully with the Bush administration’s conduct during the similar period of economic crisis after the 2008 presidential election.

Then, outgoing Treasury Secretary Hank Paulson sought to preserve the incoming Obama administration’s room to maneuver, and to involve the incoming administration in important decisions. When the government announced a bailout for Bank of America in January 2009, officials made clear that both the outgoing and incoming presidents had approved the rescue plan.

The less generous reading of Mr. Mnuchin’s behavior is that he is engaged in an act of sabotage with the simple goal of punishing President Trump’s political enemies.

Whatever the motive, the decision is misguided. Mr. Mnuchin can serve the public interest, and avoid further damage to his own reputation, by maintaining the lending programs.

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