Federal PPP Loans Put Corrupt Hands in the Till

COVID-19 has taught us that the government is bad at spending money. It might be different if it could target money where it’s needed most. But federal bureaucrats lack that ability. Because they do, billions have gone to waste. That waste has left millions of needy Americans in the lurch.

Let’s start with the latest scandals for the Paycheck Protection Program (PPP). This government-backed loan program aimed to help small businesses with emergency loans. But there was a problem with this program from the start. Federal bureaucrats don’t know any small business owners. So they offloaded the operation of the program to banks.

The bureaucrats gave the banks two basic directions for running the program: Get the money out the door as fast as possible, and don’t ask a lot of questions.

Common sense says that’s a recipe for enabling waste, fraud and abuse. It is unsurprising then to find out there has been a lot of it. What is surprising though is how much PPP money never left the banks because of fraud. Two recent headlines stand out in the news:

The banking industry has been hurt by the COVID recession. State and local government lockdowns have meant huge losses for the banks’ customers. As a result, banks have also racked up huge losses that have increased the risk of layoffs for bank employees, helping provide an additional incentive for committing fraud.

Motive, Opportunity, and Means

I suspect the bank employees’ fear of layoffs adds to the basic greedy motive of a PPP payout in this case. Their opportunity to commit the fraud came because they knew nobody in the government was watching. Their means was to use their insider access to put their fraudulent loan applications at the front of the line. It was easy money for them. Meanwhile, small business owners who were denied loans after PPP funds ran out have had it a lot harder.

Fortunately, banks have higher ethical standards than federal bureaucrats. They caught their cheating employees with their hands in the till.

It’s the numbers, however, that confirm this fraud was enabled by government bureaucrats. 600 bank employees? At two major banks? Crimes just don’t happen on that scale unless something broadly intervenes to make it possible. In this case, what enabled the fraud was the government’s rollout of a massive relief program that its bureaucrats weren’t capable of effectively managing.

Because they were caught, many of those involved in PPP fraud at the banks are now unemployed. Want to guess how well government bureaucrats are managing the programs for funding unemployment benefits?

Craig Eyermann is a Research Fellow at the Independent Institute and the creator of the Government Cost Calculator at MyGovCost.org.
Posts by Craig Eyermann | Full Biography and Publications
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