On April 19, several small businesses filed a lawsuit in federal court in Los Angeles against four lenders -- Wells Fargo & Co., Bank of America Corp., JPMorgan Chase & Co. and US Bancorp -- accusing them of approving big loans first.

A pedestrian wearing a protective mask walks past a Shake Shack restaurant in Washington, D.C., U.S., on Monday, April 20, 2020. Shake Shack Inc. will return a $10 million loan from the U.S. government amid criticism that the publicly traded burger chain and other larger companies gobbled up the emergency funding while smaller businesses were frozen out.

Mom, Pop
“When I think of small businesses, I think of mom-and-pop stores with a handful of employees,” said Alex Gonzalez, an energy consultant in Odessa, Texas, who applied for but didn’t get an SBA loan. “You wonder how much of this money that was intended for companies with 3, 4, 5, 6, 10 or 20 employees were left off.”

A majority of the PPP loans, but only about 17% of the total, was in amounts less than $150,000, according to a Treasury Department presentation last week.

Meanwhile, big companies are getting lifelines. Delta Air Lines Inc. is slated to receive $5.4 billion in government funds, and United Airlines Holdings Inc. $5 billion. Both have said they plan to scale back their workforces.

After nudging from private equity and real estate firms, the Fed also said it would buy some high-yield bonds, a rescue of troubled-debt markets and their investors.

Hedge Funds
Some billion-dollar hedge funds, too, have benefited from quick Fed action. A number of them, including Millennium Management and ExodusPoint Capital Management, ply what’s called the relative-value or basis trade: buying cash Treasuries while betting against Treasury futures with borrowed money that dwarfs their own investments by as much as 50 times. Such traders have become a significant share of Treasury-debt buyers, according to the Bank for International Settlements.

In early March, investors unnerved by the uptick in Covid-19 cases bought up Treasury futures. The basis trade was in a position to tank. Hedge funds’ large, leveraged holdings detracted “from orderly market functioning,” according to the BIS. One 30-year veteran said he’d never seen anything like it: an inability to trade in the $17 trillion market. The Fed responded, limiting losses. Both Millennium and ExodusPoint declined to comment.

The profit and loss of highly leveraged hedge funds have little effect on the wider American economy, aside from the havoc they can cause in financial markets. Shultz, the Alabama electrical contractor, has other things to worry about, such as staying employed, staying in business and staying alive. The bailout has been an added source of unease for her and for many others, threatening to worsen the alienation that cleaved American society after 2008.

“I really have no faith,” Shultz said. “I have no faith in the system. In this government. In this leadership.”

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