The House passed a bill relating to Chinese investment listings in the US (see below). The Senate approved the nomination of Christopher Waller to serve as a governor on the Federal Reserve Board.
The House and Senate will pass the National Defense Authorization Act and a bill to extend government funding (see below).
COVID-19 Stimulus Bill.
In an effort to break the stalemate in negotiations between House and Senate party leaders on the composition and price tag of a fifth stimulus bill, a bipartisan group of lawmakers introduced a compromise proposal that addresses key COVID-19 spending priorities. The $908 billion proposal includes support for the unemployed, state and local governments, schools, hospitals, health care providers and small businesses. It also has additional funds for vaccine development and distribution. The bill extends forbearance measures (including those for renters and student loan borrowers) that are soon set to expire, and the urgency around some of these expiring provisions will be helpful in pushing a bill forward. The plan seems to us to be a reasonable compromise and is probably the outer bound in terms of the amount of funding that is politically possible for Congress to pass this year. House Speaker Nancy Pelosi (D-CA) has embraced this bipartisan plan as a starting point for negotiations, while Senate Majority Leader Mitch McConnell (R-KY) hasn’t indicated opposition to it. We believe the proposal is a useful catalyst in bringing more seriousness to the negotiating and could be the basis for a final agreement.
China Investment Restrictions.
The House this week passed a bill that could result in the delisting of Chinese companies on US exchanges. The bill, which passed the Senate unanimously in May, reflects longstanding concerns about the failure of Chinese companies to comply with US auditing requirements (specifically, US regulators’ access to Chinese companies’ audit papers) and would require the SEC to delist companies that fail to comply over a three-year period. The bill will become law once it is signed by President Trump. On a parallel track, the Trump administration has been considering action on the issue and issued a report this summer that also recommended that access to audit papers be a condition of listing. While the report puts forward a shorter compliance period of two years, it also proposes a work-around to Chinese legal restrictions by allowing Chinese companies to use a co-auditor (e.g. a US audit firm). The SEC has been working on a formal proposal to implement this recommendation and could issue that in the coming weeks. The Trump administration’s proposed approach appears to fall within the parameters of the legislation that Congress has passed though it ultimately would need to be finalized and implemented by an SEC led by a Biden administration appointee.
December 10 and the Pfizer Vaccine.
Somewhat off the radar screen is a meeting on December 10 of the Vaccines and Related Biological Products Advisory Committee (VRBPAC), which advises the Food and Drug Administration (FDA) on issues relating to vaccine approvals. The subject of the meeting is the feasibility of granting emergency use authorization to the Pfizer/BioNTech COVID-19 vaccine, which has been under consideration at the FDA since November 20. The meeting is important because the VRBPAC may serve as a last check by the FDA on the vaccine’s emergency approval. Given that the FDA often acts within days of VRBPAC input, we may hear news on the approval of this vaccine candidate by the FDA as early as late next week. The Moderna vaccine candidate is next in the queue and is expected to be considered by the VRBPAC later in the month. Emergency approval of the first vaccine will prompt debate and questions over its distribution, which will be challenging but hopefully manageable. We will take it one step at a time and hope for good news from the December 10 meeting.
Fed Backstop Wind-down.
Treasury Secretary Steven Mnuchin recently announced that various emergency Federal Reserve facilities (those capitalized by funds from the major stimulus bill Congress passed in late March) would be allowed to expire at the end of the year, returning $455 billion of unused funds back to the Treasury. These include funds for Fed facilities that provided support to the municipal and corporate bond markets and to mid-sized businesses. Though there was limited take-up in some of these facilities (in part because of restrictive eligibility criteria and terms), they were backstop measures that helped inspire market confidence. Secretary Mnuchin indicated that the facilities are no longer needed given that market conditions have normalized. Federal Reserve Chairman Jay Powell disagreed with the decision but also has indicated that it is the Treasury’s call from a legal perspective. At hearings in Congress this week, the decision was supported by many Republicans but sharply criticized by many Democrats. The programs could be resurrected by a Biden administration, but it will have much less financial firepower with which to work unless Congress provides additional funds, which seems unlikely at this point.
Government Funding Bill.
Congress risks a government shutdown if it doesn’t pass a bill to fund the government by December 11. As usual, the two parties are fighting over specific funding priorities and aren’t expected to reach a comprehensive agreement on funding for the next fiscal year (which extends to September 30) by next Friday’s deadline. Rather, they’ll likely extend funding to sometime later this month or early next year and hope to settle their differences by then. This government funding bill may be especially noteworthy because it may contain a stimulus bill or parts of it.
Liability Protection for Big Tech.
President Trump has insisted that he will only sign a nearly-complete defense authorization bill if it contains a provision eliminating or limiting the liability protections that protect technology companies under Section 230 of the Communications Decency Act of 1996. Section 230 has protected the big tech firms from being sued for content posted on their social platforms. More recently, it has come under attack from an odd coalition of members from the far right and left. We do not believe the Congress will make any meaningful changes to Section 230 through the pending defense bill. Rather, Congress will continue to scrutinize Section 230 and broader tech industry business practices next year with an eye toward possible reforms. Lawmakers need to continue to lay the groundwork through further hearings, investigations and debate for the eventual development of a bipartisan consensus on a policy solution.
President Trump’s pardon of Michael Flynn, his former National Security Advisor, has invited rumors of who he might pardon next. This speculation includes possible pardon of himself, his family and associates. The premise behind this specific speculation is that President Trump will be subject to many federal investigations from congressional Democrats once his term expires, and the pardons would serve to protect him from that scrutiny, whether it’s justified or not. Pardons are not new to the presidency. President Obama pardoned, commuted or rescinded the conviction of 1,927 people, including 330 commutations on his final day in office. Other presidents in modern history have used this power less frequently and less broadly. President George W. Bush, Clinton, George H.W. Bush and Reagan used the power to pardon 200, 459, 77 and 406 individuals, respectively. The ability to pardon is a unique and significant power of the presidency, and we expect more news on the pardon front under President Trump in the last few weeks of his presidency.
Short Term Rental?
This past Tuesday there was a Congressional runoff election in Georgia’s fifth Congressional District that flew under the radar, likely for good reason. That’s because the runoff election, won by Democrat Kwanza Hall, was to determine who will fill the remainder of the term of civil rights icon and former Congressman John Lewis’ (D-GA), who passed away earlier this year. However, this week’s election only determined who will represent Georgia’s fifth Congressional district until January 3, 2021. After that Congresswoman-elect Nikema Williams (D-GA), who won the November 3rd election, will represent the seat in Congress. While newly- elected Congressman Hall will only represent the district for about a month, he will not hold the record for the shortest tenure in the House. In fact, it will only be the third shortest tenure, with the shortest belonging to former Congressman Effingham Lawrence, who represented a Louisiana Congressional district for a single day on March 4, 1875 before courts intervened and declared that he had not actually won the election. Although Congressman Hall’s tenure in the House will be brief, his record of accomplishments may be on par with most who have served in the chamber for a much longer time.