Republican divisions threaten new stimulus proposal

The White House and Republican congressional leaders have reached a deal on a new package of stimulus measures to aid the US economy, but are facing a backlash from rank-and-file members of their party that could complicate prospects for a final agreement in Congress.
Republican opposition has been building over the course of the week, and intensified as Mitch McConnell, the party’s leader in the Senate, and Trump administration officials finalised terms of a plan to spend $1tn to sustain households and businesses grappling with the pandemic.
Final passage of stimulus legislation on Capitol Hill was already problematic because the Democratic-controlled House of Representatives had passed a $3tn bill, and was unlikely to accept a far smaller package.

Meanwhile, many Republican lawmakers are hardening their stances, arguing their party’s stimulus plan is too expensive and fretting that Americans risk becoming wholly dependent on government aid.
“We cannot use the crisis to justify opening the spending floodgates and borrowing from future generations to fund non-emergency priorities,” Mike Enzi, a Republican senator from Wyoming, said on Wednesday.
Ted Cruz, the Texas Republican senator, was more blunt. “We still don’t know the details of this initial proposal, but, as it’s written right now, I’m not only a no, I’m a hell no,” he told CNN. “This is the swamp in a feeding frenzy.”

Most Republicans don’t believe the government should or has the ability to spend our way back into economic prosperity

The lack of internal consensus has led Republicans to consider extending one of the most contentious elements from the previous rounds of stimulus — $600 a week in enhanced jobless benefits — to give them time to coalesce around a position. Many Republicans have argued the extra $600 a week is discouraging some recipients from returning to work.
The emerging revolt may not entirely scupper the chances of a deal but it could lead to a scaled back package. Earlier this year, in the first round of stimulus, the White House and Congress agreed on $3tn in emergency funds, but its impact is fading as the resurgence of coronavirus in the last six weeks threatens economic recovery.

In a sign of Senate Republicans’ determination to limit the size of the next aid package, CNBC reported on Wednesday that they would only extend the enhanced jobless benefits until the end of the year if they were slashed to $400 per month, roughly one-sixth of the current level.

Mr McConnell has made the case for additional stimulus, saying the US economy would benefit from a “shot of adrenaline” because the Covid-19 crisis had not gone away. He has emphasised the need for funding schools, coronavirus testing and contact tracing, incentives for job creation, and another round of direct payments to individuals. He has not embraced White House demands for a cut in payroll taxes. At a press conference on Wednesday evening, Donald Trump, the US president, said “ultimately something good will come out” of the negotiations.
Many Republicans are nervous their party’s plan will balloon once talks begin with congressional Democrats, including Nancy Pelosi, the House speaker, on compromise legislation to be sent to the president.
“There isn’t much appetite to do anything before the election,” said one Republican congressional aide, adding that only additional help for small businesses was popular. “For anything that we do, Pelosi is going to have to give her OK, and she will use the opportunity to get as many of her priorities in there, or have a big fight about it.”

Adam Michel, a senior policy analyst at the Heritage Foundation, a conservative think-tank, said Republicans embraced the first round of stimulus, worth $3tn, as a temporary “source of liquidity and support” for shuttered businesses and unemployed people. He said the dynamic had shifted and “most Republicans don’t believe the government should or has the ability to spend our way back into economic prosperity”.
Democrats are more united in their insistence on a hefty dose of government aid to help struggling households, some businesses, and cash-strapped state and local governments — and some in the party predicted the Republicans will ultimately come around.
“There will be a deal,” Ruben Gallego, a Democratic congressman from Arizona, told the Financial Times. “Largely it’s just a political reality that this president and the White House has to deal with. His numbers are low, he has too many senators that are on the chopping block themselves, and they are going to find a way to try and increase their numbers.”
He added: “Not handling Covid-19 relief in a proper way is only going to hurt them more, and I don’t think they are going to want to take that chance . . . it’s sheer political survival.”

Kentucky sues Blackstone and KKR over fund performance

The state of Kentucky has sued Blackstone and KKR, demanding compensation and punitive damages over hedge fund investments that were deemed disappointing but generated “excessive fees”.
In 2011, Kentucky’s pension system invested in hedge funds operated by Blackstone and KKR, as part of what one official called an “absolute return strategy” that was supposed to reduce risk and deliver annual returns of 7.75 per cent.
The state contends the hedge funds “did not lower risk, reduce illiquidity, or generate sufficient returns . . .[but] did generate excessive fees”. The Wall Street firms “targeted underfunded public pension funds”, according to the complaint, seeing them as potential buyers of hedge fund vehicles the state now calls “exotic” and “unsuitable”.

The litigation illustrates the pitfalls that can await public pension funds that try to juice their investment returns to overcome financial shortfalls. This month, Calpers adopted a similar strategy, saying it would move deeper into private equity and private debt as part of the California pension scheme’s effort to hit a 7 per cent rate of return.
In filing this week’s claim, Kentucky’s Republican attorney-general, Daniel Cameron, is aiming to revive a legal complaint that was originally brought by eight retired public workers.
That legal action ran aground earlier this month when the state supreme court found that the workers lacked standing — a ruling that will probably become moot, if the attorney-general’s intervention is allowed to proceed.
Blackstone called the attorney-general’s intervention “surprising” and said the claims “have absolutely no merit”. It added: “We delivered more than $150m in net profits to Kentucky pensioners — and exceeded by nearly three times the benchmark set by [Kentucky Retirement Systems] itself.”
KKR’s Prisma hedge fund unit has previously said it met all its obligations to the Kentucky pension system, arguing it could not have been responsible for the fund’s shortfall, which existed long before it was hired by the state.
State lawyers indicated in legal filings that they expect to recover hundreds of millions of dollars. “Our goals in pursuing this litigation are . . . to protect the pensions of hardworking government employees,” a spokesperson for Mr Cameron said on Wednesday.

The lawsuit alleges that a “meaningful portion of the profits flowed to top executives,” including Blackstone founder Stephen Schwarzman and his KKR counterparts, Henry Kravis and George Roberts.

Trump orders ‘surge’ of federal agents into US cities

Donald Trump has ordered hundreds of federal agents into Chicago and Albuquerque, New Mexico, to combat what the US president described as a “rampage of violence” in American cities.
The announcement on Wednesday came as several US cities have seen an uptick in gun violence, a trend Mr Trump has seized on to portray areas led by Democratic officials as centres of lawlessness.
Mr Trump has made the inflammatory pitch as his re-election campaign has stumbled. His Democratic rival, Joe Biden, is leading by double-digits in some polling.

“I’m announcing a surge of federal law enforcement into American communities plagued by violent crime,” he said at a White House press conference. “We’ve just started this process, and frankly, we have no choice but to get involved.”

We welcome actual partnership, but we do not welcome dictatorship

It is the latest volley from Mr Trump, who has accused Democratic city leaders of endangering their citizens as they respond to activist demands to defund local police forces in the aftermath of the killing of George Floyd by police in Minneapolis.
Some cities have agreed to divert funding from the police to welfare programmes, while the Minneapolis city council has said it would begin dismantling the local police department.
The initiative announced on Wednesday followed fierce controversy over the actions of federal forces in Portland, Oregon, where Mr Trump has deployed officers over objections from local and state Democratic leaders.
In Portland, US marshals and Department of Homeland Security officers, often clad in military-style garb, have used tear gas against protesters at the federal courthouse. In one incident, DHS officers arrested a man and took him away in an unmarked car.

The deployment to Chicago and Albuquerque is part of a separate initiative called “Operation Legend”, which began earlier this month in Kansas City, Missouri, officials said on Wednesday.
“This is a different kind of operation obviously than the tactical teams we use to defend against riots and mob violence,” said William Barr, the US attorney-general. “The operations we are discussing today are very different. They are classic crime fighting.”

About 200 investigators from the Department of Justice and Department of Homeland Security were sent to Kansas City, in an operation named after LeGend Taliferro, a four-year old who was shot and killed there in June, as part of a broad effort to reduce violent crime.
Mr Barr said a “comparable” number of agents would be sent to Chicago, along with 35 to Albuquerque.
Lori Lightfoot, Chicago mayor, has cautiously welcomed the deployment of investigative agents, after previously denouncing the suggestion that federal forces could be sent in response to protests in the city.
“We welcome actual partnership, but we do not welcome dictatorship,” she said at a news conference on Tuesday.