Posted on 03/21/2020 7:25:06 AM PDT by Kaslin
As members of Congress debate the terms of the trillion-dollar-plus coronavirus relief package for businesses and individuals, they would do well to remember our recent history.
Most people in professional Washington hate the populist era we are going through. The populist period exists because Americans already feel like their elected officials are more responsive to large corporate interests than to the individuals who elected them. This played out big-time after the Wall Street bailouts fueled the tea party on the right and Occupy Wall Street on the left.
People on the left and right agree that some government assistance is needed to avoid an economic catastrophe. On the individual level, many people with little savings have already lost jobs. Many more will. The best policy is likely just direct payments from the government targeted as quickly as possible to those most in need. It's going to cost a ton and comes with a huge downside down the road, but it's also hard to argue that we don't need it. That's actually the easy part.
On the corporate side, things get more complicated. People see empty airports, empty restaurants and closed-down businesses. They know many industries are suffering. People also don't want to throw our economy into a crisis. They will support a bailout, but if they later learn that the corporate world got anything that looks like a sweetheart deal out of this crisis, the political retribution will be overwhelming. Go ask the many members of Congress who lost seats in the wake of the financial crisis bailout. That was before this populist era even started.
Right this minute, there are teams of lobbyists trying to get all they can for their industry clients. It's their job. They are good at it. They understand the complicated issues more than anyone else, and they know the members of Congress and their staffs.
Sitting across the table will be the members of Congress (or, more likely, their staffs), who are supposed to represent the American taxpayers during the ongoing negotiations. They share the same worldview. Together, they will define the terms of the bailout, and it will likely be so complicated that it may take weeks, or even months, for the rest of us to know exactly what they did. Too many taxpayers feel like their elected officials are not looking out for their interests first at moments like these. The deals often come out looking too sweet for politically connected companies. If that happens, we will be saying hello to our first socialist president sometime down the road.
There are also sound substantive economic reasons for Congress to responsibly structure the coronavirus relief. We enter this crisis already having a huge debt problem on our hands. There is a strong policy case to be made that our exploding debt is the greatest long-term challenge our country faces. We are most likely burdening our coming generations with a weaker country in a way no prior American generation ever has. Although we need relief now, we must structure that relief in a way that minimizes the long-term hit to our country's finances.
For these political and economic reasons, members of Congress from both parties should be able to agree on the following basic requirements for the coming bailout.
The money should come as a line of credit that can be drawn down as and when needed by eligible companies up to a certain maximum. The companies that take these loans should have to pay interest kicking in at some defined point and increasing over time as our economy recovers. The government credit needs to be senior to any other credit that the accepting company has issued. In other words, if things go bad, the American taxpayers are the first who should be paid back with whatever assets remain. The credit needs to be backed by equity in the borrowing companies. This may dilute the current shareholders, but that's only fair. The economic pain we may face going forward must be felt by shareholders first. They reap the profits during good times. If you believe at all in markets, then they have to be the first to feel the pain on the other side.
Finally, there has been a lot of debate about stock buybacks and executive compensation. Those who believe in free markets likely view these sorts of issues as best decided between shareholders and management of the companies themselves. It's annoying to see mediocre CEOs walk away with shocking compensation packages after mismanaging their companies. It's also annoying that these huge companies buy back their own stock to increase the stock price when they could be using those funds to invest for the future or prepare for a catastrophe like the one we are now facing. On both these matters, those of us on the free market side generally feel that it's the shareholders money, and if they want to waste it, that's their problem. If you don't like these strategies, don't buy the stock.
Once companies turn to the American taxpayers for a bailout, however, things start to change. Restrictions on compensation and stock buybacks are reasonable to the extent that they protect the taxpayer. Put another way, it's hard to plead for free market fundamentalism as you ask for a taxpayer bailout. More importantly for members of Congress, as a political matter, if they don't make it clear that they are putting taxpayers first at every moment during this crisis, they are likely to pay a huge price in future elections.
They changed forever in 2009. Once you overrule 90% of the public and bail out big banks the argument for why anyone else should not be bailed out crumbles.
Well you can bum out, but imagine if Obama or Hillery were president right now. Then it WOULD be the end of the USA.
When exactly did Rome end?
My consolation is that while they are using Rham Emanuel’s playbook, it’s Trump at quarterback, not Baraq.
This bailout, which is different in nature than the 2009 bailout, made for the benefit of banks and financial institutions “too big to fail”, by directing the aid to those on the bottom end that are most impacted by the virtually total shutdown of the current economy, may end up by cementing in place the “populist” factions in the electorate. Both the “Tea Party” people and the “Occupy Wall Street” crowds are now fully awakened, though for polar opposite reasons.
The old way, the establishment and conventional wisdom crowds, have had their apple cart upended for good and all.
Much as I hate corporate bailouts, I recognized back in 2009 that the primary purpose of bailing out the banks wasn’t to enrich the bankers — it was to protect the value of the U.S. dollar by propping up the value of the assets on the books of these banks.
You are witnessing the green new deal in play in the shutting down of America.
It seems no one likes it....
Most politicians want an expansion of unemployment insurance so people have continuous income.
But whatever is done should be temporary and not a permanent change to the program because it will actually replace income and make it more likely for people to remain on assistance than to look for work.
We must also be careful as Democrats will want to make it easier for illegals to get these “emergency” benefits as well.
A couple of things different about this potential bailout versus the bailout in 2008/2009.
Back then the Bankers basically screwed themselves by ignoring commonsense in loaning any amount of money to anyone, reaping the huge profits and bonuses and then begging for a bailout which was delivered.
This time millions of small businesses are out of business thru no fault of their own, simply an a Governor or Mayor ordering businesses to close.
Just yesterday in Florida, the Governor ordered all restaurants to close except for carry out, previously all bars and nightclubs were closed without exception, simply put out of business...
Immediately these businesses laid off the vast majority of their employees.....
If the Government if going to bankrupt businesses by forcing them to close and leave millions unemployed the least we can do is provide some kind of support and hope when this is all over they can come back and open, rehire people and go forward...
Some historians cite 476 AD as the end of the Western Roman Empire.
Not according to some FReepers. Take a look at this gem:
"There are endless reports of businesses that will fail in days, but any business running that close to the edge is either under capitalized or over leveraged or has insufficient margins - or all three."
Essentially, the FReeper is suggesting "they had it coming".
A fatal flaw of our system. We can’t spend our way out of problems. I don’t trust most of government with our money.
I strongly suspect that person has never run a low margin high turnover business like a restaurant....
Now that people are stuck at home, I wonder if more will start cooking at home when this is over?
Yes, and there would be a lot more complaining around here over "trillion dollar bailouts" than there is now.
Well Kusdlow says it’s closer to 2 Trillion or more so I guess it will change things for two forevers.
The bailout needs to be cancelling people’s debt to the banks.
Creating more debt-based money makes the situation worse, not better.
That’s going to be several trillion. Not one trillion.
The people already expect the government to save them from all harm. Because the government pays people to rebuild after a natural disaster, the people rebuild in the exact same location that is prone to disaster, meaning that it will be destroyed again, and the government will pay them again, etc, etc.
The current crisis shows how much the people expect the government to do everything. Government’s response is going to raise expectations, so the people will always demand more.
In Britain the government is paying 80% of wages! Will it happen here? It’s close to that. Under sanders it would have happened.
Government does not produce money. It only redistributes it. People working productively produce money. Half the people are out of work now.
Get it? Few working. Government spending like a madman. Results: Recession and/or runaway inflation.
Remember during the Clinton inauguration flyover when Ron Silver said “those are our planes now”?
Those are our bailouts now....
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