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Bail Out

The U.S. Senate is in a tussle over the conditions for handing out more than a trillion dollars of our money in an effort to cushion the current free-fall of the U.S. economy. In many quarters (including the New York Times), Democrats are projected as “blocking” the much-needed cash infusion. But neither Donald Trump nor Elizabeth Warren seem to see it that way. For once, they agree on a principle of capital importance for this nation: It matters how this money gets used.

“I never liked stock buybacks,” Trump told reporters on March 21. “We did a big tax cut, and when they took the money and did buybacks, that’s not building a hangar; that’s not buying aircraft, that’s not doing the kind of things I wanted them to do.”

Explaining Senate Democrats’ vote Sunday night against a measure to rush a bailout bill to the Senate floor, Warren told National Public Radio “You can’t just take $450 billion, hand it over to the secretary of Treasury…on a no strings attached basis.”

Even Senate Majority Leader Mitch McConnell ended up voting against his own measure to avoid further negotiation on this matter of “strings.”

Trump said he initially thought explicit conditions were not necessary. “We thought [companies] would have known better” than to misuse the money -- to inflate their share values by buying their own stock, for example, or to buoy executive compensation packages.

Why he thought such a thing is a mystery. Banks and investment funds applied their massive Great Recession infusions to anything but what the country wanted them to do: loan the money onward and keep roofs over the heads of American citizens. And as the president himself pointed out, many companies used the big dose of public assistance Congress provided them two years ago – by way of tax relief -- to further enhance executive salaries and returns for investors, through stock buybacks among other measures.

And that is exactly why many wealthy industries are in such dire straits now, in these still early days of the coronavirus crisis.

Another reason is that U.S. companies – like banks a dozen years ago – are deep in debt. Why? Have they been investing their low-interest loans obtained during the recent fat years? Have they been raising salaries to attract workers as unemployment fell? Did they put any surplus away in an emergency fund? Hardly.

Some companies, just profligate, grabbed the cheap loans and used the extra cash to buy up their own stock, sending the markets, and executive pay, ever higher. Some, bought by private equity companies, were obliged by their new managers to go into debt to pay for their own takeover, or to pay their new owners high management fees -- too often with employee pensions funds as collateral or otherwise liable.

Large corporations did not bring about the coronavirus pandemic; that’s not the point here. However, this type of behavior is making its impact far worse on them and the rest of us than it had to be. As so often, the severity of this natural disaster turns out to be man-made. As corporate executives stand before us today with their hats in their hands, we have no reason to take them on faith.

Here is another reason we should be especially alert: the bail-out bill whose terms are back in negotiation provided enormous discretion to Treasury Secretary Steven Mnuchin in terms of how and to which beneficiaries the money would be provided. But Mnuchin is no career public servant dedicated to the public interest. Warren was quite right to single him out. Along with Commerce Secretary Wilbur Ross and Senior Advisor to the President Jared Kushner, Mnuchin is one of the higher profile members of the large wake of vulture capitalists that man this administration. After working the mortgage-backed securities department at multi-recidivist bank Goldman Sachs, Mnuchin spun off his own private equity business. Together with George Soros and a few other investors, he bought the bank IndyMac out of federal receivership amid the Great Recession on excellent terms, changed its name to One West, and proceeded to perpetrate mass foreclosures on homeowners.

Vulture capitalists don’t sleep. They don’t get swamped by concern for loved ones, or empathy for their neighbors living paycheck to paycheck who are suddenly out of a job, or for the bus driver who is managing to hang onto her salary (and her morale) by delivering school lunches on her rural route. Where others experience calamity or a transfiguring experience of community solidarity, vulture capitalists pinpoint opportunity. The sloppiness and lax rules that slip amid the leap into Do-Something-Anything mode are manna for vultures. They will encourage just such hastiness; they will point at Senators who wish to exercise basic prudence and call them obstructionist, denounce them for getting into the weeds in this our hour of need.

Exactly where we need our members of Congress at a time like this is in the weeds for us.

The American who may most keenly understand what went wrong after 2008 is Neil Barofsky, who served as special inspector general for the Toxic Assets Relief Program. His incandescent book Bailout details the lengths he went to try to impose some accountability for the tens of billions of dollars in interest-free loans and other federal programs that were pressed on the banks, the difficulties he encountered, and the lasting damage done when accountability was scoffed away. This time around, Barofsky would look for three components in any such package, he wrote to me recently:

* Conditions that require precisely those policy outcomes that are desired: employee protection, safer aircraft, a moratorium on bonuses, etc. Any behavior that is expected from loan or grant recipients must be written into the rules of the transfer. These companies don’t “know better.”

* Provisions ensuring that shareholders bear part of the burden, via a moratorium on dividends for example, or claw-backs, or some other mechanism. There is no reason for ordinary taxpayers who do not benefit from companies’ profits to foot the whole bill.

* If banks are included this time around or in some future round – meaning if too-big-to-faoil banks are failing again – provisions to break them up.

These sensible ideas are what half of our U.S. Senators are fighting for. Power to them.


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