3 Things to Watch for in Coronavirus Bailouts
Look who's coming for our money.
Before we get into this post, my book, The Billionaire Boondoggle, is relevant to lots of the current news, so if you don’t have a copy, grab one here or at your local independent bookstore. My friends at East City Bookshop and Solid State Books in D.C. are doing curbside pickup during the coronavirus crisis, so those are great spots to buy one — or any other book — if you’re able.
The economic response to the coronavirus is moving to a new level. The White House, after pretending for weeks that everything was fine and cases would probably drop to zero in a few days, is now planning to roll out an $850 billion stimulus package. It’s also floating bailouts for several industries, apparently including casinos.
Congress is cooking up its own response too, with momentum building behind direct cash transfers to every American, which would be a very good call.
As these efforts go from concepts to bills to reality, here are three big things to keep an eye on regarding corporate giveaways. And to be clear, there is a case to be made for some government-provided aid in certain circumstances — as long as workers come first.
1) Which industries receive direct aid? On Monday, I wrote about the problems and opportunities involved in bailing out cruise companies, which the Trump administration seems very keen on doing for some reason. Now we can add casinos and hotels to the list. To be clear, all of these are non-essential industries and there’s a strong case for simply letting them go and making sure their workers are provided help directly through other means.
Casinos and hotels also have limited effects on their local economies, as I wrote about in my book. Casinos only work as an economic booster if they manage to pull in scores of gamblers who would have never been in the local area were it not for the casino. Legalized gambling has seriously proliferated in recent years, with nearly half of U.S. states having commercial casinos, so that’s a harder and harder bar to clear. Even Las Vegas has tried to diversify due to gaming providing less of an economic oomph by itself, and scores of casinos opening in other states is part of what doomed Atlantic City.
Hotels, meanwhile, have received loads of public aid in recent decades under the theory that they underpin the local tourist industry. But that’s really not the case. City after city has seen investments in hotels go bust, because there’s simply no way for a hotel, by itself, to drive tourist demand in the absence of other tourism draws. There’s also been a lot of hotel consolidation in recent years, so any help to the industry will mostly go to the few big players, even if they hide behind several distinct brand names. (Just look at everything Marriott owns, much of it not branded as Marriott.)
None of which is to minimize the very real effect the crisis will have on workers at establishments that are closed for a long time or shut down forever. It’s just that the White House seems to be picking a random smattering of industries to win favor, and some of them — surprise! — are businesses either Donald Trump himself or his buddies are involved in, and not necessarily those hardest hit by the virus or most critical to the response.
2) What do those companies have to do? During a White House briefing Tuesday, both Trump and Vice President Mike Pence dodged a question regarding whether bailed out companies will have to restrict executive bonuses. Such restrictions are, to put it mildly, the very bare minimum that should be required.
As I explained in my piece on Monday, bailouts are a golden opportunity to fix abuses in a particular industry. Furthermore, companies shouldn’t be allowed to use the political power that would have dissipated had they collapsed to roll back new restrictions after the crisis subsides. Any and all public money should come with very large strings attached.
3) Is there stealth deregulation elsewhere? Bank of America is reportedly circulating a list of regulations it thinks should be suspended or weakened due to the virus. But a bunch of the stuff BofA wants has nothing to do with coronavirus and everything to do with restrictions banks have chafed against for years, mostly stemming from the 2008 financial crisis.
I’m willing to bet it won’t be the last big corporation to try to push through a wish list due to the emergency, and it’ll be doing so both in Congress and at regulatory agencies.
For instance, the bank wants a restriction known as the Volcker Rule rolled back. That has to do with banks using deposits to trade for their own benefit. Big banks have fought it for years and years. It has no bearing on the current crisis. (I literally covered the fight over this 10 years ago.)
Ditto the requirement that banks make “living wills,” which are documents meant to aid in the dissolution of a failed bank. Those are even more important now, not less.
There’s going to be more of this stuff, and if government accedes to any of it, we should call it what it is: Big corporations and the politicians they own using a crisis to loot you and the public treasury.
I’ll keep on sending these as events warrant. And please flag for me anything you’re seeing, since states and cities are also going to be providing their own economic rescue packages.
One last thing: Any professional sports franchise — and especially those that play in taxpayer-funded stadiums or arenas — that isn’t paying its stadium and arena staff while the pro sports leagues are suspended should be absolutely ashamed of itself.
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— Pat Garofalo