9 Problems With the Coronavirus Corporate Bailout
Buckle up everyone, this will get ugly.
The Senate late Wednesday night finally passed its massive economic rescue package meant to address the coronavirus crisis. It’s a lot. (Update: The House passed the bill too, and the president signed it, so the below is all officially law.)
And to be clear, something massive is necessary. Thursday morning, the Labor Department reported that more than 3 million people filed for unemployment insurance last week, dwarfing the previous record of about 700,000 set in 1982.
I don’t want to minimize how important some parts of this bill are: The vast expansion of unemployment benefits is vital. Direct cash of $1,200 per person (which phases out at about $100,000 in income) will help, though there seem to be a lot of questions about how fast that money can get out the door and the payment probably should have been higher. There are surely other parts that will be economic lifesavers for a lot of people.
But all of that has been paired with $500 billion in funds for rescuing corporations. And that money is going to be leveraged by the Federal Reserve, so it will actually total several trillion dollars moving into the hands of corporate America. In terms of both what those corporations need to do to receive the money and who will be deciding the winners and losers, there are many concerns. I’ve laid out eight below. This is probably not an exhaustive list.
The full text of the bill is here, for those so inclined.
The Treasury Secretary has sole discretion to design the bailout criteria and make subsequent changes. As I wrote earlier this week, the companies Treasury Secretary Steven Mnuchin and President Donad Trump have been touting as bailout recipients have received a lot of taxpayer aid over the years, and are not necessarily critical to the wider economy. Mnuchin is also supposed to ensure that taxpayers receive upside via a stake in any company that receives money, but he has a lot of discretion to decide exactly what that means. I don’t trust these guys with that much power, and as my friend John Stoehr explained very well, neither should you.
Companies can lay off 10 percent of their workers and still receive a bailout. They are supposed to avoid layoffs “to the extent practicable,” whatever that means, but the bill explicitly allows 10 percent of a big corporation’s workers to be sent packing.
There are restrictions on share buybacks and dividend payments, but Mnuchin can waive them. Companies receiving bailout funds are barred from buying back their own shares or paying out dividends for a year after they finish paying back any loans they receive, which is meant to prevent public money from simply being used to enrich shareholders in a company. However, if Mnuchin wants to ditch those requirements he can, with the only stipulation being that he testify before a Senate committee after the fact about why he did so.
Executive compensation limits can also be waived by Mnuchin and are a joke anyway. Executives at bailed out companies who make more than $425,000 can't get a raise for two years But there’s an appalling addition: If they made more than $3 million, then they can make the same $3 million plus 50 percent of the amount above $3 million they made the previous year. So someone who made $10 million can still make $6.5 million ($3 million plus half of $7 million). I’m not sure why executives at companies that need taxpayer rescues should be allowed to make millions of dollars that come out of our pockets.
Mid-sized businesses can’t offshore jobs, but bigger ones can. Mid-sized businesses — those with between 500 and 10,000 employees — that receive bailout funds have an explicit restriction against offshoring or outsourcing jobs. The same restriction doesn’t apply to bigger companies.
There are no other real requirements. The House’s bill mandated that bailed out companies pay workers a $15 minimum wage, provide paid sick leave, and refrain from lobbying while their loans were outstanding. Sen. Elizabeth Warren (D-MA) also had a set of conditions that bailed out companies should have to meet, including putting workers on their boards. The Senate bill doesn’t do any of that. Only a couple of Warren’s conditions are sort of met halfway.
There’s a secret Boeing bailout. $17 billion of the bill is dedicated to companies supposedly vital to national security, which everyone has deduced refers to the mega-manufacturer Boeing — even though Boeing’s CEO was on television this week saying that if receiving public money requires giving taxpayers a stake in the company, he isn’t interested. (Here’s what a real rescue of Boeing should look like.)
States and cities have to fight with big corporations over money. After lots of precise language about getting money to big corporations, the bill just says Mnuchin "shall endeavor" to set up a similar system for states and municipalities, which comes out of the same pot of money. You know, whenever he gets around to it. Yes, there is significant aid to states in other parts of the bill, but it’s strange to pit them against big corporations in this way. (And of course, Washington, D.C. itself got screwed again by its lack of congressional representation.)
The oversight panel is weak. The initial Republican version of the bill included no oversight of bailout funding whatsoever, but Democrats insisted on the addition of both an inspector general and a panel composed of members of Congress to provide some level of accountability. But all this oversight will be conducted after the fact. Mnuchin can get scolded, but not really stopped. A better plan would have been to have an independent body making loan decisions.
But Trump properties are barred from receiving bailout funds, so that’s something.
One more thing: As Amanda Fischer, policy director of the Washington Center for Equitable Growth pointed out, the money people receive from the bill will also go to big corporations via the products people buy. So big companies are really getting rescued twice: Once on their own, and once via the money meant to help people eat and keep a roof over their heads.
Look, I know there are folks who will argue that money for households is so important that it’s worth rushing this bill out the door despite all of the above. Or they will argue that companies will simply pay back all the money they receive, so none of these concerns ultimately matter.
But the power big corporations will receive because of this bill will be immense and problematic for years to come. First, the Trump administration will pick winners and losers, and then the winners will be able to use your money to compete with small businesses, pay executives millions of dollars, lay off workers, and emerge from the crisis with more of a hold on their respective markets than they had before.
The financial crisis and bailouts of 2008 let big banks grow even bigger and more powerful, as they gobbled up smaller competitors or those smaller banks simply failed. The same thing will happen now, in whatever sectors of the economy Mnuchin and his crew choose.
It’s worth noting that this doesn’t have to be an inevitable outcome. The House still needs to pass the bill. There is a lot of talk that the lower chamber will use what’s known as “unanimous consent” to do so — which would enable passage without representatives coming back to Washington, D.C. to vote — but that also means any member can object, thus forcing a real vote and opening the door to making changes.
As I said at the top, I get that people are hurting now, and that a lot of funding in this bill really can’t wait. But the price of that urgency doesn’t need to be trillions of dollars for Trump and his buddies to throw at their favorite businesses.
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— Pat Garofalo