Fed aid program for corporations won't require them to preserve jobs(washingtonpost.com) |
Fed aid program for corporations won't require them to preserve jobs(washingtonpost.com) |
"Pardon me, Average Joe Taxpayer. We noticed you haven't been purchasing any tickets on American Airlines lately. In order to help you with this problem, we're going to take money from you and give it to American Airlines. What's that? No, you won't be getting free flights, you silly goose. We're just going to give them your money and you get nothing in return."
There is also no direct connection to taxes, since the Fed creates any money it needs.
In the best case the Fed would need to hold interest rates a 4%+ per year to compensate dollar holders for the loss of purchasing power. Prior to 2008 those benefits used to accrue directly to the government. The Federal Reserve purchased only Treasury bonds which would lower overall market rates for government bonds. In addition any bonds held by the Fed were effectively interest free as interest was returned to the Treasury.
In 2008 the Fed started to purchase mortgage bonds and other assets and later started to pay interest directly to banks. This is a direct transfer of purchasing power from dollar holders to homeowners and banks.
In this case look at the alternative if the Federal Reserve didn’t allocate those loans. The airline would go to court and file bankruptcy and losses would be allocated to equity holders and creditors. Those losses don’t magically go away because it isn’t easy to see who the losers are.
So they are on the honor system.
> Some experts disputed that assertion. “Some companies have ceased buybacks and dividends and some haven’t. We shouldn’t have to keep our fingers crossed,” Gelzinis said.
Is there a public list of the companies that took the aid?
Absent real restrictions on the loans, the next best option might be a website that shows the amount borrowed by those companies next to any layoffs, dividends, exec bonuses, or share buybacks they did while taking the loans.
They do pay unemployment insurance, so I guess they can argue they're collecting on their insurance.
MayTheForth be with you, because your Disney paycheck won't be.
The latest count I’ve seen today is up to approximately 230 companies who have done so. There are some lists being compiled, but I haven’t found a definitive, complete list of all 230+ companies.
From a few days ago, 40 of the companies: https://s-marketwatch-com.cdn.ampproject.org/i/s/s.marketwat...
Propping up zombie companies does nobody any good. It just leads to capital destruction.
You can give a company money to hire people and make product X, but it doesn't do you any good if no one has money to buy product X, or most people see X as a luxury and are tightening belts. You can counter this by giving more companies money to hire more people, so that the workers at company producing Y have money to buy product X. Then it becomes difficult to determine what companies to prop up, and which to avoid. Inevitably, who gets propped up are the industry leaders, not the tiny players, and that sector consolidates and contracts.
A better approach would be to inject the money directly at the bottom. Let consumers make these picks on which companies are economically productive and should be supported, let the free market sort this out by adding liquidity at the consumer level. 70% of our global economy is driven by consumer spending, not by blue chips paying off their corporate debt.
Barking up the wrong tree is either virtue-signaling, divide-and-conquered tribalism, a failure of moral courage, and/or a failure of critical-thinking skills. It's easier for most people to make pointless gestures or scapegoat certain groups than attack the root causes of their misery... and there's no strategic thinking involved.
The obvious matter for everyone with a net balance sheet less than eight figures is that small segment of society whose greed and entitlement has greatly outpaced their respect and decency towards others and the planet. The vast majority of people are too afraid of the corporate state's militaristic violence potential or too complicit in relative comfort to rock the proverbial boat. In inverted totalitarian societies, you get deplatformed or harassed at airports; in totalitarian societies, 70-some students and teachers get delivered by the police to other criminal gangs for disposal in the hills.
All it takes is a million or so people walking over to the seats of power and gently encouraging the particular corrupt officials to voluntarily turn themselves over for jail pending trial.
I'm not a fan of mania for hope or future hockeystick progress, but it's the purposeful actions of moral and physical courage of a relative handful of unreasonable people who dent the universe. The worst that can happen is dying without trying; anything else is better than that.
To bring these pieces back together, the lease, the workers, the investors, the money, is impossible. Some of these pieces are no longer in existence, and the economic conditions that enabled the company to form in the first place are no longer present. It's like trying to make a living tree from ash and smoke.
Some places have been hit particularly hard. In LA county, only 45% of people have jobs right now: https://www.latimes.com/california/story/2020-04-17/usc-coro...
"a significant majority of job losses, 67% nationally, were reported as temporary layoffs"
Alas, if media circus around plane crashes in any indication, that does't pay. So, we can only hope for lack of informed-ness, apathy and paranoia-fatigue to settle in and solve this particular aspect for us.
The idea that the federal government would take an ownership stake in companies in exchange for this cash infusion seems like it's been a fringe left wing proposal -- but I don't understand why it's fringe.
Of course it's not that simple, but it sounds that simple, and these days that's all that matters. People hear "government stake" and they reflexively think Cuba or Venezuela or China, not Germany.
Edit: Now that I've seen a mirror of the article, this program is about buying bonds that have to be paid back with interest no matter what. Point stands about the conditions being on the buying side though.
I’m not sure the Fed has the power to do something like that. It’s a huge expansion in purview, particularly with adding forgiveness conditions, in which case it’s literally giving free money to private citizens without Congressional authorisation.
but of course if you offer it we'll take it
These are only "zombie companies" because they've been directly shuttered by the government.
In general I don't believe the government is required to compensate businesses if regulation results in loss of business and possibly the loss of the business. As an example, look at CFC bans and fuel/emissions regulations. A company may suffer a loss and/or go out of business because of a regulation, but they can't demand compensation for that from the government.
Maybe our old system was inefficient and these dying companies should be left to die?
We can't say the same about people. Who are in fact in trouble, and a dying person is far more morally reprehensible than a company having to shut down.
Yeah, well, in Wisconsin under Walker, a lot of our farm families learned the hard way that this is not always the case. (Foxconn). It depends on how badly they want your land. But, yeah, it can be perfectly legal for the government not to pay you fair market value.
But to your central point, the government doesn't have to compensate you for anything in an emergency. That's why when criminals rob a bank or Walmart and then hide out in your home unbeknownst to you, the police are free to grenade the place. Perfectly legal for them to leave you the burning hulk of what used to be your house and say, "Don't thank us!" It was an emergency. (Or at least, they'll say it was.)
In the U.S. we also need to shift our consumption based economy to become more of a production based one, like we were 40 years ago. That kind of shift doesn't happen overnight.
Sure the companies benefit, a lot. Warren Buffet might give them loans with 12% a year, the Fed at 3% or whatever. But what does the Fed lose? Nothing, if x% don't pay others will make up for it and USGOV will try to recoup from the failing biz whatever they can.
If they go bankrupt or downsize, what does USA gain, other than more unemployed people? So this is great IMO. Lend them money, as long as the money comes back, the Fed can create trillions and trillions.
What they're doing is monetary fascism, where they are picking the winners and losers based on arbitrary criteria. Some companies and industries will get more help than others. Whoever gets the money first will have an advantage over who gets money last. The moral hazards of this interventionism are many.
It also means that people who properly hedged for risk, the way capitalism actually works, are getting punished.
If there is any unemployment in the system it isn’t. It is systemically supressed. (There is insufficient spending in the right areas to employ everybody. Largely from the people that would otherwise be employed).
What you are describing is the “full employment fallacy”.
We’re demonstrably not at full employment. Which is when Everybody who wants a living wage job has one. Only then does what you say hold true.
And that’s because Interest Rate Targeting doesn’t work. If the Fed was required to hire everybody who couldn’t find another job they wanted then we’d be in the position you describe.
We’d also have an empirical test of how well Interest Rate targeting works
It has banned entry by foreign nationals from those countries, but I wouldn't call that banning most international travel.
https://www.dhs.gov/coronavirus/protecting-air-travelers-and...
(https://www.google.com/amp/s/www.cnbc.com/amp/2020/03/31/ban...)
Businesses failing == people poorer
And if the people want to buy from the company, but the company goes bankrupt before the people are allowed to buy, then giving money to the people didn't help the people (at least not with respect to this problem).
Also, for inflation to happen, people will have to try to buy more stuff than what's available, and merchants will have to raise prices. Although we've seen shortages for a few things, that kind of overall spending is unlikely to happen until the recovery phase when people are feeling confident again.
Other than the staggering amounts, it's not really different from any other bank making a large loan.
An opportunity cost is not a real cost. There are always missed opportunities.
As a simplified example, suppose that 1 duck is generally worth 2 chickens and that monetary prices reflect this (e.g. ducks are worth $10 and chickens $5). I sell you a duck for $10. Time goes on, and the relative values swap -- ducks are worth $5, and chickens are worth $10. I buy two ducks from you for $10. Those two _monetary_ transactions if compressed in time into the bartering that money was meant to replace would represent me trading one of my ducks for two of yours, which assuming no other hidden variables is an unrealistic trade that would never happen.
The relative values of goods shift constantly, and arguably a dollar yesterday really isn't conceptually the same thing as a dollar today -- even though they can both be represented with the same slip of paper. Inflation is one strategy to align money more closely with its role as a medium of exchange.
standard disclaimers -- opinions are my own not my employer's, I'm not a lawyer, I'm not an economist, the above is a simplified model and blatantly ignores huge swathes of fiscal policy, ....
the problem with taking equity is that it's not simply an income stream, it's a responsibility. you become a stakeholder and need to manage the asset lest it devalue in ways you don't like. it's messy and much more criticizable, something politicians and bureaucrats loathe.
fixed-income assets like loans are much simpler, and have the added benefit of naturally having higher liquidation preference (bondholders get paid before shareholders).
loans with performance penalties/incentives are cleaner to implement, but the problem there is lobbying that waters down penalties and magnifies incentives.
there's no simple solution, including taking equity. i'd love every loan to have a clause stipulating no executive stock incentives or share buy-backs for 7 years post-loan, but no one is lobbying for that.
Too big to fail was outrageous because it says big businesses rule the world, if you don't like it, suck it.
We're now a month and a half in, and some states have committed to broad mandatory shutdowns for another month. "Our business becomes illegal through the end of Q2" is not the kind of rainy day businesses can be reasonably expected to plan for.
> reinvest it into the most productive and critical aspects of the economy
How? People, really, really, really, want to go out and spend money right now, but it's impossible because everything is shut.
That being said, I don't think anyone is looking to spend money with unemployment at 20%. People are using their stimulus checks to pay down debt and buy diapers. Belts are being tightened. Rent is not being paid. None of this is a recipe for consumer spending without a sustained injection of cash. $1200 buys three weeks rent in a 1 bedroom apartment in LA county.
If that's the case then you're living in the 1% (0.1%?) of places where this is available.
> None of this is a recipe for consumer spending without a sustained injection of cash.
A sustained injection of cash means nothing if it's just paper money without anything backing it. If people aren't out, you know, creating things to sell, then a continuously pumping out money means rampant inflation.
