4/3/20
Rather than go into all my feelings about the coronavirus
bailout, I will, in the interest of keeping my readers alert and awake,
summarize these feelings and avoid too much detail unless absolutely necessary.
·
We needed some kind of bailout (and, no matter
what euphemism the pols and the recipients like to use, this is a bailout), but
nothing of this size, scope, and expense.
As could easily have been predicted, the pols took the advice of one of the
most skilled among them and didn’t let this crisis go to waste.
·
At the expense of sounding like curmudgeon, one
of the many troubling aspects of this bailout is the additional $600 per
week of unemployment benefits offered to recipients for four months. People need help and I sympathize with the
argument that if we can help major corporations and the plutocrats who run them,
we can help the proverbial little guy in a more direct manner. So the intentions of this provision are
admirable. But bad policy is usually
the result of admirable intentions, and the pernicious result of this policy
may be a delay in the return of the post-corona economy to full
employment. $600 per week is $15/hour,
more than a lot of people make. Unless
we assume, as does most of our nation’s political, business, and entertainment
elite, that the ability to think is harbored
only in those who have “made it” in the trendier enclaves of New York, Washington, or Hollywood, one suspects that a lot of people will wisely extend
their period of unemployment rather than take a job that pays less than they would
be getting on unemployment. And many people
making that very understandable decision are employed in the sectors of the
economy that are now hardest hit and must ramp up quickly if we are going to
get to normal. Fortunately, four months
in not a long time.
·
What most troubles me about the bailout is its
further reinforcement of the notion that we can summon up money like Merlin
the Magician whenever we need it simply by putting the Fed, which by
now has surely reached the end of the process that has transformed it from the
nation’s central bank to the world’s economic uber-tsar, into
action. Already, quarters of the Democratic
Party are asking why so few are concerned about where all this money will
come from and suggesting that we apply the same nonchalance to any spending
program their febrile minds can concoct.
It sure looks, to the uneducated voter, like the source of money is not
a cause for concern when the money is used to help the “rich” but suddenly
becomes a problem when it used to finance programs that are designed ostensibly
to help the “working person.”
One suspects that there will be hell to pay.
·
This is probably an arcane point, but I haven’t
heard anybody mention this in the discussion of the Treasury’s taking equity
positions in companies, most saliently airlines, it will save with the $50
billion portion of the bailout money that is to be used more or less at the Treasury’s
discretion. Anybody lacking socialist
impulses, and certainly yours truly, is appalled
by the notion of the government’s taking equity positions, even small equity
positions, in private companies, let alone companies in the most vital sectors
of the economy and hence considered worthy targets for this discretionary pot
of money Yet, there is the feeling that
taxpayers should get some kind of return, and more than what would constitute a
penalty rate of interest in this low yield environment, on the money they will
advance to bail-outees, a word yours truly has just made up. So people are crying for equity stakes in companies
that grab the spondulicks, and some have mentioned warrants, in a generic
sense, as an attractive form for such stakes.
But, still, the very notion of government ownership troubles those of us
who still maintain an understanding of the origins of this country and what has
made it great.
So why not have the bailed-outees
issue the Treasury warrants that have as perhaps their most salient
condition that the government cannot exercise those warrants? When the airline, or other bailed out
concern, gets back on its feet, its stock has gone up and the warrants have
gone up in a leveraged manner, the government could sell the warrants in an
auction or other public offering. The
companies that the Treasury has decided need saving get saved, the government makes
a pile of dough and is compensated for its risk, and the government does not
own any portion of the company. Problem
solved.
The CEOs of some of these
companies, Boeing and a few of the airlines being the most notable, have
said that they would refuse any bail out that involved the government’s taking
an equity stake, whether that stake involve stocks or options. These
CEOs are concerned about diluting their shareholders. Yours
truly has two immediate reactions. First,
if the CEOs are so concerned about dilution of their existing shareholders,
they probably don’t need a bailout and the Treasury should keep the money. Second, if the subject companies really need
the bailout money, the choice would appear to be between diluting their
existing shareholders and wiping out their existing shareholders. It shouldn’t take the kind of money these
guys make to attract people with enough mental horsepower to make that choice.
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