The CARES act allocated most of the money to individuals, state and local governments, public health, and education initiatives.
The amount given to large corporations (much in the form of loans that will be paid back) is less than that given to individuals:
NPR has a good breakdown. The idea that corporations are receiving “trillions” in cash payments is a myth. https://www.npr.org/2020/03/26/821457551/whats-inside-the-se... I fully agree that the allocation and lack of oversight around the funds to corporations is not good, but it’s incorrect to suggest that trillions are going to corporations or that more money is going to corporations than individuals under this bill.
Furthermore, you can’t compare loans and measures like quantitative easing to cash payments like that. Giving someone a cash payment and giving a loan to a business have very different actual costs in the long-run, obviously.
The CARES act is a good attempt at providing fair outcomes for everyone, but that is just one of the things the fed is funding. Take a look at their balance sheet from their own website: it went up over 2 trillion in the blink of an eye and they are not done yet: https://www.federalreserve.gov/monetarypolicy/bst_recenttren...
There are winners and losers in what is going on now, and corporate America is without doubt the biggest winner. By proxy, the wealthiest Americans that are the biggest owners of the financial assets the fed is supporting are also the biggest winners. Since we are accomplishing all this by printing money, those that don't win lose even more because their dollars are worth less. The long-term result on the current course will be even greater wealth disparity between the rich and the poor.
You might have noticed many people complaining about this wealth disparity during the recent economic recovery in which the fed has added almost 4 trillion dollars to their balance sheet (again see the fed's chart).
These wealth gaps historically lead to populism, which gets us our current president.
[0]: https://www.federalreserve.gov/releases/h41/current/h41.htm
In June they just committed to deploying an additional $250 billion https://www.wsj.com/articles/fed-will-amass-corporate-bond-p...
Add this to the existing billions of debt already purchased and we could easily be at half a trillion dollars of independent fed action to buy corporate debt in a short time frame.
The CARES act also reduced corporate taxes by 210 billion. So There is at least half a trillion dollars not mentioned in articles like the one from NPR.
The CARES act separately authorized 500 billion just to the largest corporations in America. Some of the additional hundreds of billions deployed to "small" businesses is really to large companies as well.
It would be great to get a detailed breakdown of what the fed is doing, I am certainly not doing it justice in my description.
Unemployment is money given away to another. It's a permanent giveaway.
A debt purchase is either money that was given to you, that you're now returning (Treasury securities) or money that you're giving to others which will be returned (corporate bonds). It's not a giveaway at all - the net exchange is $0.
These cannot be compared as equivalent.
The tax reduction changes the way loss is calculated to better capture the reality of the economy falling apart in one year, letting losses be deducted from income generated in past years. There's a tax savings, but it's reflective of real loss incurred by business.
The corporate tax reduction is equivalent to a handout since it won't be paid back. As is the paycheck protection program.
I agree that debt is not a 100% handout, but it is definitely not a 0% either. The fed is not that worried about qualifying its purchases and some of these companies will still go bankrupt: those cases may be 100% handouts. The debt is being purchased at above market rates and inflating prices for the asset so that's still a noticeable percentage of handout for the loans that get repaid.
But I wouldn't assume that corporate debt will ever truly get repaid until I see the fed balance sheet go down. They tried to unload just a little bit last year and the stock market went down so they stopped. We now have 1.9 trillion in mortgage backed securities even though the housing crisis is over and housing prices are back to the levels of the prior bubble.
The tax change isn't a reduction per se, it's a change in the way we account for losses across multiple years. It's also very new -- it's removing a new carryover rule that was added in 2017. I think it's also disingenuous to frame this as a reduction as the losses would be carried forward anyway. It is, like most of the other "corporate handouts," more of a shift in when the money is paid rather than a change in the amount.
Thanks for the correction on the corporate tax reduction.
Purely from the financial side, another way of looking at this is: if bail outs were really net positive then the private sector would handle it. If the government has to handle it, it is a bail out. Governments almost always lose money on bail outs. Sometimes, like the last one, it is falsely claimed that the government made a profit. It probably lost money [1] and we still have 1.9 trillion mortgage backed securities on the fed's books that are unaccounted for in such claims.
I agree that these things are not a 100% handout, but they are most definitely a bail out.
[1] http://gcfp.mit.edu/wp-content/uploads/2019/02/BailoutsV12.p...
Historically, looking back at 2008-2009, purchases of corporate debt by the government either turned a profit or lost very little money. The 'bailouts' had aggressive terms and were repaid.
If it does turn into a subsidy, the correct measurement is the difference between what the government pays today and what they sell it for later, or, if it defaults, the bankruptcy settlement value (which in the case of collateralized loans is rarely zero). Not the dollar amount of bonds purchased or money lent.
This year, purchasing of corporate bonds has been focused on investment grade debt. It is unlikely they will experience any significant loss on this.
Yet our current president is presiding over exactly what you’re describing.
Also, as the other commenter explained, there are several problems with your understanding of the Fed’s operations and what they mean in terms of long-term budget. It’s not correct to compare cash payments to individuals with counter-cyclical quantitative easing.
My lay understanding is that if you recycle your debt at 3%, and now you can recycle it at 1%, that is a 2% "bailout". You quite literally have a lower cost of funds (cost of doing business), and it is artificially low due to government intervention.
It becomes an invalid comparison when you compare nominal values without making the appropriate cost adjustment (multiplying the loan by 2% in this hypothetical).
We should also note that some of the companies will go bankrupt and the fed is doing little to qualify its loans. So it is not really a loan in the traditional sense (it is a low interest rate loaned handout).
Combining these two together, we have the potential to create a situation like Japan where the government is constantly managing the debt of some of the private sector. The cost on society for this can be much higher than the difference on interest rates shows.
The true cost is almost certainly somewhere between 2% and 100%.
This just in! The Fed will allow schools and hospitals to use its $1.5T repo line, letting any school with $1B in Treasuries temporarily exchange them for $1B cash for 3 months. "We have no idea why you wanted this," said a confused Fed. "Are you sure you know what we do?"
[0] https://mobile.twitter.com/ESYudkowsky/status/12388153445353...
Much of the $377b in Small Business PPP money actually went to large corporations like Shake Shack, Ruth's Chris, Kura Sushi. And of the $2.3t, only about 1/4 went to individuals, so it's a bit misleading to paint the picture as if individuals got the lions share here.
Also there are additional benefits to large corporations not reflected in that $500b figure such as $210b in loosened tax deductions for interest and operating losses. https://www.reuters.com/article/us-health-coronavirus-usa-bi...
Some were more clever in how they got the money:
I want to stress this because many are missing it.
- Money to people = cash gift or grant.
- Money to companies = loan.
Companies have to pay it back, with interest. This also happened during the recession and the US made a hefty profit from it.
I often run into people that think that companies received these loans as grants. This of course makes for a lot of confusing discussions because two people are operating with completely different mental models.
hoo boy.
Individuals will never have political power like a billion dollar corporation.
If you can rise up the ranks, you get some of this power.
Sure it's a moonshot, but how many self made people make billion dollar companies? You could count them.
I think I'm going to pick a major fortune 500 and leach off it. Even if I hang around there for 30 years, I get profits and tax payers will subsidize the losses.
And while you might have job security, that can be tenuous as well. Really just depends on how savvy you are at promoting yourself and managing up.
Having a baby was otherwise so expensive we weren’t sure we could afford it.
https://www.verywellfamily.com/how-much-does-ivf-cost-196021....
The drugs are separate, but I think we paid around $5K for them.
Now if you're unlucky, you might have to go through multiple cycles, but our specialist only charged us the base cost. We had to pay for the additional drugs however.
Stimulus payments are gifts, and the government loses money on them.
To be clear, the stimulus payments are essential for helping people and are a great thing for the wider economy. But you can't compare them dollar-for-dollar, as they are not like each other.
[1] https://www.federalreserve.gov/monetarypolicy/bst_recenttren...
People who are angry seldom take the time to understand how finance works.
I guess you could argue that we're making money, but that's only because we get to print money to buy these for free and de-value everyone else's dollars.
https://www.rollingstone.com/politics/politics-features/2008...
https://projects.propublica.org/bailout/
The government handed out $634B.
The government recouped $390B + $364B = $754B.
So, $120B profit. Again, I'm not saying we should bailout corporations and ignore the little guy. The stimulus checks are critical. But you can't compare them dollar for dollar.
Is this actually the case? They have a money printer. What’s the problem with using it, as long as inflation stays low?
I mean, I suppose technically seigniorage is part of the budget but then your statement is just a statement of definitions, not an insight.
Not to say its impossible, or that we shouldn't try--we should. But when you have a bunch of senators arguing, it's easier to point to the easy numbers.
I think you said it yourself with your comment about senators arguing. The root cause is an overall lack of political will, not any technical or logistical impediments in modelling impact.
The U.S. Census, GAO, and various other bureaucratic organizations (USDR, EPA, etc), all seem to be quite competent when it comes to performing studies and gathering data.
So is the IRS, Department of Defense, etc.
Of course there are lots of problems, but the U.S. Federal Government has plenty of agencies able to competently perform some sort of study.
Clearly, the current administration puts corporate profits over the lives of Americans. Clearly, the current administration is allergic to hard work. Hopefully, Americans can send the message in November that there's no room in our government for people like that.
People realized that was idiotic? Don't celebrate that someone accidentally did something worthwhile for a terrible reason. Target your efforts at doing things that are worthwhile, not at doing things that are hard.
This
>Don't celebrate that someone accidentally did something worthwhile for a terrible reason.
Doesn't track with this.
>Target your efforts at doing things that are worthwhile, not at doing things that are hard.
I think you're missing nuance.
I say, condemn those who lazily do the easiest jobs that don't interrupt their sleep at night.
Rather, we should all be trying to make the greatest positive impact within 40 hours of work a week. Those who do more are being taken advantage of one way or a dozen. Those who do less are taking advantage.
By setting a floor and a ceiling we limit abuses on both sides and,hopefully,better distribute labor.
Also,doing things that are hard for the sheer sake of it is not idiotic. It can be a positive characteristic, just like avoiding difficulty is a negative one.
I don't think it would be especially controversial to say it was done for a terrible reason. We didn't do that specifically because it was hard; those are just words from JFK's speech. We did that because the Soviet Union had beaten us to putting a man (and a satellite) in orbit, and we thought it was crucially important to beat them to something related.
What is "terrible" about advancing science and putting humans in space?
Neither of those was a reason for the project.
Basically, it doesn't matter how quickly we re-open if people don't have any money to spend, don't feel comfortable spending, and aren't leaving their homes.
[1] https://tradingeconomics.com/united-states/unemployment-rate
Let's say the market rate for a loan like this is 4% and the government is loaning at .5%. Sure, the government has "made" .5% (less any defaults), but by any realistic understanding of what's going on, they lost 3.5%.
But don't muddy the waters by saying that they are making money on the program if they're giving below market loans. They might have good reasons to do it, but they're not making money on the deal.
The fact that a market coalesced around the asset isn't that significant because the Fed can't withdraw from the market now without watching prices for the asset collapse.
The recent airline loans/bailouts require maintaining the same staff until September 30th.[1]
I would imagine that there will be layoffs once that requirement expires.
[1] https://www.businessinsider.com/airlines-coronavirus-bailout...
"""But the challenging economic outlook means we have some tough decisions ahead as we plan for our airline, and our overall workforce, to be smaller than it is today, starting as early as October 1."""
-Oscar Munoz, Chief Executive Officer, and J. Scott Kirby, President,
https://hub.united.com/united-message-munoz-kirby-2645729257...
Serious question. I fail to see how bailing out mismanaged companies is worth more than an equivalent sum straight to people. Companies can be nationalized if they're essential. Can't raise the dead. Can't squeeze blood from a stone.
This is false as related to the PPP loans ($700B program, to put that in perspective during the 2008 financial crisis law makers passed an $800B stimulus to prevent total financial collapse). Its argued the banks paid that 2008 money back with interest (I won't touch that claim), but the PPP loans ($700B) are intended to be forgiven.
>> Because bailouts (usually) make the government money in the long run. They're in the form of low-interest loans, they aren't just handing out money to corporations.
> This is false as related to the PPP loans
GP was comparing unemployment to QE and "corporate bailouts". Forgiveness of PPP loans is contingent on keeping staff on payroll and salary levels constant. So it's very much targeted at helping main street. In this sense, the intended use of PPP loans was closer to augmenting unemployment than a corporate bailout.
To the extent that PPP loans have actually gone to small businesses, my impression is that that's mostly worked out -- it's basically unemployment without the lack of employment. To the extent that they haven't, the federal government should find a way to retroactively claw back abuse and/or exclude abusers from future rounds of assistance.
BTW, worth noting that the PPP loans aren't really a handout if they're not paid back; their interest rate of 1%. Rates of return on fixed income are super low right now.
Helps main street? Businesses just got free money from taxpayers. Sure for the forgiveness you have to spend 75% on payroll, in many instances what the amounts to is a business owner paying themselves 8 weeks of salary with taxpayer money and then that loan being forgiven. In the instance it actually goes to employees, again taxpayers basically just paid for 8 weeks of your payroll (these helps politicians by keeping unemployment numbers artificially low for 2 months, and keeping people off the temporary Covid unemployment benefits), the jury is still out if any of these employees will remain employed after 8 weeks (or we will see unemployment again be flooded with millions of applicants, only the extra $600/week won't be there).
>my impression is that that's mostly worked out
Its as much of a scam as the NINJA (no income no job applications) were leading to the financial crisis, people just formed businesses made up salaries and got a free 8 weeks of said salary (up to $100k salary). Or the fact that law makers and their families have specifically been exempt from any ethics review for conflict of interest, and in some cases law makers set up brand new companies just to obtain PPP loans.
Sorry, I don't really understand why this is a problem. The alternative would be laying those people off and paying them via unemployment anyways, right? The idea was to keep people tied to their employers and keep otherwise productive businesses in tact in order to enable a quicker recovery. Digging into today's jobs numbers confirms this was largely successful: the bounce in employment was mostly ended furloughs.
> people just formed businesses made up salaries and got a free 8 weeks of said salary
Now you're just making shit up. Businesses had to exist prior to February 15, 2020 and the amount received is computed based upon payrolls from Jan 1 to Feb 15 2020. If people are doing this, they are putting a lot of effort into intentional fraud and are 100% going to end up in jail.
If the alternative was laying people off, that is the free market at work. And there is no "keeping employee tied to their employers" as you claim, it is just free money to businesses for 8 weeks of payroll (+25% extra for non-payroll expenses like rent - so taxpayer paid rent for businesses, where is the taxpayer paid rent for taxpayers?). There is no promise or guarantee business will keep employees or even remain open beyond that 8 week period.
Finally, and most importantly, you touch on it:
>paying them via unemployment anyways, right?
Yes, this was about: 1) free money to businesses and 2) hiding the real unemployment numbers.
It was not about employees, if it was there are much better ways to go about it. At minimum law makers wouldn't have been allowed to pass the bill, create a brand new business, and obtain PPP loans for these new businesses (which would normally be prohibited, but both law makers and their family were excluded from these prohibitions against conflict of interest)
The economic shock was caused in part by a government-imposed shutdown of economic activity in response to a pandemic.
> There is no promise or guarantee business will keep employees or even remain open beyond that 8 week period.
Which is why another aid package will probably be passed in July. The initial aid package was not intended as a one-time fix. Even as the legislation was being drafted, its key sponsors were stating that a follow-up package would be required in the summer.
> At minimum law makers wouldn't have been allowed to pass the bill, create a brand new business, and obtain PPP loans for these new businesses
Again: businesses had to exist prior to February 15, 2020 and the amount received is computed based upon payrolls from Jan 1 to Feb 15 2020. If people are doing this, they are putting a lot of effort into intentional fraud and are 100% going to end up in jail.
No, the economic shock was caused by businesses being over leveraged and not having cash reserves. I keep hearing how this was the greatest economy the World has ever seen, how good could it really be if businesses are existing paycheck to paycheck?
>Which is why another aid package will probably be passed in July.
Exactly why taxpayers and not businesses should have received the lion share of the bailout funds.
>businesses had to exist prior to February 15, 2020
Look up shelf corps or ready corps. There is rampant fraud with respect to the PPP loans, including by law makers, none of them will end up in jail.
A lot of these businesses didn't have much cash reserve because they were launched by ordinary folks and operate in industries where the profit margins are razor thin. If you're running the local pub, there's simply no opportunity to build up capital reserves that can survive a several-month-long shutdown. Even cutting payroll down to a minimum, rent, utilities and minimal maintenance is expensive.
I don't think there's a reasonable argument to be made that wiping out the current owners of bars, coffeeshops, garages, gyms, etc. is going to result in more resilient or more competent locally owned businesses in the long term. I just don't buy that there's a massive amount of well-capitalized individuals ready to run bars/coffeeshops/garages/etc. better than the current owners.
That said, there is a critical mass of super well-capitalized and competent restaurant/bar/coffeeshop management machines, which can take over if all those local businesses fail.
The effect of the policy you're suggesting would be the walmartification of the last remaining outposts of local ownership in most economies.
The airline bailout was apparently complex and not all of the info seems to be public [2].
[1]: https://www.paulhastings.com/publications-items/details /?id=7b8f1b6f-2334-6428-811c-ff00004cbded
[2]: https://www.nytimes.com/2020/04/14/business/coronavirus-airl...
On the whole the fed's balance sheet actually went up by 4 trillion dollars during the 2008 recovery [1] even though the loan program was less than 1 trillion. There is a trillion dollars of mortgage backed security purchases there that are a less visible bailout. The fed has already added 2 trillion this time with more to come.
[1] https://www.federalreserve.gov/monetarypolicy/bst_recenttren...
Let me make that clear. Whenever people say "Wall St was bailed out by the taxpayers", they don't understand finance well enough to know that the taxpayers actually earned a significant PROFIT from that bailout.
...and naturally the media doesn't report on that important detail.
"socialize the losses, privatize the gains" is a slogan based on complete ignorance.
She's done research and cites evidence. You CAPITALISE basic terminology to patronise people out of wanting to challenge you.
Seriously, this is just bleating, tired banker/cronyist narrative we've always seen when the Economy blows up like in 2008; there are billions/trillions for Bankers destroying the economy but if that is re-directed to the People who have lost their jobs because of State incompetence hell breaks loose--I worked in Culinary so I'm one of those, but I have a diverse skill-set so I can pivot unlike mnay of my co-workers. Also, I've been immersed in the Hong Kong struggle since 2014, and when this mystery pandemic kicked off in mid-January and the CCP was forcing borders open there and dissappearing journalists, citizens and punishing physicians I knew the spread was going to happen if all nations didn't contain it as China was not going to. Flash forward to February and the CCD did this despite what was coming out in PUBLIC MEDIA:
https://www.dallasnews.com/news/public-health/2020/03/02/cor...
https://ktla.com/news/nationworld/wuhan-evacuee-released-fro...
Hong Kong was already quarantining by mid Janurary and their economy and the protests started to decrease due to the influx of Mainlanders invading HK and overwhelming the Medical Industry.
The fact that this spread throughout the rest of the World was an inevitability as travel remained, I was personally in San Antonio when they released those people from Wuhan on my way back from Boca Chica headed back to Colorado.
This is State incompetence at its most extreme sense and should be just as a stark wake up call as Police Brutality was for Society; the fact is this is a scale issue, not an individual party one should not be ignored. There was no way anyone would accept a shutdown of the Economy of any significant size,or even on a logistical level even when they were gawking at Wuhan leaked videos in early January and commenting on Social Media about it.
The only ones that did were small city-states like Hong Kong, Taiwan and larger island nations like New Zealand and South Korea who are on constant alarm due to N. Korean and CCP interference and constant missile alarms so knew how to mobolize when needed--a very undesirable.miserable thing when you realize the SK population is 41 million, or roughly that of California.
In summary: some would have you believe that the People, especially those who have had their Industry and entire Life's work destroyed, don't deserve to have financial support but are often those who pay the most in real terms for the ever increase in taxes/cost of living.
But God-forbid the Jamie Dimon's or Lloyd Blankfein's of the World go without their corporate welfare. F-them, seriously: even when Dimon/JP Morgan came out in support of Bitcoin I only hoped he gets his much deserved comeuppance soon.