Nomi Prins, An All-American Urge to Offer Corporate Welfare
Nomi Prins, An All-American Urge to Offer Corporate Welfare by Nomi Prins for Tom Dispatch
You know how, every now and then, something just crystalizes everything for you? Here’s an example from my own life. In November 2017, I read a piece at the Guardian website headlined “Bill Gates, Jeff Bezos, and Warren Buffett are wealthier than poorest half of U.S.” That turned out to be 160 million Americans, many of whom, two and a half years later in the midst of a pandemic, in a nation of shutting shops and businesses, are truly in trouble deep. At that time, the 400 richest Americans already had more wealth than 64% of the rest of the population or 204 million people. Talk about a new gilded age! And it’s only gotten worse. Two years later, the five richest Americans (add in Mark Zuckerberg and Larry Ellison) possessed $435.4 billion, equivalent to more than 2% of the U.S. gross domestic product.
It’s no mistake, in other words, that we have our first billionaire in the Oval Office, a man whose empathy extends no further than himself (above all) and the cream of the top 1%. We’re talking about a president and his conservative supporters who, in a pandemic moment, would have preferred to see American businesses reopen, corporate titans thrive, and, if need be, old people (who weren’t rich and couldn’t afford high-end health care) die in the process. Que sera sera (whatever will be, will be), as Doris Day once sang in a happier moment.
Nomi Prins, herself a former Wall Street executive and a TomDispatch regular, has a particularly strong sense of how that Street eternally favors itself (and how the government invariably lends a hand in tilting the board its way), no matter the nightmarish state of so many Americans. In her striking analysis of the latest administration, congressional, and Federal Reserve efforts to “save” the economy, as the country shuts down under a growing coronavirus threat, she reminds us of how inequality really works, even in the worst of times, in twenty-first-century America. Tom
Wall Street Wins — Again
Bailouts in the Time of Coronavirus
By Nomi Prins
To say that these are unprecedented times would be the understatement of the century. Even as the United States became the latest target of Hurricane COVID-19, in “hot spots” around the globe a continuing frenzy of health concerns represented yet another drop down the economic rabbit hole.
Stay-at-home orders have engulfed the planet, encompassing a majority of Americans, all of India, the United Kingdom, and much of Europe. A second round of cases may be starting to surface in China. Meanwhile, small- and medium-sized businesses, not to speak of giant corporate entities, are already facing severe financial pain.
I was in New York City on 9/11 and for the weeks that followed. At first, there was a sense of overriding panic about the possibility of more attacks, while the air was still thick with smoke. A startling number of lives were lost and we all did feel that we had indeed been changed forever.
Nonetheless, the shock was momentary. Small businesses, even in the neighborhood of the Twin Towers, reopened quickly enough while, in the midst of psychic chaos, President George W. Bush urged Americans to continue to fly, shop, and even go to Disney World.
Think of the coronavirus, then, as a different kind of 9/11. After all, the airlines are all but grounded, restaurants and so many other shops closed, Disney World shut tight, and the death toll is already well past that of 9/11 and multiplying fast. The concept of “social distancing” has become omnipresent, while hospitals are overwhelmed and medical professionals stretched thin. Pandemic containment efforts have put the global economy on hold. This time, we will be changed forever.
Figures on job cuts and business closures could soon eclipse those from the aftermath of the financial collapse of 2008. The U.S. jobless rate could hit 30% in the second quarter of 2020, according to Federal Reserve Bank of St. Louis President James Bullard, which would mean that we’re talking levelsof unemployment not seen since the Great Depression of the 1930s. Many small companies will be unable to reopen. Others could default on their debts and enter bankruptcy.
After all, about half of all small businesses in this country had less than a month’s worth of cash set aside as the coronavirus hit and they employ almost half of the private workforce. In truth, mom-and-pop stores, not the giant corporate entities, are the engine of the economy. The restaurant industry alone could lose 7.4 million jobs, while tourism and retail sectors will experience significant turmoil for months, if not years, to come.
In the first week of coronavirus economic shock, a record 3.3 millionAmericans filed claims for unemployment. That figure was nearly three times the peak of the 2008 recession and it doubled to 6.6 million a week later, with future numbers expected to rise staggeringly higher.
As sobering as those numbers were, Treasury Secretary Steve “Foreclosure King” Mnuchin branded them “not relevant.” Tone-deafness aside, the reality is that it will take months, once the impact of the coronavirus subsides, for many people to return to work. There will be jobs and possibly even sub-sectors of the economy that won’t rematerialize.
This cataclysm prompted Congress to pass the largest fiscal relief package in its history. As necessary as it was, that massive spending bill was also a reminder that the urge to offer corporations mega-welfare not available to ordinary citizens remains a distinctly all-American phenomenon.
Reflections From the Financial Crisis of 2008
The catalyst for this crisis is obviously in a different league than in 2008, since a viral pandemic is hardly nature’s equivalent of a subprime meltdown. But with an economic system already on the brink of crashing, one thing will prove similar: instability for a vulnerable majority is likely to be matched by nearly unlimited access to money for financial elites who, with stupendous subsidies, will thrive no matter who else goes down.
Once the virus recedes, stock and debt bubbles inflated over the past 12 years are likely to begin to grow again, fueled as then by central bank policies and federal favoritism. In other words, we’ve seen this movie before, but call the sequel: Contagion Meets Wall Street.
Unlike in 2020, in the early days of the 2008 financial crisis, economic fallout spread far more slowly. Between mid-September of that year when Lehman Brothers went bankrupt and October 3rd, when the Troubled Asset Relief Program, including a $700 billion Wall Street and corporate bailout package, was passed by Congress, banks were freaked out by the enormity of their own bad bets.
Yet no one then should have been surprised, as I and others had been reporting that the amount of leverage, or debt, in the financial system was a genuine danger, especially given all those toxic subprime mortgage assets the banks had created and then bet on. After Bear Stearns went bankrupt in March 2008 because it had borrowed far too much from other big banks to squander on toxic mortgage assets, I assured listeners on Democracy Now!that this was just the beginning — and so it proved to be. Taxpayers would end up guaranteeing JPMorgan Chase’s buyout of Bear Stearns’s business and yet more bailouts would follow — and not just from the government.
Leaders of the Federal Reserve would similarly provide trillions of dollars in loans, cheap money, and bond-buying programs to the financial system. And this would dwarf the government stimulus packages under both George W. Bush and Barack Obama that were meant for ordinary people.
As I wrote in It Takes a Pillage: An Epic Tale of Power, Deceit, and Untold Trillions, instead of the Fed buying those trillions of dollars of toxic assets from banks that could no longer sell them anywhere else, it would have been cheaper to directly cover subprime mortgage payments for a set period of time. In that way, people might have kept their homes and the economic fallout would have been largely contained. Thanks to Washington’s predisposition to offer corporate welfare, that didn’t happen — and it’s not happening now either.
None of this is that complicated: when a system is steeped in so much debt that companies can’t make even low-rate debt payments and have insufficient savings for emergencies, they can crash — fast. All of this was largely forgotten, however, as a combination of Wall Street maneuvering, record-breaking corporate buybacks, and ultra-low interest rates in the years since the financial crisis lifted stock markets globally.
Below the surface, however, an epic debt bubble was once again growing, fostered in part by record corporate debt levels. In 2009, as the economy was just beginning to show the first signs of emerging from the Great Recession, the average American company owed $2 of debt for every $1 it earned. Fast forward to today and that ratio is about $3 to $1. For some companies, it’s as high as $15 to $1. For Boeing, the second largest recipient of federal funding in this country, it’s $37 to $1.
What that meant was simple enough: anything that disrupted the system was going to be exponentially devastating. Enter the coronavirus, which is now creating a perfect storm on Wall Street that’s guaranteed to ripple through Main Street.
The Fed, the Casino, and Trillions on the Line
In total, the CARES Act that Congress passed offers about $2.2 trillion in government relief. As President Trump noted while signing the bill into law, however, total government coronavirus aid could, in the end, reach $6.2 trillion. That’s a staggering sum. Unfortunately, you won’t be surprised to learn that, given both the Trump administration and the Fed, the story hardly ends there.