The Washington Post - 18.03.2020

A22 EZ RE THE WASHINGTON POST.WEDNESDAy, MARCH 18 , 2020

Goldman Sachs and Morgan

Stanley economists joined the

rush on Wall Street to declare

that the covid-19 outbreak has

triggered a global recession, with

the debate focusing on its likely

length and depth. A day after

President Trump conceded the

U.S. slump alone is set to be “a

bad one,” economists threw away

their forecasts that the world

could avoid tumbling into

recession for the first time since

the financial crisis. Behind the

rethink: the virus’s spread to

Europe and the United States, as

well as new evidence that China

experienced a harder hit to its

economy than first projected.

— From news services

COMING TODAY

8:30 a.m.: Commerce

Department releases housing

starts for September.

meal kit delivery company were

up more than 50 percent for a

second straight day. Food

delivery services Waitr Holdings’

stock is up 141 percent since the

start of the week, and Grubhub

climbed 22 percent Tuesday.

Waymo is pausing most

operations in Arizona and

California in response to the

coronavirus outbreak, the

company announced early

Tuesday. Alphabet’s self-driving

car unit sent a message to riders

saying that all trips in the

Phoenix area with safety drivers

in the front will cease, “in the

interest of the health and safety

of our riders.” Most of Waymo’s

vehicles in Phoenix still operate

with safety drivers. The company

said that its fully driverless

operations in Phoenix

will continue for now as will its

delivery and trucking services.

It’s a sign that executives now see

their companies as alluringly

cheap after the 30 percent

plunge in the MSCI World Index

from its record.

The bargain-hunting drive

reached a record in Italy and

Spain, two economies in

lockdown as the coronavirus

spreads. In the United States,

purchases are at 2016 highs.

Since executives supposedly

have superior knowledge about

their own businesses, such

purchases add to the case that

shares have fallen below their

fair value, the thinking goes.

— Bloomberg News

ALSO IN BUSINESS

Blue Apron Holdings stock

more than doubled this week as

cities around the country forced

restaurants to curtail operations

and panic-buying emptied

grocers’ shelves. Shares of the

Facebook said that while those

workers are also barred from

coming into the office, the

company will continue to pay

them what they’d normally earn,

even if they are unable to do

their jobs from home.

— Bloomberg News

INVESTING

Corporate insiders

buying up stock

Corporate insiders worldwide

are buying the most shares for

every one they sell since 1999,

according to data from 2iQ

Research. Managers and

directors have snapped up 4.5

times as much equity in their

own firms as they have sold this

month, as of Monday.

All in, they have purchased

$95 million worth of stock so far

in March, the most since 2015.

April 3. Customers who reserved

sessions will receive refunds.

— Bloomberg News

SOCIAL MEDIA

Facebook will pay its

workers extra $1,000

Facebook is paying all of its

45,000 employees an extra

$1,000 to help manage expenses

during the covid-19 outbreak.

Chief executive Mark

Zuckerberg announced the

decision Tuesday in a memo to

workers. The bonus applies to

the social network’s full-time

employees, who as of now can’t

come into the office for health

and safety reasons and therefore

won’t have access to their usual

catered meals, gyms and other

services provided by Facebook.

Contract employees won’t be

eligible for the payment.

RIDE SERVICES

Uber, Lyft suspend

shared rides

Uber Te chnologies and Lyft
have suspended their shared
carpool services in the United
States and Canada in a bid to
slow the coronavirus pandemic
by encouraging social distancing.
These services match different
passengers headed in the same
direction so they can ride
together and spread the cost.
Uber and Lyft’s regular ride-
hailing services and food
delivery will still be available, the
companies said. Uber said
Monday it will waive delivery
fees for independent restaurants.
Meanwhile, Airbnb said
Tuesday it will pause its
Experiences service, where
travelers can book tours, classes
and workshops, until at least

Economy & Business

DIGEST

○

DOW 21,237.38

UP 1,048.86, 5.2% ○

NASDAQ 7,334.78

UP 430.19, 6.2% ○

S&P 500 2,529.19

UP 143.06, 6.0% ○

GOLD $1,525.80

UP $39.30, 2.6% ○

CRUDE OIL $26.95

DOWN $1.75, 6.1% ○

10-YEAR TREASURY

DOWN $32.90 PER $1,000; 1.06% YIELD

CURRENCIES

$1= 107.62 Y EN, 0.91 EUROS

economy i n the face of repeated

market f ailures.

Voters are similarly conflicted.

While t hey demand that

government do something t o

contain economic crises, they are

resentful a bout anything that

smacks of a bailout. President

George H.W. B ush learned that

lesson after the rescue of the

savings and loan industry in late

1980s, as did President Barack

Obama following the rescue of

Wall Street and the auto

companies in 2009.

As a faux-populist p resident

who promised to “drain the

swamp,” President Trump c annot

allow h imself t o be seen riding t o

the rescue of big business. Ye t as a

politician he is acutely aware of

the connection between the

economy a nd his own r eelection.

He a lso knows he cannot a fford

to allow a public health crisis to

turn into a financial crisis.

For that reason, l ook for

Trump to keep his distance f rom

the negotiations w ith industry

leaders and Congress, leaving

that task to Treasury S ecretary

Steven Mnuchin and trusted son-

in-law Jared Kushner. And don’t

expect any signing ceremony in

the Rose Garden.

One would hope that once the

rescue is put in place, top

executives o f the r escued firms

would have the good manners to

thank t axpayers p ublicly for

helping them t hrough these

tough t imes. And maybe — j ust

maybe — t hey will h ave second

thoughts the next time they are

tempted to complain a bout

excessive government

interference in the workings of

the free market.

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incentives, which would be a

comedown for the chief

executives o f nearly all of these

companies. They s hould a lso be

prevented from p aying

shareholders any dividends or

buying back a ny s hares of their

stock. And rather than laying off

a large number o f employees,

they should b e required

whenever possible to institute

job-sharing programs so that all

employees remain on the payroll

part-time until the c risis has

passed. The details of these deals

should be posted o n the Treasury

website, a long with an audited

accounting of when and how the

money has been repaid.

As f or the thousands of smaller

companies affected, the Small

Business Administration should

be authorized t o guarantee loans

made by private banks. Such

guarantees, however, should

extend only to 75 percent of any

loan, ensuring that the banks

accept the first loss from any loan

that is not repaid. Only i n that

way will banks h ave sufficient

incentive to ensure that only

creditworthy companies receive

the loans.

The politics of these rescue

packages are particularly t ricky

for Republicans, w ho will find

themselves torn between the

political i nstinct to reward their

allies in the b usiness community

and their ideological opposition

to government interference in

the market economy.

For Democrats, it is the

opposite. While they are

reluctant s aviors of Wall Street

banks a nd investors, they are also

eager to protect w orkers and

demonstrate the need for

government management of the

compensate them for the lost

revenue they suffered as a result

of government restrictions on

travel or large gatherings. That

would be a mistake.

Although there is precedent

for such grants to the a irlines in

the 9/11 rescue package, after 20

years o f unchecked

consolidation, t he airlines —

along with hotel operators and

theme p arks — h ave become

disciplined oligopolies

characterized by high prices and

profits. They s hould get no better

deal from the government than i f

they were seeking capital from

Warren Buffett a nd Berkshire

Hathaway.

That’s n ot all the government

should demand. Until the

government gets its money back,

the companies should be

prevented from p aying any

executive more than $2 million a

year in salary, b onus and stock

that are no less dependent on

tourists and business travelers?

And what about the o wners of

professional sports teams, or

NASCAR sponsors or the N CAA?

It’s n ot so obvious where t he

eligibility line should be drawn.

Then there is the practical

reality t hat the government

simply doesn’t h ave the c apacity

to review the financial situation

of millions of businesses and

quickly determine which ones

genuinely need capital and w ill

be viable enough to pay it back. In

addition, the potential for fraud

and political favoritism is

significant.

So here’s w hat you can e xpect.

For the largest companies in the

industries most heavily

impacted, the U.S. Treasury will

probably be authorized to

provide temporary e quity

investments, loans and loan

guarantees tailored to the needs

of each company, m uch as it did

with the banks, a uto companies

and the mega-insurer AIG in the

wake of the 2008 financial c risis.

In s ome cases, the mere fact

that the capital is available w ill

give lenders t he comfort they

need to renegotiate and extend

their e xisting loans. In o ther

cases, the government will have

to provide funds and guarantees.

No m atter how they are

structured, however, these rescue

packages should put the

government first in line for

repayment and to earn a tidy

profit when companies

eventually return to profitability.

Airlines, cruise lines, hotel

companies and theme parks are

already making the case that the

government should simply h and

over an initial t ranche of cash to

Next up on the
pandemic policy
agenda: a rescue
plan for the
airlines and other
industries hit
hard by the global
coronavirus
pandemic.
This week you can expect to
hear warnings from business
groups about the jobs t hat will be
lost, the bankruptcies that will be
triggered, the financial panic that
will ensue and t he recession that
will be prolonged if the
government fails to act quickly
and aggressively.
And there will be the
predictable rants about putting
taxpayers on the h ook for
“bailing out” u ndeserving
shareholders, banks a nd hedge
fund managers even as waiters,
taxi drivers a nd maids are left t o
fend for themselves.
Democrats will accuse
Republicans o f groveling t o Wall
Street and business interests
while Republicans will accuse
Democrats of groveling to unions
and wanting to pick winners and
losers. In t he end, a rescue
package w ith a price t ag of
hundreds o f billions of dollars
will be narrowly approved by
both houses of Congress over t he
opposition of partisans a nd
ideological purists in both
parties.
So here i s a program guide f or
the political melodrama that is
about to unfold.
Let’s start with the word
“bailout.” B ailout has a pejorative
connotation, one that suggests
people and c ompanies that
should have known b etter a re
saved from the consequences of
their o wn risk-taking with large
gifts of government cash.
But in this case, the pejorative
does not apply. For if anything
qualifies as an event outside
human control — a n “act of God”
as the contract l awyers p ut it —
certainly it is a pandemic.
And what’s different here is
we’re talking about thousands o f
companies with tens of millions
of workers and tens of billions of
dollars in debt owed to American
banks a nd investors.
If companies don’t find a way
out of their temporary cash
squeeze, then the collapse of one
entity will lead to the collapse of
another, and then a nother, in the
manner of falling dominoes — a
financial c ontagion to mirror the
viral one going on outside. The
reason for doing it is not because
it’s f air — i t’s not — b ut because
lots of innocent bystanders will
get hurt if you don’t. We d o it for
us, not for them.
From a policy standpoint, the
trick i s to do it in a way that
provides a safety n et f or workers
and customers who are most
vulnerable, while insisting
investors and lenders accept
some of the financial pain.
It i s pretty clear at this point
that, for the next several months,
airlines, cruise lines, hotel chains
and theme parks will n ot be
taking in enough revenue to
service t he interest payments on
the debt they took on to buy their
planes, boats, buildings and other
equipment. B ut it’s n ot just them.
What about the c ompanies
that sell jet fuel to the airlines, or
provision food to the cruise ships,
or provide sophisticated
computer reservation systems to
the hotels? Or the restaurants,
taxi companies, b us tour
operators and sidewalk vendors

Let the bailouts begin: What to expect

Steven
Pearlstein

JOE BUGLEWICZ/BLOOMBERG NEWS

Pedestrians walk Tuesday along the Las Vegas Strip, among the places sure to be hurt badly by travel restrictions and other fallout from the coronavirus outbreak.

The government needs to make cash available to affected industries not because it’s fair — it’s not — but because lots of innocent bystanders will get hurt if it doesn’t.

DAVID RYDER/REUTERS

Seattle restaurant co-owners Jenny Kelly and Michael Kelly sort

through food to donate after the contagion closed their business.

These rescue packages

should put the

government first in line

for repayment and to

earn a tidy profit when

companies eventually

return to profitability.