The Washington Post - 13.03.2020

A10 eZ M2 the washington post.friday, march 13 , 2020

500’s 7 percent slide that trig-

gered the circuit breaker — a

15-minute break to stop the free-

fall and give traders time to

recalibrate. The cool-down was

temporary, t hough, with the blue-

chip index sinking more than

2,200 points before rebounding

slightly. By midday, it was down

more than 1,800 points, or 7.

percent, while the S&P 500 was

off 7.2 percent and the tech-heavy

Nasdaq down nearly 7 percent.

The New York Stock Exchange

activated the rarely used lever as

the coronavirus’s accelerating

spread and worsening economic

outlook have rattled global mar-

kets for weeks. futures markets

tumbled overnight after Trump

announced the travel restrictions

— a move that blindsided Europe-

an officials.

on monday, the S&P 500 trig-

gered the first circuit breaker

after falling 7 percent early into

the session. By the end of day, it

had shed 7.6 percent and the Dow

had lost a stunning 2,014 points,

or 7.8 percent. The markets recov-

ered somewhat Tuesday, posting

across-the-board gains, only to

recoil Wednesday after the World

Health organization declared the

coronavirus a pandemic. The

Dow cratered nearly 1,500 points

to fall into a bear market, which

marks a 20 percent drop in its

all-time high.

Thursday’s decline recalled

198 7’s “Black monday,” still the

largest one-day Dow drop in per-

centage terms. Stocks fell

22.6 percent that day, w ith the sell

orders coming so quickly that

they overwhelmed the computer

and phone systems at the New

York Stock Exchange. It took the

market two years to recover the

lost ground.

The pneumonia-like illness has

spread to every continent save

Antarctica since it first emerged

in China late last year, sickening

more than 120,000 people and

claiming thousands of lives. The

United States has more than

1,000 confirmed cases and 41

deaths.

The White House and Con-

gress are at odds over what type

of economic rescue package to

assemble. The Trump administra-

tion has pushed the idea of new

tax cuts and delayed tax filings as

a way to boost the economy, as

well as expanding sick leave bene-

fits and helping the airline, hotel,

and cruise industries. Democrats

are moving ahead in the House of

representatives with a plan to

expand unemployment insur-

ance, provide more sick leave,

and assure food benefits are avail-

able for people who lose their jobs

and need emergency assistance.

“The bad news for the travel,

entertainment, leisure, and ener-

gy industries resulting from the

virus fears, initial unemployment

claims are likely to move higher

soon,” Ed Yardeni, president of

Yardeni research, wrote in com-

mentary Thursday. “measures of

consumer and business confi-

dence are likely to drop sharply

soon as well. A recession isn’t

inevitable, but it certainly is be-

coming more likely. ”

Before Thursday, the Dow has

closed a single-day session down

at least 7 percent on 20 occasions

since 1896, according to Howard

Silverblatt, of S&P Dow Jones

Indices.

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ing in U.S. government bonds.

These irregularities echoed the

types of freezes seen during the

2008 financial crisis and the fed

appeared to want to act quickly to

stop them.

“It’s safe to say, the fed almost

never does what it did the past

two weeks,” said Peter Conti-

Brown, a fed historian and asso-

ciate professor at the Wharton

School of the University of Penn-

sylvania. “The fed has unlocked

its emergency tool kit.”

But others said the market

dysfunction showcased a fragility

in the system resulting from some

of the regulatory changes that

were introduced in the wake of

the 2008 financial crisis.

Lawmakers required banks to

hold more capital in reserve,

which buffered them against

most shocks. As trading volumes

have exploded over the past de-

cade, however, the changes also

have made banks risk-averse. In

some corners of the financial

markets — such as the overnight

“repo” market for bank-to-bank

loans — the result in recent days

has been a shortage of willing

buyers, experts said.

And to cope, some said, the fed

needs to reinstate its crisis-fight-

ing playbook from 2008.

“We just need a really bold

response,” said Hal Scott, a Har-

vard Law School professor who

heads the nonpartisan Commit-

tee on Capital markets regula-

tion. “The spread of the virus is

shutting down the economies of

these countries. Ta ke Italy — the

economic system is not function-

ing. We could be there.”

Trump has bashed Powell for

acting slowly in the face of plung-

ing markets and recession fears

from the coronavirus outbreak.

But along with the fed, inves-

tors are looking to Congress —

with increasing desperation — for

an aggressive response to the

economic threat. “There has to be

a fiscal response,” s aid Posen.

The Dow plummeted nearly

1,700 points, but it was the S&P

buy $60 billion worth of Treasury

bonds for the next month, from

march 13 through April 13, to help

keep that market functioning ap-

propriately. Earlier this week, in-

vestors reported problems trad-

Narayana Kocherlakota, former

president of the federal reserve

Bank of minneapolis. “once you

start to lose that, you lose an

anchor that isn’t easily replaced.”

The fed also announced it will

were overlooked during a record

11-year economic expansion.

“It’s primarily the response to

bad or absent leadership, particu-

larly on the public health front,

and unhelpful statements by the

Trump administration, ECB and

others that’s fundamentally

what’s driving this,” said Adam

Posen, a former member of the

Bank of England’s rate-setting

committee.

Lagarde sparked a sell-off in

Italian government bonds with

an offhand remark Thursday that

the ECB was not worried about

rising funding costs for some

euro zone governments. She later

modified her comments in a sub-

sequent interview with CNBC.

Likewise, the White House late

Wednesday needed to issue a

clarification after Trump misstat-

ed the details of his policy re-

sponse to the virus in an oval

office speech.

malfunctioning markets were

the target of an extraordinary

action Thursday by the federal

reserve Bank of New York. It said

Thursday that it was injecting

$1.5 trillion into the bond market

Thursday and friday to ensure

the short-term funding markets

that banks use to lend to one

another operate smoothly. The

New York fed said it acted “pur-

suant to instruction” from fed

Chair Jerome H. Powell.

The action was both financially

esoteric — the sort of operational

consideration that only bond

traders might appreciate — and

profoundly important for the

health of Americans’ invest-

ments. The roughly $17 trillion

Treasury market is the safe haven

for investors who want a near-ab-

solute guarantee that they will

get their money back. It also

operates as a benchmark against

which all other assets — stocks,

corporate bonds, municipal

bonds and commodities — are

priced.

“The belief that the Treasury is

a risk-free asset is the bedrock of

global financial markets,” said

The coronavirus outbreak

BY MIKE DEBONIS,

ERICA WERNER

AND JEFF STEIN

The Trump administration and
congressional Democrats neared
agreement Thursday night on an
economic relief package to help
people affected by the coronavi-
rus, with both sides under enor-
mous pressure to act to address
the spiraling crisis.
House Speaker Nancy Pelosi
(D-Calif.) said she expected a vote
friday “one way or another” to
approve the package, which is ex-
pected to amount to several tens
of billions of dollars.
“We’ve resolved most of our
differences, and those we haven’t
we’ll continue to have a conversa-
tion — because there w ill obvious-
ly be other bills,” Pelosi told re-
porters outside of her office in the
Capitol at the end of a long day of
intense talks with Treasury Secre-
tary Steven mnuchin.
The legislation will include
measures to boost paid family
leave and unemployment insur-
ance, e nsure free coronavirus test-
ing and strengthen n utritional aid
like food stamps. The emerging
agreement builds upon a bill
House released by Democrats late
Wednesday that included a num-
ber of provisions republicans op-
posed, setting off hours of fren-
zied negotiations on Capitol Hill

to reach bipartisan consensus.

Lawmakers of both parties

were determined to deliver an

economic relief package before a

congressional recess that had

been scheduled for next week.

“Let’s try to accomplish some-

thing t hat we can agree o n and get

it done,” said Sen. rob Portman

(r-ohio), summing up the senti-

ments o f many.

A final hang-up was over a paid

family and medical leave provi-

sion, w ith republicans pushing to

structure it in a way that it could

be implemented quickly and

avoid undue burdens on employ-

ers.

“There were some differences

of opinion, but we felt that putting

together something that the

American people could see coop-

eration on between the two par-

ties in this difficult moment

would be a confidence-builder,”

said House Ways and means Com-

mittee Chairman richard E. Neal

(D-mass.). “A nd I think that we

approached it that way.”

While House approval of the

package was expected friday,

clearing lawmakers to begin a

scheduled r ecess, the Senate is not

expected to take it up until next

week. majority Leader mitch mc-

Connell (r-Ky.) canceled his

chamber’s planned recess next

week but allowed senators to

leave Washington for the week-

end.

As originally introduced, the

House bill included a $2 billion

boost to state unemployment in-

surance programs, more than

$1 billion i n nutritional aid, a new

paid-leave benefit for employees

affected by the outbreak and an

increase in federal medicaid

spending, as well as a guarantee of

free coronavirus testing. republi-

cans viewed the initial legislation

as overly broad, and President

Trump criticized it as full of “the

goodies that they haven’t been

able to get for the last 25 years.”

Through hours of phone calls

and staff-level negotiations, Pelosi

and mnuchin agreed to narrow

the legislation to focus more

squarely on effects of the corona-

virus outbreak and those hurt by

it. The legislative text was still

being finalized, but Pelosi s aid

mnuchin’s suggestions had been

“all very reasonable.”

The near-deal Thursday eve-

ning represented a dramatic turn-

around from the state of play in

the morning, when the White

House and congressional repub-

licans panned the House Demo-

crats’ bill and suggested chances

for a quick d eal were remote.

But as the hours progressed

and the scale of the crisis mount-

ed, it became clear there was no

appetite among lawmakers to

leave Washington for a week or

more without acting.

“This is such a serious issue,”

said Sen. Joni Ernst (r-Iowa), who

is up for reelection in November.

“We need to be continually moni-

toring this as a group, not having

us all out to the four winds.”

only last week, Congress

passed an $8.3 billion emergency

spending plan to address public

health needs arising from the cri-

sis. But with the stock market

plunging, layoffs beginning,

schools around the country shut-

ting down and entire sports

leagues halting their seasons, the

need for a robust economic re-

sponse became g laring.

There are now more than 1,

confirmed coronavirus cases in

the United States and more than

three dozen deaths, numbers that

are expected to rise exponentially.

And increasing numbers of law-

makers are announcing plans to

shut down their offices and self-

quarantine after brushes with in-

fected people.

Trump is advancing costly

ideas of his own — including a

payroll-tax holiday that could

drain tens of billions of dollars

from Social Security. T hat idea h as

gotten limited traction among ei-

ther party on Capitol Hill, and

congressional leaders decided to

pursue a narrower package that

could win GoP support, leaving

broader measures, such as the

payroll-tax cut, for another day.

The White House was also mov-

ing to assemble i ts own r elief plan,

one that included requests for

congressional action as well as

administrative actions that the

Trump administration could take

unilaterally.

White House officials held

meetings Thursday to hammer

out details of the administration’s

economic response package as

promised by Trump in his nation-

al address Wednesday night, in-

cluding some kind of paid-sick-

leave plan that could be enacted

administratively. Critical details

remained u nresolved, however.

As originally written, the

House paid-leave plan relied on a

two-pronged approach, combin-

ing a temporary program that

would be administered by the So-

cial Security Administration that

would provide up to $4,000 a

month to affected households

with a new permanent sick-leave

mandate for U.S. employers. only

firms employing fewer than 50

people would be eligible for feder-

al assistance in meeting t hat man-

date, which was strongly opposed

by the administration.

Those plans underwent signifi-

cant changes over the day of talks,

and in the final hours negotiators

were haggling over a less ambi-

tious family and medical leave

expansion proposal from rep.

robert C. “Bobby” Scott (D-Va.)

that would expand the number of

workers who can take up to 12

weeks of job-protected leave un-

der the family and medical Leave

Act while drawing down wage

replacement. Another idea was to

instead use a Small Business Ad-

ministration program to give em-

ployee retention tax c uts to small-

er businesses.

“It’s about paid sick leave. It’s

about family and medical leave.

It’s about unemployment insur-

ance. It’s about our children who

are out of school and need to be

fed. It’s about seniors and people

with disabilities,” Pelosi said.

“This goes to the actual heart of

what our purpose is.”

Another controversial provi-

sion i n the original bill would have

increased the percentage of med-

icaid spending borne by the feder-

al government by eight percent-

age points through Sept. 30, 2021.

That would be a welcome relief to

states, which could s ee an influx of

medicaid enrollees in a time of

economic crisis. But the price tag

for the federal government could

have been v ast — stretching easily

into the tens of billions of dollars.

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seung Min kim and Paul kane

contributed to this report.

Administration, congressional negotiators close to d eal on economic relief

cized oval office speech, and
accelerated once trading opened
Thursday in New York. Even the
federal reserve’s promise to
make available $1.5 trillion to
smooth the operations of the
giant U.S. Treasury market could
not calm anxious investors.
Across the United States,
meanwhile, the virus forced
schools, sports leagues and enter-
tainment venues — including
American icons — to alter their
plans.
The NCAA canceled “march
madness,” its premier annual
showcase, disappointing millions
of fans. major League Baseball
and the National Hockey League
likewise placed their seasons in
limbo, joining the National Bas-
ketball Association, which acted
one day earlier.
Public tours of the White
House have been canceled and
the U.S. Capitol and congressio-
nal office buildings will be off-
limits to tourists starting April 1.
Even mickey mouse was side-
lined when Disneyland said it will
close through the end of this
month.
In maryland, Gov. L arry Hogan
(r) ordered public schools to
close for two weeks starting mon-
day and banned gatherings of
more than 250 people. Schools in
ohio, New mexico and michigan
will close for three weeks, and
Kentucky Gov. Andy Beshear (D)
called for all schools in the state
to suspend in-person classes for
two weeks. And in Virginia, Gov.
ralph Northam (D) declared a
state of emergency, b ut left s chool
closings to local officials.
Still, at the White House, the
president continued to minimize
the danger from the virus. The
president said he was unfazed by
reports that a Brazilian official he
had met at mar-a-Lago last week-
end, fabio Wajngarten, later test-
ed positive for coronavirus.
“Let’s put it this way: I’m not
concerned,” the president said
when asked about having been
exposed to the Brazilian official,
who was photographed standing
alongside him and Vice President
Pence.
If Thursday’s cascade of can-
cellations was notable, it was the
financial markets that offered an
unmistakable verdict on the re-
sponse by major U.S. and global
institutions to the virus.
Wall Street’s stunning melt-
down over the past month has
erased almost all of the stock
market gains since Trump’s No-
vember 2016 election. on feb. 12,
the Dow was up more than 61 per-
cent since his surprise win. Now
the total Trump-era gain is
around 11 percent.
Thursday’s decline reflected
investor unease with the han-
dling of the crisis by global lead-
ers including European Central
Bank President Christine
Lagarde and Trump and the
emergence of structural prob-
lems in financial markets that

markets from a

Markets

dive despite

Fed move,

other steps

20172018 2019 2020

Jan. 4, 2017

19 ,594. 16

18,

24,

Nikkei (Japan)

March 12

18,559.

20172018 2019 2020

20172018 2019 2020

Feb. 12 DAX (Germany)

29,551.

Jan. 3, 2017

19 ,881. 76

Dow Jones

30 ,000 14,

10 ,

March 12

9,161.

20172018 2019 2020

2017201820192020

Feb. 19

9,817.

6,

5,

8,

FTSE (Great Britain)

10 ,

Nasdaq

Jan. 3, 2017

7,177.

Jan. 3, 2017

5,429.

March 12

7,201.

March 12

5,237.

Stock indexes see steep losses

Recent setbacks in the stock market have sent some indexes to values

near or below their level at the beginning of 2017.

March 12

21,200.

March 12

2,480.

Jan. 3, 2017

11,584.

Source: Yahoo Finance ALYSSA FOWERS/THE WASHINGTON POST

20172018 2019 2020

Jan. 3, 2017

2,2 57.

Feb. 19

3,386.

3,

S&P 500

Justin Lane/ePa-eFe/shutterstock

traders work on the floor of the New York stock exchange as stocks around the world continue to lose value. although the Fed has cut

interest rates and the White House and Congress are working on a stimulus, the actions fall short of the response needed to calm investors.

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