What happened to the cash from the last bailout? Industries spent it all on stock buybacks and are now looking for billions more in relief from the impact of coronavirus.
Story Transcript
This is a rush transcript and may contain errors. It will be updated.
Kim Brown: Welcome to The Real News. I’m Kim Brown. As the world scrambles to contain AND deal with the ongoing coronavirus pandemic, governments around the world are not only struggling to save lives, but to deal with an economic slowdown that has left millions of people without work at this time. But make no mistake, capitalism is trying to claw back the billions of dollars it has lost since the global economic slowdown because of the coronavirus pandemic, and many industries in recent memory, who were the beneficiaries of federally taxpayer-funded bailouts, are lining up once again with their hands out, these same bailouts that left many American workers and workers around the world holding the bag. To get more information and some analysis on this, we’re joined today with Bill Black. He is the author of the book titled, The Best Way to Rob a Bank Is to Own One. He is also a professor at the University of Missouri at Kansas City, and the University of Minnesota. He joins us today from Bloomington. Bill Black, thank you so much for being here.
Bill Black: Thank you.
Kim Brown: So Bill, hourly wage workers and the gig economy workers are feeling the crunch and the sudden impact of the economic slowdown. Obviously here in the United States, and many states within the US have shut down bars, restaurants, casinos, schools, universities, everything is closed, and people who depend on working hourly are definitely experiencing the brunt of this, and we’re going to get to their plight in just a moment. However, companies, industries, are telling Washington that if they don’t get billions in federal assistance, they will go bankrupt, that they will not survive. And we’re talking about the airline industry, the hospitality industry, the cruise ship industry, even casinos and fossil fuels. So Bill Black, are these industries being truthful that their survival depends on federal intervention, or is this a lot of hyperbole?
Bill Black: Well, some of both. It depends on the circumstances. So simultaneously, with this incredible drop in the stock market and with the strong expectation that there will now be a global recession due to the pandemic, the Russians and the Saudis also [inaudible 00:02:35] was stage a price war on petroleum. Most shale oil production was already very marginal and often losing money, and the price of oil has basically been cut in half, and those companies most assuredly would go out of business, as they should. But of course, you recall these are the same people horrified, horrified by the concept of socialism, the government sending money to people and doing things, not so much if it’s going to major donors. So this is not about saving the economy and it’s not about saving lives, this is all about saving the Trump presidency and the reelection efforts.
Kim Brown: Professor, the Trump White House coronavirus response team held a briefing in the White House, on Tuesday where Secretary of the Treasury, Steven Mnuchin pledged that workers who have been displaced either by their industry shutting down, i.e. restaurant and bar workers, could expect some financial relief coming from the White House. Let’s take a listen to what he had to say.
Steven Mnuchin: The payroll tax holiday would get people money over the next six to eight months. We’re looking at sending checks to Americans immediately. And what we’ve heard from hardworking Americans, many companies have now shut down, whether it’s bars or restaurants, Americans need cash now, and the president wants to get cash now, and I mean now in the next two weeks.
Speaker 4: How much?
Steven Mnuchin: I will be previewing that with the Republicans. There’s some numbers out there. They may be a little bit bigger than what’s in the process.
Kim Brown: So professor, what is your response to what Mnuchin had to say there?
Bill Black: Okay, so to put it in context, you have to back up to Friday. Trump makes his big announcement, everything’s wonderful, kumbaya. The stock market very briefly goes up 2000 points. He’s signing copies of a graph showing this, giving it to Lou Dobbs, taking personal credit for it, and the market just absolutely tanks, and it tanks globally. So again, they figured out, “Oh my God!” If you recall, last Friday, the Republicans in the Senate under Mitch McConnell were saying, “The Democrats have way too much money in this stimulus package, and they’re going to try to protect workers from layoffs, and from sick leave and such. That’s all outrageous! We need to make this package smaller!” And now Trump has reversed it, because the biggest thing he thinks he has going for his reelection is the stock market. So this is all about getting a really big surge in the stock market, which by the way, the gains go overwhelmingly to very, very wealthy people and corporations. That’s who’s most heavily invested in the stock market.
And given the failure of his last efforts, they’ve decided to go big. And this is the old thing, go big or go home, home, not to the White House, but back to Florida or wherever he’s decided to live, if he gets defeated for reelection. So Mnuchin is now promising payment to workers. Remember before, they didn’t want to do that. They didn’t want to have sick leave protection for workers and such, but they figured out, “Hey, our base in the critical states particularly, Michigan, Pennsylvania, and Wisconsin and such, really wants these kinds of direct payments. So let’s, even though we as Republicans opposed them in 2008 in the Obama stimulus, now we love them,” and they’re going to compete obviously to see how big they can make them. So yes, there will be direct paychecks, and you can see that both the Republicans and the Democrats will support this legislatively, and probably do so on a very quick basis.
Kim Brown: Professor, I’m going to lean heavily on your financial expertise here, because Secretary Mnuchin in this address from the White House on Tuesday, he made some specific claims about what the Fed is willing to do to boost the economy. Let’s have a listen to what secretary Mnuchin had to say there.
Steven Mnuchin: The first, I would say is earlier today, I sent a letter to Fed Chairman Powell approving his request to use 13(3), and what that will do is the Fed will be setting up a special purpose vehicle, which the treasury will invest $10 billion in, from one of our funds, that will enable the Fed to guarantee the purchase of A1/P1 commercial paper going forward. That is a $1 trillion market and is critical to American workers, it’s critical to American business, and it’s critical to American savers, who have a lot of that money in money market funds. So we heard loud and clear there were liquidity issues. This is very significant, and we’ll create, I don’t think we’ll need to use it all, but we have the ability to have the Fed purchase up to $1 trillion of commercial paper, as needed. That has already created significant stability in the market today.
Kim Brown: So professor, I can tell you I understood very little of what was just said. All I understood was $1 trillion. Can you please decipher what Steve Mnuchin is talking about and how that will impact average workers, if at all?
Bill Black: It won’t affect the average workers at all, if it works as intended. What they were concerned about is the kind of breakdown in markets that occurred in September 2008, and then like dominoes, cause what we call systemic failures, systemic risk, where one failure triggered another. And so the specific part of the plan that he was talking about there, has to do with trying to fix recurrent problems over about the last three months in the short-term borrowing markets, which are used almost entirely by Wall Street and its largest corporate customers. So it has not much of anything to do with any of us.
Now, in the further context, remember the Republicans who were all for central bank independence and you should never have political influence, but of course, Trump in ways that we’ve never seen in America, has been hammering Powell, his own appointment to run the Fed, to reduce rates to the lowest in the world. Well, they haven’t quite done that, but they’ve reduced rates essentially to zero. So that’s the broader context. They’ve used up all the monetary tricks that they have in terms of stimulus.
Then they try to deal with the liquidity problem, and the way they did that is say, “Hey, we’ll be the buyer of last resort up to 1 trillion bucks out of the Fed.” So that’s the liquidity, and then they said what economists had been saying for some time, “Hey, there’s not that much effective you can do with these circumstances with monetary policy. You really need a fiscal stimulus. Remember the Republicans, about how fiscal stimulus was insane in 2008 with president Obama?” Now they’re all for it, of course, and so that’s the three pieces of this pie.
But in addition to these stimulus, then you’re just playing good old crony capitalism payoffs to your biggest political supporters, right? So particularly in casino industries, these are Trump’s greatest friends, and political supporters and contributors, the investment banking folks, the hedge funds and such, that particularly support Trump, all of these folks are going to be the huge beneficiaries, and mind you, consider the number. The number they’re throwing around for allegedly sending to people, and remember most of that will probably go to richer people, but total that goes to people is 250 billion. Obviously this can change legislatively, but this authority to fix a liquidity problem is a trillion dollars, so four times as large, and then there’s all this other stuff from the Fed plus this incredible reduction in interest rates. So all of these things really help the folks that borrow a huge sums of money, and again, that’s corporations and in particular, Wall Street
Kim Brown: Professor, but this is what pisses a lot of people off, because when we hear the ease and the quick response from the White house, and this is really either White House, Trump, White House, Obama White House, Bush White House. When Wall Street needs money, oh, we can make a trillion and a half dollars appear out of nowhere, but when average Americans, working people, poor families are asking for a student loan bailout, for example, or Medicare for all, it’s like, “Oh, where are we going to find the money? Oh, we don’t even know where that money is.” So clearly this money is accessible to someone, but not to the people who clearly need it the most.
Bill Black: Yes. I mean, this is the part that Bernie Sanders and Elizabeth Warren were absolutely right about, right? That whenever it’s for folks who are major contributors and the biggest political contributors of any industry in America, are finance, and after that comes a whole list of the folks that are the recipients of this proposed bailout. Whenever they want public money, suddenly it’s not socialism, suddenly it’s capitalism. And allegedly, these are the folks that save jobs, except that obviously, they’re not saving the jobs. In fact, it’s these precise companies.
Well, why don’t they have as much cash? Why are they in such a vulnerable position that even a month or two would destroy them? Because they’ve been using their cash to buy back their own shares. They use the corporate cash to buy back the corporation’s own shares. They don’t use it to invest in research and development, which is why our productivity gains have been cut in half, right? And why do they do this? Because the CEOs alone own a lot of stock. And what happens to stock prices when you buy back, and the corporation buy back stock? The stock price goes up, and you make the CEO a lot richer. That’s why they’re short of cash, not just because of the coronavirus crisis. So we’re bailing them out for running their companies imprudently in ways that hurt productivity, hurt economic growth, hurt the ability to get wage increases, and it’s insidious socialism for the rich.
Kim Brown: And we can look back retrospectively on the most recent bailouts, federally taxpayer-funded bailouts done at the very tail end of George W. Bush’s administration, going into the first term of Barack Obama’s administration. I mean, when we look at the General Motors bailout, for example, 10 years onward, GM has laid off tens of thousands of employees, they have shuttered factories in some of the most economically vulnerable communities here in the United States, but the banks also got a huge bailout in 2008, 2009, and I wanted to play a clip from then Senator and democratic candidate Barack Obama. He sat down with CBS’s Bob Schieffer on Face the Nation, and this is what he had to say about the TARP bailout. Let’s have a listen.
Barack Obama: First of all, I think we have to understand this was a urgent situation and is an urgent situation, and by the end of the week, I think everybody recognized that something needed to be done. What I’m pleased about is that it appears, at least, and I haven’t reviewed the actual language, is that some core principles that I set forth at the beginning of this crisis, were incorporated. The issue of making sure that we had strong oversight, the insistence that taxpayers share in the gains, if there are any, when the market recovers, the insistence that homeowners get additional relief so that there’s some reciprocity. If in fact, we’re bailing out or helping banks, they in turn, have to help rework mortgages for people who are potentially facing foreclosure. And the final thing, the issue of executive compensation, making sure that taxpayer money is not going to pad bonuses or golden parachutes. It appears that those principles have all been incorporated into the core agreement, and I’m going to be reviewing the language over the next day, to make sure that those provisions actually stick.
Kim Brown: So professor, listening to what the Senator had to say now, it almost seemed like perhaps he was naive in his expectations, because really none of those things actually took in response. Many bank CEOs of banks big and small, walked away with tremendous compensation packages, while home mortgages, and rather, home foreclosures just jumped exponentially. So many people got kicked out of their houses. So when we look at a bailout, all I can think of is for one, we’ve done this before, for two, this did not end well for the workers, and three, surely, surely we can’t be considering this again.
Bill Black: Oh yeah, we’re not just considering, it’s going to happen. So there were actually three things involving that at… Well, let’s do them real quick. The interview was September 28th. At that point, that’s the original TARP plan, and that too was in the midst of a presidential election. John McCain, Republican candidate announced, “I’m suspending my campaign efforts. I’m going to come to Washington D.C. in my role as Senator, and provide leadership,” right? Because he was behind in the polls to Barack Obama, and so all the senators back, McCain, in fact shows no leadership. The TARP proposal was literally three and a half pages, and it had absolutely nothing in it that Senator Obama talked about, and that was all made up. That was all false.
In any event, Congress actually said no to that. And you ask, the broader reason why these things happen, is as soon as Congress rejected the first TARP plan, the stock market crashed, and everybody came together and on a bipartisan basis said, “Oh my God, we can’t have the economy cratering, we need to do this!” So then you got a broader TARP, and instead of being a TARP that was potentially going to help households, it removed centrally all the stuff that protected households. Then the third thing was the Obama stimulus, and that’s actually the one that was the primary thing for auto workers, not Bush, so that’s pretty much an Obama plan. Indeed, they were very, very proud of the auto bailout as saving this kind of industry, and in fact, experts go back and forth on that. But what is assuredly true, is the bottom line that you said. In both TARP and the Obama stimulus package, the money went overwhelmingly, overwhelmingly, like 95 plus percent to the wealthy and not to homeowners.
Kim Brown: I don’t even know what to say, Professor Black, because I am so disgusted, number one, at that piece of history that we all endured and lived through, and a lot of people suffered in, just to consider that we could be entertaining, and are seriously entertaining, likely to move forward on a similar stimulus and bailout package that will benefit exclusively the wealthy, while workers just get crumbs, perhaps not even a month’s worth of expenses. But unfortunately professor, we’ve run out of time, so we’re going to have to leave it there. We’ve been speaking with Professor Bill Black. He’s also an author. He is the most fun person that you will ever listen to talk about economics. So definitely, if you go to University of Missouri at Kansas City or University of Minnesota, you need to take Professor Black’s class. We appreciate your time today, Bill. Thanks a lot.
Bill Black: Thank you.
Kim Brown: And thank you for watching The Real News Network.
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