
Fed aid program for corporations won't require them to preserve jobs - gavman
https://www.washingtonpost.com/business/2020/04/28/federal-reserve-bond-corporations/
======
Consultant32452
Words like "aid" or "stimulus" or "relief" are one word arguments. Who doesn't
like aid? These are marketing BS words. We need to use more clear language
like "economic transfer". This puts us in the right frame of mind to discuss
who the money is being transferred from and to.

"Pardon me, Average Joe Taxpayer. We noticed you haven't been purchasing any
tickets on American Airlines lately. In order to help you with this problem,
we're going to take money from you and give it to American Airlines. What's
that? No, you won't be getting free flights, you silly goose. We're just going
to give them your money and you get nothing in return."

~~~
skybrian
The word you want is "loan." The Fed makes loans, not grants. Maybe you have
this confused with the stimulus bills Congress has been passing?

There is also no direct connection to taxes, since the Fed creates any money
it needs.

~~~
Consultant32452
Deflating the value of my dollars by increasing the money supply is no
different than taking money right out of my pocket.

~~~
skybrian
It doesn't, or at least not yet. Increasing the money supply might
_eventually_ cause inflation, but it's not a mechanical link and doesn't
happen automatically. For example, the money might be paid back, and that
decreases the money supply again.

Also, for inflation to happen, people will have to try to buy more stuff than
what's available, and merchants will have to raise prices. Although we've seen
shortages for a few things, that kind of overall spending is unlikely to
happen until the recovery phase when people are feeling confident again.

Other than the staggering amounts, it's not really different from any other
bank making a large loan.

~~~
Consultant32452
There's more to inflation than CPI. For example, the entire stock market is
being inflated right now with these dollars. We should be experiencing
deflation because many classes of assets should be crashing harder than they
are. Keeping things steady when they should be deflating is still taking my
money through inflationary forces.

~~~
skybrian
There aren't many people who benefit from a stock market crash, which is why
the Fed is propping things up. I happen to have money to invest when the price
is low enough, but that's unusual, and complaining about not having that
opportunity (yet) would be "world's smallest violin" territory.

An opportunity cost is not a real cost. There are always missed opportunities.

~~~
Consultant32452
Stocks are not the only thing that would be falling rapidly. Real estate is
another. What's happening here is that the Fed is making sure that the people
who are rich and powerful stay rich and powerful. Otherwise, why not let
average people get functionally infinite loans at zero interest? Why can a
bank/corporation sell their depressed assets to the Fed at before crash prices
but I can't? Every privilege given to incumbent wealth is a middle finger to
the average worker.

------
danans
> In the interview, Mnuchin also said many companies are ceasing stock
> buybacks and are likely to use the additional capital to retain workers.

So they are on the honor system.

> Some experts disputed that assertion. “Some companies have ceased buybacks
> and dividends and some haven’t. We shouldn’t have to keep our fingers
> crossed,” Gelzinis said.

Is there a public list of the companies that took the aid?

Absent real restrictions on the loans, the next best option might be a website
that shows the amount borrowed by those companies next to any layoffs,
dividends, exec bonuses, or share buybacks they did while taking the loans.

~~~
Ididntdothis
Government bailouts should come with very onerous conditions so they are used
only as last resort. But I guess 2008 should have taught us that this is not
going to happen.

~~~
SAI_Peregrinus
Government bailouts should be in the form of stock purchases. Want a bailout?
Government owns part of the company. Want to issue dividends after the
bailout? Government gets some. Too many bailouts, and the company is now
state-owned.

~~~
clairity
taking equity seems to pop up with every story on corporate bailouts.

the problem with taking equity is that it's not simply an income stream, it's
a responsibility. you become a stakeholder and need to manage the asset lest
it devalue in ways you don't like. it's messy and much more criticizable,
something politicians and bureaucrats loathe.

fixed-income assets like loans are much simpler, and have the added benefit of
naturally having higher liquidation preference (bondholders get paid before
shareholders).

loans with performance penalties/incentives are cleaner to implement, but the
problem there is lobbying that waters down penalties and magnifies incentives.

there's no simple solution, including taking equity. i'd love every loan to
have a clause stipulating no executive stock incentives or share buy-backs for
7 years post-loan, but no one is lobbying for that.

~~~
kijin
Loan means the company will be required to pay it back at some point. Suddenly
increasing a company's liabilities by millions or billions, not to mention the
interest burden, might have major significance for the long-term survivability
of said company. That's fine if you only care about easing the short-term
shock of the lockdown, but it could very well slow down the post-lockdown
recovery.

~~~
asdff
These loans can be forgiven if stipulations are followed.

------
chrisco255
You CAN'T preserve jobs, given the economic catastrophe that is occurring.
Demand for many products and services have fallen off a cliff. Air travel is
but one example. It's not like demand is going to recover overnight for the
airline industry. It will take many years to recover. They will have to pare
back flights and they will likely have to consolidate carriers in order to
remain profitable.

Propping up zombie companies does nobody any good. It just leads to capital
destruction.

~~~
nostromo
If the government has required your legal business to close, you should be
compensated for that. Just as if they take your land to build a road, they
have to give you the fair market value of the land. Otherwise, if you're not
being compensated, you should be free to stay open.

These are only "zombie companies" because they've been directly shuttered by
the government.

~~~
omgwtfbyobbq
I don't think this analogy is applicable. The government hasn't banned air
travel, and the drop in demand is more of a second order effect as the result
of minimizing potentially detrimental behavior (spreading the virus).

In general I don't believe the government is required to compensate businesses
if regulation results in loss of business and possibly the loss of the
business. As an example, look at CFC bans and fuel/emissions regulations. A
company may suffer a loss and/or go out of business because of a regulation,
but they can't demand compensation for that from the government.

~~~
bpodgursky
The government has, in fact, banned most international air travel.

~~~
omgwtfbyobbq
The US government hasn't banned most international travel for legal residents.
There's a list of restricted countries that require legal residents coming
from them to only go to specific airports with enhanced entry screening.

It has banned entry by foreign nationals from those countries, but I wouldn't
call that banning most international travel.

[https://www.dhs.gov/coronavirus/protecting-air-travelers-
and...](https://www.dhs.gov/coronavirus/protecting-air-travelers-and-american-
public)

------
craftinator
Most comments here focus on the question if "who deserves what?". This is a
stupid question, as it becomes a tautology revolving around how people define
the word "deserves". A more intelligent question is "what should we do to have
the best outcome?". Is it better to have more companies around to provide
goods, services and jobs, or more people around with stable housing and pocket
money to purchase goods and services?

~~~
asdff
In an economy driven mostly by consumer spending at the bottom, definitely the
latter. This is almost a chicken and egg scenario, but not quite.

You can give a company money to hire people and make product X, but it doesn't
do you any good if no one has money to buy product X, or most people see X as
a luxury and are tightening belts. You can counter this by giving more
companies money to hire more people, so that the workers at company producing
Y have money to buy product X. Then it becomes difficult to determine what
companies to prop up, and which to avoid. Inevitably, who gets propped up are
the industry leaders, not the tiny players, and that sector consolidates and
contracts.

A better approach would be to inject the money directly at the bottom. Let
consumers make these picks on which companies are economically productive and
should be supported, let the free market sort this out by adding liquidity at
the consumer level. 70% of our global economy is driven by consumer spending,
not by blue chips paying off their corporate debt.

------
paypalcust83
Warm, trickle-down economics. The people clearly aren't bothered enough by
losing their jobs or receiving pittance consolation prizes, or they would've
revolted by now.

~~~
curiousgal
Ironically, the people who I've come to respect recently are the ones
protesting the quarantine. Don't get me wrong they are stupid but the fact
that they are protesting something they believe is wrong says a lot about the
people who have been exploited by the system and did nothing about it.

~~~
paypalcust83
_Rebel without a cause, rebel without a clue._

Barking up the wrong tree is either virtue-signaling, divide-and-conquered
tribalism, a failure of moral courage, and/or a failure of critical-thinking
skills. It's easier for most people to make pointless gestures or scapegoat
certain groups than attack the root causes of their misery... and there's no
strategic thinking involved.

The obvious matter for everyone with a net balance sheet less than eight
figures is that small segment of society whose greed and entitlement has
greatly outpaced their respect and decency towards others and the planet. The
vast majority of people are too afraid of the corporate state's militaristic
violence potential or too complicit in relative comfort to rock the proverbial
boat. In inverted totalitarian societies, you get deplatformed or harassed at
airports; in totalitarian societies, 70-some students and teachers get
delivered by the police to other criminal gangs for disposal in the hills.

------
pirocks
[https://outline.com/rJ9PVJ](https://outline.com/rJ9PVJ) , b/c archive.is
wasn't working for me.

~~~
robocat
archive doesn’t work if you use CloudFlare 1.1.1.1 for your DNS because
archive screws with CloudFlare DNS requests for their own reasons. Top answer
is archive’s side, second answer is CloudFlare’s side:
[https://webapps.stackexchange.com/questions/135222/why-
does-...](https://webapps.stackexchange.com/questions/135222/why-
does-1-1-1-1-not-resolve-archive-is)

------
throwaway122378
We need a new plan. Every single job before-covid (BC) is not coming back.
Even if we opened the country at 100% tomorrow not every job will come back.
There’s a paranoia that’s set into the American psyche that will take years to
adjust.

~~~
asdff
It's pretty sad that this is glossed over so much. Plenty of business have
folded already, let people go, broke their leases, liquidated what can be
liquidated, and whoever held ownership got their portion of the remaining pie.

To bring these pieces back together, the lease, the workers, the investors,
the money, is impossible. Some of these pieces are no longer in existence, and
the economic conditions that enabled the company to form in the first place
are no longer present. It's like trying to make a living tree from ash and
smoke.

Some places have been hit particularly hard. In LA county, only 45% of people
have jobs right now: [https://www.latimes.com/california/story/2020-04-17/usc-
coro...](https://www.latimes.com/california/story/2020-04-17/usc-coronavirus-
survey)

~~~
morsch
"45% compared with 61% in mid-March"

"a significant majority of job losses, 67% nationally, were reported as
temporary layoffs"

------
abeppu
Why does aid for corporations rely so heavily on loans or bonds? If a
continuing source of frustration and dysfunction is that profits are
privatized and losses are nationalized, and if the issue is that companies
need an influx of cash, why do we not ask these companies to sell the federal
government a stake? If the companies recover, why shouldn't the public benefit
as a result of their investment?

The idea that the federal government would take an ownership stake in
companies in exchange for this cash infusion seems like it's been a fringe
left wing proposal -- but I don't understand why it's fringe.

~~~
CamperBob2
Because the notion of government ownership of the means of production is, if
not the very definition of leftism, at least a key ingredient.

Of course it's not that simple, but it _sounds_ that simple, and these days
that's all that matters. People hear "government stake" and they reflexively
think Cuba or Venezuela or China, not Germany.

------
onetimemanytime
To be fair, the Fed is buying corporate bonds, essentially lending them money
with interest. Yeah, it helps businesses but then I doubt the Fed will lose
any money in the long term.

~~~
mindslight
The Fed can't really gain or lose money, as they create or destroy it at will.
They're loaning with much lower interest than would be available on the open
market, which is a direct subsidy.

~~~
onetimemanytime
>> _They 're loaning with much lower interest than would be available on the
open market, which is a direct subsidy._

Sure the companies benefit, a lot. Warren Buffet might give them loans with
12% a year, the Fed at 3% or whatever. But what does the Fed lose? Nothing, if
x% don't pay others will make up for it and USGOV will try to recoup from the
failing biz whatever they can.

If they go bankrupt or downsize, what does USA gain, other than more
unemployed people? So this is great IMO. Lend them money, as long as the money
comes back, the Fed can create trillions and trillions.

------
aaomidi
And yet again, privatized profits, socialized losses.

------
salawat
Mirror: [http://archive.is/8ZWPY](http://archive.is/8ZWPY)

------
JumpCrisscross
I doubt the Fed has the legal authority to impose employment-related
restrictions on companies.

~~~
sp332
It's not a restriction on the jobs, it's a restriction on the loan or even a
restriction on conditions under which the loan will be forgiven without being
paid back.

Edit: Now that I've seen a mirror of the article, this program is about buying
bonds that have to be paid back with interest no matter what. Point stands
about the conditions being on the buying side though.

~~~
JumpCrisscross
> _it 's a restriction on the loan or even a restriction on conditions under
> which the loan will be forgiven without being paid back_

I’m not sure the Fed has the power to do something like that. It’s a huge
expansion in purview, particularly with adding forgiveness conditions, in
which case it’s literally giving free money to private citizens without
Congressional authorisation.

