Twelve years later, another ill-conceived bailout
With the $2.2 trillion coronavirus stimulus package — the largest economic bailout in U.S. history — now in effect, taxpayers once again find themselves shouldering a massive and murky emergency package, crafted behind closed doors and rushed through the approval process.
No one is questioning if relief is needed. It is.
The U.S. is facing the biggest financial meltdown in its history. If ever a situation screamed out for a modern-day Marshall Plan, this is it.
But there are many other questions, starting with who exactly is getting what and why? And who will oversee the funds?
For anyone over the age of 25, it’s hard to shake an uneasy sense of déjà vu. In 2008, faced with the prospect of an economic armageddon triggered by the subprime crisis, policymakers scrambled to bail out the banking and auto industries to help cauterize a massive financial wound.
Then, as now, policymakers said there was no time to examine the fine print embedded in what became the Emergency Economic Stabilization Act of 2008. The bank bailout passed quickly because institutions deemed “too big to fail” were teetering on collapse, putting the entire global economy in jeopardy.
Historians will forever haggle over the execution and effectiveness of the 2008 bank bailout. But with more than a decade of mostly steady economic growth, it appears the 2008 plan of action did the job. Politicians have been running victory laps ever since.
Now facing another massive downturn, it’s only natural lawmakers would deploy the same tactics used 12 years ago. However, missing this time is the oversight that accompanied the Troubled Asset Relief Program.
Tarp was created to increase liquidity by allowing the government to buy mortgage-backed securities. But it evolved into a program where the government could also purchase dividend-paying stocks in those banks and financial institutions requesting aid.
This created a highly scrutinized environment where banks were incentivized to quickly pay back their billion-dollar loans. By the time Tarp folded, the government recouped nearly $442 billion from $426 billion in government loans.
The CARES Act signed into law Friday comes with some oversight. Treasury Secretary Steven Mnuchin spent the weekend assuring pundits that at least $500 billion in CARES dollars will operate under the watchful eye of a dedicated committee. But how exactly that $500 billion will be allocated — or who will mind the remainder of the $2.2 trillion — is unclear.
What is known so far is troubling.
As advertised, $1,200 deposits are on their way to qualifying taxpayers. More is available for families with dependents. Unemployment benefits have also been retooled to cover gig workers while qualification periods have also been extended. Beyond these items, protections for the average American get a little hazy.
There is also good news for the besieged health care industry. It will receive a much-needed infusion of $150 billion to help the industry ramp up for what promises to be a grueling spring and summer.
Those expenditures make sense. Others included in CARES are more problematic.
For instance, there is $350 billion earmarked for small-business loans, which is fine, but controls and payback terms are loose: Even small casinos can qualify. Not to be left out, larger casinos are qualified to tap into $450 billion in Treasury-backed loans.
The ailing airline industry has been promised nearly $60 billion in grants and loans. One airline alone qualifies for $12 billion in aid. But here again, the terms are so unclear so that adjacent businesses like travel agencies can partake.
Speaking of air travel, Boeing — already enduring its worst year ever — is in line to reap benefits from a special $17 billion allocation. The troubled airline manufacturer and defense contractor reportedly qualifies for aid because it falls under the heading “businesses critical to maintaining national security.”
The list goes on: CARES offers $150 billion to be used at the discretion of state and local governments. The Defense Department has been granted an additional $10.5 billion. For-profit colleges can keep federal loan monies they received from students who drop out due to COVID-19. Even a Kentucky-based cosmetics manufacturer stands to earn because it is developing “innovative” sunscreens.
This is just a sampling of what’s included in the massive CARES package, and even lawmakers admit it will take weeks to sort out the details.
As rushed as the 2008 bank bailout was, policymakers still found time to include oversights and payback incentives, helping to reassure a nervous nation. This time out, a much bigger package was assembled in a much faster fashion.
There appears to be little in the package that seriously addresses widening wealth and health care gaps in this country. There is even less oversight.
This leaves the CARES Act looking less like a remedy for an at-risk country and more like a taxpayer-funded buffet.