Today’s paper has comments from two Senators as disparate as
possible, and I agree with them both.
The first,
Chuck Schumer, Senate Democratic minority leader, said that the best way to distribute
relief money in these times of Corona virus would be to broadly expand and increase
unemployment compensation across the board and to consider waiving rents and mortgage
payments temporarily.
The other, with
whom I can’t recall ever agreeing, is Florida Senator Rick Scott, who opined
that the focus of any direct payments should be to tipped and lower wage earning
Americans and that we should not even consider “bailouts” for any industry.
For those who are
unaware, the minimum wage for tipped employees is a whopping $2.13 hourly,
which has remained the same for 29 years, while the cost of living has almost
doubled over the same period. That is the same for the fine dining server who can expect perhaps hundreds in tips on a good night, and the Waffle House server who may struggle to make $45. Based on Consumer price index stats, in today’s
dollars the hourly minimum is now $1.16 per hour! (If you are a WaPo
subscriber, read this, for more on minimum wage and service personnel.)
Meanwhile, Donald
Trump, who has raved about 401ks garnering high earnings during the current
(until Covid) economic boom has suggested allowing early “no-penalty”
withdrawals. While that might be one option, I doubt that Trump has even considered
that only 32% of Americans even have 401ks. Further, between 58% and 70% (depending
on recency of survey) have less than $1000 in any form of savings vehicle. Worse
yet, 45% say they have “none.”
Of course, some Republicans, (not all) simply
fall back on the old British Conservative admonition, heard during the Irish Potato
famine, which was that “They (the Irish, the poor, whatever) simply must learn
to live within their means.” This of course belies the fact that then, as now, in many instances, it is the wealthy who determine the price of those “means.”
Regarding
bailouts for business: 2007-08’s TARP (Bush Commercial Banking bailout) in the
final balance actually returned about $15 billion more to the Treasury than was
spent. This doesn’t, however, consider inflation which lowers the return in
today’s dollars to a still acceptable, but lower, “break even.”
That wasn’t the
issue with TARP. The question is, as some opponents believe, was too much money
pumped into the plan and were those funds used wisely? Critics (and anyone who read or viewed “The Big
Short” should be a critic) also say the program gave banks a free pass for
their financial mismanagement and gambling with tainted (and largely paper-only,
grossly over- valued) funds.
While I agree with that last proposition, I
also believe that some profligate commercial banking firms, such as Bear,
Stearns and a few others should have been allowed to fail, credit default swaps
should have simply been nullified, and purchasers refunded their initial “bets.” I won’t go into “credit default swaps" in detail, since the very concept, itself, belongs in Las Vegas, not financial markets.
Since these were not “brick and mortar” banks servicing depositors, those hurt would have been in the main, large, and increasingly speculative, investors, the damage would have been in an appropriate place (although, in truth, several of these profit driven investors were also large corporate and state employee pension funds, conned by what were, essentially, risk salesmen!)
Since these were not “brick and mortar” banks servicing depositors, those hurt would have been in the main, large, and increasingly speculative, investors, the damage would have been in an appropriate place (although, in truth, several of these profit driven investors were also large corporate and state employee pension funds, conned by what were, essentially, risk salesmen!)
This current situation
is quite a different ballgame. To begin with, this is an outside agent, not an internal
or greed driven malfeasance. Recovery from the 2007-8 housing bubble collapse was a
long process, complicated by the fact that recovery efforts were in the main,
focused on helping commercial banking houses recover from their own bad
judgement and amplified by a drop in home values as a result which hammered
many mortgage holders.
In 2008-2009 The average barber
continued cutting hair and the average bartender probably saw business improve,
because the housing bubble collapse was a top down problem, which had ripple
effects to some but not all of us. Covid, on the other hand affects us all and,
as totally appropriate as it is, "social distancing" hurts those who work in service
industries most of all.
If some
businesses are temporarily hurt, it is likely that they will recoup current revenue
shortfalls over time. If they are leveraged to the point of default in such a
short time, perhaps they should reexamine their business plans. This is temporary,
and the effects will be as well. In the meantime, relief efforts need to go
where they are most needed as I outlined earlier. In this case one of my
favorite senators (Schumer) and one of my least favorite senators (Scott) are both right!
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