Pearlstein: With economy ailing, let the bailouts begin
Next up on the pandemic policy agenda: a rescue plan for the airlines and other industries hit hard by the global coronavirus pandemic.
This week you can expect to hear warnings from business groups about the jobs that will be lost, the bankruptcies that will be triggered, the financial panic that will ensue and the recession that will be prolonged if the government fails to act quickly and aggressively.
And there will be the predictable rants about putting taxpayers on the hook for “bailing out” undeserving shareholders, banks and hedge fund managers even as waiters, taxi drivers and maids are left to fend for themselves.
Democrats will accuse Republicans of groveling to Wall Street and business interests while Republicans will accuse Democrats of groveling to unions and wanting to pick winners and losers. In the end, a rescue package with a price tag of hundreds of billions of dollars will be narrowly approved by both houses of Congress over the opposition of partisans and ideological purists in both parties.
So here is a program guide for the political melodrama that is about to unfold.
Let’s start with the word “bailout,” which will be tossed around indiscriminately in coming weeks by politicians and pundits and headline writers. Bailout has a pejorative connotation, one that suggests people and companies who should have known better are saved from the consequences of their own risk-taking with large gifts of government cash.
But in this case, the pejorative does not apply. For if anything qualifies as an event outside human control — an “act of God” as the contract lawyers put it — certainly it is a pandemic. Nor is this a case of anyone acting recklessly.
Certainly any rescue will involve providing badly needed cash to private companies that would otherwise be forced to default on loans, file for bankruptcy or close their doors. But under most scenarios, the aid will come in the form of loans that will have to be repaid with interest, or equity investments that should give the government a profit once the crisis has passed. Or there could be some combination of the two, such as convertible bonds or loans packaged with warrants to give the government the right to later buy company stock at today’s low prices.
Skeptics will surely note that companies get into cash squeezes for all sorts of reasons all the time without the government riding to their rescue. But what’s different here is we’re talking about thousands of companies with tens of millions of workers and tens of billions of dollars in debt owed to American banks and investors.
If companies don’t find a way out of their temporary cash squeeze, then the collapse of one entity will lead to the collapse of another, and then another, in the manner of falling dominoes — a financial contagion to mirror the viral one going on outside. The reason for doing it is not because it’s fair — it’s not — but because lots of innocent bystanders will get hurt if you don’t. We do it for us, not for them.
From a policy standpoint, the trick is to do it in a way that provides a safety net for workers and customers who are most vulnerable, while insisting investors and lenders accept some of the financial pain. Structuring these rescues is as much art as science, and no matter how well you do it, there is no way to make them completely fair.