“Let me be clear: We’re not doing no-strings-attached bailouts that enrich shareholders or pay CEO bonuses. Period,” Sen. Elizabeth Warren (D-Mass.) tweeted Tuesday.
From progressives such as Sen. Sherrod Brown (Ohio) to business-friendly figures such as Sen. Mark R. Warner (Va.), Democrats insisted that any corporate rescue include restrictions on stock buybacks and executive compensation along with provisions for paid sick leave, including for informal “gig economy” workers.
In a sign of the election-year stakes, Senate Minority Leader Charles E. Schumer (D-N.Y.) said the emerging debate offered a clear contrast “between us and our Republican friends.”
Trump, who once criticized President Barack Obama’s bailout of the U.S. auto industry as “ruining American industry,” now confronts the toxic politics of crisis-fighting. As his two most recent predecessors discovered in 2008 and 2009, battling an economic emergency involves balancing competing imperatives: time and justice.
With businesses and jobs hanging in the balance, the federal government must act fast and with force to rescue the economy. But as Washington races to avert disaster, it faces demands to avoid rewarding the undeserving or worsening societal ills such as income and wealth inequality.
The president — who promised Tuesday that “we’re going big” — appears to have embraced the first lesson. But he is struggling with the second. His plan to provide $50 billion to the airline industry, part of a $1 trillion package that includes cash payments to individual Americans, is reviving the debate about public bailouts of private businesses that has roiled national politics for more than a decade.
“Every industry is affected. Every restaurant is affected. How are you going to draw the line between who gets government aid and who doesn’t?” said one person briefed on internal White House deliberations, who was not authorized to speak to reporters. “It becomes a real corporate welfare scramble.”
The administration’s request would put limits on “increases in executive compensation” until the loans are repaid by the airlines, according to a Treasury Department document obtained by The Washington Post.
The package also includes $150 billion in “secured lending or loan guarantees” for industries facing “severe financial distress” from the pandemic, but the document does not specify how that money would be used.
The $21 trillion U.S. economy has arrived at the brink of sudden collapse with astonishing speed. Just last month, forecasters anticipated steady economic growth for the rest of this year, and the Dow Jones industrial average was at a record high. It has fallen 9,000 points in the past month.
Now, up to 3 million workers could lose their jobs by the end of the summer, said Josh Bivens, an economist at the Economic Policy Institute.
Yet it’s not just Democrats who are uneasy about the rush to throw money at the problem. Prominent Republicans such as Sen. Rick Scott and Rep. Matt Gaetz, both of Florida, said they oppose corporate bailouts.
The administration’s sales pitch reflects the sensitivities. In congressional testimony earlier this month, Treasury Secretary Steven Mnuchin declined on four occasions to use the word “bailout” to describe the planned help.
“This is not a bailout. This is considering providing certain things for certain industries,” he said.
The airlines are just the first in the line. A growing list of other industries, including hotels, casinos, cruise ships, restaurants and retailers, face similar losses.
The U.S. Travel Association on Tuesday asked Trump for $150 billion in assistance. Boeing weighed in with its own request for $60 billion in public and private cash, including loan guarantees, for aerospace manufacturers.
Hotel industry representatives met with Trump and Vice President Pence at the White House and warned of a “catastrophic” toll. As if to prove the point, Marriott, the world’s largest hotel company, on Tuesday began furloughing or laying off tens of thousands of workers.
“The impact to our industry is already more severe than anything we’ve seen before, including September 11th and the Great Recession of 2008 combined,” said Chip Rogers, president of the American Hotel & Lodging Association.
Although the incandescent anger Americans felt toward the big banks in 2008 is now absent, many Democrats want any company receiving taxpayer money to devote it to workers’ pay and to refrain from stock buybacks or lavish executive pay. Some analysts said corporations should be barred from re-pricing executives’ stock options to make it easier for them to profit from an economic recovery.
Asked Tuesday whether the bailouts would carry any restrictions, the president looked to the vice president, saying: “I think I’m going to ask Mike. Answer that question, please.”
Pence parried, saying only that the industry aid package is “a work in progress.”
U.S. officials insist this time is different. In 2008, millions of voters blamed the big banks for wrecking the U.S. economy by making reckless investments. This time, the culprit behind the economic trauma is a natural force — the virus — and the companies are blameless.
“This is not their fault. We have to help them,” Trump said.
Yet many Democrats are reluctant to write a check for corporations, which received a windfall from $1.5 trillion tax cut legislation in 2017.
The airlines, in particular, used much of the cash they generated during the long economic expansion to buy back their stock from investors. That typically pushes stock prices higher, which benefits executives whose compensation is tied to share prices.
United Airlines chief executive Oscar Muñoz, for example, earned total compensation of $10.5 million, according to the company’s most recent securities filing.
Four airlines — American, United, Delta and Southwest — collectively spent more than $39 billion over the past five years on stock buybacks, said Howard Silverblatt, an analyst with S&P Global. Some of the lawmakers who will consider the airlines’ requests for help want limits on such practices.
“If there is so much as a DIME of corporate bailout money in the next relief package, it should include a reinstated ban on stock buybacks,” Rep. Alexandria Ocasio-Cortez (D-N.Y.) tweeted Tuesday.
The politics of any coronavirus bailout reflect the lessons of the 2008 Wall Street rescue, which began as a bipartisan venture only to sour into a source of polarization.
The George W. Bush and Obama administrations’ $700 billion effort to rescue the financial system triggered massive political protests by the left and the right, fueling an anti-establishment wave that ultimately lifted a reality television star from New York to the White House.
By 2009, as Obama and congressional Democrats sought to use public money to rescue wounded financial institutions, their actions were opposed by many Republicans, who advocated letting the market sort out winners and losers.
When the banks that were saved in 2008 paid out $140 billion in executive bonuses in 2009, voters on both sides erupted.
Today, Democrats — who lost the House in 2010 amid a conservative rebellion over bailouts — demand strict conditions on aid. And many Republicans, including National Economic Council Director Larry Kudlow — who wrote in 2008 that such programs make “a mockery of free-market capitalism” — have ditched their objections.
“The bailouts in 2008 were not the problem. The problem was the terms, conditions and recipients,” said Dennis Kelleher, head of the nonpartisan group Better Markets. “It created the tea party on the right, Occupy Wall Street on the left and ultimately delivered us President Trump.”
Sheila Bair, who chaired the Federal Deposit Insurance Corp. during the financial crisis, said the government should save companies that were solvent before the pandemic. But those that had management and financial problems, such as Boeing, should fend for themselves.
“You need to do it. I don’t want to see wholesale layoffs,” she said, adding that recipients should be barred from laying off workers or granting executive bonuses.
Michael Barr, a Treasury Department official in the Obama administration, said talk of industry-oriented help reflects misplaced priorities.
“The first and most important thing is to get a simple cash program up and running and get cash to people now. The economy is grinding to a halt all around us,” said Barr, now a professor at the University of Michigan’s law school.
Democrats see the administration’s bailout requests as potential leverage in negotiations about the spending package. On a conference call with party members, Schumer highlighted the industry bailouts as an opportunity to secure increased spending on programs such as Medicaid and unemployment insurance.
But Democrats may face their own divisions. Members representing states such as casino-rich Nevada and Florida, home to many cruise operators, might break with the party’s united front.