The Washington PostDemocracy Dies in Darkness

The Finance 202: Inequality could be next big debate in coronavirus relief efforts


with Brent D. Griffiths

The price tag of the government's rescue effort got steeper yesterday. And with it comes another, even dicier debate: how to ensure the gap between the one percent and everyone else doesn't widen during the coronavirus pandemic.

The fight over economic inequality already animated the Democratic presidential primary. Now the fallout from the pandemic is pushing it into some unexpected quarters as the government races to distribute trillions of dollars without provoking the groundswell of populist anger that met Washington’s last rescue effort a decade ago.

Hedge fund billionaire Leon Cooperman became a tackling dummy for the left this fall through a series of appearances on CNBC in which he decried then Democratic presidential candidate Elizabeth Warren’s calls for a wealth tax. The Omega Family Office CEO was back on the financial cable network Thursday — to call for tax hikes on the wealthy.

“When the government is called upon to protect you on the downside, they have every right to regulate you on the upside,” Cooperman said. “So capitalism is changed …  So things like carried interest, capital gains taxes, the ability to roll over real estate sales tax-free, all that stuff is going to have to be eliminated. For the good, by the way.”

The Trump administration, for one, is scrambling to salvage the reputation of the Paycheck Protection Program. The initiative to keep small businesses afloat has been battered by reports that tens of thousands of mom-and-pop operations were locked out, while more than 80 publicly traded companies received funds and banks pocketed $10 billion in fees.

The Small Business Administration issued guidance Thursday suggesting large corporations that took the forgivable loans — including some national hotel and restaurant chains — return the money by May 7.

But the debate over just who benefits from Washington’s massive intervention to stabilize a pandemic-rocked economy is primed to take on a sharper partisan edge as Congress starts considering its next move. Democratic lawmakers are pushing for direct payments to Americans, beefed-up food assistance and workplace safety regulations.

“We need to do much more to help renters, homeowners, people experiencing homelessness, and mom and pop landlords,” House Financial Services Committee Chairwoman Maxine Waters (D-Calif.) said on the House floor Thursday before passage of a $484 billion relief package. She dedicated the legislation to her sister, whom she said is “dying in a hospital in St. Louis, Missouri, right now, infected by the coronavirus.”

Senate Majority Leader Mitch McConnell (R-Ky.) wants to halt new federal spending until the current funds work their way through the system — and he specifically opposes requests from governors to provide support to states.

Beyond Capitol Hill, Cooperman stopped short of endorsing a wealth tax. But some other surprising names are going there. 

The International Monetary Fund, once a tax-cutting champion, is pushing governments around the word to consider the policy as a revenue source amid the pandemic.

And the Financial Times editorial board wrote earlier this month the pandemic and attendant lockdowns “shine a glaring light on existing inequalities … Redistribution will again be on the agenda; the privileges of the elderly and wealthy in question. Policies until recently considered eccentric, such as basic income and wealth taxes, will have to be in the mix.”

The divergent quarantine experiences of the ultrarich and working poor are throwing the wealth gap into sharp relief.

More than 4.4 million Americans sought jobless benefits last week. That brings the total of laid-off or furloughed workers seeking help since the pandemic’s onset to 26.5 million, vaporizing in little more than a month the jobs the economy added since the Great Recession. Meanwhile, American billionaires as a class have prospered: A new report from the left-leaning Institute for Policy Studies finds 34 of the richest of the rich saw their collective wealth surge nearly 10 percent from the beginning of the year through April 10.

Some indelible images fill in the split-screen. These are cars lined up at a drive-through food pantry in Grand Rapids, Mich., earlier this month: 

A similar scene unfolded last month in Texas outside the San Antonio Food Bank: 

Movie mogul David Geffen provided the tone-deaf counterpoint in an Instagram post featuring his quarantine at sea aboard his 454-foot superyacht: 

But nobody is taking to the streets. 

As those on one end of the scale learn to ration food while some at the other arrange for private chefs and $395 live king crab meals, there’s little evidence the tale of two quarantines is seeding a critical mass of populist anger. Unlike the financial crisis, which galvanized both the Occupy Wall Street and tea party movements, protesters aren’t agitating for systemic restructuring – at least not now.

That may be because there’s no obvious boogeyman in this crisis. “Nobody did anything wrong,” says American Action Forum president Doug Holtz-Eakin, who served as an economic adviser to President George W. Bush. “Everyone was doing the best they could, the pandemic hit, and now we’re trying to hold on until we get to the other side of it.”

Heather Boushey, president of the left-leaning Washington Center for Equitable Growth, likewise says Americans remain focused on the pandemic itself and when it will be sufficiently tamed to allow restrictions to lift. But she says there could be a reckoning later if companies take federal help and don’t direct it to their workers. “To the extent businesses take that money and don’t rehire, that’s when you’ll see the pitchforks come out.”

Boushey said policymakers are already discussing enshrining into law automatic stabilization measures for future downturns, proposals that could draw bipartisan support.

It remains to be seen whether inequality becomes a major issue in the presidential race. 

Democrats so far have trained their criticism on the Trump administration’s dysfunctional response to the crisis. But presumptive Democratic presidential nominee Joe Biden at least has hinted in some recent appearances he will use the moment to focus on issues of economic fairness. 

“God willing, we can go and deal with these systemic problems that have existed so long in our society we’ve been unable to break through,” he said last week during a virtual town hall with front line workers. “I think people are now seeing sort of the blinders have been taken off their eyes.”

Money on the Hill

House passes $484 aid package, including huge infusion for PPP.

Trump is expect to sign the bill soon: “The legislation, approved 388-5, would restart a small-business loan program that was swamped by demand and allocate more money for health-care providers and virus testing,” Erica Werner reports.

“Congress has now committed almost $3 trillion in emergency spending to battling the economic fallout from the coronavirus, but there are fresh signs that policymakers are becoming more wary of the public backlash that has begun over some of their decisions. The new measure includes $310 billion to replenish [PPP], $60 billion for a separate small-business emergency loan and grant program, $75 billion for hospitals and health-care providers, and $25 billion for a new coronavirus testing program.”

JPMorgan doesn't expect the funds to last long: “[The bank] emailed thousands of customers who have applied to the Paycheck Protection Program to say that while Congress is headed towards replenishing the effort, the bank is concerned ‘that funds could run out again quickly,’ according to a copy obtained by CNBC,” Hugh Son reports.

Out-of-work Americans are struggling to collect unemployment benefits. “The economic carnage wrought by the coronavirus has resulted in a national backlog of at least 3 million unpaid jobless claims, according to a new analysis by The Washington Post, threatening Americans around the country with even more financial hardship than they anticipated,” Tony Romm and Heather Long report. That figure reflects claims through April 4 and is probably far greater now, they write. 

New York Gov. Andrew M. Cuomo (D) on April 23 slammed Senate Majority Leader Mitch McConnell's suggestion that states could file for bankruptcy. (Video: Reuters)
McConnell takes more flak after suggesting states declare bankruptcy.

Even fellow Republicans have said such a suggestion is wrong: “[Senate Majority Leader Mitch] McConnell’s comments, made during a radio interview Wednesday, came amid a renewed push from states for help from Washington to cover lost tax revenue …," John Wagner reports.

“Republicans who panned the idea included Maryland Gov. Larry Hogan (R), chairman of the bipartisan National Governors Association, which has asked McConnell for $500 billion to help states deal with lost revenue. ‘Mitch McConnell probably regrets saying that,’ Hogan said. ‘If he doesn’t regret it yet, I think he will regret it. … The last thing we need in the middle of an economic crisis is to have states all filing bankruptcy all across America and not able to provide services to people who desperately need them.’”

  • Cuomo took issue with how much federal money goes to Kentucky: "It’s your state that is living on the money that we generate,” New York Gov. Andrew Cuomo (D) said at a news conference of McConnell's Kentucky . “Your state is getting bailed out. Not my state.”
  • Multiple New York officials brought up an infamous Daily News front page:
The Fed will name the borrowers from its emergency lending programs. 

The move comes after the central bank faced pressure from the Hill. “The Fed said on Thursday that it will publish the names and details of participants in its facilities set up in the CARES Act, as well as the amounts that were borrowed and the interest rate charged on its website at least every 30 days," Bloomberg's Catarina Saraiva and Craig Torres report. “It will also report the overall costs, revenues and fees of each of the facilities.”

Bharat Ramamurti, a member of the congressional panel scrutinizing the relief funds, called it a big win: 

Phunware, a data firm for Trump campaign, got millions in coronavirus small business help (CBS News)

Luxury hotelier who backed Trump wins big in small-business aid (Bloomberg)

Coronavirus fallout

In the U.S.:
  • At least 869,000 coronavirus cases have been reported in the U.S., and nearly 50,000 people have died
  • Governors blindside staffs with hasty reopens: “In these states, among the fastest to jump-start their idle economies, plans are proceeding without the full approval of medical professionals and emergency response officials closest to the ground-level unfolding of the outbreak … The quest by certain governors to reopen by May 1 — the date favored by [Trump] — has blindsided some of the officials advising them,” Isaac Stanley-Becker and Rachel Weiner report of states such as Georgia, Utah, Tennessee and Colorado.
  • Doctors urge people not to consume disinfectants after Trump's comments: “After a presentation Thursday, which touched on the disinfectants that can kill the coronavirus on surfaces and in the air, [Trump] pondered whether those chemicals could be used to fight the virus inside the human body. The question, which Trump offered unprompted, immediately spurred doctors to respond with incredulity and warnings against injecting or otherwise ingesting disinfectants, which are highly toxic,” Allyson Chiu and Katie Shepherd report.
  • Administration considers using Treasury loan to strong arm USPS: “Officials working under Treasury Secretary Steven Mnuchin, who must approve the $10 billion loan, have told senior officials at the USPS in recent weeks that he could use the loan as leverage to give the administration influence over how much the agency charges for delivering packages and how it manages its finances …,” Jacob Bogage and Lisa Rein report.
  • Sen. Elizabeth Warren's brother dies of covid-19. Donald Reed Herring, who at 86 was the eldest of her three brothers, died Tuesday in Norman, Okla., after testing positive early this month.
Corporate impact:
  • Bankruptcy looms over energy industry: U.S. shale producers, refiners and pipeline companies are scrambling for cash and face likely restructuring as they struggle under heavy debt loads while engulfed in the worst crisis the oil industry has faced,” Reuters's Jessica Resnick-Ault and David French report. “About half of the top 60 independent U.S. oil producers are in danger of restructuring and will need to find ways to boost their cash pile, according to energy lawyers at Haynes and Boone.”
  • But Mnuchin is eyeing a lending program for oil companies. “The program would be run out of the Federal Reserve, according to a person familiar with the matter. The administration is also considering taking financial stakes in exchange for some loans, and some firms might be asked to reduce production,” Bloomberg's Saleha Mohsin reports
  • Meatpacking union says 25 percent of pork production has been closed: “Such closures can cause a domino effect. The stoppage at Smithfield’s pork plant, one of the largest in the country, forced the closure of a Missouri ham plant that receives raw materials from the Sioux Falls facility,” CNBC's Amelia Lucas reports.
  • UBS says 100,000 stores will close by 2025: “Store closures are nothing new. A record was announced in 2019. But the rate of closures is only going to accelerate [now]. This could put some malls entirely out of business,” CNBC's Lauren Thomas reports.
  • Railroads prepare for quick turnaround: “CSX Corp. and Union Pacific Corp. have taken hundreds of locomotives offline in recent weeks, reduced the number of trains being run to better align with plunging demand and sent workers home,” WSJ's Paul Ziobro reports. “That all could reverse quickly.”
  • Google to require all advertisers to identify themselves: “Ads have proliferated online promoting fake vaccines and other misleading products. Google’s policy will apply to ads purchased through its ad-buying software Display & Video 360 on Google searches, Google-owned YouTube and third-party websites around the world,” WSJ's Patience Haggin reports. "The policy was under consideration before the pandemic, the company said."
Around the world:
  • Italy looks to lift lockdown starting May 4: “Italy in the coming days is expected to map out the specifics of how it might emerge from the West's longest lockdown, and it is considering measures that would fundamentally alter how people commute, work, vacation and think about their privacy,” Chico Harlan and Stefano Pitrelli report from Rome.
  • Ramadan begins with restrictions: “Bans on gatherings and the closure of mosques were expected to severely disrupt Muslims’ holiest month that usually centers around joint evening prayers, shared meals after sunset and the Eid al-Fitr festivities. Some mosques remain open, however, after clerics challenged restrictions in Pakistan, Indonesia and other places,” Rick Noack reports.
  • Former Brazilian health minister denounce Bolsonaro: “Three former Brazilian health ministers denounced President Jair Bolsonaro for ‘potential genocide’ to the United Nations Human Rights Commission for failing to protect Brazilians against the pandemic,” Marina Lopes reports.
  • WHO is besieged by cyber attacks: “The World Health Organization (WHO) said it has encountered a ‘dramatic increase’ in cyber attacks against its staff since the pandemic began, with incidents increasing fivefold year on year,” Rick Noack reports.

Market movers

Markets slipped again after a discouraging report on a coronavirus drug trial.

All three main U.S. stock indexes fell back from gains of over 1 percent to close largely flat: “… The Financial Times reported that a Chinese trial showed that Gilead Science’s remdesivir did not improve patients’ condition or reduce the pathogen’s presence in the bloodstream. Gilead said results from the study were inconclusive as it was terminated early,” Reuters's Noel Randewich reports.

“Last Friday, Wall Street rallied in part because of a report that covid-19 patients in a separate study had responded positively to remdesivir. The market’s sensitivity to news related to coronavirus therapies reflects investors’ desperation for any indication of when the global economy might be able to start returning to normal.”

Global Economy Hit by Record Collapse of Business Activity (WSJ)

Pocket change

Amazon potentially misled Congress over its business practices.

The allegations also go against the company's own policies: “The online retailing giant has long asserted, including to Congress, that when it makes and sells its own products, it doesn’t use information it collects from the site’s individual third-party sellers—data those sellers view as proprietary,” WSJ's Dana Mattioli reports.

“Yet interviews with more than 20 former employees of Amazon’s private-label business and documents reviewed by [WSJ] reveal that employees did just that. Such information can help Amazon decide how to price an item, which features to copy or whether to enter a product segment based on its earning potential, according to people familiar with the practice, including a current employee and some former employees who participated in it.” (Amazon CEO Jeff Bezos owns The Washington Post)

  • The company has launched an internal investigation: “The Justice Department, Federal Trade Commission and Congress also are investigating large technology companies, including Amazon, on antitrust matters. Amazon is facing scrutiny over whether it unfairly uses its size and platform against competitors and other sellers on its site.”

DraftKings is preparing to go public: “Shareholders of Diamond Eagle Acquisition Corp., which trades on the Nasdaq, … approved the merger with DraftKings, the online sports wagering and daily fantasy sports operator. Diamond Eagle, backed by former MGM Holdings Inc. movie studio Chief Executive Harry Sloan, is known as a blank-check company that is formed to find other companies to merge with or acquire,” WSJ's Katherine Sayre reports.

“The shareholder approval clears a key hurdle toward closing the deal, even as the sports-betting industry is upended by most sports being called off in response to the coronavirus pandemic. DraftKings, a dominant player in the U.S. sports-betting market, expected the combined company to have a market value of $3.3 billion at closing."

Chart topper

From Bloomberg's John Authers: 



The funnies

Bull session