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Big Business Bailout | Munk Debates

EPISODE #37

Big Business Bailout

Be it resolved, the COVID-19 bailout of financial markets and big business will end up hurting, not helping, the economic recovery.

Guests
Nomi Prins
Douglas Holtz-Eakin
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About this episode

Soaring levels of unemployment. Surging bankruptcies. Lines at food banks that echo the Great Depression. To address the devastating economic impacts of COVID-19, Western governments have unleashed an unprecedented wave of monetary and fiscal stimulus. The US stimulus package includes trillions of dollars of liquidity for financial markets, the direct purchase of billions in corporate debt by central banks, and billions more in low interest loans and wage supports for big businesses. Supporters of these measures believe they are vital to preventing a severe recession from turning into a Great Depression. Large corporations, and the financial markets they rely on, support tens of millions of jobs and are the key to any economic recovery. Critics charge that we are repeating the mistakes of the Great Financial Crisis by once again bailing out big business on the backs of taxpayers. The result, just like in 2008-2009, will be soaring economic inequality and a stalled economic recovery that further concentrates economic power in the hands of big business and the 1%. To get our economies moving again Main Street, not Wall Street, should be the focus of the COVID-19 economic response.

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Guests

Nomi Prins

“Up to $10 trillion of fiscal and Federal Reserve response has gone disproportionately to large corporations and wealthy individuals, exacerbating inequality.”

Nomi Prins

“Up to $10 trillion of fiscal and Federal Reserve response has gone disproportionately to large corporations and wealthy individuals, exacerbating inequality.”

Nomi Prins is a geopolitical financial expert, investigative journalist, and bestselling author. Her latest book, Collusion: How Central Bankers Rigged the World, explores the conditions that led to the rise of the new era of central banks’ power and the impact they have on markets and the global economy. Her previous book, All the Presidents’ Bankers, explores the relationships of presidents to elite Wall Street bankers over the past century and how they shaped domestic and foreign policy.  
 
Prins has held positions at Goldman Sachs, Bear Stearns in London, Lehman Brothers and the Chase Manhattan Bank. She makes regular television appearances on BBC, CNN, CNBC, MSNBC, CSPAN, Fox and PBS, and her writing has been featured in the New York Times, Forbes, Fortune, Newsday, and The Guardian, among other publications.

Douglas Holtz-Eakin

“This has not been a bail out but a genuinely well-targeted attempt to preserve the cash flow needs of the private sector.”

Douglas Holtz-Eakin

“This has not been a bail out but a genuinely well-targeted attempt to preserve the cash flow needs of the private sector.”

Douglas Holtz-Eakin is the President and founder of the American Action Forum (AFF). Before founding AAF in 2009, Dr. Holtz-Eakin served in a variety of influential policy positions. During 2001-2002, he was the Chief Economist of the President’s Council of Economic Advisers (CEA). At CEA he helped to formulate policies addressing the 2000-2001 recession and the aftermath of the terrorist attacks of September 11. From 2003-2005 he was the 6th Director of the non-partisan Congressional Budget Office (CBO), which provides budgetary and policy analysis to the U.S. Congress. During his tenure, CBO assisted Congress as they addressed numerous policies — notably the 2003 tax cuts (the Jobs and Growth Tax Relief Reconciliation Act), the 2003 Medicare prescription drug bill (the Medicare Modernization Act), and the 2005 push for Social Security reform. During 2007 and 2008, he was Director of Domestic and Economic Policy for the John McCain presidential campaign.

Show Notes

Nomi Prins is the author of Collusion: How Central Bankers Rigged the World and All the President’s Bankers: The Hidden Alliances that Drive American Power
 
Nomi argues that the fiscal and monetary stimulus launched during the pandemic continues an expansion of monetary support that began in 2019 in response to the economic slow down. Nomi refers to REPO operations as one way that central banks started lending money to banks and corporations last year.
 
Key to Nomi’s argument that the financial stimulus is bad for the economy is her concern that banks and corporations are using these dollars to invest in high risk assets, such as collateralized loan obligations (CLOs). You can learn more about CLOS and the surge of leveraged loans (the majority of which are below investment grade) here.
 
During the debate Nomi and Douglas differentiate between the fiscal response to the pandemic through the CARES Act and the monetary response through the Federal Reserve (the US central bank). There is some overlap between the two because the CARES Act allocated $454 billion to support Federal Reserve programs during the pandemic. You can learn more about how the Federal Reserve can leverage $454 billion into $4 trillion of stimulus here.
 
The Federal Reserve Act authorizes the Federal Reserve to create “emergency lending authorities” when circumstances are difficult (with sign off from the Treasury). You can read about the COVID-19 related emergency lending facilities which Nomi and Douglas refer to, including the Paycheck Protection Program, the Main Street Lending Program, and the Municipal Liquidity Facility, here.
 
Both Nomi and Douglas refer to the parallels between now and the Great Depression. Douglas argues that the U.S. economy during the pandemic is nowhere near the lows that it reached in the 1930s. You can see how the U.S. COVID-19 economy compares to the 1930s by comparing unemployment, length of unemployment, wages and prices, bankruptcies, and malnutrition here.

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