The corporate bailout

The Senate economic rescue package contains $500 billion for bailouts of large corporations.  Much commentary has focused on the lack of accountability, but the bigger issue is simply the massive waste of taxpayer dollars.  From the WAPO:

In a Tuesday interview on Fox, Boeing chief executive Dave Calhoun said he would not be willing to give the government an equity stake in the company in exchange for a bailout, implying the company would only accept assistance on its own terms. President Trump has said he would support the idea, suggested by his economic adviser, of taking an equity stake in companies that receive assistance in the package.

“If they force it, we just look at all the other options, and we’ve got plenty of them,” Calhoun said.

Why are we giving them money?

It’s not clear how the bailout provisions will work, at least to me.  There will be loans and perhaps some equity investments.  But Delta stock is up 50% over two days; Boeing is as well.  Between the two of them this represents roughly $35 billion in market capitalization, a gift to their shareholders.  Maybe some of this is based on optimism about the general economic benefit of the stimulus, but the $35 billion number may also be an understatement of the true give-away, because part of the Senate bailout package was priced in more than two days ago, and some of it may not be fully priced in yet.  Much will depend on the terms and conditions attached to loans and investments; it is not clear to me that the law will require the government to drive a hard bargain or even has enforceable provisions regarding disclosure.

And let’s be clear that there are no benefits at all for taxpayers from these bailouts.  We have a well-functioning bankruptcy system in this country that would prevent a failure of either company from harming the broader economy.  If we don’t trust the bankruptcy system, or want to protect unionized workers, we could allow existing shareholders to keep a small fraction of the value of the companies and let the government own the rest, in exchange for an equity investment in these companies.  These bailouts represent a giveaway to powerful constituents, pure and simple.

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