The COVID-19 pandemic has wreaked untold turmoil on our society and our economy. GDP has crashed 4.8 percent, and the official unemployment rate stands at 14.7 percent. However, these numbers underestimate the country’s problems, as the more holistic U-6 unemployment rate—which includes people who have given up looking for work and those forced into part-time labor—stands at 22.8 percent. In addition, these unemployment figures are from mid-April and do not count the millions who lost their jobs in the second half of April and all of May. Given the catastrophic economic conditions, it seems reasonable to expect a strong government response to help the American people.
There was, in fact, a large degree of action from the Federal government, but not in the way you might expect. When tracking the full timeline of responses, one fact becomes clear: the bailouts weren’t for you.
The well-known relief and stimulus bills passed by Congress were not the first actions taken by the government; the Federal Reserve was the first institution to act. When the trading week ended on February 28th, the stock market had suffered its worst week since the 2008 Financial Crisis. In direct response, the Federal Reserve cut interest rates on March 3rd. On the 15th—as the markets continued to tumble—the Fed lowered interest rates to zero, eliminated reserve requirements, and encouraged big banks to borrow directly from the central bank. These actions, worth hundreds of billions of dollars in printed money, were a huge bailout aimed at propping up the stock market. The huge spikes in unemployment had not occurred yet; the increase in jobless claims was first reported four days later on the 19th, with multi-million numbers starting the 26th. Instead of acting in the interest of the unemployed, the Fed was primarily acting in the interests of banks, financial institutions, and investors when it made these decisions. As a reminder, almost 90 percent of all stocks are owned by the top 10 percent of households.
The Fed’s focus on financial markets continued. As the crisis progressed, the central bank announced a staggering amount of bailouts. The first was for corporations through the Commercial Paper Funding Facility. In this program, the Fed indirectly makes loans to big companies by purchasing commercial paper, which is short-term debt issued by corporations (similar to a bond, but repaid much more quickly). So far, over $4 billion in paper has been bought. The Fed also introduced the Primary Dealer Credit Facility, where the Fed loans to primary dealers (big banks and financial institutions) in exchange for securities, stocks, and other assets. Essentially, it let big banks offload their failing assets in return for Fed money. $9 billion has been loaned out so far. Rounding out the initial trio was the Money Market Mutual Fund Liquidity Facility. Essentially a bailout for money markets, it loans money to banks so they can buy from these funds. Over $39 billion in loans have been made so far. A few days later, the Fed started trading currencies with foreign central banks to keep international credit markets stable.
Despite the billions pledged already, markets continued to crash. Investors needed something dramatic to save their fortunes, and they got it. On March 23rd, the Fed announced a new array of actions. First, it committed to printing as much money as needed—blowing past its previous promises to print at least $700 billion. The Fed wrote a blank check, which continues to be cashed to this day. It also established the Primary Market Corporate Credit Facility and the Secondary Market Corporate Credit Facility, both designed to buy corporate bonds—a de facto bailout for big business. Thirdly, it announced the Term Asset-Backed Securities Loan Facility, which would allow institutions to trade in debt securities (assets composed of credit card debt, student loan debt, auto loan debt, and many other forms of debt) for cash. Finally, the existing Commercial Paper and Money Market facilities were expanded. Needless to say, it was a dizzying amount of money pledged to corporations and financial markets. Unsurprisingly, this was the day the market turned around. Since markets hit the bottom on March 23rd, stocks have been booming. More than any specific action, the sheer commitment the Fed showed to averting a market crisis was likely what did the trick. The central bank said it would spend whatever was necessary to keep markets and corporations alive, and investors believed them.
And, as The Intercept reported, the bailouts extended past just the Fed’s money. Because the central bank made so many loans and committed to saving financial assets, private investors became eager to buy again. While before even AAA-rated bonds were dead on arrival, private investors are now buying up tens of billions in corporate bonds (even junk-rated ones). The Fed restarted dying credit markets, and this meant corporations could avoid the stipulations in direct government bailouts. Consequently, companies like Boeing or General Electric have announced thousands of layoffs, which would have been banned under Congress’ loan conditions. Corporations also bypass stock buyback restrictions—leaving stock manipulation unchecked.
As of the time of publication, the Federal Reserve has spent over $500 billion through its various lending facilities and over $2 trillion overall. The primary beneficiaries have been wealthy investors, corporations, big banks, and financial institutions. They can rest easy with hundreds of billions in government bailouts because the Fed was determined to save this sector of the economy. Just like before the recession, our central bank is unwilling to let financial markets fail. It is vitally important to point out how the Fed is acting, especially when relief packages from Congress take up most of the news cycle. The Fed, like Congress, has spent trillions of dollars. Unlike Congress, though, the money has gone almost exclusively to big business and financial markets—with much less public scrutiny. Even though they later opened up lending to small businesses and state and local governments, the Fed gave the game away by throwing billions at corporations and banks first. Their real priorities are clear: the bailouts weren’t for you.
Unfortunately, Capitol Hill has similarly focused on corporate America instead of regular people. At the beginning of March, the “Phase 1” coronavirus bill allocated $8.3 billion, mainly to fund public health responses and small business loans. The “Phase 2” bill authorized $192 billion. The funds were split up among guaranteeing free coronavirus testing for all, paying employers to provide expanded sick leave, increasing social safety net programs, and adding $1 billion to unemployment insurance funds (keep in mind, the Fed had already spent around half a trillion at this point). The “Phase 3” bill, also known as the CARES act, is the most well-known and significant one; it also focuses on economic relief. The first two phases were mainly to fight the pandemic at a public health level, but this bill was geared towards helping financially. Enacted on March 27th, the bill allotted $2.3 trillion for spending. This total puts it in the range of the Fed’s response, but the details are key here.
Of the grand total, around $1.229 trillion aims to financially assist regular people. The Paycheck Protection Program, which pays small businesses to maintain payroll, indirectly goes to workers; it originally totaled $349 billion, but Congress added more funds to bring it to $669 billion. The figure also includes $260 billion to increase unemployment benefits and expand them to gig workers and freelancers. The final $300 billion funds stimulus checks up to $1,200 per person. While $1,200 sounds great, it does not go very far. The median rent in this country is $1,058, so that one payment takes up almost all of the relief. Research shows that these payments will be used primarily to pay off essentials such as rent and also pay debts. Debt payments were especially significant for the stimulus checks; the Treasury Department initially greenlit banks to seize them to cover debts. What was marketed as generous support for Americans has turned out to be a roundabout way to prop up landlords and banks. Again, the bailout wasn’t for you. The other initiatives also face problems. A tidal wave of unemployment applications has delayed benefits for weeks, leaving millions without the cash assistance they need. The Paycheck Protection Program has faced numerous hurdles, such as running out of funds in a matter of days and inadvertently giving hundreds of millions to big businesses. Most importantly, the millions who have lost a job will not see their paychecks protected. A trend has emerged: help for regular people will be weak, inefficient, and slow, but bailouts for big business will be plentiful, robust, and fast.
None of these issues even account for the biggest problem in the CARES Act. This bill, like the Fed actions, is primarily a corporate bailout. The $2.3 trillion price tag is misleading because the bill authorizes far more money than that figure. Inside the bill is $454 billion designated for corporate bailouts, but these funds go to the Federal Reserve. The central bank can use its money-printing powers to turn this $454 billion into collateral for over $4.5 trillion in loans (the Fed’s lending facilities draw much of their funding from this appropriation). In effect, this means that corporate bailouts are the biggest component of the bill by far. Counting these funds, the CARES Act authorizes over $6.3 trillion in spending—with over 71 percent going to big business. Counting all of the coronavirus bills, Congress has allocated over $4.5 trillion for corporations and $2.5 trillion for literally everything else. Considering how lawmakers and the president have spent more than double on corporations than they did any other area, it should be absolutely clear what the government’s priorities were during this crisis. The bailouts weren’t for you.
Martin Luther King, Jr. once said that we have “socialism for the rich and free enterprise for the poor.” His quote basically sums up the entirety of the government’s response to the economic crisis. The government moved quickly—first through the Federal Reserve and then through Congress—to bail out wealthy investors, banks, and corporations. It did so thoroughly and without much hesitation. For regular people and even small to midsize businesses, it gave out crumbs. While unemployment continues to soar and tens of millions lose their livelihoods and even their health insurance—during a global health crisis, no less—Republicans have sought to pause further spending. In early May, Trump said there was “no rush” for another stimulus bill and Senate Majority Leader Mitch McConnell wanted to “take a pause.” Meanwhile, Democrats have put forth a bold new proposal for one more stimulus check and a handful of other small relief measures—completely ignoring the calls for recurring stimulus checks, emergency Medicare or Medicaid expansion, or rent and mortgage freezes. Democratic leadership also abandoned plans for automatic stabilizers, policies that automatically expand during recessions without waiting for Congressional approval (food stamps is one example). Most importantly, they have ignored the policies of countries such as Denmark or the United Kingdom, where the government guarantees people’s income by directly paying companies to maintain payroll—without the complications, shortfalls, middlemen, and capped funding involved in our Paycheck Protection Program. As a result, these countries have avoided mass unemployment, but America faces the worst jobs market in decades. While Congress’ fiasco of nothingness continues, the Fed continues its bailout facilities.
The divide could not be clearer. While billionaires gained almost half a trillion in wealth in the last two months, millions of workers have lost their jobs. What the Fed and Congress have done is eliminate all risk for wealthy individuals and corporations. In good economic times, they will succeed by default; in bad times, they will be bailed out by the state. They cannot fail. They cannot lose money. Their investments will be inflated by the Federal Reserve. Their companies will be subsidized by the Treasury. Meanwhile, regular, working people will line up for meager scraps or be left to fend for themselves. In a time of near-Great Depression unemployment, why is there no dramatic expansion of the safety net? After spending trillions on corporations, why can the government only come up with $1,200 for regular people? In a time of continuing economic ruin, why are politicians avoiding new relief efforts? Because the bailouts weren’t for you. Assistance to you was always just an add-on to assistance to the wealthy; it only got through because politicians needed to rush corporate bailouts out the door. Now that they are taken care of, you can take care of yourself.
In the long-term, this lopsided bailout will alter our economy for the worse. High unemployment will force workers to accept low wages, and increased uncertainty will leave labor at a disadvantage whenever it wants to organize. Layoffs will be a constant threat against unionization or aggravation towards higher compensation. Small businesses will also suffer. Up to 24 percent expect to close permanently because of the crisis. If they do survive at all, they are at increased risk of being bought out by bigger companies. Conversely, big corporations are doing fine. Flush with government and private cash, they are in a good position to restart operations. As their smaller competitors fail or get absorbed, big business’ control over the market will expand. The most long-reaching impact of this crisis will be a smaller number of people controlling a larger amount of our lives. The same corporate actors will dominate more of the economy, and their shareholders will rake in all the profits. Increased inequality and decreased competition are inevitable.
Perhaps the biggest question of all is why we have the Federal Reserve (an independent agency operating with few checks or balances) that acts mainly to preserve wealthy investors and businesses, but not an agency that can bailout regular people at the same speed and with the same funding. Because the problem is not that we bailed out the wealthy, it is that we gave trillions to the elites but comparatively little to regular people. In this crisis, the Great Recession, and other crises before, the people on top always seem to get better treatment from the government. While welfare for the poor is often attacked, corporate welfare is just an immutable policy—never up for debate, even in times of growth.
The entire economic apparatus of our government seems deliberately designed to protect the few and ignore the many. Answering why this and all other responses are so lopsided reveals who the state really works for. Washington’s priorities are pretty clear now.
After all, the bailouts weren’t for you. They were for someone else.
Katharine Sciackitano is a second-year C.L.E.G. major in the School of Public Affairs. She is the Editor for Economic Affairs at the Agora.
Image courtesy Federal Reserve