A Kleptocratic Feeding Frenzy
Apparently, a $2 trillion tax break that produced only stock buybacks and dividends and three years of being able to buy government policy with a campaign donation has not been enough to slake the avarice of our plutocratic overlords. The government’s response to the pandemic and the new $2 trillion relief package has created a kleptocratic feeding frenzy.
The relief bill itself was already stuffed with goodies for the rich. According to a recent Joint Commission on Taxation report, around 43,000 of the richest Americans will be each be receiving an average $1.7 million windfall due to a provision in the bill that suspends the limitation on how much pass-through businesses can deduct from their non-business incomes. Even worse, this suspension applies retroactively to the years 2018 and 2019, years when we all remember the pandemic was raging…not. This change primarily benefits hedge funds and, yes, real estate businesses. To repeat, the benefit provides an average of $1.7 million for EACH of those 43,000, totaling around $90 billion in this year alone.
Unsurprisingly, that is not the only way real estate businesses are benefitting from the relief bill. The Paycheck Protection Program (PPP) was designed to help small businesses of less than 500 employees get access to forgivable government-secured loans up to $10 million as long as they kept 75% of their staff employed. Strangely, there were two notable exemptions from the 500 employee limit that defined a “small business” — hotel and restaurant chains. Because of this exemption, companies like Ruth’s Chris Steak House, Dine Brands, owner of 69 Applebee’s restaurants, and Real Estate Investment Trusts (REITs) like Condor Hospitality Trust, which owns 15 brand-name hotels, can get access to those small business loans. Hedge funds, which qualify based on the number of employees but are hardly considered “small businesses”, are also getting PPP loans. More interestingly, red states in general managed to get PPP loans that covered a far higher percentage of their businesses’ eligible payrolls than blue states.
The PPP was vastly underfunded to begin with and with these larger companies sucking up the maximum $10 million loan, along with larger small firms who benefitted from existing bank loan arrangements, it is hardly surprising that the program has run out of money and has stopped receiving any new applications. Because the Small Business Administration is not required to provide a breakdown of the recipients of the loan program, we may never know how much of it actually went to large corporations. In any case, the current lack of access to those loans will result in untold numbers of small businesses going out of business over the next few weeks while they wait for Congress to return to Washington and re-fund the program.
While actual small businesses suffer, large corporations and their shareholders are also being bailed out by part of another massive loan program run by the Federal Reserve. The Fed has taken the unprecedented step of buying junk bonds from companies in order to keep their borrowing costs down. While only companies whose bonds were not in junk status before the crisis began will be eligible, that list is expected to grow as the crisis continues, considering the explosion of debt rated just above junk currently outstanding. Not only is this a gift to the companies issuing the bonds, it is also a gift the Wall Street banks that syndicate these loans. In addition, investment firms have already been rewarded as the junk bond market rallied, with record inflows, in the wake the Fed’s announcement. The Fed also announced it would purchase high yield ETFs, giving an additional boost to investment speculators. The result is the most high-risk investors are actually getting bailed out, even as actual small businesse can’t get loans. Lastly, along with the Fed’s other program of buying investment-grade corporate debt, it appears that oil giants like ExxonMobil, Chevron, and Conoco may be eligible of nearly $20 billion in benefits from these programs.
Wall Street investors will also benefit from the Fed’s decision to buy municipal bonds. This will rightly help those localities maintain access to the credit markets and keep their borrowing costs down. Remarkably, however, the requirements for the Fed’s program of buying municipal bonds has managed to bypass many of the cities and counties with the largest percentage of black residents. Meanwhile, banks are apparently free to seize the pathetic $1200 checks with a message from Trump in the memo field in order to satisfy outstanding debts. USAA took $3,400 in checks from a military family in order to satisfy the family’s outstanding debt with the bank. After being shamed into submission, the bank reversed that policy. The Treasury Department has told banks that “there is nothing in the law” that precludes banks from using the relief checks to satisfy outstanding debts, despite the Department having the authority to issue a rule prohibiting such a practice.
As with the PPP program, the general public may also never know all the details about the recipients of the Fed loan programs. According to the Washington Post, “As the Fed chair, Powell has the discretion to keep the company name and amount borrowed confidential, sharing the information only with certain congressional leaders who oversee Fed activities”.
In fact, we may never really know how much and to whom most of the $2 trillion relief actually was dispersed. Trump added a signing statement to the relief in which he claimed he did not have to share the details about how the money would be distributed to Congress. He has already fired the Inspector General charged with overseeing the disbursement of funds while also installing one of his own impeachment lawyers to oversee the $500 billion slush fund controlled by the Treasury Department. Congress was supposed to set up a five member panel to also oversee the how the $2 trillion would be dispersed. Until yesterday, that panel had just one member, no office, and no staff, despite the fact that it is required by law to issue its first report in less than 30 days. By the time the panel finally does begin to function, hundreds of billions of dollars will have already been gone out the door.
As part of that aforementioned slush fund, the Treasury Department recently reached agreement with the major airlines, offering a $25 billion bailout fund as long as the airlines keep employees on the payroll until September 30th. Over the last five years, those airlines collectively handed out around $45 billion to their executives and shareholders. Under the deal, American Airlines will be eligible for loans and grants that actually are greater than the company’s current market value. United Airlines took $5 billion of that fund and then immediately sent out a notice to its workers that it will begun cutting staff on October 1st. Interestingly, only the airlines and certain “national security critical” businesses will have any restrictions on bonuses or dividends even though they may have received government loans.
Beyond the feeding frenzy to get a piece of the $2 trillion relief package, there is the standard Trump administration corruption in dealing with the pandemic itself. Jared Trump has ordered the government to seize essential medical supplies and then provides 40% of those supplies to private enterprises so that they can make a killing reselling them, while using the rest to reward vulnerable Republicans. As usual, Kushner is operating in secret and violating the Presidential Records Act so we will never know how and why these supplies were allocated as they were.
It is another mystery how one company without any experience in producing medical equipment managed to get a $55 million FEMA contract for N95 masks without competitive bids. As the Washington Post notes understatedly, “Beyond the premium the federal government is paying to Panthera, the decision to award a contract to an insolvent organization with no apparent expertise in the given field struck experts as unusual”. A company that botched a large Iraq War contract to build 150 health centers and has done little business with the US government in the last dozen years was awarded a $40 million contract by the DOD to build a 200 bed hospital in a park in the Bronx. That seems excessive since the Army Corps of Engineers built a 4,000 bed hospital in the Javits Center for $10 million less.
The President’s advisory commission on reopening the economy is basically for show as a 220 member body is not going to be terribly effective. At least 25 members of that commission have made significant donations directly to the Trump campaign or groups supporting his re-election. The commission also includes the CEOs of two cruise lines, both of which are incorporated offshore and are largely exempt from US taxes. Similarly, Trump’s re-opening plan bizarrely included gyms in phase one. This was apparently because Trump had been contacted by the owner of both Equinox and SoulCycle, a man who had recently raised funds for Trump and was also appointed to the advisory commission.
Another big gift to big corporations may still be in the offing. The Occupational Safety and Health Administration (OSHA) has actually relaxed its standards for protecting essential workers outside of the medical field. Under OSHA’s new guidance, social distancing is not mandatory and individuals who had been knowingly exposed to the virus could still return to work as long as they did not show symptoms and wore a mask. Of course, asymptomatic individuals have been shown to be an important nexus for spreading the infection. In addition, companies will not have to investigate or report whether a COVID-19 illness was work-related unless multiple employees in the same work space get sick.
Most importantly, as the pressure to re-open the economy mounts, conservative groups are pressuring the administration to provide corporations with legal immunity if workers are infected by the virus on the job. As we head into a depression-like economy, the pressure on the unemployed to risk their lives for paycheck will increase and providing corporations with legal immunity will allow businesses to literally treat their workers are disposable and replaceable parts, even more than they do now. As one Walmart employee declared, “I never signed up for this. I didn’t sign up to be a hero. I did not sign up to put my health on the line every day. I never joined the Army or freaking military. Now everyday I’m faced with this pandemic and I could die…We’re ‘essential,’ which means sacrificial. Upper management, Walmart, they’re making their money. They do not care about us”. That is true today and will become more so if corporations are exempted from legal liability.
The COVID-19 chaos also presents opportunities for graft not relating to the pandemic. The Army Corps of Engineers just awarded a company called BFBC a $569 million no-bid contract to build 17.17 miles of Trump’s border wall. The cost per mile for this contract is over 50% higher than the $20 million per mile average of prior contracts. BFBC has received over $1 billion in contracts to build sections of the wall at an average of $27 million per mile. BFBC’s parent company is a politically-connected Montana company that has been a reliable Republican donor.
While Steve Mnuchin tells us we should be able to live on $1200 for ten weeks, the plutocrats are gorging at the government trough. The Trump tax cuts were already the biggest wealth grab in modern history. With each new relief program that is rolled out, with each new unemployment release that shows record numbers of new additions, the stock market, which has essentially become a rich people’s version of a consumer confidence survey, moves ever higher as the plutocrats become more convinced they will be protected. As we head into the next depression, the poor will get poorer and the rich will get richer, not only from government largesse but also from their having the available cash to sweep up distressed but important assets at bargain basement prices. When the kleptocratic feeding frenzy is over and all the dust settles and a full accounting is finally made, we may find that the wealth transfer to the rich from the pandemic and its fallout will exceed even that of Trump tax cuts.
Originally published at https://thesoundings.com on April 18, 2020.
