Blogger George Rebane, perhaps the leading thinker among conservatives in these parts (granted, there’s not much competition for the honor), takes a dim view of current efforts to lavish money on the people who will be hurt the most by the shutdown of the economy.
Rebane, who has written in the past that employees are costs that owners try to eliminate, writes at Rebane’s Ruminations that “…low- and mid-range workers are continuously pandered to about (sic) the feds bailing out Wall Street capitalists and greedy corporations. They don’t grasp that giving money only to such workers will not help, for they will have nowhere to spend it for their necessities…”
“It is America’s business owners and investors who create and sustain the companies, and take the risks to make the stuff we need while creating the jobs that make our quality of life possible.”
Rebane apparently believes that food, rent and utilities are not necessities that are likely to suck up any money low- and mid-range workers get from the government. There is little else you can afford to spend money on when you live paycheck to paycheck and those checks aren’t coming in.
But don’t think for a minute that America’s major corporations will be denied a spot at the public trough. They have unleashed their army of lobbyists on members of Congress and the administration, seeking low interest loans if not outright bailouts. Companies like United Airlines are threatening to lay-off thousands of workers if they don’t get what they want.
Left unsaid is why America’s corporate titans have scant cash reserves to cushion them for the next few months, particularly since the economy has been growing for a decade and they got a huge tax cut three years ago.
Instead of banking money for a rainy day, they have been spending it on stock buybacks and dividend increases. Given the low interest rates of recent years, many companies borrowed money to do both while also financing acquisitions. Corporate debt now stands at a record $10 trillion.
Even Donald Trump finds this annoying, saying he is disappointed corporations didn’t use the money saved from the tax cut to invest in their businesses. He said there will be no dividend increases or buy-backs if the government bails them out.
Then there are the leveraged buy-outs that burden companies with debt. Take Cirque du Soleil. After a hedge fund acquired the company in a leveraged buy-out in 2015, Cirque was saddled with $700 million in debt. Now that all of its touring shows are out of business, the company is likely to default on its debt payments.
The few corporate scolds left out there like to talk about “moral hazard,” the lack of incentive to guard against risk when you’re protected from its consequences. Corporations know there is little risk when the federal government bails them out, as we learned in 2008-09.
I say it’s time for the creators of wealth to face up to the consequences of their profligate ways. Instead of bailing them out, we should expose them to the tender mercies of Warren Buffett, who currently has over $120 billion in reserves and is looking to invest it.
Buffett comes across as a folksy, grandfather type, but he makes companies pay dearly when he comes to their rescue. Back in 2008-09, he provided a lifeline to Goldman Sachs, General Electric and Dow Chemical, and financed the acquisition of Wrigley by Mars.
What did he charge for his services? The Wall Street Journal estimated in 2013 that Buffett had a gain of “$10 billion and counting” from the bailouts. That’s the kind of “moral hazard” that really teaches a lesson.