Unsanitized: Meet The Corporate Bailout’s First Policeman

An interview with Bharat Ramamurti. Also, the bad data driving dreams of reopening the country. This is The COVID-19 Daily Report for April 13, 2020.

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First Response

The Trump administration has taken a weed whacker to already modest oversight in the CARES Act, firing the lead inspector general in one oversight entity and hiring his personal lawyer for another. The Congressional Oversight Commission, a five-member panel tasked with monitoring how the corporate bailout is spent—including the $4.5 trillion Federal Reserve money cannon—is purely a legislative entity, and Donald Trump cannot get rid of its members. It also doesn’t have subpoena power and must rely on other tools to do its work.

To date, only one member of the commission has been chosen: Bharat Ramamurti, a top economic adviser to Elizabeth Warren since she joined the Senate, who ran economic policy for the Warren campaign and last week decamped to the Roosevelt Institute. Chuck Schumer picked Ramamurti for the commission, and we don’t yet know whether he’ll be in the majority or minority of it; each party leader in the House and Senate chooses one member, and Nancy Pelosi and Mitch McConnell must agree on the final member, the commission chair.

Ramamurti sees the commission’s role as educational. Under the statute, the Treasury Department and the Fed must disclose any disbursements within seven days. But that’s just going to be a stream of raw numbers. “They will disclose that the money was lent from facility XYZ to company ABC under certain terms,” he said in an interview. “The commission should ask, what did the company end up doing? Did the company lay off its workforce? Did it pay out executive bonuses? Did it do a stock buyback later in the year? There’s enormous public interest in this being done on the level and with the goal of stabilizing the economy and helping families.”

The financial institutions receiving bailouts in 2008 played a major role in causing the crisis for which they were rewarded. There was a lot of discussion of moral hazard, the idea that a firm can blow up the world economy and be so vital to the maintenance of the system—some would say “too big to fail”—that they would have to be rewarded for their mismanagement. That gives those actors incentives to take risks, privatize profits and socialize losses.

The pandemic is a different animal; the companies who will receive bailout funds did not cause the coronavirus. And yet there’s a moral hazard component here too. A company like Boeing, in line for a federal bailout, was already in significant trouble due to making planes that couldn’t stay in the sky. Others overleveraged themselves, or leaked out most of their cash flow to investors rather than making investments in its workers. “If your typical family knew that they could get a credit card and run up thousands of dollars, and if something went wrong, someone would step in and lend them money at a low rate, it would create a huge distortion in how they would act,” Ramamurti said. “Are we doing the same thing for big business?”

The Fed and Treasury have near-total discretion on what conditions they can place on the funds, something we’re seeing play out in real time. Treasury is negotiating right now with the airlines on their part of the bailout, seeking 30 percent repayment on what was to be $25 billion in grants, and stock warrants on 10 percent of that loan amount, which the government could convert to equity. While these restrictions on grants intended to go to payroll for front-line airline workers are relatively severe (and seemingly above what Congress intended), the Fed’s announcement last week of a large corporate debt-buying program, which could purchase high-yield debt and bail out the private equity industry, came with essentially no strings attached.

“I think it’s a cause for concern,” Ramamurti said. “The money should go to support who works at these companies.”

The commission is modeled after the Congressional Oversight Panel that monitored the 2008 bailout, and in the same fashion, it doesn’t have a ton of authority on paper, mostly limited to writing reports and holding hearings after the money goes out the door. Elizabeth Warren, Ramamurti’s former boss, used the platform as chair of that panel to communicate directly to the public and build pressure on officials administering the bailout programs.

Ramamurti sees his function in the same way. He suggested working with inspectors general and Senate and House committees to acquire information the administration resists giving, as well as seeking information directly from companies. But there’s also a public communication aspect, a way to use hearings and speeches and requests for information to create momentum for action. “I think that’s a valuable tool,” he said. “Each member of the commission has the ability to raise issues they think are of particular importance, at least to talk about those issues publicly and try to raise public attention.”

There’s no timetable for when the other members will be chosen, but Ramamurti believes the public will also have a role to play. “This is going to have an enormous impact on the economy, not just in the short term, but over the next several years,” he said. “Trying to keep an eye on what these companies are doing is something where the public and outside groups can be really helpful. I hope people get in contact with the commission and me to share these types of things. We work for the public.”  

Odds and Sods

Lots of great stuff over at the Prospect today:

Alex Sammon reports that, at the same time that food banks are seeing record demand, farmers are destroying crops and throwing away milk. It has to do with how our food supply works, and the worst could be yet to come.

Paul Waldman looks at another vital institution, the U.S. Postal Service, that could collapse from the crisis, especially as Donald Trump appears to have some personal animus against it.

And Sandeep Vaheesan notes that rent-to-own stores, which are vital right now as low-income people cannot afford basic appliances and furniture, are poised to walk away from collusion allegations with nary a scratch.

You can find all of our coronavirus coverage at prospect.org/coronavirus.

Garbage In Garbage Out

Yesterday Joe Biden offered a plan for how to “reopen America,” a term Donald Trump uses repeatedly as well. There’s a palpable framing of all of us doing slow laps around a track, waiting for a green flag to unfurl so we can burst forward at full speed. Even economists I respect, like Dean Baker, are making the case for a V-shaped recovery, a rapid return to normal as soon as the pandemic is “beaten.”

The problem with this is that America contains multitudes; in this case, multiple timelines. Where New York or Seattle is in this crisis differs from Salt Lake City or Louisville. Whether you’re rich or poor affects how you will respond to the virus. A country as vast as America does not have a uniform level of exposure to the outbreak. And it’s not going to be able to “open” uniformly; that would be like setting a return-to-normal date for all of Europe simultaneously.

The problem here is what I call the tyranny of aggregates, helped along by a very unhelpful iteration of data journalism. Data can of course be helpful in identifying patterns, but when a nation of 330 million gets mashed down into single lines and curves, it’s easy to lie with statistics. This was a problem in the post-Great Recession recovery; on aggregate things looked fine, but dig deep into certain communities and class levels and it looked terrible, and those areas happened to give the election to Donald Trump.

The Financial Times’ ubiquitous charts, which appear to show the United States as an extreme outlier in cases and deaths, are a corruption of data journalism, comparing countries with wildly different populations on an absolute basis. At the same time, they also provide false hope by showing a “bend” in the curve, as if the entire country is uniformly nearing the downslope of this disease. And they don’t explain that bends can reverse, especially if there’s no plan in place for mass contact tracing or intrusive surveillance, and if we’re dealing with fallible humans who crave social contact and a society with relative freedom of movement.

Worst of all, if you press anyone with a rudimentary understanding of this data, they’ll explain that nothing about it is accurate. Case growth is defined by testing capability. Deaths are not being recorded if the dead never had a test, despite having all the telltale symptoms. If you don’t know all the cases and deaths, how can you build a curve that informs anything? The term garbage in, garbage out is appropriate: if the data isn’t accurate, the analysis won’t be, either.

Yet nervous policymakers desiring to bring the economy back to life at the slightest hint of hope are using this data to make life-and-death decisions. But they’re kidding themselves. And here’s where the tyranny of aggregates can be actively dangerous. We will probably “reopen the country” and it’ll be premature in many places, triggering waves of resumptions and reinfections until there’s a vaccine. Data journalism will have played its role. We need a reassessment of the sport of assessing.

Today I Learned

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