Unsanitized: The Pandemic Prop-Up of Fossil Fuel Companies

Plus, 60,000 jobs at the whim of a lobbying effort. This is The COVID-19 Daily Report for October 1, 2020.

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First Response

This space has been saying for months that the nature of the CARES Act has created a deeply unequal economic recovery, with expired relief for the vast majority of the public and enduring benefits for those at the top. The Washington Post put numbers to that, showing the stark impact of the pandemic on inequality. More of the job loss has affected Black and Latino workers, young people, women, and the working poor. The rich and Caucasian have barely felt the effects.

The economic impact mirrors the mortality impact, which has also been concentrated in low-income communities. But the nature of the relief, and the impact of putting so much on the plate of a Federal Reserve whose channels inherently funnel money upward, has an impact.

The unwillingness of the Fed to use creative tools to spread its relief out to sectors beyond the financial industry plays a role. So does careerism. A remarkable study out this week shows that central bank researchers write papers that adopt and boost the strategies of their organization because that’s highly correlated with promotions and visibility. More on that here and, in more general form, here.

But part of it is just old-fashioned capture, and in one important case, the kind of capture that destroys a planet. One reason why you might want to spread economic relief outside the central bank’s sphere is so you don’t induce fossil fuel pollution. At least that’s one possible takeaway from this report from Public Citizen, Friends of the Earth, and Bailout Watch.

Read all of our Unsanitized reports

The report tallies up how much in corporate bonds the fossil fuel industry has managed to sell since the corporate bailout began in March. This was a sector that was defaulting at higher rates on such loans even before the crisis began, and had significant credit risk. During the pandemic, major fossil fuel companies have been trading at record lows, and bankruptcies have rolled in, on the heels of over 240 since 2015. But $99.3 billion in bonds have been sold in six months, an unusually high number, at lower prices and better terms than before the crisis.

I’ve written before about how the Fed has coddled the oil and gas sector during the crisis. It changed terms on the Main Street Lending Program after direct requests from the industry and its allies, and it has disproportionately purchased energy bonds as part of its secondary market bond-buying program. It’s even purchased ETFs that have mostly junk-rated energy debt embedded within them. At a time when the opportunity could be taken to green the energy mix, the supports for fossil fuels is particularly galling.

Some of the 56 companies who have issued new bonds since March have said they would fail without the lifeline. That would have been pretty good news for the planet. More than half of the energy companies the Fed has purchased bonds from on the secondary market have seen debt downgrades in the past six months. There was more spending on electricity than gasoline this summer for the first time since 1960.

These companies are in trouble, in other words. At least 30 percent of the shale sector alone is “technically insolvent.” And the normal function of the market has been suspended to keep them alive. Maybe in a recession that’s fine, but the by-product of that is the continued burning of resources that cannot be burned if we are to live sustainably on Earth. “The Fed’s actions have exacerbated the already dire threats of climate change,” the report concludes, and I think that’s inarguable.

If the Fed were taking the risk to the climate seriously in other areas of its work, like with respect to bank supervision, this would still be intolerable but at least a little mitigated. That’s not happening either. The U.S. has still not joined the coalition of central banks seeking to green the financial system, and isn’t measuring the climate risk of financial firms. The combination of laxity on financial stability and climate change and significant financial support to the industry should end every so-called liberal’s cheerleading for U.S. monetary policy actions during the crisis. The world is too fragile for it to be in the hands of the Fed.

Corporate Hostage Taking

I’ve been tracking these layoffs at major companies for the past few days, and the picture now emerging is that they have taken the form of a threat. Let’s look at Disney, for example. When they made their announcement of 28,000 layoffs, they pointedly placed some of the blame on the state of California’s rules for reopening large gathering sites like Disneyland. You’ll recall that premature reopening hobbled California with a spike in cases in the summer, so the state is being more cautious this time. And Disney doesn’t like the impact of that on the bottom line.

A similar, more direct move has been made by the airlines. It’s October 1, and under CARES Act rules airlines that took bailout funds can begin to lay off employees today. United and American will begin to relieve 32,000 employees of their duties. But they said they would reverse course if Congress passes a relief bill that includes another $25 billion in funding for them. This is pretty unlikely, as talks failed to reach agreement yesterday, though they are ongoing. But now, 32,000 jobs are directly at stake. (Airline aid has been mutually agreed to if a deal is reached.)

Lobbying is lobbying, and you expect corporate monopolies to make power plays to get what they want. Pfizer hinting that yes, they can deliver a vaccine this month in order to tamp down actions that reduce prescription drug profitability is an example of this behavior. But there’s something different about putting the livelihoods of 60,000 Americans in limbo as part of the lobbying process. That’s a darker and more dangerous trend.

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