CAFE Insider Newsletter #64

CAFE Insider Newsletter #64

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Dear Reader,

Greetings from home isolation. No one in my family is sick or symptomatic, but like millions of Americans, we are doing our part to help stop the spread. I’ve barely left the house in five days, and then only to get food and provisions. I expect it to be so for weeks more – at least. Just ten days ago, this would have seemed an extreme overreaction. Now it’s just the way it is.

I know I’m not making a novel observation. The most common conversation I have with people lately is some version of “can you believe what it was like just seven days ago?” I’m sure you’re all thinking and saying the same kinds of things. Not long ago, we thought the pain might be short-lived. Not long ago, supplies were plentiful. Expectations and adaptations change hourly. By the time I write you next, we may be in a nationwide lockdown. That was unthinkable just last weekend.

People are drawing parallels between this crisis and some from the past. None of the modern brushes with pandemic disease seem to fit the bill. Not Ebola or swine flu or HIV. Others make comparisons to the financial crisis and recession of 2008. That doesn’t seem to fit either. Ben White, an economics correspondent for Politico, put it this way in a tweet last night:

Still others invoke the terrible period after 9/11. This analogy most matches my own feelings. I’ve asked myself when have I ever felt this uneasy and worried. Only 9/11 comes close. I was living in Manhattan, we had a four-month old daughter, and I was working at SDNY. For a long while, we awaited another mass attack, which never came.

I was anxious then, and I am anxious now. But this pandemic is different and, in a way, even more worrying. I’ve been trying to figure out why that is. How can this feel worse than the worst attack on American soil in history?

I have some preliminary thoughts. One difference is that back then we came together. We had resolve. Members of Congress, arm in arm, sang God Bless America on the steps of the Capitol. Love poured in from around the country (and world) to New York, Virginia, and Pennsylvania. There was shared loss and communal mourning. We had strong leadership; whatever you think of George W. Bush and Rudy Giuliani today, they said the right things in the right way in the aftermath of the terror attacks. Now our leaders are often bickering and belligerent, some states taking strong action while others are keeping their beaches open, and we have a mendacious, minimizing, narcissist presiding over the whole mess. We are fractured, not unified.

There is also the simplest of differences. After 9/11 we did a lot of hugging. In the age of coronavirus, you can’t even shake anyone’s hand. It is harder to come together when you have to socially distance. Feelings of isolation are natural given the need for literal isolation.

Another difference is the nature of the enemy. On 9/11 the enemy was human. You had the belief that evil people could be defeated by good people. You also could get angry and you had a target for your anger, the murderous members of al Qaeda. Maybe this is a reason, aside from deflection, that Trump may seek to twist our response in part into a battle against China, not just the disease.

It’s oddly comforting to be able to blame people. You could go to war and fight. I was not yet in the Organized Crime and Terrorism Unit at SDNY, but I had friends and colleagues who were investigating the attacks at a Command Center to bring the evil-doers to justice. That made me feel better too.

These are microbes, not men. The enemy is invisible and ominous. There’s not a lot of understanding about the disease yet. After 9/11, moreover, we knew there could well be another attack, but we could hope that the next plot could be stopped. Indeed, it never came. Here, the disease looms overhead, like a poisonous storm cloud. The doctors tell us what is inevitable, and they show us the math. We watch Italy, as astronomers might observe a nearby star, knowing that it is only 7 light-days away, and that country’s present is our future.

What this pandemic imposes is not so much terror as dread.

But I have plenty of hope. Millions of people’s attitudes and behaviors have changed on a dime. The remaining oblivious millions can yet come together and do the same. In the end, we are not being asked to go to war like the Greatest Generation was.  There will be widespread suffering as people lose incomes and fall sick, but the immediate asks of us are mostly mundane – wash your hands, shelter in place, don’t hoard goods.

And there are moments of grace and Zen all over. People are buying groceries for the elderly, making food deliveries, checking on their neighbors, and helping in any way they can. Even in Italy, the hardest-hit European country, there is spontaneous opera on balconies and dolphins are re-appearing in waterways.

Certain shortages have been overstated. It’s a small thing, but I can share that our family procured two bottles of hand sanitizer from the local CVS this morning, at the ordinary price, and there was toilet paper in our grocery store yesterday. A week ago, that’s what was unthinkable.

Like you, I am cooped up and fretful, but I have shared every meal the past week with my kids and for that I feel blessed and grateful.

Be well and be kind.

My best,

Preet

BAILOUT & MORAL HAZARD

WASHINGTON, DC – MARCH 17, 2020: Demanding “social distancing” space from the gathered journalists during the world-wide coronavirus outbreak, Secretary of the Treasury Steven Mnuchin speaks to journalists after the weekly Senate Republican Caucus where he discussed the House coronavirus aid legislation, soon to be voted on by the Senate, on Capitol Hill in Washington DC Tuesday March 17, 2020. (Photo by Melina Mara/The Washington Post via Getty Images)

As the spread of the coronavirus continues to upend markets and threaten the livelihoods of millions of Americans, lawmakers in Washington have begun outlining a massive stimulus package designed to prevent the economy from plunging into a depression.

On Tuesday, Treasury Secretary Steve Mnuchin met with Senate Republicans to propose an aid package totaling more than $1 trillion. As both sides of Pennsylvania Avenue begin to hammer out a deal, Democrats are expressing reservations over some aspects of the proposed stimulus — particularly the idea of bailing out the airline and hotel industries without conditions.

Should the government demand that companies and executives adhere to specific conditions before receiving massive bailouts — even when time is running out to pass a bill that will save the American economy?

The prospect of such a significant bailout for private industry harkens back to September 2008, when then-Treasury Secretary Hank Paulson negotiated with congressional leaders to pass a $700 billion stimulus package to stabilize the ailing banking system.

Critics of that stimulus bill, the Troubled Asset Relief Program (TARP), seized on what is known as the “moral hazard” problem — the idea that government bailouts only encourage more unethical behavior by removing companies’ incentive to guard against risk.

The 2020 bailout is being negotiated in a completely different political and economic context. While it was the financial services industry that drew the bulk of the blame for the 2008 financial crisis, no industry can be blamed for the spread of an unprecedented pandemic. Yet some corporate leaders, particularly airline executives, have come under fire for self-serving corporate behavior that has left their balance sheets vulnerable despite years of uninterrupted economic growth.

Democratic Senator Elizabeth Warren tweeted on Tuesday: “Let me be clear: We’re not doing no-strings-attached bailouts that enrich stockholders or pay CEO bonuses. Period.” Democrats have specifically criticized airline executives for engaging in a practice known as the “stock buyback.” In a buyback, a company uses cash to repurchase its own existing shares, reducing the number of available shares and driving up the stock price. In a joint New York Times op-ed from February of last year, Democratic Senators Chuck Schumer and Bernie Sanders criticized the practice:

So focused on shareholder value, companies, rather than investing in ways to make their businesses more resilient or their workers more productive, have been dedicating ever larger shares of their profits to dividends and corporate share repurchases. When a company purchases its own stock back, it reduces the number of publicly traded shares, boosting the value of the stock to the benefit of shareholders and corporate leadership.

The airline industry, which under Secretary Mnuchin’s proposed bill would receive $50 billion in stimulus money, has used 96% of its free cash flow over the past decade on stock buybacks. In an op-ed published on Monday, Columbia Law Professor Tim Wu writes, “We cannot permit American and other airlines to use federal assistance, whether labeled a bailout or not, to weather the coronavirus crisis and then return to business as usual.” He goes on to argue that the government should require that the airlines make significant changes, like capping fees on itinerary changes and baggage, preventing them from making smaller and smaller seats, and reforming their ownership structure to encourage competition.

Despite the calls that the bailout money be tied to specific conditions, few have invoked the idea of the moral hazard to describe the coronavirus bailout. And that is not the only thing that has changed since the 2008 stimulus. This time around, lawmakers — including conservatives like Senator Mitt Romney — are advocating for direct cash payments to individual Americans. On Monday, Romney proposed that every adult American be given $1,000 to help meet short-term economic obligations. While the details have yet to be released, Secretary Mnuchin’s proposed stimulus bill reportedly allocates over $500 billion in direct cash payments to individual citizens. The proposals have “thrilled” Andrew Yang, the former Democratic presidential candidate who ran on a $1,000-a-month universal basic income that he called a “Freedom Dividend.”

What do you think about another massive government bailout? Should lawmakers insist on attaching the money to a set of specific conditions — or is it more important to just get this bill passed? Let us know your thoughts by writing to us at letters@CAFE.com, or reply to this email.

THIS WEEK ON STAY TUNED

Ian Bremmer joins Preet at the top of Stay Tuned this week to talk through the global implications of the coronavirus pandemic. Bremmer, the founder of the geopolitical risk consultancy Eurasia Group and the associated GZERO Media, has twice before talked with Preet about the biggest threats facing our world. During their last conversation in January, Preet and Ian even talked about the emergence of the then-nascent coronavirus. This time around, the duo talk through the most pressing economic and public health concerns facing the United States as the pandemic continues to roil markets, exacerbate national rivalries, and threaten the lives and livelihoods of people all around the globe.

In this excerpt from their check-in, Bremmer talks about how coronavirus is illuminating our worsening “geopolitical recession”:

The last crises that we’ve had—9/11, 2008—happened when the geopolitical order was doing well; when we had a boom cycle. Now, we are in a geopolitical recession, which means that the existing geopolitical order is not functioning: The United States is less willing to lead internationally as global sheriff, as architect of global trade, as cheerleader of global values. The transatlantic relationship is much weaker. It’s less aligned on key national security, economic and technology issues. Domestically, our institutions within democratic countries around the world are seen to be less legitimized. More polarization exists in these countries. And then we have the Chinese expanding and becoming much stronger and not aligned with our values, our political or economic system…So you put all that together. That’s not the old U.S.-led global order. It’s something very different.

Then, Preet is joined by Rahm Emanuel, the former two-term mayor of Chicago. Emanuel’s storied career in public service also includes staffing President Bill Clinton, serving as President Obama’s first Chief of Staff, and representing the 5th district of Illinois as a member of the House of Representatives. Emanuel is the author of “The Nation City: Why Mayors Are Now Running The World,” and he joins Preet to discuss how cities are driving America’s development by stepping up as the federal government shirks its responsibilities.

Emanuel explains how a mayor’s unique role does not just give him or her the power to stimulate economic and cultural development, but also a special moral authority to help heal divisions and despair:

I think one of the things that this era is going to be remembered for is the deaths of despair where people have turned particularly parts of our society towards opiates, heroin, suicide, and alcohol. And that’s part of being alienated, feeling forgotten, lost, unheard, unseen. And mayors have the ability through their soft power, with their relationship with places of worship, community groups, not-for profits, to weave a community around our fellow citizens. And I really do think this is tearing at our soul as a country. This is a manifestation and a byproduct of a whole host of social economic forces.

Listen to today’s episode, the bonus, and share your thoughts by writing a review or emailing us at letters@cafe.com

FOLLOW

Juliette Kayyem, now a CNN analyst and lecturer at the Harvard Kennedy School, served as Assistant Secretary for Intergovernmental Affairs at the Department of Homeland Security in the Obama administration. In that role, she helped oversee the government’s response to crises like the H1N1 pandemic and the BP oil spill. She provides incisive commentary on the Trump administration’s response to the coronavirus crisis — and a whole host of other national security issues. Follow her @juliettekayyem.

THIS WEEK ON CAFE INSIDER

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That’s it for this week. We hope you’re enjoying CAFE Insider. Reply to this email or write to us at letters@cafe.com with your thoughts, suggestions, and questions.

—The CAFE Team: Tamara Sepper, Sam Ozer-Staton, Julia Doyle, Calvin Lord, David Kurlander, David Tatasciore, and Matthew Billy.

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