Bailouts

Headline and text from The Washington Post:

Casinos have joined the airline industry in asking Congress for emergency financial help as Las Vegas and other tourist destinations take a severe financial hit from the coronavirus outbreak.

The requested aid for the casino companies, raised by lobbyists in recent days, could come in the form of a comprehensive bailout package, similar to what lawmakers may provide to airlines, cruise companies and the hospitality industry. Other possibilities include direct cash payments, deferred taxes or special bankruptcy protections, said two people with knowledge of the conversations who were not authorized to speak publicly...

Casinos could also receive additional scrutiny given the close personal and professional ties that Trump, a former casino developer and owner, has to the industry. Steve Wynn, a top GOP donor, has known Trump for years and was vice chairman of Trump’s inaugural committee. After Trump entered the White House, Wynn was named chairman of the Republican National Committee’s finance committee before stepping down after sexual harassment allegations.

The broader considerations are discussed in Let the bailouts begin:

This week you can expect to hear warnings from business groups about the jobs that will be lost, the bankruptcies that will be triggered, the financial panic that will ensue and the recession that will be prolonged if the government fails to act quickly and aggressively.

And there will be the predictable rants about putting taxpayers on the hook for “bailing out” undeserving shareholders, banks and hedge fund managers even as waiters, taxi drivers and maids are left to fend for themselves.

Democrats will accuse Republicans of groveling to Wall Street and business interests while Republicans will accuse Democrats of groveling to unions and wanting to pick winners and losers. In the end, a rescue package with a price tag of hundreds of billions of dollars will be narrowly approved by both houses of Congress over the opposition of partisans and ideological purists in both parties. ..

Let’s start with the word “bailout,” which will be tossed around indiscriminately in coming weeks by politicians and pundits and headline writers. Bailout has a pejorative connotation, one that suggests people and companies who should have known better are saved from the consequences of their own risk-taking with large gifts of government cash.

But in this case, the pejorative does not apply. For if anything qualifies as an event outside human control — an “act of God” as the contract lawyers put it — certainly it is a pandemic. Nor is this a case of anyone acting recklessly...

Then there is the practical reality that the government simply doesn’t have the capacity to review the financial situation of millions of businesses and quickly determine which ones genuinely need capital and will be viable enough to pay it back. In addition, the potential for fraud and political favoritism is significant...

Behind the scenes, airlines, cruise lines, hotel companies and theme parks are already making the case that the government should simply hand over an initial tranche of cash to compensate them for the lost revenue they suffered as a result of government restrictions on travel or large gatherings. That would be a mistake...

Although there is precedent for such grants to the airlines in the 9/11 rescue package, that was a time when airlines were routinely reorganizing under the bankruptcy code. But after 20 years of unchecked consolidation, the airlines — along with hotel operators and theme parks — have become disciplined oligopolies characterized by high prices and profits. They should get no better deal from the government than if they were seeking capital from Warren Buffett and Berkshire Hathaway. 

That’s not all the government should demand. Until the government gets its money back, the companies should be prevented from paying any executive more than $2 million a year in salary, bonus and stock incentives, which would be a comedown for the chief executives of nearly all of these companies. They should also be prevented from paying shareholders any dividends or buying back any shares of their stock. And rather than laying off a large number of employees, they should be required whenever possible to institute job-sharing programs so that all employees remain on the payroll part-time until the crisis has passed. The details of these deals should be posted on the Treasury website, along with an audited accounting of when and how the money has been repaid.

More at the link.

Addendum:  A Slate article decries bailing out the airline industry:

It has been a little more than two years since American Airlines CEO Doug Parker told investors, in an instant business school cautionary tale, “I don’t think we’re ever going to lose money again.” How time flies when a viral pandemic ravages the earth...

Fact check: true. Airlines are coming off a remarkable 10-year run. Delta’s profits for each of the past five years, back from 2019 to 2015, were $4.8 billion, $3.9 billion, $3.2 billion, $4.2 billion, and $4.5 billion. Mergers have given the big four (Delta, United, American, and Southwest) about 80 percent of the U.S. market. With oil prices low and the economy humming along, it has been a great time to run an airline. 

So now that the lean times are here—admittedly, a surprising turn of events for us all—where did all that money go? Why are multibillion-dollar airlines held to a budgeting standard that, if it were adopted by a typical American household, would seem totally irresponsible? And why, if they blew through all that cash, should we help them now?...

Nobody wants to bail out executives and shareholders who spent years lining their pockets as hundreds of thousands of owner-operated restaurants go out of business. But letting the planes go down would put nearly a million people out of work and deprive the country of nearly all its long-distance travel infrastructure. 

More at the link.