CEOs, not the unemployed, are America's real 'moral hazard'

I suggest reading the whole article at the following link

https://www.theguardian.com/commentisfree/2020/apr/18/coronavirus-stimulus-checks-unemployment-benefits

Robert Reich

Many Republicans believe economic relief for those without jobs encourages slacking off. But it is corporations that are bailed out again and again

Sun 19 Apr 2020 01.00 EDT
Last modified on Sun 19 Apr 2020 01.04 EDT

This week, checks of up to $1,200 are being delivered through direct-deposit filings with the Internal Revenue Service. But low-income people who have not directly deposited their taxes won’t get them for weeks or months. Worse yet, the US treasury is allowing banks to seize payments to satisfy outstanding debts.

Meanwhile, most of the promised $600 weekly extra unemployment benefits remain stuck in offices now overwhelmed with claims.

None of this seems to bother conservative Republicans, who believe all such relief creates what’s called “moral hazard” – the risk that government benefits will allow people to slack off.

The Republican senator Lindsey Graham, for example, says state unemployment offices are overwhelmed because the extra $600 is “incentivizing people to leave the workforce”. Hello?

When it comes to big corporations and their CEOs, however, conservatives don’t worry about moral hazard. They should.

Before the coronavirus outbreak, corporations were borrowing money like mad, capitalizing on the Fed’s bargain-basement interest rates. Total business debt topped $16tn last year.

Corporations used much of this debt to buy back their own shares of stock. This raised the earnings of each remaining share, creating a bonanza for big investors and top executives.

Trump never tired of pointing out how spectacularly stocks had risen on his watch. But he neglected to mention those stocks were floating on a rising sea of corporate debt – which left corporate America dangerously unprepared for any sharp downturn.

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American corporations spent $730bn on buybacks last year and more than $370bn this year before the virus, much of it financed by debt. If they hadn’t frittered away that trillion or so dollars, they’d be better able to cope with this emergency.

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No worries. Government is bailing them out, just as it did the Wall Street banks that exploded in 2008.

On 9 April the Fed announced it will buy up corporate debt, even backstopping private-equity firms that also borrowed to the hilt. The treasury secretary, Steven Mnuchin, announced on Tuesday an agreement with the airlines under which they will receive billions of taxpayer dollars.

Forget moral hazard. They’re all too big to fail.

The Fed and the treasury had little choice. Massive defaults and bankruptcies would wreak even more havoc on the economy. Better to maintain some payrolls than add to the unemployment rolls.

But by saving the backsides of big corporations and their CEOs, the bailouts have rewarded corporate America’s obsession with short-term profits regardless of longer-term risks to the corporation, its employees, and the overall economy.

Why is moral hazard a problem when it comes to millions of jobless Americans who can’t even collect $600 in unemployment benefits, but not a problem when it comes to CEOs who have borrowed to the hilt, used the money to artificially boost share prices, and pocketed $20m a year?

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