I was having a conversation with a few friends the other day about how bad things were likely to get economically speaking and what a post-coronavirus recovery could look like. Specifically what sorts of hard choices might need to be made when the economy reopens and what it might mean to lose restaurants, bars, concert venues, sporting events, shopping malls, etc as we know it.
It brought me back to my work on the housing collapse and foreclosure crisis, where over 9 million families in this country lost their homes due to (largely fraudulent) foreclosures from when the housing bubble started to pop through the economic collapse. During the response to the 2008 collapse, the Fed gave banks over $16 trillion in response. This amount of money, if still deployed but not given directly to Wall Street banks, could have paid off every underwater mortgage in America. Then it could have bought a home for every homeless family. Then it could have provided free college to all. And so on.
The amount given to banks was truly staggering – and it didn’t solve the problems. Millions were foreclosed upon. Housing values remained down. Massive amounts of wealth, especially in African-American and Latino communities, was destroyed. The Fed, with license from Congress and the Obama administration, pointed a money cannon at Wall Street and the American public barely got anything for it. But the banks stayed solvent and we did not have to go through an economic restructure or change the rules of the road in a substantive way in the industry that was culpable for causing the collapse.
This is relevant in the context of Covid-19 because right now we’re watching the federal government and the Federal Reserve find repeated ways to point a money cannon at business. Over $2 trillion in cash from the federal government and multiple rounds of liquidity from the Fed, with a current projection of up to $6 trillion. This has been done as already approaching 20 million people have lost their jobs and we are still figuring out the scope of the pandemic.
Long story short, we’re going to put an unthinkably large amount of money into the economy – mostly via financial institutions and giant companies – and early indications are that, like 2008 and beyond, the American people will see very little real outcomes from it.
How would I do things differently from the start?
- Federal government pays all workers 80-100% of their wages, via their employer, regardless of income (I am for 100% but am open to being convinced a partial haircut is acceptable). Employers are banned from firing people. This keeps wages in peoples’ pockets, people with employer-provided health insurance on those roles, and minimal disruption to the labor market.
- No rent or mortgage payments for the duration of the crisis. No foreclosures or evictions in this period. The Fed backs up debt holders in the housing market & commercial RE market. You probably need to go ahead & have the Fed back up any securitized debt objects to prevent a massive wave of financial institution insolvency – but if we’re trying to avoid cataclysm, that’s fine by me.
- Medicare for All for Covid, but for real – not Trump’s bogus allusions to it. No one should pay a cent for Covid testing, treatment, care or vaccine.
You do all this and people stay in their homes, get treatment, have economic security, and we don’t blow up the economy through social distancing and quarantines. You protect pretty much everyone but the investor class, who won’t be seeing their usual returns on non-securitized investment vehicles (like, say, restaurants or bars or sports clubs). But you basically punt the pandemic as an event that requires an economic restructure. This also would do the most possible for stopping the spread of the pandemic due to people not getting care they can’t afford or showing up to jobs while sick.
I would be very open to an economic restructure. I would be very open to Wall Street banks, hedge funds, and private equity vultures taking losses unto bankruptcy. I would be very open to using this moment to get Medicare for All, full-stop.
But simply put, if I wanted to see how the government could have acted in a way that would still put the massive amounts of money in play that are and will continue to be thrown at this problem, with a goal of minimizing change to how our economy works, then this would be what we should have done.
We’ll find out a few years after the crisis that whatever we ended up spending will have been enough for us to have the government do what’s listed above, to protect people, keep them sheltered, fed and healthy… but we won’t have done it. Instead we’ll have enriched Wall Street and protected wealthy investors from losses, with no meaningful public benefit to show for it.