How to move fast WITHOUT breaking things
EDITOR'S NOTE
We're working ourselves into a giant ball of frenzy over the coronavirus response and the news and outrage are picking up so much speed that I think we have to take a deep breath and remind ourselves what the goals are here.
Goal #1: Contain the spread of coronavirus. EITHER, declare a two-week national holiday, like I previously suggested, a 30-day "extended Spring Break," like Bill Ackman suggested this morning, or something similar, in which case you must compensate people for those closures and keep essentials like factories and grocery stores and package deliveries humming. OR, everyone must immediately start wearing a mask in public--not an N95 mask, which should be immediately donated to hospital workers, but a simple "procedure" mask, as Scott Gottlieb explains. Even President Xi does that.
Either way (and frankly we should probably do both since the U.S. is so behind the curve), we start testing the entire U.S. population for coronavirus as quickly as possible, and quarantine anyone who has it for 14 days. That's how the town of Vo, in Italy, stopped all new infections. Similar for the Asian nations that have been more successful (South Korea) in stemming the spread of coronavirus.
Goal #2: Keep the economy going. I wrote about this yesterday. Assure people that they will be paid. It doesn't really matter by what method. Secretary Mnuchin was in top form yesterday declaring that checks will be going out to households within two weeks. This isn't just about people who are put out of work. It's about all those who need to stock up on groceries and other essentials, figure out ways to get their kids home from college, etc. If someone better off wants to spend theirs on a fancy Peloton bike, not only do I not care, I think that's great. Keep. The. Economy. Going. My "Student Loan TARP" idea is a twisted version of this: it gets young people excited to plan and invest in their futures again (buy a house!) and solves a problem by getting the government out of the student loan business for good.
This means keeping the industries decimated by coronavirus-related cancellations going, too. Everyone hates the idea of bailing out the airlines? Fine. I'm sure they'd hate bailing out cable companies, too. But I wouldn't call an emergency cash infusion when faced with a screeching halt in the economy the same as a "bailout" which suggests the airlines brought this upon themselves. We're talking about possibly a 10% plunge in second-quarter GDP! I don't care that they did a bunch of stock buybacks. So did everyone. This vilification of buybacks, which are not all equal and in some cases just dividends by a different form, needs to end. Mark Cuban has some good ideas about how to make sure all workers can share in the rebound this cash infusion would engender. Elizabeth Warren's ideas, I'm sorry to say, could break things.
Goal #3: Keep the markets functioning. It's getting pretty ugly out there. It's not just the 30%+ plunge in the stock market. Bond yields are going haywire, overnight funding is drying up, etc. We could have avoided this by doing better on Goals #1 and #2 in the first place, but here we are. The Fed ought to do everything it can to be a "lender of last resort" and keep the markets liquid. It can announce 37 different kinds of facilities and tweak them 43 times until they get them right, it doesn't really matter as long as they can keep the financial system from truly seizing up.
It's the Fed's outright asset purchases that could break things. Former Fed chairs Yellen and Bernanke published an op-ed this morning in the Financial Times saying the Fed "could ask Congress for the authority to buy limited amounts of investment-grade corporate debt," noting that "Most central banks already have this power," and Europe and England regularly use it. Yikes. Not only does this not sound like a temporary request, it exposes the Fed to larger and larger potential credit losses in the future that the Treasury would have to backstop. Quite a mess. Not to mention, as I've been saying, buying equities would inevitably come next. That kind of interference with the market is one of the most dangerous things that I think could come of this crisis, or any.
We've got to move fast, but to do so without permanently breaking things.
See you at 1 p.m!
Kelly
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