The coronavirus rescue package that Congress approved in late March authorized the Federal Reserve to issue up to $4.5 trillion in emergency lending to help stabilize the economy.
That sounds like a lot of money because it is. But the economy is collapsing, and even this amount will likely prove insufficient to right the ship. The Fed issued $9 trillion in emergency loans during the Great Recession, and U.S. unemployment has already eclipsed its peak from the prior crisis in just a few short weeks.
The problem is not the amount of money the Fed has been authorized to spend ― it’s that the emergency lending programs the Fed has unveiled to date are not a rescue, but a license to steal.
Nobody at the Fed or Congress has placed meaningful restrictions on how the largest corporations can use their bailout money. They can funnel it to shareholders in the form of stock buybacks or dividends. They can raise executive pay, approve massive bonuses for Wall Street traders, buy up smaller competitors ― all while laying off workers, slashing salaries, offshoring jobs or otherwise running amok as corporate citizens.
We have every reason to believe that companies can and will do these things because that’s exactly what they did the last time the Fed and Congress came together to funnel trillions of dollars to giant corporations. The Fed began emergency lending operations in December 2007, but buybacks and dividends from large banks did not halt until 2009.
AIG paid out a massive dividend to its shareholders after the company was effectively nationalized by the Fed in the most aggressive use of its emergency powers during the crisis. The insurance giant then proceeded to pay $450 million in bonuses to its “top performers” after the public had bailed AIG out.
As big banks funneled huge sums to their top ranks, the tellers, processors and other less-glamorous employees got pink slips.
What’s worse, the anything-goes mentality at the Fed, Congress and the Bush and Obama White Houses effectively transformed the culture of American high finance into that of a criminal syndicate. JPMorgan Chase agreed to no fewer than 52 settlements totaling $28.8 billion with state and federal officials over the decade following the crisis ― for everything from bribing Chinese government officials to violating economic sanctions against Iran, Cuba and Sudan to rigging interest rates, manipulating energy markets, ripping off or bribing local governments, retaliating against a whistleblower and deceiving regulators about trading data.
And JPMorgan wasn’t even the worst of the bunch. You may have heard of a bank called Wells Fargo. Imagine every corporation in America, but Wells Fargo. It’s easy if you try.
The 2008-09 bailouts were restricted to banks and the occasional enormous conglomerate that had carved out a niche for itself in the financial sector. This time around, the Fed is being more creative, enabling just about anybody with a business license to apply for assistance from the central bank.
What rules Congress did put in place with a 96-0 vote in the Senate amount to legislative deception ― terms intended to persuade the public that Congress was serious about preventing abuse, when in fact it had no intention of doing anything of substance.
Companies are prohibited from offshoring any jobs for two years after they’ve paid back their bailout ― but only if they employ fewer than 10,000 workers. The megafirms that will demand the most attention from the Fed face no such limitation. The legislation provides cursory prohibitions on stock buybacks, dividends and executive pay, but Trump Treasury Secretary Steve Mnuchin can simply waive them ― for any reason or none at all.
The net result is that the largest and most powerful institutions in our economy not only will be kept alive during the crisis, but will be authorized to loot the livelihoods of workers in order to pad their own profits and stock portfolios. It is not a prescription for tackling unemployment but a recipe for deeper inequality, social unrest and public distrust of the very institutions that must guide the economy out of the current calamity.
The good news is that on Thursday afternoon, Fed Chairman Jerome Powell agreed to disclose monthly transaction data regarding who gets the money and when, after a request from Bharat Ramamurti, a Democratic appointee to the oversight panel Congress created for the bailouts.
But lawmakers and their constituents should be demanding much more from the Fed. The central bank has the power not only to disclose what it’s doing but to stop abusive behavior outright. It could, for instance, order banks to forgive monthly payments on mortgages for homeowners or small businesses ― whether those banks take a bailout or not. It could adjust capital charges for different loans to encourage banks to issue more of them ― or fewer, as the recovery demands.
Congress never should have ceded so much governing responsibility to the Fed, but now that it has, Powell and his top allies must act to protect American families and businesses. The scope and shape of the downturn and recovery have become policy variables for the central bank to control.
Liberals have an unfortunate tendency to write off top-level corporate abuse as a sideshow to the issues that animate them most. Corporate bad guys are always up to some kind of mischief, the thinking goes, and what matters is getting the funding for criminal justice reform, environmental protection, health care and other social welfare benefits.
But if working people lose sight of the raid on public wealth taking place in the C-suite, they will always be fighting for scraps while the rich and powerful grow richer and more powerful at their expense.
What the Fed does over the next few months will reshape the American economy for years, if not decades, to come. Powell and other top Fed officials cannot pretend that what happens is out of their hands. They have a responsibility to act, and Americans living in a democracy must demand it from them.
Zach Carter is the author of “The Price of Peace: Money, Democracy, and the Life of John Maynard Keynes,” available for pre-order from Random House.