Federal Reserve leaders should be representative of the country’s population. If they don't understand us, they can't represent us.
We have entered uncertain times. The novel coronavirus has upended life around the globe, and none of us knows exactly how long the outbreak or its ramifications will last. But daily reminders of how much we can’t control shouldn’t stop us from seizing upon those things we can.
We may not know if the United States has yet been successful in flattening the curve, but we do know that social distancing is our best strategy for limiting the spread of the disease. We don’t know when those with the privilege to telework will return to the office, but we know that it’s essential to look out for the economic and physical well-being of those who can’t work remotely and those who can’t work at all. We can’t know how deeply we’ll sink into the coming recession, but we can commit to avoiding the mistakes we made during the last one.
During the Great Recession, we bailed out Wall Street. This time, the bailout should be for the rest of us. The overwhelming majority of people want an economy that works for everyone, not just the super-rich. We want to be able to cover our basic needs, from housing to food to education, without being forced to take on unsustainable debt. We want a safety net to protect us when hard times strike and the security of knowing that getting sick will neither bankrupt us nor force us to put others at risk because we don’t have paid sick days.
All of this is achievable. We’ve already seen local legislators and Congress begin putting temporary supports in place to mediate the harm of the coronavirus and the recession.
Here’s just a small sampling of what else needs to happen if we are to counter business—and bailouts—as usual.
Last Time: The Bailout Centered on Greed
In 2009, the U.S. government allowed banks to write down roughly a trillion dollars in losses. This is after the finance industry engaged in such increasingly risky behavior that, over the prior 30 years, its debt had grown from $3 trillion to $36 trillion. Federal prosecutors did not even criminally charge any major bank CEOs, declining to make personal the consequences of their greed. By 2010, top Wall Street executives and traders were back to normal, collectively receiving $25 billion in bonuses, but the jobless rate on Main Street was still near 10%. Losses in home value and retirement savings hit nearly $10 trillion during the Great Recession, devastating thousands of families.
This Time: The Bailout Must Center on Need
The nature of the coronavirus requires that we protect public health at all costs. That means making sure that everyone can access healthcare and stay home sick without losing their wages. We must support people who lose their jobs or are furloughed without pay due to the pandemic. We also need to support small- and medium-sized businesses in their efforts to care for their employees and their livelihood.
For the short-term, that means:
- Paid sick and family leave;
- Interest-free loan forbearance for all who need it;
- A moratorium on evictions and foreclosures;
- A moratorium on negative credit reporting;
- Halting all debt collection;
- Flexible repayment options post-forbearance;
- Stopping wage garnishment and the freezing of bank accounts;
- Increasing predatory lending protections; and
- Spurring the economy by canceling student debt.
Last Time: We Didn’t Put in Measures to Close the Growing Wealth Divide
It’s important to note that the economy could have been facing a looming recession even if the coronavirus had never emerged. While Wall Street continues to hand out bonuses that dwarf the average worker’s salary, the rest of us have continued to struggle. The gig economy has exploded and wages for lower- and middle-income workers have stagnated, while costs have increased for everything from housing to goods and services to childcare.
Families across the country are taking on increasing debt, while the super-rich either hoard or gamble with their increasingly large share of the collective pie. The wealth divide is even more acute for some. The recession worsened the century-long economic divide between Black and white households: By 2031, Black wealth is expected to be nearly $100,000 lower than it would have been without the Great Recession.
This Time: We Can Narrow the Wealth Divide by Taxing Extreme CEO Pay Gaps
It is indefensible for companies to pay the frontline workers who produce their goods and services the tiniest fractions of what their CEOs earn. The gap between CEO pay and the typical worker has continued to skyrocket, with the vast majority of S&P 500 firms paying their CEOs more than 100 times what they pay typical workers, and 1 in 10 of those workers was paid below the poverty level for a family of four. We should tax CEO pay ratios that are over 100 times higher than typical workers to help pay for pressing social needs that will benefit the many and not just the corporate elite. If a tax penalty like the one proposed here had been in place in 2018, the federal government could have brought in up to $17.2 billion in revenue annually.
Last Time: We Didn’t Regulate Stock Buybacks
Stock buybacks are schemes in which a company buys its own stock. That might sound innocent enough, but buying up shares reduces the total number of stock shares, making the remaining shares become more valuable. Company executives, who get paid in stock, then become even wealthier thanks to this artificial inflation of the stock price. But the company has in no way become more efficient, innovative, or profitable.
This Time: End Stock Buybacks
Even billionaire Mark Cuban agrees that companies that receive a bailout during this crisis should not be allowed to buy stocks back in the future because they’d be “using taxpayer money to buy back stock.” To put a finer point on the consequences of this behavior: The largest U.S. airlines spent 96% of their available cash earnings buying their own shares. American Airlines even had negative free cash flow from 2010-2019 and still spent $12.5 billion enriching its executives by buying its own stocks. Now airlines are among the first in line for a bailout.
Any federal support airlines receive should mandate that they provide necessary worker coronavirus health protections, ensure all workers receive full pay and benefits during the crisis, require a pay-ratio limit, and must, as our friends at the Institute for Policy Studies suggest, be tied to “other proposed pro-worker conditions, such as setting a $15 per hour wage minimum, requiring worker representation on boards, and banning anti-union activity.”
This list is far from comprehensive, and much more will need to be done. The banks that were “too big to fail” are uniformly larger now, and the modest constraints imposed by the Dodd-Frank Act have either been weakened or have yet to be finalized even a decade later. Additionally, recovery from the coming recession will be impossible if we fail to help states and municipalities finance their response to the health crisis. Requiring banks to hold on to their capital instead of gambling with it will also be essential to sustaining the economy.
In the coming weeks and months, we’ll be expanding on the proposals above and developing additional ones. We’ll also be working with our allies, and hopefully, you, to ensure that we emerge from the other side of this recession into the world we envision. We can have fair wages and quality healthcare and a safety net that isn’t filled with gaping holes. All we have to do is fight for it.
Originally posted at TakeOnWallStreet.com