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Andrew Ross Sorkin: Let’s Talk About Coronavirus Bailouts, Before We Need Them

In 2008, policymakers rescued the economy but raised a divisive debate about the fairness of using tax dollars to save companies. Get ready for a repeat. Bailouts. Stimulus. Corporate socialism. Welfare for business.

We’ll be hearing a lot about the idea of plowing taxpayer money into the economy as the damage — human and economic — from the coronavirus outbreak leads to a conversation about government bailouts.

We’ve been here before, in fall 2008, when the U.S. government bailed out the banks and later the automakers. It, too, was a presidential election year. That was a man-made catastrophe. This one is more like a natural disaster, with man-made mistakes along the way.

The argument for bailouts back then was that letting the banks and autos fail would be so devastating for the economy — and politically unpalatable — that lawmakers had no choice but to save them.

But, if you remember, the recriminations came as quickly as the money: Were the terms too generous? Should taxpayers have received more for the risk they took? Should the money have come with significant strings attached that would change the structure of the companies and industries? Or, rather, should the money have gone directly to workers and other people hurt by the failure of the companies? Invariably, the conversation turned political, with calls that such bailouts were the equivalent of welfare for companies or corporate socialism.

Instead of having that conversation after the fact this time, let’s have it now, before any bailouts become a reality.

If, for example, the U.S. government were to lend money to the airlines, what should it get in return? Should shareholders like Warren E. Buffett — who owns stakes in Delta Air Lines, American Airlines, United Airlines and Southwest Airlines — be wiped out? Should the government use this moment to change policy in the industry by, for example, taking “slots” at busy airports away from the biggest airlines and giving them to upstarts to try to make the industry more competitive since so many airlines merged? Could the government force the airlines to become more customer friendly, with more transparent pricing and policies?

That may just be the beginning. With oil price falling, should the government help shale producers, as President Trump is reportedly considering? What about the cruise line industry? And on it goes.

We’re probably getting ahead of ourselves. But the conversations have already begun. Mr. Trump floated the idea of a payroll tax cut and help for hourly wage earners affected by measures to control the coronavirus outbreak. He made his case for the tax cut on Capitol Hill on Tuesday, and he is planning to meet with Wall Street bankers on Wednesday to press them to provide loans to small businesses.

Whatever the case, the biggest question is whether there would be enough bipartisan political will to spend billions of dollars.

Henry M. Paulson Jr., the Treasury secretary under President George W. Bush, told me that he thought the current challenges were similar but also very different from what he faced in 2008.

“I suspect that before it is over, there will once again be an urgent need in an election year for bipartisan support in Congress to work with the administration if we are to mitigate the economic burden on Americans,” said Mr. Paulson, who oversaw the federal response to the financial crisis in 2008 with Ben S. Bernanke, the Federal Reserve chair, and Timothy F. Geithner, president of the Federal Reserve of New York and later the Treasury secretary under President Barack Obama.

Mr. Paulson added: “In some ways, this is more complex because it also involves important health issues. This will once again test our political system, but I believe our leaders will rise to the challenge as our nation has always done in a crisis.”

If Mr. Paulson learned anything from the financial crisis, acting fast matters. But even in the panic of the 2008 crisis, Congress was so polarized that it did not pass stimulus measures until it was almost too late. (Congress voted against the proposal before voting in favor of it days later.)

The current Federal Reserve chair, Jerome H. Powell, has already lowered interest rates and says he stands ready to do so again, following a similar strategy to that of Mr. Bernanke, who flooded the economy with money. Only this time, lowering interest rates can go only so far: It will not get people traveling or dining out any sooner, but it could allow businesses to pay lower interest rates and help keep them solvent longer in hopes they can ride out the economic damage from the spread of the virus.

Mr. Powell has met with the president and Steven Mnuchin, the Treasury secretary, in recent days. Mr. Mnuchin mentioned the meetings on Monday as a demonstration of coordination. But unlike the tight relationship between Mr. Paulson and Mr. Bernanke, the relationship between the Federal Reserve and the Trump administration is seemingly strained. Mr. Trump has publicly attacked Mr. Powell, saying of his hiring Mr. Powell that he was “not even a little bit happy with my selection of Jay.”

Steven L. Rattner, who acted as the “car czar” in the Obama administration and oversaw the bailouts of Detroit’s automakers, said he believed there was still money available in the private markets to help. “I don’t think we are at that ‘break-the-glass’ moment.”

“Remember part of why the government bailouts existed was because private markets had failed. There was no private market,” Mr. Rattner said in an interview. “Today, we’re not yet in that position.”

He added, “If the airlines run out of cash, there is certa inly debtor-in-possession financing,” suggesting that even if an airline filed for bankruptcy protection, there would be enough investors waiting on the sidelines to provide money to keep it going while it reorganized.

Still, it would not be surprising if the airlines — or other industries — went to Washington, hat in hand. After all, just Tuesday, Delta and American said they would slash flights because of lack of demand, and Southwest’s chief executive, Gary Kelly, said he would take a 10 percent pay cut.

When Mr. Trump was asked during a meeting between airline chief executives and Vice President Mike Pence how he would respond to a bailout request from the airline industry, he replied: “Don’t ask that question, please, because they haven’t asked that. So I don’t want you to give them any ideas.”

After the Sept. 11, 2001, terrorist attacks, the U.S. government provided $15 billion to the airline industry, partly to offset losses as well as to help pay for additional safety requirements the nation adopted. In that case, the taxpayers did not seek anything in return.

Mr. Rattner said he thought it would be a mistake to use bailouts as “policy tools.” He said in the same way they thought about the auto bailouts, “we shouldn’t try to achieve every objective that might be imagined.” In other words, the government did not use that bailout to mandate new emissions standards, for example, or new safety standards. He said the goal was always simply to “get these companies back on their feet in a commercial way.”

Over the next several days and weeks, with Mr. Trump’s constant focus on the level of the stock market as a signal of his own progress, he is likely to seek large stimulus measures focused on businesses. Some of them may well be needed.

But if the 2008 crisis is any indicator, bailouts are a political morass with lasting effects. In this political environment, it is hard to believe there will not be a bitter fight.

Policymakers should get ahead of that battle and have the debate now — out in the open — about what a fair and right stimulus plan looks like rather than wait until time runs out.

Andrew Ross Sorkin is a columnist and the founder and editor-at-large of DealBook. He is a co-anchor of CNBC’s Squawk Box and the author of “Too Big to Fail.” He is also the co-creator of the Showtime drama series Billions. @andrewrsorkin Facebook

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Posted: March 11, 2020 Wednesday 05:00 AM