The Coronavirus Stimulus Package Will Be Toxic to Incumbents
The Coronavirus Aid, Relief, and Economic Security Act (CARES) Act of 2020 (H.R. 748) was by far the most gargantuan emergency economic stimulus package ever passed by Congress.
The American Recovery and Reinvestment Act of 2009, addressing the 2008 Financial Crisis and the ensuing Great Recession, was "only" $787 billion at the time of passage.
(That number later crept up-- as Washington outlays are wont to do-- to $831 billion.)
By contrast, the CARES Act passed as a staggering $2 trillion appropriation. There can be little doubt that this figure will also balloon as the measures in the bill are implemented.
Support it or oppose it, there is no way around calling the CARES Act a legislative exercise in fiscal radicalism. It is a truly unprecedented experiment in U.S. policymaking.
As recently as January, even before the coronavirus pandemic spread to the United States, and lockdowns across the country plunged the U.S. into a recession, analysts were warning that the U.S. federal government had been running recessionary deficits while the good times rolled:
The booming economy was fueled by an unprecedented expansion in debt at every level: U.S. household debt, corporate debt, and government debt. Now Washington is borrowing radically more from our future to pay for this expansive appropriation now.
And it's not over yet. The Senate reached a deal Tuesday to pass an additional half a trillion coronavirus relief package, with more small business loans and hospital funding.
But the CARES Act is not only unprecedented in its scope. The bill was also with few precedents in terms of just how overwhelmingly, unanimously bipartisan its passage was in Congress.
The Uncanny Bipartisanship of The CARES ACT
Although the media made much ado about the partisan battle over aspects of the bill, including the amount of unemployment benefits it would make available, and the $500 billion in discretionary funds that Democrats called a corporate slush fund for Treasury Secretary Steven Mnuchin, there was remarkably little discussion or debate over the CARES Act.
Both sides, and a relentless army of Twitter warriors accused the other side of stonewalling an urgently needed relief bill when there was any hold up to consider the bill more carefully.
By the time it was said and done, Congress passed the CARES Act, styled by lawmakers as "Phase 3" of the coronavirus response on Capitol Hill, on March 27th, just nine days after "Phase 2" (the $100 billion Families First Coronavirus Response Act) was enacted on March 18th.
And it was one of the most bipartisan bills ever passed in U.S. history. The Senate passed the CARES Act with unanimous support. The bill then cleared the House by a voice vote with a thunderously loud chorus of "Ayes," followed by a couple very lonely "Nos."
Rep. Thomas Massie (R-KY) requested a recorded vote to put members on the record for their support or opposition to the bill. Not enough of his colleagues stood in support of a recorded vote for his request to pass. Then Massie objected that a quorum was not present. That's a simple majority of members. The chair said, "The chair will count for a quorum," and then looked around ostensibly counted to 218 in about three seconds, before confirming a quorum was present.
You can pause the CSPAN footage of this moment at 1:12 in the video embedded above and decide for yourself if there were 218 members present. It doesn't look like it.
Two days later, Rep. Massie tweeted:
"The stimulus package that just passed is the biggest wealth transfer from common folks to the super-rich (Wall Street and bankers) in the history of mankind. Done in the name of a virus with $1200 checks as the cheese in the trap. This will be obvious in short order."
When I replied:
"Everyone in Washington was scared not to vote for it. Scared they would look like they don’t care and didn’t exercise leadership in a crisis. But at latest by 2022 voting for this bill will be toxic for incumbents. Big shake up ahead like the Tea Party after TARP & ARRA of ‘09."
The congressman told me that's "why they went to extreme lengths to refuse a recorded vote." It certainly appears that way. Some careful deliberation and a recorded vote seem not only reasonable, but entirely necessary for a $2 trillion appropriation bill. Why did Congress rush to pass this bill so quickly as if it was vitally urgent, and then shy away from putting their names on it?
Following The Coronavirus Stimulus Money
In a White House press conference on March 17th, a reporter asked U.S. Treasury Secretary Steven Mnuchin, with President Donald Trump standing at his side:
"There's been talk about a thousand dollar checks to every American, increasing support among Republicans and some Democrats for that.
Would you support that going to everyone, or would you support some sort of income restrictions on who gets a check?"
The Treasury Secretary answered:
"Well I think it's clear. We don't need to send people who make a million dollars a year checks, okay? But that's one of the ideas we like.
But by April, the public learned that millionaires got something far better than the measly $1,200 checks Washington sent out to most Americans. They got an average of $1.7 million in tax relief.
$1,200 for workers, $1.7 million for hedge fund owners and real estate tycoons
A U.S. Congress Joint Commission on Taxation report, requested by Senator Sheldon Whitehouse (D-RI) and Representative Llloyd Doggett (D-TX) found that a provision buried in the CARES Act will give about 43,000 millionaires across the country a $1.7 million windfall, each.
It removes limits on how much owners of businesses formed as "pass-through" entities can deduct against their income to reduce their tax obligation.
Pass-through entities are businesses whose income is taxed after it flows through to the owners and investors, instead of taxed at the corporate level then again as capital gains. So what just happened is Congress just bailed out hedge fund investors and real-estate business owners over a thousand times more in tax relief than they gave the average worker in stimulus checks.
The Joint Commission on Taxation report confirmed that the CARES Act's tax loophole for millionaires will cost the government over $90 billion in 2020 alone.
Sen. Whitehouse said in a statement:
"It’s a scandal for Republicans to loot American taxpayers in the midst of an economic and human tragedy. Congress should repeal this rotten, un-American giveaway and use the revenue to help workers battling through this crisis."
Corrupt banking implementation of CARES Act Small Business Loans Program
And it just keeps getting better. While Congress bailed out hedge fund owners and real estate tycoons to the tune of billions of dollars as millions of American workers lost their jobs, it gave big finance a sweet deal by using major national banks to deploy the CARES Act's small business loans. Banks earned massive fees to do rubber stamp work for the U.S. government:
Banks handling the government's $349 billion loan program for small businesses made more than $10 billion in fees — even as tens of thousands of small businesses were shut out of the program, according to an analysis of financial records by NPR.
The banks took in the fees while processing loans that required less vetting than regular bank loans and had little risk for the banks, the records show. Taxpayers provided the money for the loans, which were guaranteed by the Small Business Administration.
And here's where got sticky. JP Morgan Chase and Co, the largest bank in the United States (with a sordid history of money laundering and sanctions violations), gave preferential treatment to its own large commercial banking customers in doling out the CARES Act small business loans:
"JPMorgan Chase & Co. provided loans to virtually all of its commercial banking customers that sought financing through the small business relief program, while the lender’s smallest customers were almost entirely shut out, according to data disclosed by the bank.
More than 300,000 customers of JPMorgan’s business banking unit, which serves smaller firms, applied for loans through the Paycheck Protection Program, part of the $2 trillion Cares Act that Congress adopted in late March. About 18,000 were funded, for a 6% success rate.
By comparison, about 5,500 larger, and sometimes more sophisticated, customers of the commercial banking business applied for funding. Nearly all of them got loans, according to the bank’s data. JPMorgan made a total of $14 billion in small-business loans through the program."
So the nation's biggest bank just got paid taxpayer funded fees to profit from doling out taxpayer funded money to its biggest, best customers and improve customer relations. That's corruption.
Incumbents Are Going Down Left And Right For The CARES Act in 2020 and 2024
Over the last ten years hedge fund owners reaped massive profits from a stock market pumped full of money by a never ending flow of cash from the Federal Reserve's balance sheet.
Unlike you, who actually has to work for your money and provide something of value in order to get money to spend for the valuable product of other people's labor, the Federal Reserve just gets to spend money it didn't receive in payment from others for goods or services rendered.
The Fed mostly spends that money by pumping it into banks. Since last September, it's pumped over $60 billion a month into the banking system's over night lending "repo" markets.
Even as many indicators like mounting corporate debts, a corporate earnings recession, and an inverted Treasury bond yield curve all screamed that the stock market was overvalued, the Fed's relentless pump of money into the banks led a multi-trillion stock market rally since September.
Now that the bad times are here, hedge fund owners get $1.7 million bailouts each while workers get tossed a bone. They don't have to shoulder their losses when the losses come.
Even though they purport to be the most sophisticated investors in the world. Real capitalism would be letting them eat the losses. Early senior Facebook executive and Social Capital CEO Chamath Palihapitiya said it best in an interview that absolutely stunned the CNBC anchor:
"This is the lie that's been purported by Wall Street. When a company fails it does not fire their employees. It goes through a packaged bankruptcy...
The people that get wiped out are the speculators that own the unsecured tranches of debt, or the folks that own the equity, and by the way those are the rules of the game. That's right. Because these are the people that purport to be the most sophisticated investors in the world. They deserve to get wiped out...
We're talking about a hedge fund that serves a bunch of billionaire family offices? Who cares? Let them get wiped out. Who cares?
They don't get to summer in the Hamptons? Who cares?"
Everyone is still too stunned right now from the coronavirus lockdown, but soon enough Palihapitiya's interview will go down as 2020's version of Rick Santelli calling for a modern day Tea Party on February 19, 2009 days after Obama's $787 billion stimulus package passed.
Independent voters were not happy with those massive, unprecedented congressional appropriations, that brazenly favored the wealthy and well established during a time of economic crisis when millions of workers were suffering because of reckless corporate governance.
Unlike this crises' bipartisan voice vote CARES Act, the American Recovery and Reinvestment Act was the Democrats' bill. All but 11 voted for it in the House, and 177 Republicans voted against it. In the Senate it passed likewise along partisan lines with only three Republicans in favor.
The voter fallout was immediate and ruthless. The Tea Party movement sprang up that year, and in the following 2010 midterm elections independent voters punished the party that did it. Independents polled preferred the Republican to Democratic candidate by 45% to 35% in July 2010.
By election day that margin was even more lopsided:
"However, the single biggest factor in the GOP’s victories was its striking gain among political independents. By 56% to 37%, more independents voted for the Republican candidate this year; four years ago, independents favored the Democrat by nearly an identical margin (57% to 39%).
And just two years ago, Barack Obama won the votes of independents (by 52% to 44%) on his way to the White House."
The result was the highest losses by a party in a House midterm election since 1938, and the largest gain in seats for the Republicans (63+) since 1938. The CARES Act was bipartisan, so the fallout will hit both parties and incumbents will be upset across the aisle.
Last time around most of the energy of the disenfranchised was on the Right, but this time around the Left will make much political capital of it, since the GOP held the White House and Senate, and because Donald Trump went to extraordinary lengths to brand the stimulus as a work of the GOP (e.g. not inviting Pelosi to the signing ceremony). That will come back to bite his party.
About the Author