Welcome to the Ask the Bitches Pandemic Lightning Round! We’re working around the clock to answer your questions about coronavirus, the impact of quarantine, and the recession of 2020.
Have you heard about this thing? This something, something, $1.5 trillion dollars thing? Today, we have a request to explain what’s going on there.
So… is it worth it?
Let us work it.
We’ll put our thing down, flip it, and (time allowing) reverse it.
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Here’s a question we got from an anonymous asker on our Tumblr:
Any chance you can explain why the $1.5 trillion congress put into stocks/small businesses/whatever meant and how it worked? I do not understand economics well enough to figure it out on my own, so I can’t figure out if it was actually a waste of money. I’m leaning towards “yes it was” but for my edification I want to make sure I’m not way off base thinking that.
We absolutely can explain this!
I’m gonna explain it like y’all are five. Because that’s the explanation I would want. Because right now, I have the emotional fortitude of a toddler desperately in need of nap time.
If you’re already pretty savvy with federal economic policy, you can read a higher level explanation like this one. Today’s breakdown will be for other babies like myself!
“It was Colonel Mustard, in the Congress, with the stimulus!”
So our question asker knows that something happened with 1.5 trillion dollars.
But who had it? Who got it? And what’s being done with it? You have to understand all three of these to form an opinion about whether it was the right thing to do or not.
(Spoiler alert: we sure think it was!)
Who had the money?
I’ve seen a lot of hot takes attributing this exchange to “Congress,” “the Senate,” “Washington,” “Wall Street,” “the financial system,” and “President Trump.” Those are all wrong—or oversimplifications.
It came from the Federal Reserve Bank of New York, which is often shortened to The Fed.
The Fed is a pretty confusing entity, so you’re forgiven for not understanding it well. It’s basically a national bank for banks. It’s neither fully public nor fully private. And it’s not part of the government, though it was created by the government.
If you think banks today are badly run and under-regulated, time travel with me back to the early 1900s! Banks were such legendary fuck-ups that they kept setting off financial panics that threatened the long-term stability of our country. Very freshman orientation week energy. No planning, no foresight—just a lot of screaming and laughing and running up and down the hallways having indoor water gun fights.
So Woodrow Wilson was like “arite, arite, enough, I’m making a bigger bank to be your RA, you irascible dumbasses.”
The Fed has two mandates:
- Maximize employment for all Americans.
- Stabilize prices for goods and services.
They’re basically an independent financial entity that’s in charge of making good decisions for our long-term national financial stability. And that’s why they’re acting in this moment.
So who got $1.5 trillion?
It was banks!
HEY! Put down the tomato you were about to angrily heave at The System, you furious peasant! You’re not thinking about this the right way.
The Fed did not “spend” $1.5 trillion, nor did it “give” it to anyone. They made $1.5 trillion available as short-term loans to other banks.
It’s a credit card for banks. And what’s more, it’s a secured credit card, because it’s a collateralized loan.
That’s a big ass word, but don’t be scared! It’s an easy concept to explain.
- Your friend asks to borrow your Blu-ray copy of The Fugitive. You say yes, and hand it to them with no strings attached—just a promise to return it. This is an uncollateralized/unsecured loan. It’s riskier because if they say “oops, I lost it,” there ain’t much you can do.
- Your friend asks to borrow your Blu-ray copy of The Fugitive. You say yes, but you insist that they loan you their Fellowship of the Ring: Extended Edition box set. This is a collateralized/secured loan. It’s much less risky to you, the lender, because if they lose your excellent movie, you get to keep their similarly excellent movie.
Because The Fed is making banks put up collateral, The Fed wins either way. If the loans are paid back, great—The Fed makes money off the banks! If the loans are not paid back, great—The Fed will still make money off the banks! For the American people, this is a win-win. Banks are more stable… but they’re still on the hook for their own choices.
Hey, wait… how’d that go last time with the banks and all?
Battle-scarred veterans of the 2008 recession will remember that part of the disaster was caused by banks using collateral that turned out to be worthless.
- Your friend asks to borrow your Blu-ray copy of The Fugitive. You say yes, but you insist that they loan you their Fellowship of the Ring: Extended Edition box set. Your friend says “Actually, I was gonna watch that soon too, so why don’t you take this copy of Jack and Jill? It’s hilarious, you’ll love it!” This is a collateralized loan, but it’s a terrible one, because the asset sucks ass. If they run off with your The Fugitive, you will be shocked and dismayed when you pop in Jack and Jill and discover it is worthless garbage.
Does it have to be banks?
Yeah, pretty much.
Credit is essential in times of crisis. Credit represents borrowed time, for both individuals and businesses big and small. Financial panics are much worse if banks get nervous and stop lending money. As bad as things are right now, they would get much, much worse for vulnerable individuals everywhere if we chose this moment to hang banks out to dry. But it’s also wrong to never circle back and hold bad actors accountable.
It’s one of many reasons we were so excited about the idea of an Elizabeth Warren presidency, as she built her career spit-roasting greedy, dishonest bankers over an open fire. But <slow jacking off motion> fuck that I guess!
Compared to Congress, The Fed has a much more streamlined number of decision makers. That’s why they’re able to act quickly to do what’s within their power. The fact that The Fed moved faster to support banks than our senators moved to support individuals can make you exactly as mad as you like.
Could we have spent that money on better things than banks?
Hopefully the explanation above made sense to you.
But notice how it took me six hundred words to explain it?
You’ve probably seen a lot of simplified language around this $1.5 trillion. That it was “injected into the market” or “bailing out banks” or whatever. That makes it sound like there were 1.5 trillion dollars sitting somewhere, and some dick weasel decided that the entity that needed it most was “lol banks?!” That absolutely isn’t the case.
Take this for example:
We love Alexandria Ocasio-Cortez. But I think statements like this add confusion. Because it sounds reasonable, but it’s actually an apples to oranges comparison. The Fed can’t cancel student loans, any more than the RA can grade your college papers. It’s not their job; they do not have the power to do it.
… Although obviously, we do agree with the general sentiment: that our elected officials’ collective indifference to human suffering is appalling! There are only three good things that can come out of this horrible disaster:
- We can come together to rip these vile, soulless profiteers out of office.
- These shits are out of options to keep denying us reasonable dignities like flexible work, affordable healthcare, and fast internet access.
- Everyone will come together as one to finish that knitting project we started four years ago.
Is the money even real?
It’s as real as the limits on your credit card!
Actually, realer, because it’s collateralized.
Now, this tweet is a joke. But I’ve seen many similar hot-takes about how “the government just printed $1.5 trillion in new money,” and this is “proof that money is fake.” Uh. No. No, no, not how that works at all.
I’m maxing out my boring explanation gauge today. I can’t throw inflation on top. But if you think this would work, here’s your homework: sit down with whomever you’re quarantined with and play a game of Monopoly where you keep adding more and more money into the system in every round. Let me know how that goes—I believe you’ll identify the issue fairly quickly.
Make them pay
The meat of this question is “Should I be mad about this?” The answer, in our opinion, is no.
But obviously it gets to the root of a very realistic fear: that businesses will be saved at the expense of homes, and shareholders rescued over regular folks. That’s a very, very fair thing to be afraid of. Especially if we end up with another term under a Republican administration.
Although our girl ain’t in the race anymore, Warren is still cranking out brilliant plans for how to prop up troubled industries. This is absolutely her wheelhouse. She’s proposed eight demands for businesses accepting bailout money. Companies must…
- Use the money to keep their workers employed.
- Provide a $15 an hour minimum wage within one year.
- Provide at least one seat to workers on their board of directors.
- Support collective bargaining agreements with employees.
- Revoke the opportunity to buy back stock.
- Withhold dividends and executive bonuses for three years.
- Get prior approval for political spending.
And my personal favorite…
- CEOs will face criminal penalties if their company breaks these rules.
These are the kinds of assurances the American public needs. Regardless of who the Democratic nominee is, we need to popularize these measures.
And great news! The stimulus just passed with at least some of these suggested provisions included. Let that be a little glimmering pearl of hope in these dark times, an indication that our government and banks are learning from the past and trending toward transparency and accountability.
Spread ’em far and spread ’em wide, folks! And stay safe out there.