Stop the $6 Trillion Coronavirus Corporate Coup!


Welcome to BIG, a newsletter about the politics of monopoly. If you’d like to sign up, you can do so here. Or just read on…

On Saturday I sent out a note on the awful no good bailout bill in negotiations. I asked you to forward my newsletter, repost it, and make some noise. You did and we managed to delay the bill’s passage. Today I’m going to write about where we are now.

Since Saturday, I’ve seen an emerging right-left argument about what we need to do to address the pandemic.

The American Economic Liberties Project (my org) put out a statement against the bill, AFL-CIO official Damon Silvers, who oversaw the 2008 bailout, put out an article against the bill, as did dozens of economics and finance professors. Congresswoman Alexandria Ocasio-Cortez warned of the risks of a bill tilted to big business, as did libertarian member Justin Amash. John Cassidy wrote in the New Yorker how to do a bailout without corruption. And Georgetown law professor Adam Levitin pointed out that the bill is “robbing taxpayers to bail out the rich.”

But then these two Senators, Chuck Schumer and Mitch McConnell, cut a deal last night. And from what I can tell, it’s really really bad, and much of the bad stuff is not being included in the sleazy marketing materials from Schumer and McConnell, or in the reporting about the bill. There’s a reason for that. Sunlight would kill this thing.

That means there is a narrow way to stop it.

What Is In This Bill?

Congress is going to pass a bill with a lot of important stuff for workers, hospitals, cities and small business, and to address the pandemic. That's inevitable. And the bill on the table includes some of this. The question though is what else the bill includes, and that’s where we get into trouble. Because while we have to deal with the pandemic and crisis, we do not have to fundamentally eliminate the economic rights of all of us in the process.

Now, first I should say I don’t have the final deal in hand because it’s not public. I have only seen versions of the negotiating text. But I’m fairly sure most of these provisions haven’t changed, because the final sticking points were over various direct pandemic spending pieces. If I get that wrong, I’ll tell you in an update.

On Saturday, I went over the Christmas wish list of corporate lobbyists in this process, everything from Adidas letting people deduct gym costs to candymakers seeking a $500 million loan to Jeff Bezos and Elon Musk seeking $5B in loans for their space corporations. Of course what Wall Street sought, and got, dwarfed all of these requests.

Here’s how you can tell. A lot of reporters have been talking about how this is a $2 trillion deal, with a bunch of spending for hospitals and whatnot. But last night White House advisor Larry Kudlow announced it is actually a $6 trillion deal. And business reporter Charlie Gasparino said he’s hearing chatter that the total will be $10 trillion! Say what?!?

How does this work? How can Wall Street have one impression of the amount of money, and everyone else have a different impression? Easy. Confusion, lying and bad reporting. If important people don’t talk about the boring sounding big stuff, then us non-important people sound crazy or nerdy mentioning it. It’s a giant game of social climbing, and the goal is to make all of us afraid to point out what’s going on. (Incidentally I hope Rep. Brad Sherman, who is an accountant and a key anti-bailout leader, really delves into this.)

So let’s talk about the big stuff that McConnell, Schumer and Pelosi are hiding.

The bill establishes a series of boring-sounding slush funds, and these will be given strange alphabet soup names by the Federal Reserve and Treasury, names like ‘special purpose vehicle’ and ‘ABS’ and ‘TALF’ and FDIC bank guarantees. That’s where the real money is. Here are some of these slush funds, starting with the ones that are more understandable:

  • $50 billion in loans and loan guarantees to airlines

  • $8 billion in loans and loan guarantees to air cargo carriers

  • $17 billion in loans and loan guarantees to “businesses critical to national security”

  • A $425 billion fund for loans and investments to be used at the discretion of the Secretary of the Treasury, Steve Mnuchin. He can use it to loan money, buy stock, buy bonds, whatever.

Obviously helping certain enterprises is important, so I’m not opposed to industry aid. But the terms and conditions matter, and based on what I’m seeing, I don’t believe there will be meaningful restrictions on this aid. Executives and financiers are going to profit off of taxpayer money.

So that’s the stuff that’s been reported. Here’s what hasn’t, and why the bill goes up in value to $6-10 trillion.

  • An additional $4 trillion from the Federal Reserve in lending power to be lent to big corporations and banks.

  • Authorization to bail out money market funds, multi-trillion dollar unregulated bank-like deposits for the superrich.

  • Authorization for the the government through the Federal Deposit Insurance Corporation to guarantee trillions of dollars of risky bank debt.

There’s more. This is a long bill, but to give you one simple data point, here’s what happened to Citibank’s bonds over the last few days.

That big spike shows the bonds getting much riskier, and the collapse shows the result of Wall Street being convinced this bill will pass and the bonds will be guaranteed by the government. Hedge fund guys knew this move would happen, and speculated around this move before it did. Front-running the Fed for easy profits wasn’t even hidden; David Tepper, among other money managers, was on CNBC talking about how he’s investing in bank debt.

While there isn’t a direct statement ‘we are handing a gift out to XYZ,’ legislative graft doesn’t work that way. The bill is authorization to restructure the economy according to the preferences of a very small group of people. Or to make it simpler, here’s what happened to Boeing’s stock price yesterday.


Now again, Boeing is an important enterprise, and we should save it. (Here’s a plan to do just that, and if you are interested, a web event tomorrow to discuss how to do so.) But saving Boeing is different from saving Boeing’s shareholders and CEO. Guess which one this bill does?

The marketing pitch from Chuck Schumer on why a Wall Street bailout isn’t that bad is there’s disclosure, some oversight, and reporting requirements. Aside from the fact that none of this worked in the first set of bailouts, this stuff probably only applies to one slush fund in the bill. More to the point, financiers are already stealing, as I showed with the Citibank bond spreads. It’s hard to convey just how ugly this program is, already the Federal Reserve hired the largest asset manager in the world to run its multi-trillion dollar bailout. The bailout is already privatized with a conflicted operator, before it has even started!

And remember, this bailout isn’t necessary. Hospitals need money, patients need ventilators, and people need to pay rent, but Wall Street is going to be fine regardless.

Temporary Distressed Positions

Numbers like $6 trillion or even $10 trillion of government-backed credit to Wall Street are so large they don’t mean anything Fortunately, a major law major firm with a big mergers and acquisitions practice put it into context for us, with a memo to clients about how to prepare for this moment.

As stock prices decrease in response to market uncertainty, directors of public companies should be prepared to respond to increasing levels of shareholder activism and unsolicited takeover offers, as opportunistic parties with strong balance sheets look to take advantage of companies in temporary distressed positions.

In other words, millions of small and medium sized businesses are going to have no access to cash and revenue freezes, because of the pandemic and economic restrictions. And while there are provisions in the bill to get these businesses money, the reality is that neither our government nor our banks have the operational competence to write and direct checks quickly enough to avoid distress. Much of the cash out the door provisions for small businesses will actually be stolen by the payday lender-style ‘fintech’ operators authorized in the bill to make loans, a provision stuck in there by Senator Mark Warner.

The cash freeze to small business is already causing a crisis. FTC Commissioner Rohit Chopra made these points on Tucker Carlson last night. First, he noted, small business loan sharks are “crippling cash-strapped companies” with onerous contracts. Second, powerful corporations are using their position to cut off small businesses from supply chains. And third, corporate raiders are planning to buy up these businesses cheap. “Corporate raiders and PE firms are already sharpening their knives,” said one Goldman Sachs associate.

And that’s where this legislation comes in. Wall Street, with this bill, will now have $4-6T of government guaranteed low cost credit to go shopping for businesses in trouble. We could see the mother of all roll-ups, as small and medium sized businesses desperately try to get whatever they can from deep-pocketed private equity investors and monopolists. If that happens, America could look like a very different country after this pandemic is over.

Moving Forward

Nothing is inevitable. This bill can be stopped, for a weird procedural reason. While Senators are in town, House members are actually scattered about the country. This means the House can’t actually vote on the bill. But if the House is in session, the bill can be passed through what’s called ‘unanimous consent,’ which means that if a single House member shows up to object, it can’t move forward. So all we need is a single member of Congress to object. Here’s Justin Amash, a libertarian from Michigan, with the right attitude. I hope he does object. I’m sure there are others, though the logistics of getting to DC are hard.

We can fight this bill. Remember, Congress is going to pass a bill with a lot of important stuff for workers, hospitals, cities and small business, and to address the pandemic. That's inevitable. If we do stop it, Congress will simply pass the same bill, strip out all the slush funds, and take that stuff on in a few weeks. This is a crisis, they are getting sick, and they know we have to act.

Even if this bill passes, we can keep fighting against the misuse of such a giant corporate slush fund, and continue to build a left-right coalition against cronyism. The one thing I have learned in politics is that we are not powerless, if we are honest about the moral terms.

A lot of people are likely to die in the next few months, and it is going to be awful. And this is largely because of the same reckless leadership class that is now using this moment to hand political power over to financiers. But all of us are learning lessons about what it means to build a more resilient, free and democratic society and business community. My hope is that we can put those lessons to work, sooner rather than later.

Thanks for reading. And if you liked this essay, you can sign up here for more issues of BIG, a newsletter on how to restore fair commerce, innovation and democracy. If you want to a book to hunker down with while sheltering in place, read my book, Goliath: The 100-Year War Between Monopoly Power and Democracy.


Matt Stoller

P.S. I am releasing all copyright claims on this essay. Take it! It’s yours!

Stop the Coronavirus Corporate Coup


Welcome to BIG, a newsletter about the politics of monopoly. This is a special edition. I need you to take this newsletter and repost it, forward it, and contact anyone you know in politics. Here’s why.

Congressional leaders are likely to put a very ugly deal in front of the American people, and if it passes, America may be unrecognizable after this pandemic. But there is a way to stop it, if people on the populist left and people on the populist right work together.

Here's the situation. Mitch McConnell, Chuck Schumer, and the Trump administration is negotiating a bailout package to address the coronavirus crisis. There's been a lot of chatter about the need to support workers as the economy goes into a freeze. This is happening around the world; the British government, for instance, is willing to pay 80% of worker wages during this downturn for those affected by the crisis. 

But in the U.S., our leaders seem to be falling prey to what can only be called a corporate frenzy of favor-seeking. “Any time there is a crisis and Washington is in the middle of it is an opportunity for guys like me," said one lobbyist.

Now first I should say that I don’t know exactly what is going to be in the final bill, because the whole process is opaque and being negotiated right now by some untrustworthy political leaders. We will only find out the details at the last minute. So all I have to go off is rumor and reporting. But if we wait until we know the full contours, it will likely be too late to act. I hope I’m wrong, but the list of what lobbyists are asking for is long, and ugly, and often the requests for money or legislative favors are done to cover up mistakes made before the coronavirus hit.

Take Boeing. The aerospace giant of course wants a $60 billion bailout. Financial problems for this corporation predated the crisis, with the mismanagement that led to the 737 Max as well as defense and space products that don't work (I noted last July a bailout was coming). The corporation paid out $65 billion in stock buybacks and dividends over the last ten years, and it was drawing down credit lines before this crisis hit. It is highly politically connected; the board of the corporation includes Caroline Kennedy, Ronald Reagan’s Chief of Staff Ken Duberstein, three Fortune 100 CEOs, a former US Trade Representative, and two Admirals, one of whom is the board’s only engineer. Using the excuse of the coronavirus, Boeing is trying to get the taxpayer to foot the bill for its errors, so it can go back to making more of them. 

But that's not all. Defense contractors want their payments sped up, and I've heard they want to widen a giant loophole called 'other transaction authority' to get around restrictions on profiteering. Elon Musk and Jeff Bezo want "$5 billion in grants or loans to keep commercial space company employees on the job and launch facilities open." They also want the IRS to give them cash for R&D tax credits.  

CNBC reported that hotels want $150 billion, restaurants want $145 billion, and manufacturers wants $1.4 trillion. And the International Council of Shopping Centers wants a guarantee of up to $1 trillion. The beer industry wants $5B. Candy industry wants $500M. The New York Times reported that "Adidas is seeking support for a long-sought provision allowing people to use pretax money to pay for gym memberships and fitness equipment." Gyms are of course closed. Meatpackers want special visas so they can undercut wages of their workers, and importers want to stop paying duties they incurred for harming domestic industries for illegally dumping products into the U.S.

Now, I'm not opposed to supporting industries. This is a crisis, and we do not want a lot of the productive capacity of the United States to fall apart because of a pandemic. But the key to supporting enterprises is to make sure that there are strict conditions, so that power doesn't consolidate into the hands of monopolists and financiers cherry-picking distressed assets. Otherwise, America will simply be unrecognizable after this pandemic. CNBC personality Jim Cramer, for instance, is worried that after this pandemic America will have just three retailers. And he's right to be worried about that.

Here's how we can stop it. There are enough members of Congress to act and prevent what really looks less like a relief package and more a corporate coup. However, the problem is that this group is split into different political parties, and Congressional leadership is taking advantage of that dynamic to jam this through. Mitch McConnell wants big business to rule, so he's playing a trick. He is refusing aid to workers. Democrats are negotiating with him to try to get unemployment assistance and social welfare. McConnell knows Dems won't pay attention to corporate bailouts if he takes the public hostage, and Democrats know that they can hand out favors to big business if they just talk about how they got larger checks for workers.

So McConnell will put a bill down in front of Nancy Pelosi, with some good stuff like unemployment insurance, but also the really ugly stuff to hand over America to big business. The corporatists in the Democratic Party will tell her "Pass the corporate coup bill, after all we have to do something right now!" And because she doesn't have the votes from within her own caucus because of these corporatists, and because she doesn't particularly care if America is sold off to big business, she will do that. The only hope is to get together a bipartisan group from the right and the left to oppose this charade. 

And there's a precedent.

In 2008, when Congress was on the brink of passing a $700 billion bailout to Wall Street, something astonishing happened. A motley bipartisan group of roughly a hundred members, as well as outside experts, formed what was called the "Skeptic's Caucus," and organized enough votes to take down the package. Congressional leaders then attached some minor tweaks, and forced the package through after the stock market crashed. Ultimately, the skeptics failed, and the bailouts ended up shifting power and wealth to an unaccountable elite class.

But for that brief moment, it became clear that opposition to Congressional leadership on corporate subsidies is possible. We will need another Skeptic's caucus, and quickly. And this time, it can succeed. Because this time, no one is fooled by what is happening. We can see it plainly.

So whether you are a Republican or Democrat, join a new Skeptic's caucus. And demand your member of Congress represent YOU, and not just big business. Help the people by dealing with unemployment, rent, mortgages, not big business executives trying to save their cushy positions.

That’s the situation. I need you to take this newsletter and repost it, forward it, and contact anyone you know in politics, including your representative. Tell them they have to help the people directly and not send out aid to big business without *strict conditions.* Otherwise after this pandemic, we will wake up living in a society with a lot less freedom.

Thanks for reading. And if you liked this essay, you can sign up here for more issues of BIG, a newsletter on how to restore fair commerce, innovation and democracy. If you want to a book to hunker down with while sheltering in place, read my book, Goliath: The 100-Year War Between Monopoly Power and Democracy.


Matt Stoller

P.S. I am releasing all copyright claims on this essay. Take it! It’s yours!

How To Structure the Coronavirus Bailout


Welcome to BIG, a newsletter about the politics of monopoly. If you’d like to sign up, you can do so here. Or just read on…

Today I’m going to write about the giant corporate bailouts that are coming and how to structure them so they aren’t totally crooked.

How to Do Anti-Bailout Bailouts

Wall Street and the Federal Reserve are getting ready for massive bailouts of the corporate sector. In some industries, like airlines, the aid will be direct. But in other areas, policymakers are using a code that is a bit obscure to normal people in an attempt to disguise what they are doing. So let me try to decipher how policymakers are talking about the coming bailouts.

Over the weekend, Treasury Secretary Steve Mnuchin mentioned resurrecting the Federal Reserve’s crisis-era authority. “Certain tools were taken away that I’m going to go back to Congress and ask for,” he said. He wasn’t specific, but the tool he means is Section 13(3) of the Federal Reserve Act, which is the provision that lets the Fed do emergency lending to anyone for any reason. The Fed used this in 2008 to buy AIG, and through its ownership of AIG, send money to all of Wall Street. This was totally illegal; Congress is the only body that can authorize spending of taxpayer money, and the AIG deal took place before Congress passed the actual formal $700 billion bailout in October of 2008.

Technically the Fed isn’t supposed to be buying corporations, but short of being to unilaterally declare war, the Fed makes up the rules in a crisis. In 2016, a judge actually ruled that the Fed’s emergency lending was illegal, but also that there was nothing anyone could do about it.

During the negotiations over Dodd-Frank in 2010, Congress put limits on 13(3) which involved disclosures and other annoying constraints. These are probably what Mnuchin wants removed, so the Fed can go about its apolitical business of giving cash to powerful financiers and corporations. And then what’ll likely happen is that the Fed and Treasury will go to Congress later to ask them to authorize what they already did, and say that there will be a financial crisis if Congress doesn’t.

Is a Coronavirus Bailout Necessary?


I’m in favor of bailing out the corporate sector, just as I think it’s critical to make sure that small businesses are made whole for something that is far beyond any of our control. But the bailout cannot and should not simply flow into the sticky hands of financiers so they can buy more private jets after the crisis has passed. Right now, the American corporate apparatus is designed as a sort of pass through entity for financiers. For instance, Toys R’ Us became a mechanism for a private equity company to grab cash, and only incidentally a toy retailer. Any bailouts - particularly to large businesses - must be conditioned to stop these kinds of transfers.

It’s unlikely most corporations could handle a shock like what they are experiencing, but our big businesses are particularly unsuited to do so now. For the last forty years, Wall Street thinned out the ability of our corporations to handle risk by loading them up with debt and encouraging mergers and offshoring. American corporations used to have little debt, as well as localized production facilities and responsible executives who understood production. It was a resilient system, able to handle swings in the economy. That is no longer the case.

Since William Simon and Michael Milken in the 1980s organized junk bond fueled takeovers, American finance has been organized around smashing our industrial systems for cash, and injecting hidden risk into American society. The lack of capacity to make our own medicine or masks is precisely a result of this hidden risk. As I wrote last July:

The goal is to eliminate production in favor of scalable profitable things like brands, patents, and tax loopholes, because producers - engineers, artists, workers - are cost centers. Production can also be eliminated by fissuring the workplace, such as the mass move to offshore production to lower cost countries in the 1980s onward. When I reported on the problem of financialization destroying our national security capacity, one of the manufacturers I talked to told me about how the “LBO boys” - or Leveraged Buy Out Boys - took apart factories in the midwest and shipped them to China.

American corporations are run not to make things, but to enable financiers and CEOs to grab cash and hide risk. They do this through four different techniques. They use:

  • Stock buybacks and dividend payouts, which means they use the corporation’s cash and credit lines to transfer money to shareholders.

  • Mergers and acquisitions to structure monopolies and/or fees for investment banks (‘payoffs for layoffs’).

  • Excessive executive compensation.

  • Lobbying and public relations to organize political control.

Fundamentally, mergers, buybacks, and excessive executive compensation are about stripping out resiliency in return for cash, and the lobbying is the political machine to protect the ability to do that.

So what to do? The answer is pretty simple.

Stop Hidden Risk Pooling

Financialization and private equity is about loading up corporations with hidden risk. We cannot afford that anymore. So here are the conditions to put on large corporations who need cash from the government.

  • No bailouts for shareholders. Shareholders took the risk and upside, they should get the downside too. A bailout means the stock value goes to zero.

  • No more buybacks ever, and no more dividends for five years. It’s time to stop asset-stripping, and restore the cushion inside corporations so they can invest in production.

  • Strict executive compensation limits. No more get rich quick schemes and golden parachutes. We need long-term leaders focused on building institutional strength.

  • No more lobbying, as well as limit public relations spending. The Housing and Economic Recovery Act of 2008 killed the ability of Fannie Mae and Freddie Mac to lobby, and that killed their political power. By contrast, Wall Street got bailouts with no strings attached, so they largely wrote the Dodd-Frank bill. (I was there, I saw it). Don’t repeat this.

  • No more mergers and acquisitions for five years. If you get bailouts, you have to run your business as a business, not as an acquisition target. I can imagine an exception if the business fails as a stand-alone, but exceptions need to be very narrow.

There are many details to think through. I have not thought through what it means to cram down equity holders when private equity predators own lots of the debt, so it's critical to put real constraints on the kind of corporate control debt holders get out of the process. No asset stripping. And note that the same terms should not apply to small and medium sized businesses, because they have not been subjected to the same load 'em up with debt style financial games.

Ok, so that’s the policy. Now what about the politics? How do you operationalize this?

Time to Re-Form the Skeptic’s Caucus

Last week, Steve Mnuchin said that the current stock market crash is a great opportunity for investors. And at a certain point, it will be. That doesn’t change when it is public authorities as the only ones with capital to deploy, it just becomes a question of how those public authorities will use their money printing and fiscal authority to structure our corporations.

In 2008-2009, President Bush and Obama had massive leverage, and used that leverage to make sure the corporate state remained under the thumb of financiers. After the crisis, private equity boomed yet again, and executive compensation, lobbying, buybacks, and mergers exploded.

This was sort of obvious at the time, and though everyone likes to dismiss Congress, it was in Congress that there was actual resistance. In September of 2008, Republicans and Democrats who didn’t like the bailouts formed what they called the “Skeptic’s Caucus.” It started with an invitation from Democratic members that went as follows, “Please come to a meeting of the Skeptics Caucus to discuss President Bush’s $700 billion bailout bill. One staffer may attend with you.” The Skeptic’s Caucus was incoherent, because no one knew what was going on in the financial system. And ultimately Hank Paulson, Boehner, Pelosi and Obama broke enough arms in their respective parties to get the bailouts passed.

Today it’s a different story. The shape of the crisis is obvious, and people are afraid less of corporate collapses than a deadly pandemic. In addition, there are a lot of people trained in the crisis who understand what is happening. So the solutions are easier to conceptualize. I hope members of Congress re-form the Skeptic’s Caucus, and offer the right way to do bailouts. Save the industries while stripping the financiers of their power.

To put it differently, Wall Street banks with total leverage showed no mercy in a negotiation, and offered zero interest in structuring a more sustainable and resilient society. And so we are where we are, stripped of competence in the midst of a pandemic. This time, when the bailout comes, the Federal government should take the same posture towards Wall Street that Wall Street took towards us. And that’s what Congress should focus on.

Thanks for reading. And if you liked this essay, you can sign up here for more issues of BIG, a newsletter on how to restore fair commerce, innovation and democracy. If you want to a book to hunker down with while sheltering in place, read my book, Goliath: The 100-Year War Between Monopoly Power and Democracy.


Matt Stoller

Shut Down Congress!!! (Physically at Least)


Welcome to BIG, a newsletter about the politics of monopoly. If you’d like to sign up, you can do so here. Or just read on…

Today I’m going to write a bit about how the coronavirus is going to radically reorient our antitrust and political economy regimes. But first, I was on the American Bar Association Antitrust division’s podcast to talk cheerleading. You can listen here.

Second, I went to Congress on Tuesday to hand your comments to the House Small Business Committee, and then I sat down to watch the hearing on the coronavirus. I worked in Congress for six years, but I never noticed something about it until I went there during a pandemic. Congress is sanitation-wise like a cruise ship, with large numbers of people flowing through the halls, and lots of physical contact. Everyone there is going to get coronavirus unless they shut it down and set up to legislate remotely. Today they announced public visitors will be barred, but that’s not enough.

This dynamic is probably true across most of our governing institutions, and within the White House. It’s also a global phenomenon; French parliamentarians have the virus, and Canadian Prime Minister Justin Trudeau is already self-isolating.

Want to know why? Here’s a photo I took of a member of Congress trying to pay attention during the hearing on the coronavirus.

And now…

Pure Efficiency Kills

In 2018, the Health Industry Distributor’s Association’s Linda Rouse O'Neill complained about Trump tariffs on China at a hearing held by the government office that handles trade. She was there to oppose proposed tariffs on things hospitals needed, like gloves, needles, surgical kits, anesthesia products, sutures, wound care, vaccines, diagnostic kits, etc. Her rationale was very familiar to anyone who studies antitrust or trade policy: efficiency.

“We have become very highly efficient and lean and mean when it comes to supply chain and that is because we have also gone global,” she said. “Some of our successes include actually reducing the costs of some of these products from what they were sold a couple of decades ago. And we've only been able to do that because of the efficiency and the ability to source products from China.”

Trump’s policy goal with his tariffs was to move supply chains, but the reality, O’Neill said, is that dependence on China is good. She even warned what would happen if we tried to stop our reliance on Chinese products. “There is going to be a spike in demand and there is not enough product to fill that gap,” said said. “So the price is only going to go up and we are going to have product shortages.”

Indeed, we have shortages, and they are getting worse. (If you hear of any, let me know or leave a comment.) But they are not happening because we reduced our dependency on China, but because we did not.

Even as Trump was putting up tariffs, his administration wasn’t focused on changing the other drivers of policy leading to offshoring. For instance, in 2017, a Chinese company called Humanwell located in Wuhan bought Ritedose, one of the two large respiratory companies that does contract manufacturing for inhalation and ophthalmic products. Humanwell had previously bought PuraCap Pharma in 2008 and Epic Pharma in 2016, which are oral solid dose generic companies in the US, and it aims for monopoly power. The corporation bragged in an investor presentation on investment bank Jeffries website about how it is a sole source producer of drugs. (I did the highlighting on the slide.)

None of these mergers were blocked by anti-merger laws or by the anti-merger national security law run by the Committee on Foreign Investment in the United States to keep an eye on foreign acquisitions of critical facilities.

But it wasn’t just a failure to enforce merger law that led to our dependency. Some of these corporations Humanwell bought have historically filled our defense and veterans national stockpile for antibiotics like doxycycline, and there’s a provision called “Made in America” that used to prevent offshoring of such production to China. But that changed, because of a recent court case called Acetris Health, LLC v. United States that allowed pharmaceutical manufacturers to get their ‘active pharmaceutical ingredients’ from China and still sell it to the U.S. government.

Prior to this ruling, U.S. customs decided that if the chemicals in a pill were from, say, India, the pill was made in India even if sticking the chemicals into the pill took place in the U.S. The Court of Federal Claims changed this decision, ruling the product was a U.S. product, even if the underlying Active Pharmaceutical Ingredients (APIs) came from elsewhere. As a contact in the industry told me, “Before that case there was a lot more scrutiny on the transformation requirement, but now as long as it’s made in USA it doesn’t seem to matter.”

In that case, operating efficiency defeated safety and security. For the last forty years, since Milton Friedman and Robert Bork emphasized operating efficiency above all other values, we’ve organized our political economy choices around efficiency as the paramount goal. One consequence of this thinking is the growth of monopolies. Having multiple rivals in the market means you have redundancies, and that’s waste, whereas having very few or just one producer - aka a monopoly - limits excess.

Operating efficiency is of course important. But Bork’s attitude has led to the consolidation of our supply chains, and then the offshoring of those supply chains to China, whose government subsidized the acquisition of our medical supply chain industry. Fortunately, policymakers are coming to reject this thinking. Today, Senators Marco Rubio and Ben Cardin came at the problem from different directions at a hearing on small business. Rubio attacked our dependence on China by noting that markets must be structured, whereas Cardin observed that the economics in the pharmaceutical industry are a core factor in the current shortages.

Both of them are right, and they are also right that the problem comes down to policy. Rubio in the hearing today mentioned the need for Congress to overrule the court, and that seems like a good idea. More broadly, policymakers are recognizing that structuring markets to focus entirely on cost and efficiency, even if it seems like a reasonable at the time, can lead to a situation where you get mass shortages.

There’s not a lot of good news these days, and I’m honestly kind of frightened. But the one silver lining is that it has become clear that the way we have been running our society for four decades is short-sighted and irresponsible. Hopefully the price we will have to pay to learn this lesson won’t be too high.

Thanks for reading. And if you liked this essay, you can sign up here for more issues of BIG, a newsletter on how to restore fair commerce, innovation and democracy. If you want to a book to hunker down with while sheltering in place, read my book, Goliath: The 100-Year War Between Monopoly Power and Democracy.


Matt Stoller

P.S. I’m enjoying the comments and community springing up around this newsletter, so feel free to keep putting up your observations on what’s happening in your business around the coronavirus.

Why Can't America Handle the Coronavirus Crisis?

Or How to Make Things in America Again


Welcome to BIG, a newsletter about the politics of monopoly. If you’d like to sign up, you can do so here. Or just read on…

Last week I updated you on the negotiations in Congress over the coronavirus. I also asked you how the crisis is hitting your businesses and why it’s so hard to make things that we need for the crisis, like medical supplies, in America. Today I’m going to share what you told me. I’ll also outline why America, and much of the West in general, is so ill-equipped for this disease.

To understand how seriously our policymakers are taking the disease, here’s a joke picture of Congressman Matt Gaetz right before voting on the Coronavirus package.

Before the main event, some house keeping. I was on Le Show podcast with Harry Shearer.

And now…

Why Can’t America Handle the Coronavirus Crisis?

The stock market was down by roughly 8% today, and the Trump administration seems to have no coherent view of what to do in the face of an epidemic. The response has been pretty ugly, everything from the Centers for Disease Control refusing to allow states to test people for coronavirus to White House official Larry Kudlow going on TV saying that the stock market declines are an opportunity to buy stocks. Most of the people I know in politics are in a state of shock, unable to know what to do with an institutional breakdown of this magnitude.

Without downplaying the immediate catastrophic response, I’ll note that the roots of this dysfunction are deeper than just Donald Trump’s sense of denial of an event he can’t control. America has not handled crises well for twenty years now. For example, here’s a piece I wrote on the status of New York City utility Con Ed before Hurricane Sandy hit the city, summarizing a report put together by their unionized workforce.

The union noted a lack of redundancy in voltage equipment, smart meters paid for by the stimulus that were never turned on, and a lack of basic supplies. “Our members have worked on cable so old,” said the report, “that it has paper insulation, and on utility poles that were installed in the 1930s and remain in service today.”

The company used to have a policy of keeping a “safety stockpile” of basic supplies on hand in the event of an emergency. No longer. So when Sandy hit, Con Ed ran out of utility ladders and utility cable. It had to rush order parts that did not work on Con Ed systems, including “entire truckloads of utility transformers” which the utility could not return “because of their specialized nature.”

Imagine that. Before Hurricane Sandy hit the city, Con Ed didn’t bother stocking up on ladders. Ouch.

The reason America can’t handle the Coronavirus is the same reason we can’t do anything else right. We don’t let the people who do the work have any say over how or whether the work is done. That’s why America has mishandled various wars, the response to Katrina, the financial crisis, big tech monopolies, Boeing, the Iowa caucuses, and the crisis with Hurricane Maria in Puerto Rico. American institutions are organized entirely around the short-term horizon of financiers, and these financiers seek to create monopolies and to grab cash by thinning out supply lines and generating hidden risk.

Here’s how one reader put it when wondering where all our tax money goes.

Having served in the military and received an Ivy-league business education, I think the answer is simple: Our taxes pay for management consultants who make slides and defense contractors who can't build anything. We also bail out the financiers (who deplore socialism) when they make bad decisions.

To put it a different way, this is who has been in charge of most of our political, cultural, and economic institutions for decades now.

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How Should America Handle the Coronavirus Crisis?

Ok, so what should we do?

The basic answer can be divided into pandemic response, and then longer-term restructuring. I don’t have much to add on pandemic medical response, but in terms of the immediate economic crunch, it boils down to having Congress find out what is happening in the economy and then throw cash out the window to people and industries in distress. Last week, I asked you what you’re seeing out there in terms of business activity.

Many of you are having problems because conferences are being canceled. One music promoter told me she is going to be significantly damaged by the cancelation of major music and tech event South by Southwest. Others are noting that expos for new product displays aren’t going to happen, which means that orders won’t come from distributors. And then there’s the problem of just being unable to produce. Here’s a note from someone in Washington state.

We have a business where you can't really 'work from home'. It's producing, manufacturing, shipping, receiving. I emailed my Senators (Murray and Cantwell) to tell them they need to get way out in front of this. If this continues like this with closings, social distancing, hoarding, we may be heading toward a Depression. Small businesses will be closing en masse.

The easy policy answer here is to just shovel money out the door, both to individuals and to businesses affected by the Coronavirus. That’s what the Treasury bond interest rate is screaming; no one else wants to spend, and in such a moment, the government should borrow at exceptionally low rates and do the spending the private sector won’t do. Already ex-Goldman Sachs CEO and Trump advisor Gary Cohn is saying we’re going to have to bail out the airline industry. If the big guys are going to get a bailout, why not the rest of us?

So that’s the economic response. Then there’s the longer term restructuring. We should be focused on addressing the following problem, which is that we can’t produce enough domestically, especially things we need like medicine. To deal with that, I’ve been doing research, and asking those of you in business why it’s so hard to make things in America. Here’s the problem, and the solution.

How to Make Things in America Again: CLIMB

Why can’t we make things here? Well one reason is that American finance and politics is set up to destroy, not build. As just one example of many, a software entrepreneur wrote in Forbes today about what happened when he sought financing to grow his healthy business. In talking to hundreds of private equity firms, their basic approach was to offer to invest in order to generate a quick return. As one put it, “Man, there’s a lot of meat on the bone here!” The businessman was taken aback at the naked avarice and lack of coherent understanding of what it takes to *build.*

Financiers are a huge problem, but not the only one. I’ll put the ingredients for making things in five buckets. I always found acronyms annoying, but they do stick with you. This one is called CLIMB, and it stands for Capital, Labor, Inputs, Markets, and Brainpower. That’s what a coherent policy response would like if we wanted to make things domestically and make them well.

Capital: Businesses need money to start up, to keep going, and to expand, so running a manufacturing concern requires having a financial system that supports such activity. We do not have such a system right now. Now supposedly, interest rates right now are exceptionally low, so it would seem that it would be easy to get money for profitable ventures. But it’s not, because the institutions that can offer capital are looking for either totally safe assets like government bonds or crazy high returns that can only come from grabbing market power or looting.

In other words, monopolies and private equity can borrow money, but people who do useful things that get 6-10% returns have a much harder time doing so. This is largely because small banks have collapsed, and small banks are the networks through which productive enterprises borrow money. According to the Institute for Local Self-Reliance, “In 2018, community-based financial institutions made 52 percent of all small business loans, even though they controlled only 16 percent of banking assets.” MIT scholar Suzanne Berger noted that as big bankers buy local banks, local bankers with “intimate understanding of local manufacturing” disappear, making borrowing to make things hard. The government should fix this with a renewed emphasis on small business lending, as Marco Rubio suggests.

Labor: People make things. Workers, skilled labor, managers, and entrepreneurs. Yet as a lot of businesses will tell you, they can’t find workers or competent production managers. And this isn’t just a function of wages, but the fact that there just aren’t the skilled, semi-skilled, and managerial workers in America anymore. Offshoring jobs for decades means that parents tell their kids ‘Don’t go into skilled manual labor,’ and they don’t.' This is changing, but this story on the U.S. furniture industry trying to reshore production after decades of layoffs makes the point.

One answer is the Catawba Valley Furniture Academy here, created by local companies struggling to find skilled employees in partnership with Catawba Valley Community College. Furniture makers are also, for the first time, creating internal training programs and adding benefits such as free health clinics.

“My dad has been in furniture his whole life,” said Nathaniel Kaylor, a 21-year-old student at the academy. “He told me from the get-go to stay out of it. You get old fast. Go to college.”

A real public commitment to fund these kinds of educational institutions, as well as a commitment to putting production *here* is key to ensuring people learn the skills they need to make things. Similarly, in business schools, the people who have executive level experience in production are the losers, the cool kids are the private equity Blackstone alums. This is a huge problem, and business schools need to reorient their focus. That will happen if we eliminate or radically restrict private equity.

Inputs: Building things requires an ecosystem of production so you can find the inputs. For instance, making a sweatshirt requires strings, material, and zippers. All these used to be found in mid-town Manhattan in the ‘garment district,’ but that ecosystem of inputs is gone. So too across most of our industries, such as electronics. Here’s what one electrical engineer told me: “NOTHING happens without Chinese suppliers. Circuit boards, parts, housings, packaging, printing. Anyone who says MADE IN USA is... well... let's just call it "stretching the definition". We are SO dependent on China, that I have been studying Mandarin. I have a special book which translates obscure things like "surface mount tantalum capacitor", because guess where the only place in the world is, that they come from?”

Rebuilding an ecosystem of inputs is going to require sustained investment by public entities, as well as aggressive trade rules that prohibit dumping, predatory practices, and private equity looting.

Markets: Starting a business means being to count on buying in open markets for what you need, and being able to reach customers in open markets for what you sell. Coercion and fraud kill productive activity. Multiple small business owners told me about how hard it is to sell through monopolies at this point. Corporations like Amazon basically take all your margin, and pharmacies are being destroyed by pharmacy benefits managers and drug distributors. Having open markets in which to buy and sell goods is essential if you are going to start a business and succeed. That means reinvigorating antitrust law.

Brainpower: A big part of production is just knowing how to make things, both in terms of academic innovation and production on the line. As one manufacturer told me, “Innovation doesn’t just hover above the Great Plains… It is built on steady incremental changes and knowledge learned out of basic manufacturing.” This is distinct from labor in that it is about ecosystems of production, like having a well-trained workforce versus having Silicon Valley as an ecosystem of digital technology or 19th century Pittsburgh as an ecosystem of metallurgy.

Prior to the 1990s, a lot of knowledge of production in America was held within large vertically integrated large corporations like IBM, Dupont, Boeing and General Electric. The U.S. did a lot of infrastructure investment and procurement, along with antitrust to ensure the decentralization of this capacity. In China and Germany, governments emphasized strong research consortia as well as training regimes and state support. All three of these models ensured that unskilled labor, skilled labor, engineers, and academics could interact in productive ways.

In the U.S., we have gutted our knowledge base for decades, and corrupted our universities. The end of antitrust and the prioritization of private equity led to a large scale looting of our corporations. Newer Goliaths like Microsoft, Google, Facebook, and Amazon do not generate the public good spinoffs because they do not have to face antitrust scrutiny. Addressing the brainpower problem is similar to the input problem.

So that’s the gist of the problem, and the solution. CLIMB. Can we do that? I think so. It will require sustained investment over many years, based on a political consensus that we need to be making things here again. I’m seeing that consensus reemerge, on both the right and the left. Trump’s chaotic approach to an epidemic is quite scary, but if we want to be a free people we don’t really have much of a choice but to rebuild a political consensus that we have to be able to take care of ourselves and produce what we need.

I’ll be submitting a version of this essay to the House of Representatives’s Small Business Committee, so if you have more thoughts on how the coronavirus is affecting business, let me know either by emailing me or leaving a comment by clicking on the title of this email newsletter and going to the bottom.

Thanks for reading. And if you liked this essay, you can sign up here for more issues of BIG, a newsletter on how to restore fair commerce, innovation and democracy.


Matt Stoller

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