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Too Big to Fail: The Entire Private Sector Too Big to Fail: The Entire Private Sector
(7 days later)
During the 2008 financial crisis, Wall Street banks and other big financial institutions were deemed “too big to fail.” The crisis unleashed by the pandemic has broadened that elite status to a significant swath of the American private sector.During the 2008 financial crisis, Wall Street banks and other big financial institutions were deemed “too big to fail.” The crisis unleashed by the pandemic has broadened that elite status to a significant swath of the American private sector.
In a bid to soften the coronavirus’s economic blow, the government has stretched its financial safety net wide — from strategically sensitive companies, to entire industries such as energy and airlines, to the market for corporate bonds.In a bid to soften the coronavirus’s economic blow, the government has stretched its financial safety net wide — from strategically sensitive companies, to entire industries such as energy and airlines, to the market for corporate bonds.
“The ‘too big to fail’ that existed for banks has now extended to a lot of other firms,” said Luigi Zingales, a University of Chicago professor of finance who has long studied the interplay of government, regulation and the private sector.“The ‘too big to fail’ that existed for banks has now extended to a lot of other firms,” said Luigi Zingales, a University of Chicago professor of finance who has long studied the interplay of government, regulation and the private sector.
A decade ago, the Federal Reserve was instrumental in keeping the banking system from going bust. This time around, the Fed’s actions are far more sweeping, and it has essentially propped up entire financial markets with its bottomless ability to buy assets with freshly created money.A decade ago, the Federal Reserve was instrumental in keeping the banking system from going bust. This time around, the Fed’s actions are far more sweeping, and it has essentially propped up entire financial markets with its bottomless ability to buy assets with freshly created money.
Jerome H. Powell, the Fed chair, has signaled that the central bank will continue to do so. On Monday, the stock market closed up 3.2 percent, bolstered partly by comments from Mr. Powell, who said there was “really no limit” to what the central bank could do with its emergency lending facilities.Jerome H. Powell, the Fed chair, has signaled that the central bank will continue to do so. On Monday, the stock market closed up 3.2 percent, bolstered partly by comments from Mr. Powell, who said there was “really no limit” to what the central bank could do with its emergency lending facilities.
“The one thing I can absolutely guarantee is that the Federal Reserve will be doing everything we can to support the people we serve,” Mr. Powell said during a television interview broadcast on Sunday.“The one thing I can absolutely guarantee is that the Federal Reserve will be doing everything we can to support the people we serve,” Mr. Powell said during a television interview broadcast on Sunday.
The market also got a bump on Monday after Moderna, a manufacturer of a potential coronavirus vaccine, reported favorable results in an early trial.The market also got a bump on Monday after Moderna, a manufacturer of a potential coronavirus vaccine, reported favorable results in an early trial.
While the Fed says it does not seek to keep stock prices up, the market has rebounded some 30 percent since the institution began its giant program to pump trillions of dollars into financial markets. It has bought billions of dollars’ worth of U.S. Treasury bonds and government-insured mortgage bonds, keeping the prices of those bonds up and pushing yields, which move in the opposite direction, down.While the Fed says it does not seek to keep stock prices up, the market has rebounded some 30 percent since the institution began its giant program to pump trillions of dollars into financial markets. It has bought billions of dollars’ worth of U.S. Treasury bonds and government-insured mortgage bonds, keeping the prices of those bonds up and pushing yields, which move in the opposite direction, down.
The Fed also announced recently that it would start to buy exchange-traded funds that hold a diversified portfolio representing large parts of the more than $9 trillion corporate bond market and would move on to buying corporate bonds directly “in the near future.” Since such bonds serve as the basis for new borrowings, this lowers the cost of raising money for corporations tapping the bond markets.The Fed also announced recently that it would start to buy exchange-traded funds that hold a diversified portfolio representing large parts of the more than $9 trillion corporate bond market and would move on to buying corporate bonds directly “in the near future.” Since such bonds serve as the basis for new borrowings, this lowers the cost of raising money for corporations tapping the bond markets.
“In this cycle, it is not a specific institution that is too big to fail — it is the investment-grade bond market that is too big to fail,” Scott Minerd, global chief investment officer at Guggenheim Partners, which has more than $200 billion under management, wrote in a recent client note.“In this cycle, it is not a specific institution that is too big to fail — it is the investment-grade bond market that is too big to fail,” Scott Minerd, global chief investment officer at Guggenheim Partners, which has more than $200 billion under management, wrote in a recent client note.
The government has also earmarked enormous sums for certain industries. Airlines could receive some $50 billion in loans and aid in the $2 trillion CARES Act. The law set aside around $17 billion “for businesses critical to maintaining national security,” a pot widely seen as being intended for the aerospace and military giant Boeing, which was struggling even before the coronavirus all but halted air travel. (News of the backstop ultimately helped Boeing avoid taking government money, as investors were more confident about lending it money in the bond markets.)The government has also earmarked enormous sums for certain industries. Airlines could receive some $50 billion in loans and aid in the $2 trillion CARES Act. The law set aside around $17 billion “for businesses critical to maintaining national security,” a pot widely seen as being intended for the aerospace and military giant Boeing, which was struggling even before the coronavirus all but halted air travel. (News of the backstop ultimately helped Boeing avoid taking government money, as investors were more confident about lending it money in the bond markets.)
These sorts of government actions produce strong feelings, especially among those who say the sink-or-swim discipline of markets that operate without government support leads to a stronger and more dynamic economy. Government involvement risks creating a generation of zombie companies too weak to succeed without Uncle Sam’s help, the argument goes, and interferes with the process of destruction and innovation that makes capitalist economies productive.These sorts of government actions produce strong feelings, especially among those who say the sink-or-swim discipline of markets that operate without government support leads to a stronger and more dynamic economy. Government involvement risks creating a generation of zombie companies too weak to succeed without Uncle Sam’s help, the argument goes, and interferes with the process of destruction and innovation that makes capitalist economies productive.
Could be. But, for investors, such points are largely irrelevant. The bailouts, backstops or safety nets are a reality. That suggests that the conventionally accepted rules of investing are changing. Investors who expect markets to adhere to free-market dogma will quickly find themselves flummoxed by the movement of prices.Could be. But, for investors, such points are largely irrelevant. The bailouts, backstops or safety nets are a reality. That suggests that the conventionally accepted rules of investing are changing. Investors who expect markets to adhere to free-market dogma will quickly find themselves flummoxed by the movement of prices.
Updated July 7, 2020
The coronavirus can stay aloft for hours in tiny droplets in stagnant air, infecting people as they inhale, mounting scientific evidence suggests. This risk is highest in crowded indoor spaces with poor ventilation, and may help explain super-spreading events reported in meatpacking plants, churches and restaurants. It’s unclear how often the virus is spread via these tiny droplets, or aerosols, compared with larger droplets that are expelled when a sick person coughs or sneezes, or transmitted through contact with contaminated surfaces, said Linsey Marr, an aerosol expert at Virginia Tech. Aerosols are released even when a person without symptoms exhales, talks or sings, according to Dr. Marr and more than 200 other experts, who have outlined the evidence in an open letter to the World Health Organization.
Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days.
Scientists around the country have tried to identify everyday materials that do a good job of filtering microscopic particles. In recent tests, HEPA furnace filters scored high, as did vacuum cleaner bags, fabric similar to flannel pajamas and those of 600-count pillowcases. Other materials tested included layered coffee filters and scarves and bandannas. These scored lower, but still captured a small percentage of particles.
A commentary published this month on the website of the British Journal of Sports Medicine points out that covering your face during exercise “comes with issues of potential breathing restriction and discomfort” and requires “balancing benefits versus possible adverse events.” Masks do alter exercise, says Cedric X. Bryant, the president and chief science officer of the American Council on Exercise, a nonprofit organization that funds exercise research and certifies fitness professionals. “In my personal experience,” he says, “heart rates are higher at the same relative intensity when you wear a mask.” Some people also could experience lightheadedness during familiar workouts while masked, says Len Kravitz, a professor of exercise science at the University of New Mexico.
The steroid, dexamethasone, is the first treatment shown to reduce mortality in severely ill patients, according to scientists in Britain. The drug appears to reduce inflammation caused by the immune system, protecting the tissues. In the study, dexamethasone reduced deaths of patients on ventilators by one-third, and deaths of patients on oxygen by one-fifth.
The coronavirus emergency relief package gives many American workers paid leave if they need to take time off because of the virus. It gives qualified workers two weeks of paid sick leave if they are ill, quarantined or seeking diagnosis or preventive care for coronavirus, or if they are caring for sick family members. It gives 12 weeks of paid leave to people caring for children whose schools are closed or whose child care provider is unavailable because of the coronavirus. It is the first time the United States has had widespread federally mandated paid leave, and includes people who don’t typically get such benefits, like part-time and gig economy workers. But the measure excludes at least half of private-sector workers, including those at the country’s largest employers, and gives small employers significant leeway to deny leave.
So far, the evidence seems to show it does. A widely cited paper published in April suggests that people are most infectious about two days before the onset of coronavirus symptoms and estimated that 44 percent of new infections were a result of transmission from people who were not yet showing symptoms. Recently, a top expert at the World Health Organization stated that transmission of the coronavirus by people who did not have symptoms was “very rare,” but she later walked back that statement.
Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus — whether it’s surface transmission or close human contact — is still social distancing, washing your hands, not touching your face and wearing masks.
A study by European scientists is the first to document a strong statistical link between genetic variations and Covid-19, the illness caused by the coronavirus. Having Type A blood was linked to a 50 percent increase in the likelihood that a patient would need to get oxygen or to go on a ventilator, according to the new study.
If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.)
If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others.
Exhibit A: the stock market. The S&P 500’s recent rise has appeared increasingly detached from what are usually thought to be the key drivers of equity prices, corporate profits and economic growth. But the romp makes sense if investors account for the trillions of dollars that the Fed has created and pumped into financial markets over the last few months, some of which has wound up migrating to stocks.Exhibit A: the stock market. The S&P 500’s recent rise has appeared increasingly detached from what are usually thought to be the key drivers of equity prices, corporate profits and economic growth. But the romp makes sense if investors account for the trillions of dollars that the Fed has created and pumped into financial markets over the last few months, some of which has wound up migrating to stocks.
That’s not to say the great backstopping will help only investors. After all, government support typically comes with plenty of political strings attached.That’s not to say the great backstopping will help only investors. After all, government support typically comes with plenty of political strings attached.
After the 2008 financial crisis led to bailouts of large parts of the financial sector, a renewed regulatory push limited the ability of banks to take big risks and maximize profits. That protected taxpayers, but muted the rates of return on financial stocks.After the 2008 financial crisis led to bailouts of large parts of the financial sector, a renewed regulatory push limited the ability of banks to take big risks and maximize profits. That protected taxpayers, but muted the rates of return on financial stocks.
Mr. Zingales said that this time around, regulations could begin to limit share repurchases, which have boomed in recent years and helped support stock prices. Over the last decade, American corporations have emerged as the biggest net buyers of the stock market, providing a crucial source of demand for shares. Buybacks have also shrunk the supply of shares available to be purchased by other investors. And since investors often value stocks based on profits per share, reducing the number of shares makes it easier to keep per-share growth numbers high enough to attract investors.Mr. Zingales said that this time around, regulations could begin to limit share repurchases, which have boomed in recent years and helped support stock prices. Over the last decade, American corporations have emerged as the biggest net buyers of the stock market, providing a crucial source of demand for shares. Buybacks have also shrunk the supply of shares available to be purchased by other investors. And since investors often value stocks based on profits per share, reducing the number of shares makes it easier to keep per-share growth numbers high enough to attract investors.
The surge in buybacks has received plenty of criticism in recent years, especially from the political left. But Mr. Zingales said he had largely been unsympathetic to such concerns until recently.The surge in buybacks has received plenty of criticism in recent years, especially from the political left. But Mr. Zingales said he had largely been unsympathetic to such concerns until recently.
With the government showing it is willing to ensure the survival of some companies, share repurchases are no longer a matter that concerns the corporation and its shareholders — especially if those same companies that spent large amounts of cash on buybacks turn to taxpayers for help when the going gets tough.With the government showing it is willing to ensure the survival of some companies, share repurchases are no longer a matter that concerns the corporation and its shareholders — especially if those same companies that spent large amounts of cash on buybacks turn to taxpayers for help when the going gets tough.
For instance, Boeing, which the government was willing to support with billions of assistance, spent about $35 billion to buy back its shares between 2015 and 2019.For instance, Boeing, which the government was willing to support with billions of assistance, spent about $35 billion to buy back its shares between 2015 and 2019.
“If you think about cases like Boeing, it is kind of problematic,” Mr. Zingales said.“If you think about cases like Boeing, it is kind of problematic,” Mr. Zingales said.