Sunday, March 22, 2020

The Last Days Of Bailout Capitalism

Capitalism exploded spectacularly in 2008, you should have seen it. Whatever they call this system of  bailing out criminals is the next to explode...

The seeds of this crisis were sown back during the depths of the global financial crisis when a stunned and fearful populace turned a blind eye to bailouts for criminals and allowed corporate shock doctrine on a massive scale, in order to "save the system". In the event, no one was held accountable for massive amounts of fraud and criminality. Which is why during the past ten years, fraud and criminality became business as usual. Today's historical illiterates have not even the slightest clue how Darwinian the U.S. economy has become over the past several decades. Still sniffing the glue of American mythology, while getting fucked over the exact same way as last time.

The story of this past decade will be one of persistent poverty-driven deflation emanating from a collapse in the labor share of GDP post-2008. Otherwise known as the worst economy in U.S. history. A surfeit of low wage junk jobs, nominal benefits, zero job security, and no career upside. The wholesale commodification of labor to the benefit of offshore bank accounts. Each successive round of shock doctrine drove the country further to the right, further towards the corporation, further towards profit. This past decade was a bonanza of insider stock buyback cash outs financed with record low interest rates. 

Now, however, corporations are record leveraged. Which is why they are already laying off workers en masse. This shutdown is only days old, yet they are not waiting around to see how it turns out. In other words, untold numbers of companies have already made the calculation that they would rather layoff their workforce than weather a few weeks of no revenue. 

And of course in the United States, there is no penalty for mass layoffs, so they took the easiest course of action. In other countries, based upon an employee's tenure, companies must pay mandatory severance pay for layoffs. Which makes it far more difficult for companies to lay people off at the drop of a hat. 

Nevertheless, in panicking en masse, U.S. companies have succeeded in making the overall demand collapse far worse and far more intractable. In the mind's of today's pundits, these companies will merely turn around and rehire everyone back a few weeks from now. That isn't what's going to happen. U.S. companies are far quicker to lay off than they are to rehire. Earnings visibility is currently nil and getting worse by the day. So these companies won't begin rehiring any time soon. If ever. Regardless, most large corporations are too heavily leveraged to be saved, which is why bailouts of corporations are a total waste of money. They need to be recapitalized. They are zombie companies now and bailing them out will only make things far worse. ALL of their cash flow will go to debt service. Zero investment.

What I am describing is what Federal Reserve governors are seeing all across the country - a total collapse in demand. Which is why companies are panicking, because they know their balance sheets are now ticking time bombs. And yet with every mass layoff, the duration of this GDP depression grows longer. What one company does to save itself appears as prudent capitalism, however, when they all do it at the same time it's an epic disaster.

"If his gloomy jobs projection proves to be true, unemployment would be worse than it was during the Great Depression and three times worse than the 2007-’09 recession"

With the appropriate measures, Bullard said he’s looking for activity to rebound quickly."

In other words, he is predicting a v-bottom from a one quarter depression. Which isn't going to happen. This virus merely got the ball rolling on corporate defaults which were already teetering on the brink of insolvency. This got the dominoes falling. Millions of over-leveraged consumers are one paycheck away from insolvency. Trump's mega deficit was the only thing keeping the U.S. out of recession in 2019. 

In the future, corporations need to be adequately "incentivized" to maintain adequate contingency buffers for short-term downturns - plans that don't involve mass layoffs at the drop of a hat. IF this really was only a few week crisis, as so many believe it is, then in a properly functioning economy there is no way it should lead to 30% unemployment. Which shows how non-resilient the U.S. economy has become, that we are already facing 3 million layoffs in only one week of shutdown. 

Unfortunately, it has become far too easy and cost free for companies to jettison their workforce at the slightest downturn, while putting all of the costs on the public social system. The same system they have fought to eliminate. Thanks to Bush and Trump, most of these companies no longer pay any taxes, so they are net takers from the U.S. economy.

ALL bailout efforts should focus on small business and laid off employees. I have no doubt that this turn of ideology is coming sooner rather than later. And it will be laced with more than a significant amount of rage. How they quarantine rioting will be an interesting challenge.

Just know it's coming.

Getting back to the casino, Senate discussions on the fiscal bailout collapsed late on Sunday because Democrats are insisting on more money for families and less for corporate bailout whores. The Republicans want the opposite.

As it was last Monday, the futures opened limit down, however, this time they are bouncing off the limit. IF the TARP bailout circa 2008 fiasco plays out again, the market will tank tomorrow morning and then rally into the inevitable "deal". At which time the market will explode lower. If the casino is still open by the end of this week, I would be surprised. They will give it just enough enough time out for everyone to realize this is a new depression with no v-bottom in sight.

And then you will see biblical panic, when the sheeple realize they squandered a decade of their lives bailing out criminals, and then got bilked all over again by the exact same people.