No More Bailouts: A Blueprint for a Standing Emergency Economic Resilience and Stabilization Program

Roosevelt Institution Great Democracy Initiative Report, June 2020

45 Pages Posted: 1 Sep 2020

See all articles by Adam J. Levitin

Adam J. Levitin

Georgetown University Law Center

Lindsay A. Owens

Stanford University - Department of Sociology, Center for the Study of Poverty and Inequality

Ganesh Sitaraman

Vanderbilt Law School

Date Written: June 30, 2020

Abstract

Since the COVID-19 pandemic first landed our shores in late January, Congress has scrambled to pass five relief and recovery packages to deal with the health and economic fallout. The first included just $8.3 billion in spending—an astonishingly small sum given the threat of the virus. The third bill included critical spending priorities for struggling families, but was paired with a no-strings-attached $500 billion slush fund for corporate America. The fourth and fifth bills remedied problems with the third bill—Congress didn’t appropriate enough money for its signature small business relief program, the Payroll Protection Program, and needed to top it up (fourth bill), and then needed to extend the loan repayment period (fifth bill) for the program because most businesses had yet to reopen and begin generating new revenue. Congress is likely to take up a sixth bill in late July, in part to deal with the imminent expiration of the temporary expanded unemployment insurance benefits passed in the third bill.

This ad hoc approach to crisis policymaking is inefficient at best and malpractice at worst. Delays have resulted in bankruptcies and closures for businesses large and small and countless hardships for the more than 40 million Americans who have filed jobless claims since March. There is a better way.

In this paper we propose a standing emergency economic resilience and stabilization program that will be deployed in the event of an economic emergency. The program has four central components:

1. An off-the-shelf, bankruptcy-based restructuring process for large or publicly- traded firms that involves a federal equity stake and a potential federal senior secured loan;

2. A program for smaller businesses to cover payroll and operating expenses to prevent mass layoffs and closures on Main Street;

3. A financial system infrastructure reform to enable direct government payments to consumers and businesses without reliance upon private intermediaries; and,

4. A system of automatic stabilizers to engage policy tools without repeated and recurrent congressional action, including a suite of programs to address housing insecurity for both renters and homeowners.

This emergency economic resilience program would blunt the foreseeable impacts common to all recessions—unemployment, income shocks, and liquidity constraints—so that Congress can focus its attention on the unique causes of the particular downturn. In the case of the most recent downturn, had such a program been in place, Congress would have been able to spend the lion’s share of the spring narrowly focused on testing production, building out a community health corps of contract tracers, and supporting the development of a vaccine, instead of scrambling to patch together an economic relief program.

Keywords: bailouts, resolution, bankruptcy, automatic stabilizers, FedAccounts, Direct Express, cramdown,

JEL Classification: E59, E62, E63, G01, G33, H12, H81

Suggested Citation

Levitin, Adam J. and Owens, Lindsay A. and Sitaraman, Ganesh, No More Bailouts: A Blueprint for a Standing Emergency Economic Resilience and Stabilization Program (June 30, 2020). Roosevelt Institution Great Democracy Initiative Report, June 2020, Available at SSRN: https://ssrn.com/abstract=3639607

Adam J. Levitin (Contact Author)

Georgetown University Law Center ( email )

600 New Jersey Avenue, NW
Washington, DC 20001
United States

Lindsay A. Owens

Stanford University - Department of Sociology, Center for the Study of Poverty and Inequality ( email )

518 Memorial Way Building 1
Stanford, CA 94305
United States

Ganesh Sitaraman

Vanderbilt Law School ( email )

Nashville, TN 37240
United States

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