Too Big to Be Small

Summary

Slate Money – “Too Big to Be Small” (April 11, 2020)

Hosts: Felix Salmon (Axios), Emily Peck (HuffPost), Anna Szymanski (Reuters Breakingviews)

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Episode Overview

This episode (“Too Big to Be Small”) dives into how the COVID-19 crisis has upended assumptions in finance, economics, and daily life. The hosts reflect on how their own beliefs and priors have been shaken, discuss the Federal Reserve's unprecedented interventions, debate the effectiveness and consequences of various rescue programs, and consider the broader impact on employment, cities, and markets. The recurring theme: In a crisis of this scale, everyone’s certainty has been challenged, and institutions are rewriting their playbooks in real time.

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Key Discussion Points & Insights

1. The “Bayesian Crisis”: How Certainty Has Collapsed

[00:25 – 05:18]

• Felix Salmon introduces the concept of a “Bayesian crisis,” suggesting that if you haven't changed your mind about anything during this crisis, you haven’t been paying attention. The COVID shock has made even strong convictions feel less certain.
  • “You shouldn't believe anything as strongly so as to withstand the force of this particular crisis.” (Felix, 02:34)
• Anna Szymanski: The crisis has exposed how fragile systems are, leading her to question past attitudes toward industries like airlines and to see the growing need for more robust regulation.
  • “We've just seen how incredibly fragile things are in a level that I think none of us fully appreciated...” (Anna, 03:04)

Memorable Exchange

• Anna: The financial system needs smart regulation – not just more or less regulation (03:58)
• Felix: The Fed’s liquidity playbook has become clear thanks to the crisis, with fast, forceful action (04:36)

2. Changing Minds About the Federal Reserve

[05:18 – 10:53]

• Felix explains how he underestimated Jay Powell. After Yellen’s departure, he’d worried Powell and his “B team” would falter. Instead, “Powell turns out to have been even better than Yellen...he has been basically the only really competent part of the federal government and has done everything right.” (Felix, 06:41)
• Anna raises concerns about the Fed’s aggressive interventions, noting that long-term effects remain unknown, and that a “Powell put” could create dangerous incentives for risky behaviors (08:01).
• Felix: Powell focuses on employment and liquidity, not rescuing stock prices—a distinction from the “Greenspan put.”

3. Political Priors: Crisis as Rorschach

[10:53 – 13:36]

• Emily Peck notes most people’s core political beliefs have only been reinforced, not changed, by the pandemic. People use the crisis as further evidence for preexisting views on the safety net, healthcare, sick leave, etc.
  • “This crisis is like some kind of Rorschach test...instead of having their minds changed, they're using the crisis to have a new reason for their old way of thinking.” (Emily, 11:01)
• Emily shares personal shifts: newfound appreciation for doomsday prepping and increased doubts about dense city living (12:36–13:36).

4. Humility in Prediction & The Future of Cities

[13:36 – 15:20]

• The hosts admit to underestimating the virus and its economic effects—a lesson in the limits of forecasting.
  • “I think this is important going into an age of climate change...we should expand what is in the realm of possibility.” (Anna, 14:33)

5. The Main Street Lending Facility – “Too Big to Be Small”

[15:56 – 24:31]

• New Fed program targets mid-sized firms: “too big to be small, too small to be big.” These are loans, not grants, generally for companies with up to 10,000 employees; minimum loan: $1 million (17:18).
• Debate about effectiveness: Unlike forgivable PPP loans, these are not designed to protect payrolls directly, likely helping most with survival rather than job retention.
  • “I worry it's not going to have a lot of effect on employment.” (Felix, 19:00)
  • Emily: “I think the retention ship has sailed. 16 million people have filed for unemployment in just the past three weeks.” (20:48)
• Goal now is to keep companies solvent so they can rehire post-crisis, even if fewer employees (23:27).

6. Municipal Bonds & State/Local Bailouts

[24:31 – 27:16]

• Fed is now backing up to $500B in loans for states, counties, and cities, addressing core cash crunches (25:57):
  • “Municipalities have faced this massive solvency problem…” (Felix, 24:44)
  • Emily: “I think this is a really big deal. It's really important right now because these locations are struggling a lot.” (25:19)
• Felix notes: The Fed isn’t taking the risk; Treasury is. He credits Steve Mnuchin for quietly accepting this risk on behalf of the government (26:14).

7. Fed’s Expanding Role – Where’s the Line?

[27:16 – 31:42]

• The Fed is now supporting nearly all corners of credit markets, including “fallen angels” (companies downgraded to junk status).
• Anna is uneasy: Protecting market functioning is one thing, but supporting high-yield/junk bonds blurs the line between liquidity and moral hazard:
  • “I think this is one of the first times where I've started to kind of question whether the Fed is crossing that line…” (Anna, 29:33)
• Felix: The distinction is perhaps moot—the aim is to maintain liquidity and prevent systemic collapse, even if asset prices rise as a byproduct (29:47).

8. The Astonishing Rally in “Stonks”

[31:42 – 38:25]

• Despite economic collapse, the stock market has soared—up 25% in 12 sessions, after a 35% drop.
  • “The stock market went up by 25% in 12 sessions. It was quite astonishing.” (Felix, 31:45)
• Anna: Some of the crash and rebound were technical, related to forced selling and market dynamics—then stabilization when forced selling ended (32:53).
• Felix: The rebound only makes sense if you expect a rapid “bounce back” to normal. He suspects the explanation lies in the nature of the stock market itself: It reflects big companies, which are best able to weather the storm and, thanks to crisis, may increase their market share as smaller competitors fail (36:07–36:28).
  • “The big companies are going to have a competitive advantage coming out of the crisis because all of their smaller competitors have gone bust.” (Felix, 36:08)
• Emily: “Where the pain has been...all the mom and pops going out of business...none of that’s priced into the stock market.” (36:28)

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Notable Quotes & Memorable Moments

• Felix Salmon:

  “You shouldn't believe anything as strongly as to withstand the force of this particular crisis.” (02:34)
  “Powell…has been basically the only really competent part of the federal government.” (06:41)
  “If you haven't changed your mind on something, then you haven't really been paying attention.” (00:54)

• Emily Peck:

  “This crisis is like some kind of Rorschach test...instead of having their minds changed, they're using the crisis as a new reason for their old way of thinking.” (11:01)
  “I think the retention ship has sailed...16 million people have filed for unemployment insurance in just the past three weeks.” (20:48)

• Anna Szymanski:

  “We've just seen how incredibly fragile things are on a level that I think none of us fully appreciated beforehand.” (03:04)
  “When you're talking about [the Fed] stepping into the high yield market...I think that's a little different because there's real credit risk here.” (28:16)
  “It is very hard to unwind these things [extraordinary policy measures]...as we've seen with QE and exceptionally low rates.” (31:03)

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Important Timestamps

• 00:25 – Main theme and “Bayesian crisis”
• 06:41 – Rethinking the competence of Jay Powell and the Fed
• 11:01 – Political beliefs and crisis as Rorschach test
• 13:36 – Changing views on cities and personal behaviors
• 15:56 – Main Street Lending Facility and its implications
• 24:31 – Municipal bond relief and government support
• 27:16 – Limits of Fed intervention: junk bonds and risk
• 31:42 – Stock market rally and what it does (and doesn’t) represent

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Numbers Round & Global Perspective

• Anna: $15 billion – Latin American countries trying (with little hope) to pool funds for medical supplies. Saddest quote: “Well, it’s worth a try.” (Anna quoting Peru’s president, 38:35)
• Felix: $141 million – Amount Wimbledon will receive for having pandemic insurance (rare among sporting events). (Felix, 39:36)
• Emily: 63% – Share of Virginia’s jobless claims filed by women in late March, reflecting the “she-cession” nature of the downturn. (41:05)

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Tone and Takeaways

The conversation balances expertise, humility, and dry wit. The hosts question their own prior assumptions, praise institutions (and people) that exceeded expectations, and express skepticism about narratives of quick recovery. They agree that COVID-19 has made all economic forecasting more fraught and has exposed—and perhaps worsened—underlying inequalities in the system.

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By the end, listeners are left with a clear sense: These are unprecedented times, and the Fed, Treasury, and policymakers are improvising on a massive scale—with no guarantee that the long-term outcomes will be as desirable as the short-term rescues. And, above all, even those best-equipped to interpret events are finding their priors upended—just like the rest of us.

Transcript

[A]

Hello, and welcome to the Too Big To Be Small edition of Slate Money, your guide to the business and finance news of the week. I'm Felix Salmon of Axios. I'm here with Emily Peck of HuffPost.

[B]

Hello.

[A]

And I'm here with Anna Shymansky of Breakingviews. Hello. And we are going to talk about the Reverend Thomas Bayes. We're going to talk about what I consider to be the Bayesian crisis that we're going through right now and what that means. We're going to talk about the stock market, which is going up. Who knew that stocks can go up in a crisis? Well, they have done. They've gone up quite a lot. We're going to talk about why and of course, as ever, it seems, we are going to talk about the Fed. It's the one conversation that doesn't seem to go away. They just came out with another $2.3tr trillion, including for companies which didn't really have a lot of support up until now. So we're going to talk about that. All that and the Slate plus about zoom. Coming up on Slate Money. Okay, the Bayesian crisis. This is what I've decided I'm calling it because I reckon that if you haven't changed your mind on something, then you haven't really been paying attention. The Reverend Thomas Bayes, I believe was his name, who basically invented this way of looking at the world, this sort of probabilistic way of looking at the world, where you have opinions which are not certainties, they're just opinions. So you can say, like, I believe something with, you don't necessarily need to put percentages on them, but for the sake of argument, let's say I, I believe a statement with like 90% probability. And then some new piece of information comes in which might make you more inclined to disbelieve that statement. And then the question is, how much do you weight that new piece of information and what does it do to your priors? What does it do to that 90%? And so what it might do is it might, you might still believe it, but it might go down from 90% to, say, 60% because you have this new piece of information which makes you mistrust what you believed before, rather than just vacillating backwards and forwards of like, I think it's true, I think it's false, I think it's true, I think it's false. Like, you become much more uncertain about anything. And I think maybe that's part of why I'm calling this the Bayesian Crisis, it's not so much that people have completely changed their mind like flip to switch from true to false on things, but it's more that they're much less certain about the things that they do believe. This is the crisis which has blown up a bunch of priors, or at least should have done, because you shouldn't believe anything as strongly so as to withstand the force of this particular crisis. That's my theory. Anna, do you buy it? And if so, what have you changed your mind on?

[C]

Yeah, I mean, I think definitely. I mean, this is a very unique crisis, so it's hard to draw a ton of conclusions from something that is so unique. But at the same time, yeah, I mean, I think number one, we've just seen how incredibly fragile things are in a level that I think none of us like fully appreciated beforehand. And then that leads one to really question a lot of our certainties about how bad things can get, how quickly things can change. And you know, and then on top of that, I mean, I think personally one of the things, you know, there are a number of things, but I would say like regulation of the airline industry. I mean, I think some of those things are things that personally I've been like, yeah, you know, we, we probably are seeing some additional really vital parts of the economy that are probably going to have to have some more rules moving forward or otherwise. Every time we have a crisis, we're going to end up having to bail them out.

[B]

So the crisis, Anna, has made you more supportive of regulation, government regulation?

[C]

Well, I wasn't opposed to government regulation before. I just thought it depended like smart. Government regulation makes sense. Government regulation that isn't smart doesn't make sense. And I think that this has shown us there's an area where clearly there was a gap and we probably need more, you know, similarly, if you're looking at what happened with the banks, on the one hand, we definitely saw that making them whole more capital was a very good idea because it allowed them to survive in this crisis and potentially help with the recovery. You know, on the other hand, we did see that a lot of the fears about problems with liquidity as a result of regulations also happened. So, you know, we'll figure out how to deal with that moving forward.

[A]

Well, I think we've already figured out how to deal with that. Right? I mean, like, that is a problem that was addressed quite effectively by the Fed. If and when there is a problem with liquidity due to some crazy tail event like this, the Fed now has a playbook in terms of how to deal with that.

[C]

True. I mean, whether we want the Fed to be jumping in this aggressively every single crisis is, I think, a question and a conversation we're going to have to have after this. I think, again, this is such a unique crisis and it's so extreme and the levels of unemployment are so extreme that I think it makes sense to just say, okay, let's let the Fed do whatever. But I think we will have some very serious questions and conversations afterward.

[A]

You see, that's, that's the thing which I changed my mind about, and I think it's where I probably disagree with you, is that the thing I've changed my mind the most about is J Pals Fed that in the financial crisis we had Ben Bernanke, who has literally spent his entire career studying the Great Depression and understood the way that central banks could and should respond to major crises. And he did exactly what he needed to do. He was then succeeded by Janet Yellen, who as far as I can make out, has never been wrong about anything in her entire career. And the smartest central banker of all time. And she was just incredibly competent and smart and in many ways even better than Bernanke. And then suddenly Trump fires Yellen just because she's short or a woman or something, and replace his with this guy Jay Powell that no one's really heard of, has no real academic credentials. And all of the big names on the Fed board like Stan Fischer and people like that, they all leave. And there's this general consensus that the Fed is now the B team, that it's run by a bunch of like, you know, it's there, it's still powerful, but the caliber of the Fed has gone down. And what happens in this crisis. But Jay Powell and the Fed more generally more than rises to the occasion and just takes the 2008 playbook, runs through it and says, now what? What else can we do? And does a whole bunch of other things on top and has been basically the only really competent part of the federal government and has done everything right. And I've been seeing a bunch of people saying that, you know, yes, Yellen was better than Bernanke, but yes, Powell turns out to have been even better than Yellen. Now, that's not because he's smarter or more necessarily more competent, but it does show how central banks can learn and they can improve over time. And the Fed is one of those institutions which seems to have got better over time. And it was clearly, you know, well placed to react to this crisis with alacrity and efficiency and efficacy. So that's one of the things I've changed my mind about. And I, I'm, I don't for a minute share your concern that like in the future, when there's a liquidity crunch, maybe we don't want the Fed to need to respond. I'm like, why not? If it works, it doesn't seem to do any harm.

[C]

I would say, on the one hand, I agree with you in the sense that I think a lot of us really questioned Powell's communication skills and a lot of other things going into this crisis. And he has, he has acted very well. And in some ways it maybe shouldn't have been surprising because he's a markets guy and he clearly understands the market's probably better than a lot of the other Fed chairs. So it's reasonable that he would function well here. My concern is just we're trying out a lot of very extreme things that we've not necessarily ever done before and we don't know what the long term ramifications are. So it's possible you're right, and that we'll find out that everything we've done, if it's done on a short term basis, works perfectly well and we can simply do that every time moving forward, However, I don't think we want a financial system where you're going to have so many market players saying, guess what? I can do almost anything I want. Because this Powell put is now, it supports everything. If anything happens, well, guess what? The central bank's going to step in and I'm going to get bailed out. I think that, I'm not saying this is a conversation we need to have now because I think we're still in the midst of a crisis, but I think after this, I do think that's a conversation we need to think about.

[A]

I mean, again, this is something where I think he's come out pretty strongly. And the kind of put that I don't like was the Greenspan put where he would be aggressively intervening when stock prices went down. And I think you're absolutely right that that's a bad thing. You don't want stock traders to say, well, if stock prices go down, the Fed is going to come in and rescue us. And one of the good things I've seen about the power messaging is that he has never once talked about stock prices. As far as I can make out, he does not seem to care about stock prices. He does care about things like, you know, overnight liquidity and he will go in where those kind of markets are broken and fix those markets. And he cares about, as he said this week, he cares about the individual Americans who have lost their jobs and their livelihoods through no fault of their own and are, you know, making a sacrifice, possibly unwilling, but they're making the sacrifice all the same for the greater good by staying home and not going to work and losing all of that income. And he's like, we need to go in and make them whole. Now, obviously, that is mostly a fiscal decision. That is the decision that has to be made by Congress and insofar as it happens, will be made by Congress. But he has made it absolutely clear that, that if the way to do it turns out to be to involve the Fed in any way, he will do anything he needs to do to help those individual Americans. And it's very rare for the Fed to be able to help individual Americans. And I like the way that he's talking about them, the ones without investments in the stock market.

[B]

So the topic at hand is how the crisis has changed people's minds. And I feel like as far as politics goes, Jay Powell, I mean, he's the exception. Like, he changed your mind about who he is and what his capabilities are. But as far as the crisis changing anyone's political positions or sort of like, policy expectations, I feel like this crisis is like some kind of, like, Rorschach test. It's like, if you thought before that the safety net was weak, you're like, freaking out about it now even more. And you're going around saying, see, I told you so. It's not good to tie health insurance to employment. We needed Medicare for all. Or like, see, I told you so, we need paid sick leave. Or see, I told you so. X other subject, I feel like, like you even see it in the policy solutions coming out of the, of the White House. And even like Nancy Pelosi, like, people are saying in the next stimulus bill they want to have, like, a capital gains tax cut and, you know, just like, dumb things that aren't going to help people are. Instead of having their minds change, they're using the cris to sort of, like, have a new reason for their old way of thinking. I don't see a lot of minds actually being changed. I did in politics.

[A]

I think you're absolutely right.

[B]

Yeah. Or even I googled the topic anyway to see, like, has anyone written this? Because it seems so obvious, like, my mind has changed about things and the only things I could find were, like, how coronavirus changed my mind about meditation.

[C]

It has not changed my mind about meditation. Meditation is so much.

[A]

What have you changed your mind on, Emily?

[B]

So I also had my opinion solidified on safety net stuff, but I've changed my mind on not. I used to like to work from home, but now I'm convinced that you have to work from the office. I've also been one of these people that were like, not making fun of doomsday preppers, but kind of making fun of doomsday preppers. Like having extra provisions in the house in case of some kind of catastrophe. I'm fully on board now with having like 10 pounds of rice in the basement. Whatever we need. Like, I want to make sure going forward we have like an emergency cash stash and like a plan to get out. You know, after 9 11, I was one of those people, I lived in Manhattan and I like doubled down on Manhattan. I was like, this place is great. It's fine. I moved like, farther downtown even as, like, all my friends were leaving. But now my mind is a little bit more like, ooh. Living in the city seems like it could be very challenging for a long time. So my mind's changed on that too.

[A]

Yeah. The future of cities is something which I want to dive into at some point because this is clearly a disease of density. You know, like, the closer you are to people, the more likely you are to catch the illness. And New York is the densest city in America, and it is the epicenter of the crisis. And there are lots of reasons why it is the epicenter of the crisis. And the density is not the only one, but it's definitely one of them. And yeah, the, the future of dense cities is something which I've been thinking about quite a lot because by definition, cities are dense. Like everything that everyone has been talking about about, like, we need more density, we need more walkability. That whole, you know, episode we had with Con Daugherty from the New York Times, I think everyone's going to start revisiting those kind of things because there's a clear downside.

[C]

I mean, I think we'll probably should have another longer segment on that at some point. But I would also just like to call us all out for our perhaps showing that we're not the world's greatest forecasters. I fully put myself in this that I remember the first time coronavirus came up on the show. We were all like, eh, you know, like, I'm sure it'll be fine. And then I know personally, when the financial stuff started happening, you know, I was like, I'm sure you know, it's not going to be that bad. You know, granted, at the time I didn't think we were going to shut down a third of the economy. But I mean, this really though, does show. And I think this is important to think about going into an age of climate change when things are going to be happening that we've never seen before, that we should expand. Like what is in the realm of possibility when we're thinking about what might happen.

[B]

Remember Felix, you were talking about you had a trip plan for the summer and a friend of yours said, you want to get insurance on that because you might not be able to do it because of coronavirus. And we were all like, that's crazy. And now are you taking that trip?

[A]

I am not taking the trip, but I'm pretty sure that the insurance would not have covered it anyway. Like, getting pandemic insurances is very expensive and very difficult. And it's not standard in virtually any insurance policy. Because you know who did forecast this was all the reinsurance companies. They knew about it.

[B]

Excellent.

[A]

So, Anna, we finally got the Main street lending facility this week from the Fed. This is the final shoe to drop in terms of the grand buffet of options that the Fed is rolling out to lend money to absolutely anyone who wants money. And it was part of an extra $2.3 trillion of firepower that the Fed came out with on Thursday morning. And what do we think of it and what is it?

[C]

So there are a lot of things in this, this package that was announced, but the lending facility will basically kind of COVID that gap in between that kind of five companies that had 500 employees or less and companies that were kind of very large companies that were getting bailouts. So what we're seeing now is that the Fed is going to be more directly funding a lot of these companies by buying these loans from lenders.

[B]

So the companies I wrote down, they're too big to be small and. Too small to be big. Yeah, they're medium sized companies.

[C]

It's a deal.

[B]

They're getting, they're getting loans now from the Fed. They're not as good as the loans through the PPP program because they're not forgiven. They don't get forgiven.

[C]

Right?

[B]

Yeah, yeah.

[C]

These are actually, actually loans, not grants that are pretending to be loans.

[A]

Right.

[B]

For companies that have up to 10,000 workers. So like decent sized businesses.

[A]

And the minimum loan is a million dollars. So this is not mom and pops. And the other thing is that like, if you want to increase a loan, you can do that, but in order to increase the loan, you need like an undrawn credit facility of basically at least three and a half million dollars. So we're talking companies that need tens of millions of dollars, that have real relationships, wholesale banking relationships with big banks where they're moving tens of millions of dollars back and forth, but they're not big enough necessarily to be active in the bond markets. Because what the Fed originally did was support the corporate bond markets. And these companies, while you can still have thousands of employees and tens or even hundreds of millions of dollars of revenue, you might not be issuing bonds at that point. And so the Fed is coming in and helping these sort of, I guess what you'd call mid sized companies.

[C]

Yeah, and I mean, I think it makes sense. I mean, I think right now when we're talking about support for corporations in general, like you want to get companies through this crisis now. I mean, I think once you get beyond this crisis, that becomes a different question of, you know, whether weaker companies should simply be allowed to fail. However, obviously companies are going to be struggling with access to cash to pay basic things like payroll and, you know, rent and keeping up with things. And we don't want all of these companies to fail when it for, for a crisis that wasn't caused by them. So it makes sense that this is just one more instance of the government stepping in and the Fed stepping in.

[A]

So let me ask you, Anna, let's say that I'm a company with 5,000 employees. Let's say I'm a, I have a mini restaurant chain, say, and all of my restaurants are closed and I have 5,000 employees. Why on earth would I take on more debt from the Fed or anyone else to keep those employees on payroll when I need to pay back that debt in the future when those employees are not generating any revenue or. It seems to me that, you know, the genius of the PPP is that it's a forgivable debt. And so basically the government's just paying me to keep my employees on payroll for these medium sized companies. It's not. And so they don't really have any incentive to do that. This, this will help for maybe some like utility bills, rents and other sort of cash flow things that come up even when they're not operating, even when they're closed. And it might help get them spun up again and get them moving again once the economy starts to reopen. But I do worry that it's not going to have a lot of effect on employment.

[C]

I'm not sure totally about that. I mean I question how the effect of all of these employment, to be perfectly honest. But it is true. It is extremely expensive to hire people. It is extremely expensive to get good talent at almost every level. And so I think that if you have companies that have the ability to keep more staff on for a period of time, even if they are going to be taking on more debt, they may be willing to do that. Now you're right that I question whether all of these, all of these programs are going to actually keep as many people on the payrolls as we'd like. Because I do think a lot of companies may say, look, I think things are going to be really rough for a long period of time after we get out of this. You know, I think the economy is going to be really weak. I think I'm going to probably need some smaller staff. But that's, that's a separate question.

[B]

I think you're, I think Felix is right. I think the, the, the retention ship has sailed. I mean, 16 million people have filed for unemployment insurance in just the past three weeks. I feel like that's one in ten.

[A]

Of the working age population.

[C]

Yeah, yeah.

[B]

I mean, who is left to, I mean, of course they're, knock on wood. We all have jobs still, so we're left to retain, I suppose. But I mean, yeah, I kind of feel like.

[A]

Emily, I have, I have a question for you.

[B]

Emily missed the boat.

[A]

Do you know anyone or anecdotally, how many people do you know who A work in the private sector for a for profit corporation, B, are not really working right now, they don't have anything to do because they have to shelter in place and stay at home and C, are still on payroll. How many people fall into all three categories?

[B]

I don't know that many people like that. I spoke to one person like that this week who is working at a restaurant and she's still on the payroll but is not working. She's still on the payroll but not actually working at the restaurant because it's closed during takeout. So that's one person. That's one person. I don't, I don't. I've spoken to a lot of unemployed people and then, you know, at work I speak to employed people and I don't know that many people that are in this, in this middle ground.

[A]

I mean we, we have like at Axios, we have like events stuff who have, who are staying on payroll and still paying them and we're, you know, they obviously have much less to do right now because no one's, you know, going to events or organizing events. But we're also trying to, we're also being pretty, you know, proactive about them doing other things. It's not like they're just sitting at home and sort of twiddling their thumbs. I know of one person who fits into this category who is like a, who had just been hired as an assistant and now doesn't really have anything to do because there's not even an office to go into. But I think, I think it's quite a small number of people that we're talking about here.

[B]

Yeah, I mean, I think the cleaners at our office are sidelined right now because our office at HuffPost is shut down and they're still being paid. So maybe that's a little slice that would count. But yeah, it seems like if you needed your people to stay home and you, you had no work for them to do and you were a company, you laid them off like millions and millions of people.

[C]

Yeah. I mean, the one thing I will say though, that, and this is, I think also the thinking behind some, a lot of these loans is that yes, obviously in a perfect role, you'd like to retain a lot of this workforce. But even if they aren't retained and they go on unemployment, if you can keep the companies solvent, if you can keep them functioning through this crisis, then they can rehire people afterward.

[B]

They won't rehire as many people, probably.

[C]

Right. They won't hire as many people. But if we have, if all of these companies are defaulting because they can't access cash so they can't meet their loans, then you're really not going to be rehiring people after.

[A]

And then in this sort of post crisis world is obviously going to have much higher unemployment, there's going to be a lot more job seekers, companies who do have the liquidity and resources to go out and hire good people. Probably it's going to be easier to hire than it has been in many years. And so companies are going to want the cash to be able to do that, you know, so, so you can see how this is going to help the recovery. And obviously it's going to help companies prevent outright defaults between now and the recovery because they can just borrow new money basically to service their maturing debt. I don't think it will have a huge effect on employment in the short term, but perhaps over the medium term it will, it will increase the speed at which people start becoming employed again.

[B]

Do we need to talk about what the Fed's doing around municipal bonds? How it's, oh, yes, please.

[A]

Emily, tell me about what the Fed is doing.

[C]

Or can we talk about the fact that the Fed is propping up the higher.

[A]

This is another one where you're like, yeah, the municipalities have faced this massive solvency problem, which is that their expenses have gone through the roof at exactly the same time as their revenues have gone down. They don't have any sales tax revenues. They have to have much bigger, you know, safety net expenses. The transit systems, all of their revenues have gone down. And so they're losing enormous amount of money. And again, the Fed is like, well, do you want to borrow it? And they're like, well, I suppose, but like, really, I just don't want that debt.

[B]

Yeah, but I feel like, I think people were sort of like really wanting the Fed to do something around this. And so they finally did. They're going to back loans up to about $500 billion to states, counties and cities with significant populations. And I think this is a really big deal. It's really important right now because these locations are struggling a lot. And we saw what happened in the Great Recession with municipal bonds. If I talk more about it, I probably will get something wrong. But basically states and cities really struggled in the Great Recession and I feel like there's increased awareness now that that can't happen again.

[A]

And I'm just going to jump in. So I want to just jump in and say something kind of important here, which is we're talking about the Fed lending to small businesses. We're talking about the Fed lending to medium sized businesses. We're talking about the Fed lending to municipalities. The fact is that the Fed is lending to Treasury. It is lending to a special purpose vehicle which is set up by the Treasury Department. All of these loans are recourse to treasury and if any of these people default, it's treasury which takes the losses and not the Fed. The Fed is taking no credit risk here and none of this would be possible without Treasury. And people aren't talking about Treasury a lot here. But again, just like I kind of changed my mind on Jay Powell, I've kind of changed my mind a little bit on Steve Mnuchin. He has done. He has signed on the bottom line of all of these programs and he has basically said, yeah, I'm gonna take all of the credit risk for all of these programs. And he's done it without complaint and without like going out and making a big song and dance about it. And good for him.

[B]

Basically, he's the, maybe the only competent person in the White House. Is that true? I think it might be true.

[A]

It might be true. I mean, yeah, I have kind of changed my mind a little bit on the competence of Steve Mnuchin as well.

[B]

He appears to be actually competent, we can say that now about him. And that's actually a big deal or at least relatively. Relatively in normal times, no, but now it's like it's actually a miracle.

[A]

So Anna, the Fed is basically doing this clever little two step with the treasury in a bunch of different areas, right? The, it is creating these liquidity facilities which are backstopped by treasury to support small businesses, medium, medium sized businesses and large businesses. And that covers basically everyone. And it even covers the so called fallen angels who are companies which used to have investment grade bonds but then they got downgraded with their credit rating for obvious reasons. And so now they're junk grade bonds and they're included too. Everyone gets included, everyone has won, also get prizes and like again, that seems like the sort of equitable way of doing things. But you have a problem with this.

[C]

So I'm kind of of two minds of this. Like there's the part of me that's like, yeah, I guess it's fine, we should just do more rather than less because of the fragile state of the economy. So okay, fine. However, I do think there's a difference between the Fed stepping in to make sure that, that the markets function properly, that there, you know, there's sufficient liquidity that you're not getting crunches, that kind of thing. And I think that that's reasonable and I think the Fed has, has done that. When you're talking about them stepping into the high yield market, whether buying high yield ETFs or these companies that after March 22 are downgraded, I think that's a little different because that's the fear of a potential liquidity issue. It's, it's this idea that well, spreads have really blown out for high yield and that's not fair. Fair. But I'm like, is it because there's real credit risk here?

[A]

No, there's, definitely, there's definitely real credit risk here. And so now we're not here. Again, the Fed is not taking that credit risk. But again, I don't, I don't care.

[C]

About taking credit risk.

[A]

No, no, I don't think this is a markets thing. I think this is exactly the same thing which is these companies need liquidity and this is a way to get liquidity to the companies. I don't think they're supporting the market here. So so much as they are just trying to create mechanisms to allow these companies to be able to continue borrowing money when they need the money most.

[C]

I see, I think that we're, this is one of the first times where I've started to kind of question whether the Fed is crossing that line. And it's a very hard line to define whether you're, this is actually a functioning thing or whether this is about propping up prices.

[A]

This, I think, I think it's indisputable that if a junk rated company that without the Fed would have a lot of difficulty rolling over its debts and borrowing money, then with the Fed is able to roll over its debts and borrow money, then obviously the value of those debts goes up and the markets are supported and asset prices rise. And so it's a natural second order effect for the Fed to be supporting markets. And in fact on some level the, that's the first order effect. What the Fed does is it goes in and supports the markets and that support creates the new liquidity which allows the companies to survive. And I would probably agree with you that supporting the markets part of things is less important. The keeping the companies alive side of things is more important. And yeah, we can discuss on a future episode the question of whether the companies would stay alive anyway, you know, under death from possession financing and that kind of thing. But we, I don't think that really fits in here.

[B]

I don't think it doesn't seem like it's the time to like just let it roll and see what happens. Even, even for those companies. Right?

[C]

No, and look, I pop them up.

[B]

For now, it's fine, deal with it.

[C]

Later, it's probably fine. And that's why I said like, look, at the end of the day, as I said, I'm torn on this one because I would probably say yes to fine. As I've said, it's very fragile. However, it is very hard to unwind these things as we've seen with QE and exceptionally low rates. It is not. Or ask the bank of Japan how easy it is to stop doing things once you start them. So just, I guess as I said right now, probably fine if this is a short term thing, probably fine if it continues, that means you're not going to price in risk which is going to increase leverage in the system as it has the past 10 years. And that is a genuine concern that sets the stage for the next crisis.

[A]

Talking about asset prices, let's talk about stonks because we have just had, I mean, I don't know if you noticed this. One of the most astonishing, one of the strongest and fastest stock market rallies in the history of the stock market. The stock market went up by 25% in 12 sessions. It was quite astonishing. Fun with percentages like, basically it goes down by 35% and then it goes up by 25% and it ends up 20% below where it started. Yay. Okay, so that's where we are. We're still below the highs, but we are back at what, on any objective level looks like pretty healthy rich valuations on the stock market. PE ratios are obviously really high because earnings are falling. The NASDAQ is higher than it was just five or six months ago. So that bit, especially while all of this extra debt is being taken on board, looks like it doesn't make quite so much sense. So I want to talk a little bit about why have stocks gone up?

[C]

I would say whenever you're looking at the stock market, a, there's never one cause. And you're always having to look at some combination of technicals and fundamentals. I mean, I think the thing on you'll hear people say is, like, well, it looks like maybe we're seeing the light at the end of the tunnel. You know, maybe we're seeing some improvements in Europe in terms of the virus. So, you know, things are calming down. And there may be some truth to that, and I'm sure there is. But I would probably argue that more of it has to do with a little bit more the technical side, which is that, you know, what we saw at the kind of height in March was a lot of strategies unwinding. So. So you ended up getting a lot of for selling. Things went down very quickly. And it raised the question of, do, you know, do we really think these companies lost over 30% of their value in two weeks? So it's not overly surprising that once the liquidity crisis kind of ends and the market calms, you might get back to a place of where, okay, this is actually where we think valuations are, that maybe it just sold off too much, I think.

[A]

Yeah, I'm not sure if I agree with that, but I understand that in theory, but in practice I kind of don't because I think in order to justify valuations where they are, you basically have to expect a really rapid bounce back to the status quo ante and bounce back to full employment and bounce back to record high earnings and bounce back to a great global economy which is working and firing on all cylinders again really quite quickly. Like, as soon as the second half of this year before we even have a vaccine. And I don't think that's going to happen. And I think that. Did companies in general lose 30% of their value overnight because of the pandemic? Yeah, I think they probably did. In terms of expected future earnings, in terms of expected future growth, in terms of the way that the global economy is going to be much less efficient and much more robust in terms of the weight of extra debt that is going to slow down growth, I think, yeah, I didn't for a minute think that the 35% decline was irrational. The 25% rebound seems less rational to me. But yeah, I do think that there were some fears in the market about the spread of the virus. They were like epidemiological fears which turned out not to be true. That the hospitals around the world are not overloaded in the way that some people feared. And the curves seem to be flattening in a slow way but clearly visible way. And maybe that's part of it. My favorite explanation here though, is that a little bit related to what we were talking about, big companies and small companies, that the stock market by definition is big companies. Stock market indices are big companies. The s and P500 is basically the 500 biggest companies. And it's the big companies who are best placed to weather the crisis. They're the ones with the balance sheets. They're the ones who are going to survive. They're the ones who are going to have a competitive advantage coming out of the crisis because all of their smaller competitors have gone bust. And so I think that maybe what we might be seeing is like the winners and the big getting bigger in the post virus economy rather than the stock market reflecting corporate America as a whole.

[B]

That makes a lot of sense to me considering where the pain is or the. Where the pain has been since the epidemic hit. It's all the mom and pops going out of business, all the little restaurants, the domestic workers. Like 80% of them don't have jobs. Like, none of that's like price into the stock market. It's not actually as reflective of this crisis as maybe as these other things are, because these other things aren't in there. Like Felix was saying. Also, no one thinks this is like the end, like where the, the rally this week means we're in a recovery mode. Like, it's obviously the stock market's going to go down again. Right.

[A]

In terms of the technicals that Anna was talking about, I think that there's a very good chance that the stock market will go down again. But I also think there's a very good chance that the stock market will go down much more slowly next time or this time if it goes down. If we do wind up hitting those lows again, it could take a while to get there and that we might have. The period of extreme volatility might be behind us.

[B]

Okay, yeah.

[C]

I mean, if history is any guide, we would expect it to go down again. However, this crisis has been so odd and unique and quick that it's also entirely possible it won't. I mean, I also think we do have to mention that the support of the Fed, I also think, is playing a role here. The Fed support has propped up prices for the last decade. So I do think that that is definitely playing a role here. I think you guys are right. I mean, I do think that there probably is going to be a lot of consolidation, but I also think when you're looking at the value of a company, so much of the value of that company is its earnings more than five years out. So I think that that's also coming into play, like as the market calms down. Even if you think this is going to be really bad and it might take a few years to recover, you're probably not going to be discounting the value of a company as extreme as if you thought, oh, my God, everybody's going out of business.

[A]

Let's have a numbers round. Anna, do you have a number?

[C]

I do. My number is 15 billion. So the president of Peru, Martin Vizcara, was trying to arrange this credit line for Peru and a number of other latam countries. And the reason I bring this up is because it included what is perhaps, I think the saddest quote I've heard during this crisis, where part of the reason they're trying to get this money is obviously because a lot of these countries need to access medical supplies and, you know, PPE and all of that. And you know, when he was kind of talking about how, you know, okay, we're going to try to band together and buy in bulk and, you know, his ability to actually buy these supplies, his comment was, well, it's worth a try. And I was like, that's the saddest thing I've ever heard that you have. All of these countries that are honestly, like, we don't know if we're actually going to be able to buy any of these medical supplies. So.

[A]

So this is, this is the Corona bonds, but for Latin America, they all, they pool their credit ratings to be able to buy medical supplies.

[C]

Well, that would try to get a credit line to then, in theory, be able to bid maybe for medical supplies, which they probably won't be able to get because everybody will be hoarding.

[A]

My number is 141 million, which sounds exact, but in fact, it's not exact. It's somewhere in that neighborhood, which is the amount of insurance payout that Wimbledon is going to get because it had to be canceled for the pandemic. It is the only major sporting event, as far as I can make out, that had pandemic insurance. They looked at sars, I believe, and said, wait, hang on a sec. This thing could actually really ruin our finances. And they've been spending about one and a half to $2 million a year in insurance premiums to protect against the pandemic, which no one else seemed to think was a good idea. Except for now, obviously, it turns out to have been a great idea.

[B]

Good for them.

[A]

Good job.

[C]

I think maybe the NBA. I think maybe it was the NBA had league actually had pandemics listed in some of their contracts.

[A]

Yeah, no, definitely. Like, employment contracts are harder to change. And there's a whole thing going on right now with the English Premier League and whether the teams can pay the players less if the players aren't playing, which is a separate thing. But in terms of actual insurance contracts, the pandemic ones are rare because the insurance companies, as we said, did see this coming, and they're like, if you want to insure against a pandemic, that's going to cost you millions of dollars.

[C]

Yeah. The insurance companies always win.

[A]

Emily, what's your number?

[B]

My number is 63%. That is the percentage of jobless claims filed in Virginia in the last two weeks of March that were fil by women. So women filed 63% of the jobless claims in Virginia in just the last two weeks of March. And this is data that comes from the Fuller Project, which looked at state unemployment applications to see who's filing claims, women or men. And what's sort of interesting to me is that unlike the great recession, this time around, it's like a. I'm sorry for this. A she session or femme session.

[A]

It's not a man session.

[B]

Not a man session. No. And I'm gonna.

[A]

So is Virginia representative. Is what we expect. Is also the case in the rest of the country as well.

[B]

Yeah. So, like, very early data, before the job losses really picked up steam in March, federal data showed women made up a majority of people getting unemployment insurance. And in the five states that Fuller looked at, women made up A majority of the people filing claims. This is like a woman jobs crisis. I mean, men are losing jobs too, obviously, but for the first time, it's. Women make up the majority of the jobless because this hit the service sector. This is like a. It's not a production recession where people aren't making things, it's a service recession where people aren't buying services. And the people who do the service stuff, for the most part, are women. So they're the ones really hurting and they were coming into this kind of.

[A]

Depends on the services, right? Like, nail salons don't have a lot of male employees and they're all shut. Whereas financial services have a lot of.

[B]

Male, not financial services, like nail salons, hairdressers, restaurants, retail stores. I mean, it's, it's massive. And then you combine that with the fact that, you know, schools are closed, so even some of the women who were lucky enough to keep their jobs can actually go to the job. So it's kind of like a big disaster that kind of exploits all the weaknesses that people like me have been talking about for a long time, like the pay gap, lack of childcare, blah.

[C]

Blah, blah, blah, blah.

[B]

And I have a story coming out this weekend if people are interested in learning more.

[A]

On which note, I think we will wrap up this episode of Slate Money. Thanks for listening. Thanks for emailing us. We Love the emails. Slatemoneyleate.com thanks to Jessamine Molly, who's been doing an amazing job of producing all of this from her couch. And we will talk to you next week on Slate Money.