Loading summary
Transcript122 lines
- [00:00]
A
Hello, Slate listeners. An important message for you. You probably already know about Slate plus because I talk about it every week. We have extra segments every week only for Slate plus members. It's not just extra segments, though. It's every single Slate podcast, like this one, Dear Prudence Political gabfest without any ads. So if you're annoyed by the ads, just subscribe to Slate plus and you get to listen to the show without them. But if you're a reader of Slate as well as a listener, you might have noticed that Slate.com just put up a paywall. As a Slate+ member, you zoom past that paywall, you never even notice it. So everything from their coverage of the coronavirus to who counts their investigation into whose voices will be left out of the 2020 election, everything on Slate.com is accessible to you if you're a Slate+ member. And on top of that, right now, it's just extremely important to help Slate continue the web work, the podcasts, and everything else that we do here at Slate. Sign up for Slate plus now at slate.com/and if you're already a member, just log in@sleet.com Login. Hello, welcome to the why Are Republicans Being so Mean? Edition of Sleep Money, your guide to the business and finance news of the week. I am Felix Salmon of Axios. I'm here with Emily Peck of HuffPost. Hello, I'm here with Anna Shymanski of Breaking Views. Hello, I am not here with Richard Florida from the University of Toronto, who had to drop out, but we are very much hoping to get him on very soon to talk about density, because the whole density question in the age of COVID it's a really fascinating one, and we have lots of questions for him or someone else who can talk about density. Do stay tuned for that. Also, if you haven't listened to it, do listen to the episode which came out on Tuesday with Dan Barber from Blue Hill, which is my favorite episode of the year, pretty much talking about local organism and regional food chains and stuff. It's awesome. So check that one out. But this week we're going to talk about the oil price, we're going to talk about the next tranche of PPP. We're going to talk about Mitch McConnell and why is he being so mean. And we're going to talk about fiscal stimulus and lots of exciting things all coming up on Slate Money. So let's start with PPP 2 or stimulus 2, or I think we're now on 3, right? And there's going to be a 4. I've kind of lost track.
- [02:49]
B
They're calling it 3.5.
- [02:51]
A
3.5, okay.
- [02:52]
C
It's like a Star Wars, I don't know, it's a prequel sequel.
- [02:56]
A
So we started with the $2.2 trillion bill which included 350 billion for PPP and small business. And now we have a 480 billion odd bill which includes 322 billion for PPP and small business, which by my math brings the total for PPP and small business up to 672 billion or thereabouts. It's not going to be enough, is it?
- [03:26]
B
No. No it's not, Felix. It's not going to be enough. I mean, the first package of ppp, the Payment Protection program in the CARES act stimulus, ran out of money in less than two weeks shy of two weeks. And people are now predicting that this second tranche of hundreds of billions of dollars probably will run out even faster. Some are predicting because the banks can process these applications a little faster, presumably so they'll run out a little faster.
- [03:55]
A
I mean, people are saying it could be as little as 48 hours, like because so many banks, if you didn't make it in the first time, they're like, well, keep on working on your applications and we'll just push them through as soon as they reopen. There'll be this. It could just literally be like, you know, LCD sound system at Madison Square Garden. You know, like everyone just tries to buy tickets at once and then it's just a lottery.
- [04:18]
C
Yes, just like that.
- [04:19]
B
A Ticketmaster debacle. Just like that. And the Congress didn't really change the fundamentals of the program very much. They did one little tweak to set aside money for small banks specifically to lend. Because it's believed that small banks and community banks are a little bit better at getting money to small, smaller businesses.
- [04:38]
A
Is that the rationale? Well, different people have been giving different rationales for this one. The rationale that I've seen is not so much that smaller businesses are more likely to bank with smaller banks so much as there's a couple of other things. One is that if you are dealing with, if your normal bank is just utterly craptastic, then there will be a 60 billion pot of money set aside for smaller banks. So maybe you can go up to the smaller banks and do it through them and they might accept people who aren't pre existing clients. And then the other one is just that they don't have everything lined up and ready to go the minute it turns on. So this Gives them like an extra maybe week or two to be able to get the applications through. And it's not a crazy rush for them.
- [05:26]
B
Yeah, but I think also they do have smaller clients. Like I think it will slightly be to the benefit of smaller businesses and minority owned businesses.
- [05:35]
C
Yeah, I think that the Democrats were pushing to try to get carve outs for, you know, minority owned businesses, female owned businesses and such. And I do think that this was kind of the way that they were able to get that somewhat. Not exactly. And I, and I, if I'm not mistaken, there's also money in here that is set aside for businesses that are under a certain size, you know, which.
- [05:58]
A
I didn't see that.
- [05:58]
B
Yeah, I think you're right and we.
- [06:01]
C
Can double check that. But I'm pretty sure, and I believe that there's also been some news coming out about firms that have large publicly traded firms that took money. They may now have to pay that money back. It may not become a grant.
- [06:17]
A
So this was this huge weird storm in the teacup which started when we found out that Ruth's Chris Steakhouse, which no one can ever pronounce, had managed to get $20 million. And then there was 150 odd other public companies which also had applied for and received money. And people were very upset and very angry, weirdly at the companies. The real problem was just there wasn't enough money to go around and no one would have been that angry at the companies if there had been enough money to go around. And the total proportion of the money that they wound up Getting was like 0.1% of 350 billion. It was not that much or 0.15%. It really wasn't that much of the total. But because there was this weird artificial constraint of 350 billion, any penny that went to one big company was considered to be a penny that didn't go to a more deserving smaller company. And that's just a dynamic which is going to create a bunch of resentment in unhelpful ways and is one of the reasons why limiting these programs to an amount that's clearly less than demand is going to be is just so fundamentally misguided.
- [07:33]
C
Yeah, I completely agree.
- [07:34]
A
But I do think that in the second round they have actually made it pretty clear that public companies should not apply. Treasury's been clear about that, but they.
- [07:42]
B
Haven'T put that into the law. So public companies can still apply. They're dissuaded from doing it because they don't want to be publicly shamed.
- [07:53]
A
But Also, treasury has come out. Yeah, Steve Mnuchin came out.
- [07:59]
B
It's toothless.
- [08:00]
A
So it's kind of not toothless. I mean, I think there's a bunch of weird dynamics going on here. And one of the things is that in the law, you can apply for these things, but then what you have is people like Marco Rubio and Steve Mnuchin basically saying you shouldn't be applying for these things if you're a public company, because the whole point about being public is that you have access to the capital market. And there are other programs that we have for people who have access to the capital markets, and that is reasonable. And then the hidden stick that they have in terms of enforcement is that treasury can just decide in the case of all of the public companies that presumptively they had access to the capital markets and that therefore they are not going to agree to forgive the loan. And if they're not going to agree to forgive the loan for public companies, then that really mitigates against those public companies applying for the loan in the first place.
- [09:05]
C
Yeah, and I think it's really.
- [09:06]
B
I mean, that's cool. But like, in the law, like, there's still nothing to stop the public companies from getting the loan. Like, it's still allowed. And Rubio has also explained that they purposely made it so that franchises like Ruth's Chris, or was it Potbelly, that have individual stores with fewer than 500 employees, they wrote the law purposefully to allow those kinds of companies to get the loans. That hasn't changed.
- [09:36]
C
I just would say that. I mean, I think we can all agree that if we're going to pretend there's a limited amount of money, then it should obviously go to real small businesses that have no other options that really should be getting grants, not loans first. Totally. And that if you are truly a publicly traded company, it does, in fact, make more sense for you to get money in other means. However, I do feel like this isn't necessarily the totally correct argument in the sense, like, we don't want any of these companies to go bankrupt. We don't want any franchises to go bankrupt. We want to keep as many people employed, because if you start letting a lot of firms go bankrupt, then you are going to make the ultimate recovery a lot harder and it's going to take a lot longer.
- [10:19]
A
So. Right. And we can. We're going to talk a little bit more about bankruptcy later. There is a lot of talk about whether and how the bankruptcy code can preserve most, if not all of the jobs involved I will say with regard to franchises that a bunch of franchisees did apply for ppp, did receive ppp, not facing any anger with respect to ppp. If you're actually an independent franchisee, that's fine. What we're talking in terms of companies like Ruth's, Chris and Potbelly is not individual franchisees applying, but actually the parent companies applying for locations which are owned by subsidiaries of the company, which is different from a franchisee. And those companies do have access to capital markets. And those capital market solutions are always going to happen kind of in the shadow of, of if we don't find a way of lending you the money on the capital markets or issuing equity on the capital markets, then there's always a higher probability that you'll wind up in bankruptcy proceedings and will end up with less money. And that's part of the purpose of bankruptcy in some weird way is to encourage lending from the capital markets to companies in situations like this where, where they need the money to continue to operate.
- [11:39]
B
There's another flaw with the program, which is I think that the companies taking out the loans aren't the companies that are in most danger of going totally belly up because those companies that are, you know, facing the, that have already like laid off a lot of people or in danger of totally closing or are in locations where the lockdowns are probably going to go on for a really long time. A lot of those companies feel like they can't take out these loans because they're not going to be able to meet the requirement to keep people on payroll. So I think I mentioned this last week, but if you look at the industries that got the most loans, construction did better than the restaurant industry. And it's not clear exactly why, but that might be one reason, like the really, really dire straight companies aren't doing this because of the requirements which have not changed.
- [12:34]
A
Right. And if you read the essay by Gabriel Hamilton, who runs the restaurant Prune in New York City in the New York Times this essay she wrote, she was like, yeah, I looked at this PPP thing and it was like, well, in order to get the loan forgiven, you need to re employ everyone that you had on payroll. And I'm closed and I can't re employ anyone because there's nothing for them to do. And she basically considered and rejected it in the space of a few minutes. The idea of the businesses, especially in the restaurant, small restaurants will just bring people on payroll to do absolutely nothing. It looks like there are a bunch of businesses which have just, yeah, no that doesn't make sense. I'm not going to do that. And then on top of that you have the other dynamic which was the, as the New York Times reported somewhere like JP Morgan Chase, the corporate customers all got their fund, all got their loans, whereas the smaller retail relationships, small businesses were very unlikely to get their funds. And again the corporate customers are more likely to be bigger, more likely to be well connected and at the margin more likely to not need the money.
- [13:46]
C
I mean this is, but this kind of goes back to I think what we probably said since we started talking about the first version of this program, which is that this is the problem when you set up a program as loans that are going through private banks. Obviously if you're a private bank, you know this is all being done on the fly. You have no idea what's going to happen after this. It makes perfect sense that you're going to first go with the clients that you know, that you know this is part of the reason that this program was probably not well structured. Now at the end of the day we have the program, we have, hopefully it'll get better moving forward. But if we could go back in time, obviously we probably wouldn't structure it.
- [14:21]
A
We kind of could, right? I mean that was the weird thing. The second tranche we, this is a do over.
- [14:27]
B
We could have gone back, we could have done it. That didn't do any.
- [14:31]
A
You can't go back when we reopen, go back.
- [14:34]
B
But they could, look, they just passed a new law. They could have made it different. They didn't. It's still bad.
- [14:42]
C
Right? But I would just say that like.
- [14:43]
B
Like that's the end of the story. I mean more companies will get loans. Good, right? There's more money. One of the problems was there wasn't enough money. Now there's more. So I guess theoretically you could say they fixed the big problem, but like all these other things have not been solved for.
- [15:00]
A
And I just want to jump in here and say that there's another looming problem here in terms of running out of money that no one seems to have been concentrating on. The stimulus bill obviously had three main planks to it. It had the twelve hundred dollar stimulus checks which we'll talk about in a bit. It had the PPP and then it had the enhanced unemployment insurance of an extra $600 a week for people who are filing for UNEM. Now it turns out that was funded as well with $250 billion. And I just did some back of the napkin calculations on what happens if you have 30 million people filing for unemployment for 17 weeks at $600 a week, and it's more than $250 billion that the 600 a week unemployment checks could run out. There's so much of this stuff can just run out of money and no one knows what happens if it does.
- [15:55]
C
Yeah, I mean, the problem is, you know what's going to likely end up happening is that they're going to do like eight versions of this. They're just going to keep coming back. And it's not the most ideal way to set it up because this is everything here is political. Every single thing that's being done is political. And the more times you have to go back, the more, the longer it's going to take because everyone's going to want to make more political arguments. And so if you had just from the beginning had a much larger program, that could have also stemmed before people were laying off people, before potentially firms were closing, that obviously would have made a lot more sense than what we're doing now.
- [16:31]
A
So I think that's a perfect segue to talk about a slightly different political question, which is basically how are the Republicans reacting to this crisis and why are they being so mean, to use a technical term? There was this amazing exchange this week where the Democrats basically said we really need to give money to the states and municipalities. But look especially at the states. All of their revenues have fallen off a cliff. Sales tax revenues are obviously down. Transit authorities, their revenues are down, Income tax revenues are down. You name it, the revenues are down. Meanwhile, their expenses are all up and they have to balance their budgets. And there's no way they can balance their budgets. There's going to be this enormous pain at the state level. And the states need hundreds of billions of dollars in terms of liquidity in order to make it through this crisis. And they put this to Mitch McConnell in the Senate, and Mitch McConnell, I swear to God, he says, well, why don't they just declare bankruptcy? And this is related to, I think, this whole idea of, well, we will give $350 billion to small businesses even though we know it isn't enough because we shouldn't spend money on that, we shouldn't spend money. And then when they re up it, it's just another 322 billion, which we know won't be enough. And they're very stingy with federal money in a way that I'm not seeing in basically any other country. And I'm trying to work out what's going on here and why they're like doing it in this way of, as you said, and needing to eke it out over eight different bills. And one will be for the states and one will be like part 17 of the PPP and one will extend the unemployment insurance. What is the reason for that politically?
- [18:24]
C
Well, one thing I would say is you could argue that we are seeing the summer, else you could argue in the way that Northern Europe is treating, say Italy is kind of not dissimilar. But I would argue, number one, I think politically the reason they're doing that is because the Republicans and Trump have clearly decided that their strategy for November is to blame everything on the states because they know everything's going to be a mess. That's their strategy. And I think this is part of that. Also. Obviously a lot of the states that are involved here are blue states. So I imagine that's part of it as well. However, this is idiotic for about 18 different reasons. Like the first of which is, which Mitch McConnell obviously knows, which he indicated we don't actually have a bankruptcy proceedings for states. It doesn't work like that. So what are you going to set that up? I mean, like we have a quasi bankruptcy for Puerto Rico that's gone exceptionally well. So number one, that doesn't make any sense. And also if you think about it, what we're getting from the federal government is a lot of stimulus or at least stabilization, hopefully stimulus. If you force the states to have to cut all their budgets, what does that mean? It means you're going to have fiscal contraction. You're going to have to either raise taxes, you're going to have to cut benefits. That is going to counteract what you are doing on the federal level. So it is literally counterproductive. And, and one other thing, and then I'll stop talking, is that he had the gall to talk about pensions because I would just like to point out that Kentucky has one of the lowest funded pensions of any state. And unlike most of the other states that have poorly funded pensions, Kentucky also takes money from the federal government, unlike say Illinois, which granted has a messed up pension system, but at least they give money to the federal government in terms of overall taxes. So that's my spiel.
- [20:03]
B
Yeah, Andrew Cuomo actually made that point very nicely. I thought on Thursday when he was like New York gives money to the federal government and Kentucky takes money from the federal government. And it was just in his very calm, his new Cuomo calm vibe. It was a great point worth repeating. So Anna, states don't declare bankruptcy as the bottom Line, it has never happened. And there's no process.
- [20:27]
C
Cities have no chapters.
- [20:29]
A
No, there's no chapter in the bankruptcy code. And this is something which people have been talking about for decades. It's like, should it be possible? What would state bankruptcy look like? Obviously it doesn't look like corporate bankruptcy where you do a debt for equity swap and the bondholders become the new owners because states don't have owners. So you have to work out some other way of doing it. And it's very complicated and there are ideas for how to do it, but it doesn't exist. And honestly, there's no way in the middle of this completely chaotic pandemic, this is the worst possible time to try to put together an entire state bankruptcy code on the fly.
- [21:08]
C
Oh, no. It makes no sense. And also, if you just think about it, like, okay, states, even the most low, the states with the lowest credit rating, like Illinois or Kentucky, their cost of debt is not very high. Right? So a, the whole idea that we're talking about bankruptcy here is silly. But then on top of that, if you look at obviously the amount of what it costs for the federal government to raise debt, it's essentially nothing. So it simply makes no sense that a state would have to go bankrupt now. However, this isn't to say that we don't want states to post crisis or pre crisis have managed their books well. I mean, that's a completely separate issue. But. And this is the other thing That I think McConnell was doing is that he was kind of melding these issues. Like what we're talking about now and what a lot of these governors are talking about now is simply we are having massive hits to our revenue because obviously we have massive shutdowns. That is not something we could have prepared for. There's literally nothing we can do that would like, meet that hole without like just completely destroying our budgets. So it just simply makes sense for the federal government to do this. So it's just, it's a. It's completely asinine.
- [22:16]
A
Okay, so I want to use this opportunity to bring up slightly related talking point that we're hearing from, especially the Republicans, which is, number one, this $600 a week unemployment benefit is a terrible idea because it discourages people from working because if they would be earning less than $600 a week in their job, they're better off being unemployed and taking the unemployment benefit. And therefore, we are artificially reducing the number of people who are employed. And then number two, which is similar, is we shouldn't be giving states money because it discourages them from reopening. And we want to get the economy going again. And so what we want to do is give states financial incentive to reopen because if they reopen, then they'll get more tax revenue. And if we let them stay closed by subsidizing being closed, then that's just going to hurt the entire economy even worse than it needs to be hurt. All of which kind of makes sense in Bizarro World, but kind of seems to ignore the whole point that we want people to be staying at home and not working and not reopening because ultimately that's what's best for the economy.
- [23:35]
C
Yeah, like if COVID 19 didn't exist. Sure.
- [23:38]
B
And the worst part, yes, the $600 a week is so that people without jobs will stay home instead of just trying to get another job. And then there's this like, whole sub genre right now of irresponsible reported pieces where journalists go to, like, owners of small cafes and shops. And these owners say things like, I was forced to fire all my workers because none would work because they wanted the better paying unemployment insurance. Poor me. I wish the government hadn't done this to me. And the stories, there was one in cnbc, NPR had one. And the stories never. No one ever talks to the employees just to like, fact check, hey, did you quit for the unemployment insurance? No one ever bothers to do that. And it always turns out that these people needed to close their stores because why? Because there's a pandemic they need to close anyway. It's just, it's an infuriating line of argument that maybe at best is. Is true in the sense that business owners can't pay like, slave wages to people anymore, and the unemployment insurance kind of keeps a little floor on wages that maybe otherwise wouldn't be there. But again, that is specifically the point of it, especially right now, to keep people out of the labor market. It's so batshit.
- [24:59]
C
And again, it goes back to this kind of like shooting themselves in the foot. Even Republicans shooting themselves in the foot. Because ultimately, like, we've seen this with the Great Depression, we've seen this with the Great Recession, We've seen this with literally every single massive economic crisis. If you allow people to, you know, really get in serious financial trouble so you don't have unemployment money coming in to keep them able to continue to pay their bills, you allow companies to go under, your ability to recover is so much harder and the recession or depression will be so much worse. So this just seems like idiotic political posturing. That is really. And I agree with you, Emily. I think it's just completely irresponsible, both from the people who are doing it as well as any media outlets that are covering that in that way.
- [25:42]
A
And the other thing it reminds me of is the debate of universal basic income and people saying, well, if we have universal basic income, that's going to discourage work and discourage economic activity. Which is a pretty common argument from people who know nothing about universal basic income. And you never hear it from people who do know about it, because they've actually done the studies and they've looked at places where people do get a ubi and they're like, what is their effect on. What is the effects of having that income on your marginal propensity to get a job? Like, do people with the UBI work more? Do they work less? They earn more? Do they earn less? And the answer is they work more and they earn more. That having that safety net actually gives you the ability to go out and get a job. It's something we have seen over and over again, but it's a talking point that refuses to die.
- [26:33]
B
And it's made by, like, rich men who actually don't have to work, but are working.
- [26:38]
C
Do you know what I mean?
- [26:39]
B
Like, these are millionaires. Like, Jeff Bezos has no incentive to work, but. But there he is working.
- [26:46]
A
Why is.
- [26:46]
B
Why is Jeff Bezos get COVID 19? Why does he work? I just. It's very.
- [26:53]
C
It's.
- [26:53]
B
It's ridiculous. People work because they want to work. And four months of unemployment insurance isn't going to keep people. No, again, because people know that there are more than four months left in there.
- [27:03]
C
Well, and that's actually. Sorry, this is maybe last thing. And I think that's a good point. Is that. Because the arguments I know they were making when they were first negotiating this is. They were saying, well, but if you annualize this and you say, oh, but these people are making so much more money than they would. But you're like, but people are gonna work more than six months or a year? Like, I mean, I feel like most people are gonna think ahead of that. You know, it's just stupid.
- [27:25]
B
It's very silly. Everything seems very silly right now. It's like. It's really demoralizing.
- [27:31]
C
We've reached that stage. It was like terror and, like, sorrow. And now it's just. Everything's insane.
- [27:37]
B
We're all at home living off our unemployment insurance, injecting Clorox into our veins or something.
- [27:43]
A
I want to move on here and I'm going to call in the queen of the spreadsheet, Ms. Anna Shymanski. What are the results? Now as I recall I was like what were the numbers that we predicted? I know one of you guys said It'd be about 10% of the listeners managed to get their stimulus checks. That was Emily, that was me. I was more around the 50% number which I say only knowing what Anna came up with. But I think if we go back to the tape, I was saying around 50%. But Anna, what's the actual number of Slate money listeners and how many did receive their checks? Highly unscientific, which is how we like it here on this show.
- [28:23]
C
Yes. So it was 53% of our slate respondents. And thank you for so many of you for responding. I think it was maybe like a total 157 I think, or something around or maybe 152. I have to look it up because we had some additional ones. But yeah, so thank you guys very much for responding. And I think, I mean I honestly don't remember what I said. I think it was somewhere in the 40s, but I could also be wrong. But I'm curious your guys thoughts on this because I think when it comes out, if you kind of think about it, it makes sense. And I would also think diving into the data a little bit, a lot of the reason that people didn't, if they said that they didn't get it, it was very often because they made too much money which.
- [29:03]
A
Or they aren't American.
- [29:04]
C
Or they aren't American. Exactly. Now we did have a surprisingly high percentage of people who said that they should get it and weren't getting it compared to what like the government is reporting. But obviously this is an incredibly unscientific, you know, uphold. So that was a little discouraging.
- [29:20]
A
A lot of people are falling through the, the cracks and I have a feeling that this is going to be one of those schemes where a lot of people will just sit there trying to wait for and, or fight for their twelve hundred dollars for some time and some people will eventually get it and some people won't. But there's really no easy way of making sure that everyone gets it automatically. And so yeah, I feel for everyone who deserves it and isn't getting it and there are literally millions of Americans in that boat.
- [29:53]
B
That's true. And there are flaws with this program too. If you, I guess I've been thinking.
- [29:58]
A
All programs have flaws. But what's the program, what's the biggest flaw with this One. Emily.
- [30:04]
B
I mean, I think this is a pretty good one. I think first, obviously, you know that I think that we should be doing this every month, just sending out these checks.
- [30:12]
A
Ubi.
- [30:13]
B
Fine. Yeah. Set that aside. I guess the, after that Trump that they, the government isn't sending checks to couples that, where one isn't a citizen or one isn't documented. Yeah. Isn't documented. So if there's someone undocumented in your household, no one gets a check, which is obviously cruel. And then a third problem I think is that if you're a single parent, you get less money, even though it's, it's harder financially right now for a single parent than a dual, you know, a dual parent household. Right. Like if there's two parents in the household, you get $2,400 if you're under, you know, if you meet the income requirement. But if you're a single parent household, you're only going to get 1200. But like, you could argue that that single parent needs just as much, you know, the needs. One could make that argument.
- [31:09]
C
Yeah.
- [31:10]
B
So they're not as big flaws as ppp.
- [31:13]
C
No. I mean, the one thing, the only, like, maybe trying to be like somewhat positive here is just, you know, even the fact that we're having all these arguments. These programs are extremely flawed. They should have been structured differently. We know that. But you know, if you compare to what has been done in previous crises, I will just say at least, you know, if you had asked people two months ago if the Trump administration was going to be sending, you know, checks to everyone would have said like, you're nuts. Granted, if you would have ascribed any of this to people two months ago, they would have said we're nuts. But look, I mean, it's not, it's a little bit. But I feel like with everything so horrible right now, it's maybe also good to focus on the fact that, like, look, at least we are doing far more than has been done in the past.
- [31:53]
B
That's true. And I've spoken to, you know, families that are like, we got our check, we're buying groceries, we're paying our rent. Like, it's really, for those people, it's really, really, really, really good and important and wonderful. It's like a lot of money.
- [32:06]
C
Yeah. But it should also be clear, and I would actually agree with you that like through the crisis or through a certain level, people should know that they like. I would actually argue that, like, they should, it would be tough to do this, but it should be structured so that this Money will keep coming until a certain something is met, whether it's a certain number of states are open, whether it's a certain economic metric, whatever. Because I actually think what you. Because the problem, what happens with recessions in this, it's a lot of it's psychological. If you know, even if you know you're getting money this month, if you're like, well, then I'm not going to get money after that. It's going to massively impact your behavior far more than if you felt like, look, I know, and this kind of little bit goes back to ubi, but if I know that while this crisis is going on, I'm going to at least be kept afloat, you know, that could actually diminish the overall depth of the crisis.
- [32:51]
B
Yeah, that's really interesting. And there are all these proposals, not all these, but there are proposals out there going forward long term for I think Claudia Sam calls them automatic stabilizers. When you know, so that we don't have to go through this like political rigmarole when we have a recession that just if the unemployment rate, you know, is a, at a certain level, it triggers certain things. So you fund packages and fiscal stimulus automatically and you take it out of the political realm and it's much more efficient basically and keeps the recession from being really, really, really bad. And it's so it's just kind of bad.
- [33:31]
A
So I have a proposal for the automatic stabilizer which is that it should be linked to $0 on the oil price. If it's below zero, then almost manner of automatic stabilizers fall in. We've touched on this a little bit on Slate money in the past, but it actually happened this week. So we do need to talk about it. The May futures contract for West Texas Intermediate oil for delivery in Cushing, Oklahoma closed finally at minus $37.63, I believe was the final price, which is something which was pretty much inconceivable. Even like the day before, people were saying oil prices might go negative. And when they said might go negative, they were saying like they might be like minus $1 or minus $2 or maybe minus $5, but minus $37 was, I think, pretty much. No one thought it would get there, but it got there. And so we should mention that, mention that, yes, there were a bunch of weird futures market technicals involved. And that's not just like all oil everywhere in the world has a negative value. But remember when we were talking about how the price of oil rebounded from the plunge after Saudis and the Russians refused to come to an agreement. There was a rebound. This is so much, this is just like a complete collapse in oil. And I'm not quite sure. Maybe, Anna, you can help me here. Was there any news that caused it or is it just like things finally happened?
- [35:10]
C
I think it's a combination of things. Number one, it's that the demand destruction here is simply so extreme that even a 10 million barrel a day cut, I don't want to say a drop in the bucket, but it's just not enough. And I think people have just realized that essentially there is simply almost no amount of cutting that is going to offset the demand destruction. And so that is a big reason why overall, in many different oil prices we've seen this massive decline. And this is also because just you look at PMI numbers out of Europe, you just look at all of these different economic indicators outside of the stock market and they're so awful. And the idea that we're going to be getting demand coming back very shortly, like any type of significant demand is obviously very low.
- [35:59]
A
So just to jump in and explain this a little bit, what we had before was global oil demand on the order of 100 million barrels a day. And we had global oil production on the order of 100 million barrels a day. And so they matched each other as they normally do. And you had a price and a market clearing price. Right now we have global oil demand probably closer to 75 million barrels a day, has gone down by about 25%. And you have global oil production which is also coming down. But as you say, it's not going to come down by 25 million barrels a day. And so you have production exceeding demand. And when you have production exceeding demand, what do you do with all of the oil that is being produced? The only thing you can do is store it. And storage is full. And it's not going to get emptier anytime soon. It's certainly full in Cushing, Oklahoma.
- [36:57]
C
Yeah.
- [36:57]
A
And this is filling up elsewhere as well.
- [37:00]
C
Yeah, definitely. I mean, and I think just, you know, I won't, I won't go to too much of this because I know Felix will be like, no, it's too confusing. But I do think it's important to remember that the reason we did see that specific May contract was A, because it was going to expire and B, because WTI is settled in Cushing, Oklahoma, it's settled physically. So, like, if you had that contract and it expired, you, my friend, own a barrel of oil. And if you don't have anywhere to Put it especially in Cushing, Oklahoma, you know, you're screwed. So now. And there are some storage other places, but overall, yeah, this is an issue. We, not only are we getting storage full, like throughout the country, you know, you're having shipping containers that are just being filled with oil, which then affects the price of other oil baskets that normally are shipped, you know, and we.
- [37:46]
A
Oil tankers, this is really interesting. Oil tankers have become essentially floating storage devices. And that works until it doesn't. And it's really, really not at all clear what happens when the storage is filled up. And right now we're very much in the realm of the amount of oil being stored is just going up and up and up. And eventually you just have to start capping wells. But that's very expensive.
- [38:14]
C
It's expensive. And as we've talked about in the past, it's not always easy to just turn them back on. And also you have all of these people who have lots of debt and they're trying to make any money they can. This is, it is. This is a very, very complicated process.
- [38:27]
B
So on the one hand, I completely understand what's going on. There's reduced demand, there's a lot of oil building up. No one wants it. But on the other hand, and I read so many explainers this week about the oil futures market, I don't understand. Can you, can one of you explain to me in real English words? Because I read explainers in the Times, I read in the Journal, I read ft like, you know, here's what the oil futures market is and I will explain to you why oil is negative $37. And I was like, okay. And I read it and at the end I just, I. They lost me every time.
- [39:07]
A
In very simple terms, it's a game of musical chairs. There are seven people running around in a circle and there are six chairs. And when the music stops, six people get to sit down in a chair. And what we are talking about when the music stops is this thing called physical delivery of oil in Cushing, Oklahoma. So seven people are going to wind up with expiring contracts. And those expiring contracts mean they have to take delivery of oil physically. In Cushing, Oklahoma, there are six chairs, which means there are six storage facilities. There's enough storage to accommodate six of those people. What does the seventh do? They need to take delivery of the oil. There's nowhere to put the oil. There's nowhere to store the oil. Oil is a big, heavy, smelly, toxic, nasty thing, which you can't just, you Know, keep in your backyard. Storage is expensive and highly regulated. And so no one wants to take delivery of the oil because no one wants to be that person taking the seventh barrel of oil and having nowhere to store it. So what they all do is they start selling. They sell that contract, that futures contract, so they don't have to take delivery and they'll sell it. So it goes down from $20 to $10 to $0. Even at $0, I'm still selling it because I have nowhere to put. Goes down to minus $10, minus $20. And they're still selling because they would rather lose $20 than take delivery of that barrel of oil which they have nowhere to put. Does that make sense?
- [40:56]
B
I think I don't understand something before the musical chairs starts, I guess I didn't realize that people are buying and selling oil that never want the oil.
- [41:11]
C
Yeah. So this is actually really. That's. No, that's a really, that's a, that's a really good point. Because oil, you have, you have the physical market and you can kind of think you have the financial market. Right? And they're related, obviously, but the futures market is just saying, in the future, I'm going to pay this price for oil. And now you might do that because you, you know, you need oil and you want to know that in this period of time, I'm going to buy it for $60, which would be very nice right now for, you know. However, you also have people who are just, they're hedging, they're just speculating, you know. And now there's many different types of oil. Right? And if you normally hear about oil, you hear about WTI and you hear about Brent. Brent is what you hear about the global benchmark. Brent tends to be for a lot of financial contracts because Brent is settled in cash. Right. So you don't necessarily have to, you don't have to take a barrel oil, just settling it in cash. That's not the case in wti. So that's why wti, when you see that negative number, what that negative number really means, that is the storage and transportation cost.
- [42:12]
A
So this is my question for you, Anna. WTI is physically settled. Brent is cash settled. That explains why WTI went negative when Brent did not go negative. My question for you is, does that mean Brent will never go negative? Is it still actually possible for Brent to go negative too?
- [42:32]
C
It's not impossible, but it's incredibly unlikely. Right. Because of that aspect. I mean, I guess if you are totally right, I mean, at the end of the day, there does still have to be oil somewhere for these contracts to be in some way connected to. Right. So is it impossible? But it is incredibly unlikely.
- [42:51]
A
I'm going to take the other side of that one. I think that Brent can go negative. I think cash settled, like heavy oil futures can certainly go negative. Brent is slightly later. But like. Yeah, I mean that's the other thing is that oil on its own isn't really worth anything. Right. You need to crack it, you need to refine it, you need to turn it into things like gasoline. All of that's expensive. If you're filling up your tank for less than a dollar a gallon, which you can do in parts of the country now, that's, you know, the cost of refining and transporting and all the rest of it. That basically implies a negative price for the underlying oil.
- [43:30]
C
I mean, as I said, it's not impossible, it's just unlikely. But you are right, I mean, you are right in terms of, you know, it's just fascinating to see like the, all of the ramifications of this. Right, because you think of like moving forward, I mean like going back to that idea. Like there's no price of oil, right. There is price of different baskets of oil and they're all, you know, they're all. Then they can be very different. And right now they are very different. And what we're doing right now is just messing with all of these prices and then they're connected to all of these like derivative products. There was this ETF that kind of exploded a little bit.
- [44:02]
A
I shouldn't say uso.
- [44:04]
C
Oh, uso. I would love to talk about uso. We should talk about that in plus.
- [44:07]
A
All right. In Slate plus we're going to do a little geeky dive into uso because USO is one of the most hilarious things in the world.
- [44:14]
C
Yes.
- [44:16]
A
But for the time being, I think we should probably just move on to a numbers round. And I'm going to kick off with $8 trillion, which is the number that Bloomberg totted up adding up all of the fiscal response by governments around the world to Covid. And this is not including things like, you know, all of the Feds bond buying and that kind of stuff, but just the actual money that governments are spending to try and get us through the crisis, whether it's in terms of PPP loans or stimulus checks or small business guarantees or whatever you want to call it. We're already at $8 trillion six weeks into this thing. I have no idea where we're going to end up. But it's going to be a lot higher than that. And the concerted global fiscal action, even if it's not coordinated, is absolutely unprecedented. I vividly remember the financial crisis and the various different fiscal responses to it, and none of them were anywhere close to that level.
- [45:23]
C
Yeah, no, it is.
- [45:24]
B
And we're not even halfway over. We're not even halfway through this.
- [45:28]
A
Right?
- [45:29]
C
Yeah. And you also, unfortunately, have a lot of countries where it is a lot harder for them to spend because they don't have. They're not the reserve currency. They don't necessarily have any, you know, fiscal space or they could potentially have more negative consequences. So, yeah, it's going to be interesting.
- [45:44]
B
Of that 8 trillion I think we have, Congress has allocated 2.7 trillion. So that's. America is a big chunk of the. We're number one, America. My number is three. That's the number of extra hours per day people are working, according to a VPN service that tracked when people are logging on and off. And a story in Bloomberg that's sort of about the people who are still working, the privileged people like us, I guess, who are working from home.
- [46:14]
C
We have three band of brothers.
- [46:19]
B
People are working more than ever, apparently, because you are always at the office now and it never shuts off. And the story is sort of chock full of, you know, JP Morgan bankers who are logging on at midnight or like running out of the shower to get on zoom calls and things like that. But it's just sort of interesting.
- [46:39]
A
But does it count as working if you log on to the VPN and then you have to chase around after your child for an hour and a half before you can get any work done?
- [46:46]
B
Yes, I think so. Because there's that mental. There's the mental labor of like balancing those two responsibilities at the same time just counts as work. I think that's true.
- [46:56]
C
Yeah. Also, though, I will say, as someone who is, and I granted, obviously having kids is harder, but as, as a, as someone without kids who lives in a studio, I will say all I do is work. Like, I'm just. It's like I work and then I run with an enormous face mask on. That's. That's essentially. And baking cookies.
- [47:13]
B
It's so uncomfortable to run with the face mask on.
- [47:15]
C
It really is. It really is. I did a half marathon in one last weekend because I had it scheduled and I was like, I'm doing it, I'm doing it.
- [47:22]
B
Oh my God.
- [47:22]
A
With other people?
- [47:24]
C
No, no, no. Myself at five in the morning. But I did it COVID 19.
- [47:29]
A
Ladies and gentlemen, Anna Shymansky. The kind of woman who wakes up at 5 in the morning to run a half marathon with a mask on, even when there's no one else running the half marathon just because it was in her calendar.
- [47:42]
C
When you say it like that, it makes me sound insane.
- [47:46]
A
What's your number, Anna?
- [47:48]
C
My number is 66 billion. That is the amount of foreign currency, foreign law debt that Argentina has come with the restructuring.
- [47:57]
A
It's the Argentina default number. I can't even remember how many I know.
- [48:01]
C
Which, granted we will talk about this later on, especially because this is not going to end anytime soon, but it was one of those things where you're like, with everything that's going on, everything's so insane and so abnormal and then you're like, Argentina is still defaulting on their debt. Like some things never change.
- [48:17]
A
The one thing I know from Ecuador, and Ecuador being the one country which defaults on its debt even more frequently than Argentina is that if you're going to default on your debt, defaulting on your debt in the middle of a global crisis is actually quite smart.
- [48:33]
C
Well, no, it's true and it's interesting because honestly, because I know obviously what a lot of people probably say is like, well, but how could creditors possibly expect them to pay anything in the middle of a pandemic? And the reality is most creditors probably wouldn't expect them to pay anything in the middle of the pandemic. The question though is after the pandemic, and just to be clear, I think creditors should be lenient with Argentina during this crisis. But you know, that's separate from this kind of long standing underlying debt issue.
- [48:58]
A
They do seem to be trying to do the opposite of what they did last time. Last time they spent a decade trying to restructure their debts. This time at least they're making all the right noises of trying to restructure their debts pretty quickly.
- [49:12]
C
Yeah. So the only issue though is similar to the last time they initially, they're coming forward. No IMF plan. Could this kind of take it or leave it. They don't actually have a tremendous amount of leverage. So I, I don't know if this was the best strategy.
- [49:27]
A
We will see. Will it, will it be, will it be Argentina one or will it be Ecuador too? We will come back and give them a letter grade when it's all over, which could be in another decade. Okay, I think. On which note, we will wrap up sleep money for this week. Many thanks to all of you guys for writing in with your stimulus check. Status. Many thanks as well to just me and Molly for juggling this show. We will have a sleepless about USO and talk to you next week on Sleep Money.