My Economic Proposal for the Coronavirus Crisis
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Here are my economic proposals. I do not mean these any more than a basis for discussion. Flexibility is the key here.
Lend or guarantee loans to everyone. That’s right — everyone. Keep reading.
Lending requires a cash outlay, but loan or bond guarantees do not. I’d favor loan guarantees, since they are contingent liabilities for the Treasury. In other words, there is no cash outlay unless the firm defaults. This can be done via the banking system since they already know how to make loans. The approval process for a loan guarantee is particularly simple in this situation — accept everyone.
Another provision could be that the Treasury only guarantees a portion of the loans or bonds. This is similar to re-insurance whereby the insurance company offers to insure losses that exceed a particular amount. Other investors would then have their losses capped by the Treasury guarantee.
To avoid any political problems, the Fed could start a special purpose vehicle (SPV). The Treasury could then guarantee the special purpose vehicle. That way, Treasury officials are not involved in the decision-making process. We have experience with that since that is how the Fed bought securities in 2008–2009.
Many doctors, lawyers, and dentists are sole proprietors or have two or three partners. I’d guarantee all their debit and front them cash via the banking system. This allows them to re-hire before the health insurance reimbursements start flowing.
Raise the physician reimbursement for Medicare and Medicaid. Since these systems pay quickly without checking claims, we need to phase in checking claims. I’d start that on January 1st, although that date may slip to June 1, 2021.
There are special provisions for firms listed on the stock exchange if they want a bond guarantee. Yes, in this case, we want them to issue unregistered bonds which the Treasury can guarantee. Unregistered bonds are issued to qualified investors only, and the standard process is quicker than for registered bonds.
Again, the Treasury doesn’t have to guarantee all the debit, but only a portion above a certain amount. This reduces the Treasury’s risk. Other investors take the first part of the losses, but their losses are capped by the Treasury guarantee.
Interest can be tiered based on the size of the firm and whether they are listed on the stock exchange or not.
But listed firms have to stop stock buy-back for at least two years. C-suite executives get no bonuses, shares, or options until they pay back the guaranteed debit. Listed firms are required to pay half their dividend to the Treasury — if they currently pay a dividend. Interest payments are due every six months starting pay interest on debit starting January 1st, meaning the fist interest payment is due June 1st, 2021.
As for the pharma industry, I understand people are angry at prices. However, we have to set aside our anger. Getting the supply chain straightened out is the first step. I would have special tax credits for pharma and biotech firms that switch manufacturing to Puerto Rico and a select number of states — Kansas, Iowa, Idaho, Arkansas, Missouri, and perhaps a few others.
Since pharma already manufactured in Puerto Rico before production moved to India and China, there should be expedited approvals for the FDA to approve manufacturing.
Cash flow can be improved by guaranteeing a portion of their unregistered bonds, above a certain threshold.
We can certainly require that pharma companies pay part of their dividend to the Treasury. Cut the CEO’s salary in half. Restrict option grants, stock buy-back, andbonuses for the C-suite.
Issue regulations thru the FDA that essentially require all pharma manufacturing be done in the US or Puerto Rico. We can negotiate with India and sign a treaty whereby the FDA has inspection rights in factories in India, with special provisions for patent sharing, expedited patent approval for any pharma patents from India. There are doubtless many other ways we can favor India and make sure they are friendly to us.
