Moneybeat - Unpacking the stimulus bill

MARY REICHARD, HOST: Coming up next on The World and Everything in It: The Monday Moneybeat.

NICK EICHER, HOST: On Friday, the House made it official. President Trump put his signature on it, and it became law: the biggest-ever economic rescue package, about $2 trillion in aid in the form of loans, some forgivable, some not—as well as supplemental assistance and direct aid. 

These days, the federal government takes in about $3 trillion in tax revenue and spends about $4 trillion. Now, we’ve tacked on another $2 trillion in debt, following an unprecedented and government-ordered shutdown of most non-essential economic activity.

The big package Friday is the third, and probably not the last, installment of emergency aid as we deal with the coronavirus crisis.

I’ll turn now to David Bahnsen, financial adviser and analyst with offices in New York and California. As he has been lately, David’s sheltered in place at his home in southern California. We’ve made a digital connection to his home office there. 

David, I’m grateful to you for making time to keep us updated during this crisis time. Good morning to you.

DAVID BAHNSEN, GUEST: Good morning. It’s amazing how much more time there is for things like this when you can’t leave your house.

EICHER: Yes, quality time to study legislation. So now you’ve had time to look over the $2 trillion-plus in new spending we’ve just authorized… 

And it was interesting to me: The president remarked that he hadn’t signed something with a “T” on it—meaning trillion. And here this one had two of them.

So let’s just sort of run through this. How do you break this down?

BAHNSEN: Well, the way that the bill itself—HR 748—is written, it’s formulated around four categories and I’ve done all my analysis and commentary on the stimulus bill around the same four categories they use—which are direct-to-taxpayer support, small business support, big business support, and healthcare support.

EICHER: Do you want to walk through those one, two, three, four like that, starting with direct-to-taxpayer?

BAHNSEN: I’m happy to. It’s reasonably simple. There are certainly nuances that are in each sub-category, but as a general breakdown where the lowest hanging fruit is, the direct-to-taxpayer support is primarily around literal checks that they will be sending: $1,200 per adult and $500 per kid up to a family of four. So, $3,400 for a family that makes less than $150,000 a year. 

It phases down a little bit from that up to $199,000 a year. Any married couple family with over $200,000 income won’t receive anything. And then you can cut those numbers in half for a single. So, that’s direct-to-taxpayer cash on hand.

And then there’s other things on a support basis such as student loan payment suspension and mortgage payment suspension and then money in their pocket is the biggest issue on direct-to-taxpayer support.

EICHER: Let’s talk about support for business, your choice, small or big business first?

BAHNSEN: Let’s do the small business next because this is by far, I think, the most important part of the bill. 

And it has a lot of leverage behind it and where the Fed is going to come in and this is certainly, I think, that most people don’t understand and it’s the area that’s going to be most impactful to the economy. 

But, essentially, any business that has been interrupted by COVID-19, which is basically every business. And the goal is basically to keep their payrolls going. They continue paying rent. They continue paying health benefits. 

I should have mentioned, Nick, I apologize, in the first front of direct-to-taxpayer support, quite massive extensions of unemployment insurance. Going up through four months. Originally, the bill had three months and Chuck Schumer successfully negotiated for an extra month, up to $600 per week of unemployment coverage. 

But the more small businesses that do not lay people off, the less unemployment claims there will be. So there’s sort of a tit for tat in this. And then those loans will be forgiven to these small businesses, provided that they keep these people on their payroll. So, there’s a kind of trickle down benefit in that the more people still paying rent, the less strain that is on landlords, the less they’re laying people off, and so it kind of helps to contain. We’re so used to talking about health contagion. This is sort of an economic contagion it’s seeking to control.

EICHER: And we need only look at the 3.3 million weekly unemployment claims last week. That’s unprecedented. 

Going all the way back to 1967 when we started keeping track, the median’s just below 330,000 per week. Math’s easy on that. 

The highest in history was a single week in 1982, when initial unemployment claims were a million. So it’s three times that outlier number!

BAHNSEN: Absolutely, it’s interesting. I don’t want to say the word funny about anything here, but it’s interesting because the stock market was up 1,300 points the day this came out and it was a tremendous reinforcement of the principle that stock markets are always and forever pricing things in. 

The fact of the matter is I had no less than 10 very well connected Wall Streeters, economists, analysts, high-level people that were whispering the number was going to be closer to 7 million. So 3.3, even though they officially had said they think it’s going to be as bad as 1.5 and it was more than double that, it was actually about half as bad as many people were saying. 1.5 million and 7 million and anything in between, it’s all cataclysmic bad. 

Now, it is the worst number we’re going to see, OK? And I mean this. It gets all better from here because there was such a massive amount that were the one-shot Juanitas the very first week of those bars, restaurants, shopping stores, etc. closing. The numbers are going to be really bad going forward, but at least in some trajectory start to go down.

EICHER: Alright, we’ve covered direct aid. We’ve covered small business, David. What about the big-business provisions?

BAHNSEN: So, this is much more complicated because these are not forgivable loans. This money will have to be paid back, but it’s a pretty substantial amount of money, primarily targeted at airlines. But then other directly troubled industries, which are really going to primarily be in the hospitality, hotel sector and the cruise line sector. And there they can apply for loans directly from the Treasury. 

And then they basically have to agree to certain conditions, compensation limits for executive pay, not doing any stock buybacks for the term of the loan, and a year after, they settled on one year—suspending dividend payments, things like that. All pretty reasonable requests given the circumstances.

But these numbers do have to be paid back and there will be some warrants that the taxpayers will receive, which is essentially a shared-equity participation. So going forward profits, when everybody comes on the other side of this, will filter into the Treasury as well.

EICHER: And then that final tranche of funding: healthcare.

BAHNSEN: Yeah, and this is really, really important. And, of course, because I am such a federalist, I think the more of this that gets directed to state and local, the more effective it will end up being. I don’t have a really high amount of confidence that they’ll get all of this right, but direct support to hospitals for equipment, for supplies. $110 billion is going to buy you an awful lot of supplies and so I just pray that a lot of that stuff doesn’t get lost in bureaucracy.

EICHER: David Bahnsen, financial analyst and adviser, again grateful to you for giving us this time during this unique time of crisis. David, thanks.

BAHNSEN: Thank you.

(AP Photo/Evan Vucci, File) In this March 27, 2020 file photo, President Donald Trump signs the coronavirus stimulus relief package in the Oval Office at the White House in Washington, as Treasury Secretary Steven Mnuchin, Senate Majority Leader Mitch McConnell, R-Ky., House Minority Leader Kevin McCarty, R-Calif., and Vice President Mike Pence watch. Payments from a federal coronavirus relief package could take several weeks to arrive. 

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