What are we saying? It makes perfect sense: the President only worries about what would make him personally look bad.
Otherwise Trump would seem to be arguing against himself when he says he’s for banning or at least limiting companies from using any of billions of dollars in Coronavirus federal bailout money that may come their way to buy back their own stock. Because stock buybacks are often a surefire way to start turning around a plunging stock market. If companies are willing to jump in with their own cash that they could (or maybe should) be spending elsewhere, it’s a sign they believe their stock has fallen so far that it’s a really good value, and that in turn often gets investors thinking the same way. Even if it doesn’t, by buying their own shares, companies are removing supply of their shares from the stock market, so with fewer shares out there, the shares that remain should have more value. (Keep in mind though that investors are deep in uncharted territory right now, so there’s no guarantee that would work to prop up prices this time, even though the same mechanism would be in place.)
So if Trump was initially dismissive of the ravages of the Coronavirus because he didn’t want to mess up “his” rocketing stock market, stock buybacks are probably the first thing he should want corporate America to do. And in fact, companies buying back their own stock was one of the keys to the turnaround after 1987’s Black Monday, which remains the biggest single-day drop in percentage terms on record.
But stock buybacks primarily help CEOs and shareholders. They don’t save or create jobs, a fact Democrats are making abundantly clear, and Trump would look really bad if he opposed that view, and he knows it. Plus he likes banning things. Hence the switcheroo.
We also wonder, since Trump keeps touting how many factories he brought back to the U.S., why he didn’t bring any back that made face masks, for instance, or many kinds of medical equipment? One would think those industries might be just as crucial in a time of national emergency as weapons makers, which by necessity manufacture in the U.S. by and large for reasons of national security. But then again, Trump shut down his pandemic and bio terrorism response team in the White House, so maybe that’s why. It’s not his mistake alone. Friends of ours in Japan—where it’s much more common to wear surgical masks on the street on a day-to-day basis, and has been for years—say they can’t get them now there either. For the same reason: they’re pretty much all made in China.
Instead, now when it comes to bailouts or breaks for corporations, Trump seems to prefer doing deals where instead of giving companies a bunch of money to do whatever they want (including stock buybacks) in industries such as airlines, cruise ships and casinos, and probably many more before this is all over, the U.S. gets a stake in the company, and depending how bad shape it’s in, even possibly some say in how it’s run, and who runs it. This strategy was used a lot by President Obama in the Great Recession of 2008, with great success: the American taxpayer ended up making money on most of those types of deals when they got paid back.
Just want to point out a couple of additional things before we wrap:
- First of all, whether you bail out companies by just giving them money, or you require them to give the federal government equity, either way: it’s Socialism.
- Trump also seems to be arguing against the insular “America first” philosophy that got him elected, every time he touts Roche and Bayer as being leading players in the Coronavirus response at his news conferences (if not the leading players), which he does a lot. Neither of them is an American company. Roche is Swiss, Bayer is German. Thought the U.S. was the best at everything, and wouldn’t need global help in times of crisis, in fact would be better off without it.
- Part of corporations’ penchant for stock buybacks, and why they used so much of Trump and Republicans’ previous $1.5-trillion tax cut for that, is representative of the way many things that have become very dysfunctional in corporate America. Where everything now for corporate leaders (and until just now Trump too!) is about driving up stock prices. That’s partly because many, many CEOs have their salaries based these days on the performance of their company’s stock, not how many new factories they build or bring back from overseas, nor how many jobs they create. If Trump wanted to, he could’ve at least started fixing this when he made his tax cut, by requiring companies to bring back or build factories and create new jobs in order to qualify for those tax cuts. But he didn’t. Not done.