Allow the Economy to "Bend but not Break" Small, Asset Light Firms will Suffer Most

Bloomberg Businessweek March 30, 2020 pp8-10 REMARKS “How to Keep Business From Going Bust” “Commerce is on hold as we battle the virus. Here are ways to help companies outlast the pandemic” by Peter Coy

Stopping must of the economy to halt the COVID-19 pandemic is uncharted territory even for business. “…there are no white-haired elders to guide us”. As this sorts-out, some companies will be lost deciding “which sectors, which companies, and which workers are most in need of and most deserving of a rescue” must be carefully considered. To the extent possible, “bend… but do not break”.

The fallout will be especially difficult for small and medium size businesses those that are asset light. “Some will … reemerge….in many cases the loss will be permanent”. There will be nuance to these failures. “High functioning teams…will break up, synergies will be lost. Workers who thrived in a particular niche will flounder…new employers…don’t understand who they are of what they can do”.

What to do for companies?

“Keep companies intact as much as possible”. After the pandemic passes, companies that make and sell items are well positioned.

Other companies might;

Follow the German model “Kurzarbeit” meaning short work time whereby worker hours are reduced but the government pays the gap.

Receive loans from the FED or even the FED directly buying corporate bonds until the crisis averts. These are potential options for large business. Some restrictions will apply-“tight caps on executive compensation…require companies to raise money by selling shares…prohibit buybacks and dividends until the government loans are repaid”. There will be some picking and choosing between essential and non-essential industries. An example, Airlines rather than Casinos.

Smaller businesses “rely on banks rather than markets to raise money”. $250 billion of the $2T Federal package is targeted for “lending to businesses through banks involved with the SBA. Other ideas include providing banks with negative interest enabling them to roll “over their loans to small and medium” concerns. Grants are unlikely because all of us would be inclined to recieve "no-strings-attached" money. Loans are considered less risky and most likely to create the desired outcome of keeping businesses intact because few business owners will take loans knowing their future is highly uncertain.

What to do for individuals?

Boost unemployment benefits and extend the window for receiving this type of support.

Loosen debt repayment.

Looking ahead!

This will be costly, more bailout will be needed but economists urge “Treatment must be aggressive to succeed” and “needs to be done soon”.