‘Stealth bailout’ shovels millions of dollars to oil companies | Hacker News Reader

‘Stealth bailout’ shovels millions of dollars to oil companies

bloomberg.com

125 pointslaurex52 comments

My personal feeling is that we should have just cut everyone a 10k check and be done with it. Some direct funding to hospitals maybe; but 95% of the stimulus should have just been direct cash. Seems like the best way to ensure that people who need it got it, and also give people a cushion to figure out what to do next in the new economy; and not feel compelled to prop up the old one.

I'm sure there's some very good reason we didn't do it. Love to hear it.

Yeah, there's a good reason they didn't do it: their constituents (by which I mean the people who paid to put them in office, not the people who voted for them) are in a poor position to capture a per-person bailout but are in an excellent position to capture a bailout of "the market."

POSIWID.

Had to look that up - "The purpose of a system is what it does (POSIWID)".

Very interesting. It feels similar to the concept of Dharma - an analogy would be: "the purpose of your life is what you do while you live".

Thanks! That was my learning nugget for the day.

I`d always heard the phrase "it`s running as intended" when explaining the intricacies of a dumpster fire. POSIWID works even better!

Yes, completely agree. The stimulus could have paid out around $5,500 to every individual. Most of that would have trickled back up to the top 1% anyway, but it would have helped everyone on the way.

Yes! The trickle up effect..

MUCH more effective than the trickle down effect.

> I'm sure there's some very good reason we didn't do it. Love to hear it.

Congress. The Fed did everything possible without straying too far beyond their mandate and authority granted to them by Congress ("unlimited support", special vehicles to lend where they technically should not be lending). Only Congress can direct the Treasury to issue payments directly to citizens.

> Only Congress can direct the Treasury to issue payments directly to citizens.

Doesnt the Senate have to approve the deal?

As Jeff Goldblum would say, “There it is.”

Oh; so this was part of the fed stimulus, not the 2 trillion congress stimulus bill?

Ironically, no! The Congressional CARES act is what authorized this specific "back door" and provided woefully inadequate economic support to citizens.

J Powell was clear to Congress that he couldn't provide the necessary economic stimulus, and they would have to (direct transfer payments). And they didn't provide anywhere near what was needed. Call your Congressional rep.

There is not really a mechanism to do that. The US does not have the mailing address of every citizen, or no sure knowledge which SSNs belong to dead people, and what the current address is that corresponds to an SSN, etc. The closest is tax returns. There are about 100m more people in the US than tax returns, and some people file more than one return (companies, trusts). I am sure the US has the correct information for half the population. But if you start thinking about millions of $10k checks being sent to the wrong address the potential for fraud is pretty mind boggling.

I don't think that is the only reason, but it is something to consider.

That seems rather silly. How can a country function well if you don't have basic information to connect with the people?

There are people in the US that don't like the idea of a national id card. The US has a very special love / hate relationship with government.

People who need the stimulus can contact the government voluntarily. This problem only exists for central banks that want to spread the helicopter money perfectly evenly among the population because an uneven distribution will not have the intended effect (e.g. mortgages with low interest are only available to those who actually buy a home).

We did it in Australia by giving it to everyone who filed a tax return (necessary even if you aren't paying any tax).

Went into the same bank account, you had to arrange for it to be different with the tax office otherwise. Didn't hear anything about fraud but some dead people did get payments.

I made well into the 6 figures last year and I still got over $1600 (I have kids). Doesn't seem right, I don't need that money. In my opinion those with higher incomes shouldn't be getting checks, but I know there's always edge cases where that could really hurt somebody financially.

EDIT: For comparison, my sibling is single and makes less than 50k a year and got about $1200. That's awful.

Seems to me that the simplest solution is to give everyone the money, no questions asked, and then tax it away later. That way you naturally claw it back from people who don’t need it, because it boosts their income even higher.

I agree that people with six figure salaries likely don’t need the money, but it feels more unfair for a few executives to make millions than for the 2% to get a check for a couple thousand dollars.

Or you could give everyone a loan and forgive it for those who default.

Which creates a moral hazard, why should the honest person pay back the loan next time during a similar crisis?

We are in a situation where pretty much every job in on the chopping block. I want them to give money to every one, but if you have earned lets say 150K in 2020, this amount is fully clawed back next year tax season.

The stimulus funds are to be reported but not taxed.

https://www.businessinsider.com/personal-finance/are-coronav...

I think the reason is very simple, aid needed to be targets because those industries are hit harder. ex. If you send everyone a check for $5k, during the quarantine, no one is using that $5k to purchase gasoline or flights, so the oil/airline industry is going to be burning money during that time. Oil and air travel are particularly important to have healthy for after we get back to normal.

This argument would be more convincing if these companies were actually spending bailout money on operations and employees, rather than, say, declaring bankruptcy, laying people off and giving millions of dollars to executives.

U.S. airlines spent 96% (!!) of their free cash flow in the last decade on stock buybacks [0]. That turned out to be a bad bet. Why don't the executives buy back the billions of dollars of stock they sold to the airlines, rather than asking the taxpayers to foot the bill?

[0] https://www.bloomberg.com/news/articles/2020-03-16/u-s-airli...

If a business fails because it didn't plan for a black swan event, let it fail. Otherwise you create a moral hazard and ensure stuff like this happens over and over again.

It's bad when these businesses fail because it hurts the employees, that's why they should direct transfer cash to employees.

There is an idea that I have been playing with which kind of tests this idea, sort of a social pen-testing for companies, and seeing where the weak points are in a company's philosophical and behavioral hierarchy.

This idea basically boils down to business ethics, and the idea of long-term gains can beat a stochastic market and lessen risk if the player and its subsidiaries behave ethically, independent of direct cooperation events. So this means that it doesn't matter whether a company seeks to compete or not, as long as it makes civically minded choices.

The problem is that when neither government nor private business makes good civically minded choices that chaos eventually erupts; essentially, the cause and effect are interlinked and correlated.

That’s not a very free market approach. This also assumes demand will just magically bounce back.

If demand goes away, why not let these suppliers fail and let the market sort out how/when/if demand returns.

I mean, Canada is essentially doing that - giving $8000 ($2000 per month for 4 months) to anyone that needs it - you do have to qualify by losing your income, but it's certainly not hard.

Australia too are paying a lot.

The only logical reason I can think of is corruption.

I think this would require a Democratic party that does something besides rule out possibilities.

This is a bi-partisan issue. Both parties, just as they did in the 2008 crisis, fully prioritize and support the transfer of taxpayer wealth to corporations. Look at timelines in both corporate bailouts and you will see how fast the government can actually work when they want to.

It took a couple of months in 2008 for them to figure out the best way to transfer and divvy up the bailout money.

This crisis they got it done in less than 72 hours!

Edit: s/then/than/

I think the Democratic party may have finally given up on winning over moderate republicans. Which removes some self imposed inflexibility.

Meanwhile millions of people approved for unemployment benefits still aren't getting paid.

Not cool.

83% of US energy portfolio is connected to Oil, Gas and Coal.

Either you prop energy industry now, or fight KSA's wars and ideological misadventures in ME.

For what its worth, saving ONG jobs in US at least gives us better policy options than being energy hostage.

Green tech is not there yet to pick heavy load. In the interim you need ONG.

Why not let the free market decide.

It isn't a free market. OPEC+ is literally a cartel trying to gain monopolistic control over oil prices. With NA ONG bankrupt, they can proceed to gouge oil prices for the next half decade, until NA ONG can be recapitalized and operating at full capacity again. In the meantime, KSA will then be given large amounts arms and wealth to prop up their shenanigans in the ME.

This is absurd. Even if domestic supply falters (i'm unconvinced we wouldn't be able to quickly turn it around if need be, as we have multiple times in the past decade), KSA is still not a major international source of US oil.

With shale out of the game, tar sands our of business, PDVSA heavy crude barely having an output with dilapidated INFRA, who is going to plug the hole ? When the rates were high Canada and Mexico plugged in.

I am curious, if KSA wins the price war the Nigerians, Libyans, Angolans, Russians are out of the game. Outside of Persian gulf there won't be any hefty producers.

If the KSA has the capacity and inclination to win a price war against every international competitor, it would have done so already.

Easy enough to fix. Tell the Saudis that they don't get anymore hardware or support unless they sell us oil cheap, and otherwise we'll send all that support to Israel instead.

This comment shows you don't understand ME politics. KSA couldn't care less if we give arms to Israel.

So maybe Israel is irrelevant. They're a US puppet state, though, and the US could pull those strings.

I don't think the Saudi regime has much of a problem with Israel, they are more concerned about Iran.

This comment is pure neoliberal death cult ideology.

Can't you even conceptualize other ways of being that don't involve a simple binary choice of imperial war or handing gobs of taxpayer cash to the companies which already profit from the extraction of natural resources?

Please don't take HN threads further into ideological flamewar. This place is for curious conversation, not smiting enemies.

Of course it's fine to disagree with stealth oil subsidies, just not by name-calling and denunciatory rhetoric.

https://news.ycombinator.com/newsguidelines.html

My understanding is that the change was to allow the stimulus loans to be used to pay off and refinance loans they currently have as well as claim back past losses on taxes.

While questionable in many ways, why is that specific to the oil and gas industry other than them having many past profits?

Because they were already over leveraged businesses that shouldn't have been given access to stimulus capital. This is exactly the problem causing "zombie companies" [1], companies that are only able to survive with cheap capital (similar to the VC model funding business models that are never going to be profitable at any scale).

And of all companies to provide stimulus for, oil and gas is not what we should be wasting even more fiat on. This is a handout, plain and simple, no different than the governor of North Dakota trying to prop up a coal plant that hasn't been profitable in years that the owners themselves want to shut down [2] [3].

[1] https://en.wikipedia.org/wiki/Zombie_company

[2] https://www.cnbc.com/2020/05/11/north-dakotas-largest-power-...

[3] https://www.utilitydive.com/news/north-dakota-governor-oppos...

Around here the frackers are starting to abandon wells and hollow out as much cash from the companies as possible before bankruptcy, and now those sites are active pollution and safety hazards that the taxpayer will be responsible for.

I hope all the poor brown and black kids that live around here don't hop the fences to the drill sites and get hurt somehow, but I know it's just a matter of time.

This is the third time this has happened in my specific city in the past hundred years. Two major oil busts, and now the fracking collapse.

Everyone always gets to keep their bonuses. Nobody ever goes to jail.

eh this just temporarily reinstates the prior tax code before the 2017 Tax act changes.

The 2017 law removed the ability to carry back net operating losses, only leaving carry forwards. We had carry backs for at least 3 decades.

The CARES Act temporarily reinstated carry backs. I think it is disingenuous to say thats a problem, when its more normal than anything else that has happened.

Regarding how it was sold for the "little guy", who cares? Like imagine being that naive not to notice that everything gets consensus in this country by catering to the constituents that can gain consensus. Consensus needs numbers, you don't sell a bill by saying "in this esoteric accounting standard that you will never encounter, we need to make a rule change regarding carrying losses to encourage growth ACT", you cater to things most people will encounter, and that the representatives of those people will relate to, and get phone calls and emails from their people about.

I take social cues from other people, so I can tell I feel differently, as in feel nothing, from this. But I think you should too.

Should not be surprising, particularly now when there is a 3-way turf war on between Russia, Saudis and US.

You must live in the Truman Show to believe Uncle Sam would let anything happen to Oil and Gas companies.

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