Democracy Uprising
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      Democrats Won Power in Several States. Will They…

      Social Movements

      Changing the ‘world as it is’ into the…

      Social Movements

      What’s the problem with taking state power?

      Latest Articles

      Is Los Angeles Creating a Model for Fighting…

      Social Movements

      What If America Had Six Political Parties?

      Social Movements

      Movements are vying for political power — is…

      2021-2023

      How movements can maintain their radical vision while winning…

      Social Movements

      What Happens After Movement-Backed Politicians Take Office

      Book Reviews

      The Pan American

      Book Reviews

      The Godfather of Microcredit

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      Capitalism as Catastrophe

      Book Reviews

      Four Ways of Looking at an Aztec Eagle

      Book Reviews

      The Ascent of Niall Ferguson

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      Ordinary Outrages

      Book Reviews

      No Better Place

      Book Reviews

      In God’s Country

      Environment

      Why Wendell Matters

      Environment

      The Gulf at the Gas Station

      Environment

      Climate Disobedience

      Environment

      Farming the Everglades

      Environment

      The Winter of the Climate Denier

      Environment

      Climate of Change: An “Inside-Outside” Strategy Against Global…

      Environment

      Provoking an American Climate Crisis

      Environment

      The Real “Farmer” Story: So God Made High-Fructose…

      Essays / First Person

      Is Rambo Still A Republican?

      Essays / First Person

      On the Price is Right

      Essays / First Person

      The Last Porto Alegre

      Essays / First Person

      Six Essays About War and About Peace

      Essays / First Person

      Republicans Among Us

      Essays / First Person

      New York Says “No”

      Essays / First Person

      The Sideshow Rebels

      Essays / First Person

      A Week in New York

      Global Economy

      Meet the Bailout’s New Slush Fund for Corporate…

      Global Economy

      The Seattle Protests Showed That Another World Is…

      Global Economy

      Jeff Bezos Has Enough! It’s Time for a…

      Global Economy

      The Amazon Effect: Sweat, Surveillance, Exploitation

      Global Economy

      The Godfather of Microcredit

      Global Economy

      Capitalism as Catastrophe

      Global Economy

      Immigration Economics: An Interview with Professor Giovanni Peri

      Global Economy

      The World Is Not Flat

      Immigration

      When Undocumented Activists Infiltrated ICE

      Immigration

      The Children of Intervention

      Immigration

      Immigration Economics: An Interview with Professor Giovanni Peri

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      Science Fiction From Below

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      Four Ways of Looking at an Aztec Eagle

      Immigration

      Treated Like a Criminal

      Immigration

      When Sanctuary is Resistance

      Immigration

      The Massive Immigrants Rights Protests of 2006 Are…

      Labor

      Democrats Won Power in Several States. Will They…

      Labor

      The Case for a Social Distancing Wage

      Labor

      The Seattle Protests Showed That Another World Is…

      Labor

      Reviving the General Strike

      Labor

      Jeff Bezos Has Enough! It’s Time for a…

      Labor

      There’s Still Power in a Strike

      Labor

      The Amazon Effect: Sweat, Surveillance, Exploitation

      Labor

      There’s More Than One Way to Strike the…

      Latin America

      How movements can maintain their radical vision while winning…

      Latin America

      The Pan American

      Latin America

      Lessons from the Pledge of Resistance

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      The Children of Intervention

      Latin America

      Against Shithole Nationalism

      Latin America

      The Last Porto Alegre

      Latin America

      Kissinger Is Not Our Friend

      Latin America

      Even If You Have Nothing to Hide

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      Changing the ‘world as it is’ into the…

      Social Movements

      What’s the problem with taking state power?

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      Is Los Angeles Creating a Model for Fighting…

      Social Movements

      What If America Had Six Political Parties?

      Social Movements

      Movements are vying for political power — is…

      Social Movements

      How movements can maintain their radical vision while winning…

      Social Movements

      What Happens After Movement-Backed Politicians Take Office

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      Should we disrupt the Democratic Party or try…

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      Toward the “Rights of the Poor”

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      The Pope and the Poor

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      Will the Next Pope Embrace Liberation Theology?

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      Remembering Romero

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      U.S. Politics / Elections

      Democrats Won Power in Several States. Will They…

      U.S. Politics / Elections

      What’s the problem with taking state power?

      U.S. Politics / Elections

      Is Los Angeles Creating a Model for Fighting…

      U.S. Politics / Elections

      What If America Had Six Political Parties?

      U.S. Politics / Elections

      Movements are vying for political power — is…

      U.S. Politics / Elections

      How movements can maintain their radical vision while winning…

      U.S. Politics / Elections

      What Happens After Movement-Backed Politicians Take Office

      U.S. Politics / Elections

      Should we disrupt the Democratic Party or try…

      War / Militarism

      Does It Make Sense to Protest a President…

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      Lessons from the Pledge of Resistance

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      Is Rambo Still A Republican?

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      War: The Wrong Jobs Program

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      The Ascent of Niall Ferguson

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      Those Who Don’t Count

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      Six Essays About War and About Peace

      War / Militarism

      The Dangerous Dignity of War

  • Translations
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      Translations

      Jordlösa kombinerar radikala visioner med praktiska reformer (Swedish)

      Español

      Hacer Que Nuestras Demandas Sean Tanto Orácticas Como…

      Italiano

      C’è più di un modo per colpire il…

      Português

      As reformas não reformistas de André Gorz mostram…

      Español

      Las reformas no reformistas de André Gorz

      Deutsch

      Die nicht-reformistischen Reformen von André Gorz

      Italiano

      Richieste dei movimenti: sia pratiche che visionarie

      Chinese

      泛美洲人 爱德华多·加莱亚诺的世界 (Chinese)

      Chinese

      泛美洲人 爱德华多·加莱亚诺的世界 (Chinese)

      Chinese

      Why Wendell Matters (in Chinese)

      Chinese

      Globalization’s Watchdogs (in Chinese)

      Deutsch

      Die nicht-reformistischen Reformen von André Gorz

      Deutsch

      Als Martin Luther King seine Feuerwaffen aufgab

      Deutsch

      Mikrokredite: Die Entlassung eines Nobelpreisträgers

      Deutsch

      CAFTA – am besten stillschweigend beerdigen

      Deutsch

      Bush in Mexiko

      Deutsch

      Das globale Duell in Evian

      Deutsch

      Die Rückkehr des Daniel Ortega

      Español

      Hacer Que Nuestras Demandas Sean Tanto Orácticas Como…

      Español

      Las reformas no reformistas de André Gorz

      Español

      ¿Adoptará el nuevo papa la teología de la…

      Español

      Wall Street quiere que les estemos agradecidos

      Español

      Si Las Monjas Se Fueran a una Huelga,…

      Español

      ALEC retrocede; a la derecha le da un…

      Español

      ¿ALEC disgustado ante la pérdida de patrocinadores? Se…

      Español

      La vida en la nación prisión

      Français

      La révolution non-violente a-t-elle échoué en Egypte?

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      Le pari risqué du populisme au Pérou

      Français

      Hong Kong Phooey

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      Bush Nuit Même Aux Compagnies U.S.

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      Le dynamisme du mouvement pour la paix

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      La déroute de l’ALCA dans une Miami en…

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      Ceux qui ne comptent pas

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      La guerre en Irak : une expo des…

      Italiano

      C’è più di un modo per colpire il…

      Italiano

      Richieste dei movimenti: sia pratiche che visionarie

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      La strategia di Gandhi per il successo –…

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      Guantanamo deve sparire

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      IL BANK TRANSFER DAY: UN SUCCESSO

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      Come il movimento Occupiamo Wall Street si sta…

      Italiano

      Economia tabù

      Japanese

      ガンジーはどのように勝利したのか? (Japanese)

      Japanese

      Truth Versus Superpower (Japanese)

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      Bush’s Bad Business Empire (Japanese)

      Japanese

      Revenge of the Combat Cartoonist (Japanese)

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      Bush’s Uneasy Mexican Visita (Japanese)

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      Mark Twain in Iraq (Japanese)

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      Globalization’s “Lost Decade” (Japanese)

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      Hawks Say the Damnedest Things (Japanese)

      Português

      As reformas não reformistas de André Gorz mostram…

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      A vida na Nação Prisão

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      Arabic

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      The Return of Daniel Ortega (in Arabic)

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Democracy Uprising

  • About
    • About Mark Engler
    • About Democracy Uprising
  • Books
    • This Is An Uprising
    • How To Rule the World
  • Topics
    • All Book Reviews Environment Essays / First Person Global Economy Immigration Labor Latin America Social Movements Religion U.S. Politics / Elections War / Militarism
      Latest Articles

      Democrats Won Power in Several States. Will They…

      Social Movements

      Changing the ‘world as it is’ into the…

      Social Movements

      What’s the problem with taking state power?

      Latest Articles

      Is Los Angeles Creating a Model for Fighting…

      Social Movements

      What If America Had Six Political Parties?

      Social Movements

      Movements are vying for political power — is…

      2021-2023

      How movements can maintain their radical vision while winning…

      Social Movements

      What Happens After Movement-Backed Politicians Take Office

      Book Reviews

      The Pan American

      Book Reviews

      The Godfather of Microcredit

      Book Reviews

      Capitalism as Catastrophe

      Book Reviews

      Four Ways of Looking at an Aztec Eagle

      Book Reviews

      The Ascent of Niall Ferguson

      Book Reviews

      Ordinary Outrages

      Book Reviews

      No Better Place

      Book Reviews

      In God’s Country

      Environment

      Why Wendell Matters

      Environment

      The Gulf at the Gas Station

      Environment

      Climate Disobedience

      Environment

      Farming the Everglades

      Environment

      The Winter of the Climate Denier

      Environment

      Climate of Change: An “Inside-Outside” Strategy Against Global…

      Environment

      Provoking an American Climate Crisis

      Environment

      The Real “Farmer” Story: So God Made High-Fructose…

      Essays / First Person

      Is Rambo Still A Republican?

      Essays / First Person

      On the Price is Right

      Essays / First Person

      The Last Porto Alegre

      Essays / First Person

      Six Essays About War and About Peace

      Essays / First Person

      Republicans Among Us

      Essays / First Person

      New York Says “No”

      Essays / First Person

      The Sideshow Rebels

      Essays / First Person

      A Week in New York

      Global Economy

      Meet the Bailout’s New Slush Fund for Corporate…

      Global Economy

      The Seattle Protests Showed That Another World Is…

      Global Economy

      Jeff Bezos Has Enough! It’s Time for a…

      Global Economy

      The Amazon Effect: Sweat, Surveillance, Exploitation

      Global Economy

      The Godfather of Microcredit

      Global Economy

      Capitalism as Catastrophe

      Global Economy

      Immigration Economics: An Interview with Professor Giovanni Peri

      Global Economy

      The World Is Not Flat

      Immigration

      When Undocumented Activists Infiltrated ICE

      Immigration

      The Children of Intervention

      Immigration

      Immigration Economics: An Interview with Professor Giovanni Peri

      Immigration

      Science Fiction From Below

      Immigration

      Four Ways of Looking at an Aztec Eagle

      Immigration

      Treated Like a Criminal

      Immigration

      When Sanctuary is Resistance

      Immigration

      The Massive Immigrants Rights Protests of 2006 Are…

      Labor

      Democrats Won Power in Several States. Will They…

      Labor

      The Case for a Social Distancing Wage

      Labor

      The Seattle Protests Showed That Another World Is…

      Labor

      Reviving the General Strike

      Labor

      Jeff Bezos Has Enough! It’s Time for a…

      Labor

      There’s Still Power in a Strike

      Labor

      The Amazon Effect: Sweat, Surveillance, Exploitation

      Labor

      There’s More Than One Way to Strike the…

      Latin America

      How movements can maintain their radical vision while winning…

      Latin America

      The Pan American

      Latin America

      Lessons from the Pledge of Resistance

      Latin America

      The Children of Intervention

      Latin America

      Against Shithole Nationalism

      Latin America

      The Last Porto Alegre

      Latin America

      Kissinger Is Not Our Friend

      Latin America

      Even If You Have Nothing to Hide

      Social Movements

      Changing the ‘world as it is’ into the…

      Social Movements

      What’s the problem with taking state power?

      Social Movements

      Is Los Angeles Creating a Model for Fighting…

      Social Movements

      What If America Had Six Political Parties?

      Social Movements

      Movements are vying for political power — is…

      Social Movements

      How movements can maintain their radical vision while winning…

      Social Movements

      What Happens After Movement-Backed Politicians Take Office

      Social Movements

      Should we disrupt the Democratic Party or try…

      Religion

      In God’s Country

      Religion

      Reverend Billy’s Holiday Shopocalypse

      Religion

      Toward the “Rights of the Poor”

      Religion

      The Pope and the Poor

      Religion

      Will the Next Pope Embrace Liberation Theology?

      Religion

      Remembering Romero

      Religion

      John Paul II’s Economic Ethics

      Religion

      Against the God of Free Trade

      U.S. Politics / Elections

      Democrats Won Power in Several States. Will They…

      U.S. Politics / Elections

      What’s the problem with taking state power?

      U.S. Politics / Elections

      Is Los Angeles Creating a Model for Fighting…

      U.S. Politics / Elections

      What If America Had Six Political Parties?

      U.S. Politics / Elections

      Movements are vying for political power — is…

      U.S. Politics / Elections

      How movements can maintain their radical vision while winning…

      U.S. Politics / Elections

      What Happens After Movement-Backed Politicians Take Office

      U.S. Politics / Elections

      Should we disrupt the Democratic Party or try…

      War / Militarism

      Does It Make Sense to Protest a President…

      War / Militarism

      Lessons from the Pledge of Resistance

      War / Militarism

      Is Rambo Still A Republican?

      War / Militarism

      War: The Wrong Jobs Program

      War / Militarism

      The Ascent of Niall Ferguson

      War / Militarism

      Those Who Don’t Count

      War / Militarism

      Six Essays About War and About Peace

      War / Militarism

      The Dangerous Dignity of War

  • Translations
    • All Chinese Deutsch Español Français Italiano Japanese Português Arabic Thai
      Translations

      Jordlösa kombinerar radikala visioner med praktiska reformer (Swedish)

      Español

      Hacer Que Nuestras Demandas Sean Tanto Orácticas Como…

      Italiano

      C’è più di un modo per colpire il…

      Português

      As reformas não reformistas de André Gorz mostram…

      Español

      Las reformas no reformistas de André Gorz

      Deutsch

      Die nicht-reformistischen Reformen von André Gorz

      Italiano

      Richieste dei movimenti: sia pratiche che visionarie

      Chinese

      泛美洲人 爱德华多·加莱亚诺的世界 (Chinese)

      Chinese

      泛美洲人 爱德华多·加莱亚诺的世界 (Chinese)

      Chinese

      Why Wendell Matters (in Chinese)

      Chinese

      Globalization’s Watchdogs (in Chinese)

      Deutsch

      Die nicht-reformistischen Reformen von André Gorz

      Deutsch

      Als Martin Luther King seine Feuerwaffen aufgab

      Deutsch

      Mikrokredite: Die Entlassung eines Nobelpreisträgers

      Deutsch

      CAFTA – am besten stillschweigend beerdigen

      Deutsch

      Bush in Mexiko

      Deutsch

      Das globale Duell in Evian

      Deutsch

      Die Rückkehr des Daniel Ortega

      Español

      Hacer Que Nuestras Demandas Sean Tanto Orácticas Como…

      Español

      Las reformas no reformistas de André Gorz

      Español

      ¿Adoptará el nuevo papa la teología de la…

      Español

      Wall Street quiere que les estemos agradecidos

      Español

      Si Las Monjas Se Fueran a una Huelga,…

      Español

      ALEC retrocede; a la derecha le da un…

      Español

      ¿ALEC disgustado ante la pérdida de patrocinadores? Se…

      Español

      La vida en la nación prisión

      Français

      La révolution non-violente a-t-elle échoué en Egypte?

      Français

      Le pari risqué du populisme au Pérou

      Français

      Hong Kong Phooey

      Français

      Bush Nuit Même Aux Compagnies U.S.

      Français

      Le dynamisme du mouvement pour la paix

      Français

      La déroute de l’ALCA dans une Miami en…

      Français

      Ceux qui ne comptent pas

      Français

      La guerre en Irak : une expo des…

      Italiano

      C’è più di un modo per colpire il…

      Italiano

      Richieste dei movimenti: sia pratiche che visionarie

      Italiano

      La strategia di Gandhi per il successo –…

      Italiano

      Le promesse infrante di Obama

      Italiano

      Guantanamo deve sparire

      Italiano

      IL BANK TRANSFER DAY: UN SUCCESSO

      Italiano

      Come il movimento Occupiamo Wall Street si sta…

      Italiano

      Economia tabù

      Japanese

      ガンジーはどのように勝利したのか? (Japanese)

      Japanese

      Truth Versus Superpower (Japanese)

      Japanese

      Bush’s Bad Business Empire (Japanese)

      Japanese

      Revenge of the Combat Cartoonist (Japanese)

      Japanese

      Bush’s Uneasy Mexican Visita (Japanese)

      Japanese

      Mark Twain in Iraq (Japanese)

      Japanese

      Globalization’s “Lost Decade” (Japanese)

      Japanese

      Hawks Say the Damnedest Things (Japanese)

      Português

      As reformas não reformistas de André Gorz mostram…

      Português

      A vida na Nação Prisão

      Português

      Outro pretexto?

      Português

      Imigração tem efeito positivo sobre emprego e salários

      Português

      O império hipotecado

      Arabic

      Abandoning the World Bank (in Arabic)

      Arabic

      The Return of Daniel Ortega (in Arabic)

      Arabic

      Where’s The Jubilee? (in Arabic)

      Arabic

      The Last Porto Alegre (in Arabic)

      Arabic

      Seattle At Five (in Arabic)

      Arabic

      Is Market Access the Answer to Poverty? (in…

      Arabic

      Mexico’s Democratic Transition Still Incomplete (in Arabic)

      Thai

      Progressive Good Tidings of 2007 (in Thai)

      Thai

      2006: A Global Justice Year in Review (In…

      Thai

      WTO: Best Left For Dead? (In Thai)

      Thai

      Is Market Access the Answer to Poverty? (In…

      Thai

      Bush’s Bad Business Empire (In Thai)

      Thai

      The Last Porto Alegre [Thai]

      Thai

      Globalizers, Neocons, or… ? (in Thai)

    • Other Translations
  • Appearances
  • Archive
    • 2021-2023
    • 2019-2020
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2019-2020Global EconomyU.S. Politics / ElectionsLatest Articles

Meet the Bailout’s New Slush Fund for Corporate America

by Mark Engler and Andrew Elrod April 2, 2020
written by Mark Engler and Andrew Elrod April 2, 2020
Meet the Bailout’s New Slush Fund for Corporate America

History suggests that the battle over the bailout—which is set to be delivered through a once-obscure Treasury Department mechanism called the Exchange Stabilization Fund—has only just begun.

Published in Boston Review.


On Friday Congress passed the largest financial relief bill in its history, the Coronavirus Aid, Relief and Economic Security (CARES) Act, a $2 trillion dollar stimulus designed to bolster businesses and provide aid to Americans facing economic hardship amid the coronavirus pandemic. A large portion of that money will be going directly to taxpayers—most adults will receive one-time government payouts of $1,200—as well as to expanding unemployment insurance, which record numbers of newly jobless Americans are now turning to.

But apart from that, the largest allocation—approximately $500 billion—is going to Treasury Secretary Steven Mnuchin to bail out corporate America. The majority will be passed along to the Federal Reserve, which will leverage the cash infusion for more than $4 trillion in lending to big business. A variety of legal and financial analysts have indicated that the mechanism for this transfer will be a little-known entity called the Exchange Stabilization Fund. Few people have ever heard of this fund, controlled by the Department of the Treasury, and there’s little reason they should have. A low-profile entity that has existed since 1934, it was not envisioned by its creators to be a major tool for public spending. And yet it has just become the vehicle for the most important slush fund in government.

We know from past precedent that large-scale bailouts often empower new mechanisms for public action—sometimes freshly created agencies, sometimes existing tools that take on dramatic new importance. Relevant examples range from the Reconstruction Finance Corporation of the New Deal era, to segments of the Federal Reserve used to bail out some of the nation’s largest corporations in the 1970s, to the Troubled Asset Relief Program (TARP) created after the 2008 crash. In terms of what these bailouts look like in practice, fights over the administration and oversight of these agencies can be as critical as the funding that is allocated at the outset—and sometimes even more important.

Democrats were right to demand oversight of the fund in congressional debate about the stimulus bill. They won some important concessions that stop this from being a pure corporate giveaway. But history suggests that they should be prepared for an ongoing fight. Those who wish to restore a degree of democracy to our highly concentrated, centralized, and unequal economy must push not only for greater oversight, but for further demands to make the most business-friendly branches of government focus instead on the economic well-being of American workers.

* * * * *

Financing an Economic Reconstruction

The Exchange Stabilization Fund, or ESF, now being used by the Treasury was established by Congress in 1934 on behalf of the Roosevelt administration. Its purpose was to manage the foreign value of the nation’s currency. Authorized to deal in gold, foreign exchange, and “other such instruments of credit and securities” as the Secretary of the Treasury might feel necessary to “stabilize the exchange value of the dollar,” the fund was initially given $200 million. For decades it generally attracted little attention, although it occasionally made the news, as when Bill Clinton used it as the U.S. government’s instrument to bail out the Mexican peso in 1995.

Providing major financing to keep the corporate sector afloat, however, was never in the purview of the ESF. Instead, the New Deal agency that functioned most similarly to the current rescue package—and that provides an important point of reference in current debates—was the Reconstruction Finance Corporation, or RFC. This was a government corporation empowered to make loans, buy stock, and issue bonds to raise its own financing. Created under Herbert Hoover in 1932 with $500 million from Congress, it was originally envisioned as a means of stabilizing the nation’s corporate bond market. Congress quickly doubled its borrowing power and repeatedly extended its investing responsibilities, and, according to Jordan Schwarz’s The New Dealers: Power Politics in the Age of Roosevelt (1993), under Roosevelt the corporation would disburse more than $11 billion by 1936.

Jesse Jones, the Texas businessman who Roosevelt put in charge of the corporation, has been described by Schwarz as “the single most powerful man in the New Deal,” after the president himself. Although hardly a friend to organized labor, Jones was not beholden to Wall Street and was willing to use public muscle not merely to shore up existing businesses, but also to finance projects in the public interest that the market on itself was unwilling to support—ranging from the Farm Credit Administration that saved millions of rural families from foreclosure to the Rural Electrification Agency that brought electricity to regions that had been consistently neglected by utility companies. It also kept both the cities of Chicago and New York solvent, at one point financing the entire back pay due to the 15,000 teachers in the Chicago public schools.

As Brent Cebul, Assistant Professor of American History at the University of Pennsylvania, says, the RFC was “absolutely essential to some of the fundamental reforms the New Deal put in place.” It was similarly essential during the Second World War, when it built and owned nearly 90 percent of the nation’s aircraft, shipbuilding, and munitions industries, and when it almost single-handedly financed the nation’s nitrate and synthetic rubber industries.

* * * * *

Reviving the RFC?

A number of prominent progressives and liberals have recently raised the prospect of reviving the RFC. Writing in the Boston Globe, economist James Galbraith and writer Michael Lind proposed the creation of a “Health Finance Corporation” that could serve an efficient, centralized “federal agency to manage resource allocation and the financing of the response.” This would involve providing funding to prop up the country’s medical systems, as well as keeping essential elements of the economy functioning. Their envisioned agency would be authorized “to buy equity in firms whose survival or rapid expansion is needed to combat the pandemic and stabilize core economic activities, such as utilities and other basic services.” Writing along similar lines in the New Yorker, John Cassidy called for a “Coronavirus Finance Corporation” that could operate independently of the White House and the Treasury Department to provide targeted support to businesses, with the public receiving equity in return—a key feature of the New Deal agency on which the proposals are modeled.

Instead, the Republican-led Congress has opted for a more generalized bailout for corporate America, which includes likely infusions of public financing for many businesses that have done nothing to deserve such support. In this respect, it follows the model of TARP, which was created after the 2008 financial crisis. “What is happening is a bailout,” Galbraith says. “Basically it is driven by the same interests in Washington.”

Of the $500 billion that Congress is sending to the Treasury to prop up big business, $46 billion will be lent directly, with the majority going to the airline industry and the remainder divided between companies deemed “important to maintaining national security.” But the lion’s share, a total of $454 billion, will be provided by the ESF to the Federal Reserve. Even before the Treasury received new money from Congress, it had begun using existing ESF holdings to launch an initial bailout—backing the Federal Reserve in propping up the corporate bond market. Reporting on the additional infusion of funds by Congress, the Sovereign Wealth Fund Institute noted, “By the CARES Act, U.S. Exchange Stabilization Fund Gets Big.” Because the Federal Reserve may leverage the new money at a ten-to-one rate, the fund available to support corporate America will actually total in excess of $4 trillion — big indeed.

“It’s a workaround essentially,” Galbraith says. “The Republicans didn’t want a new agency.” Instead, they created a slush fund that can be deployed with little transparency or Congressional involvement.

Prior to the passage of the CARES Act, Damon Silvers, who served as deputy chair of the Congressional Oversight Panel established after the 2008 bailout, had warned against duplicating the mistakes of TARP. “Then as now, big banks and big companies wanted money without conditions,” he wrote. “And with no conditions on how they employed the public’s dollars, the banks were allowed to bleed homeowners to rebuild their capital, small-business lending dried up for years, and ten million American families—40 million people, millions of children—were foreclosed on and driven from their homes.”

During last week’s Senate debate, Democrats expressed skepticism about a repeat of the George W. Bush–era rescue program. “We’re gonna give $500 billion in basically a slush fund to help industries controlled by Mnuchin with very little transparency? Is that what we ought to be doing?” remarked Hawaiian Senator Mazie Hirono.

Such hesitant lawmakers rallied enough resistance to win some oversight over CARES spending, as well as some conditions on how corporations receiving public backing can use the support. Democrats successfully inserted language establishing an Office of the Special Inspector General to review pandemic spending, as well as a Congressional Oversight Commission. More intriguing, they won mandates stating that, for twelve months after the completion of a public loan, any business receiving assistance will be prohibited from purchasing their own stock or paying dividends. Managers at recipient firms who made more than $425,000 in 2019 will have their salary rates frozen for twelve months after the loan and will have any severance packages capped at twice their 2019 total compensation. Some additional restrictions apply to compensation for those making more than $3 million. Moreover, businesses run by family members of Donald Trump or others in high office will be barred from receiving assistance.

* * * * *

Beyond Oversight

While not insignificant, these controls hardly go far enough. The oversight provisions essentially mirror those put in place to review TARP—and these proved entirely inadequate. The Congressional Oversight Panel, Silvers argues, “was purely advisory. It had no subpoena power, and it could not swear in witnesses. Officials came in front of us and lied with impunity.” To the extent that the panel is remembered today as an effective watchdog, Silvers explains, “that was due really only to the enormous work put into it by [Elizabeth] Warren, my fellow board members, and the staff.” Indeed, with the current bailout, Trump has already suggested that he could gag the inspector general from making public any reports.

Such statements make clear the need not only to ensure current oversight provisions are exercised to the fullest extent possible, but also to get Congress to push for even greater controls. One lesson from the RFC—which started small but then had its powers expanded in 1933, 1934, 1936, and 1938—is that major struggles over the scope and independence of bailout agencies have continued to occur well after their initial establishment, particularly when these offices have required renewed funding. Amid the current pandemic, this is something that Treasury Secretary Steven Mnuchin has predicted could happen in as little as ten to twelve weeks.

But the vision should also extend beyond oversight. In the case of the RFC, the government assumed equity in corporations in exchange for public support. And the agency was not afraid to use this equity to assert a forceful voice in corporate management. “In many cases, it put real stipulations in place in terms of governance—including caps on executive pay,” says Cebul. During TARP, the government did receive stock in bailed-out banks, but they were explicitly designed to be non-voting shares, denying the public a voice in managing bank behavior. The current slush fund may be even worse than TARP, as the public may not receive any equity at all for many of its loans and loan guarantees.

As a result of a lack of government control, we have little reason to believe corporations will continue to retain their workers—ostensibly the key goal of keeping corporate America afloat. Corporations in the airline and national security industries receiving the $46 billion directly from the Treasury are required to maintain “employment levels as of March 24, 2020, to the extent practicable, and in any case shall not reduce its employment levels by more than 10 percent.” This requirement undoubtedly reflects both the high level of organization among unionized workers in the airline industry, and the public stake the federal government will inevitably take. But for large corporations receiving indirect support via the money channeled through the ESF and leveraged through Federal Reserve borrowing, no such firing freeze exists.

Although a revival of the RFC may not be in the cards, those looking to democratize the economy should remain alert to the possibilities that the current bailout arrangements present. In addition to demanding public equity and public influence over governance in exchange for the assumption of corporate risk, lawmakers should look at mechanisms like the ESF-Fed arrangement as an opportunity to use the powers of the Federal Reserve for good, rather than to merely meet the needs of Wall Street. Writing in the Washington Post, financial analyst and bond trader Jim Bianco has suggested that the new relationship between the Treasury Department and the Federal Reserve that has been established by the bailout risks creating a dangerous overlap between the two institutions. The use of the Exchange Stabilization Fund to buy securities and backstop loans, with the Fed “acting as banker and providing financing” means that “the federal government is nationalizing large swaths of the financial markets,” he contends. “This scheme essentially merges the Fed and Treasury into one organization. So, meet your new Fed chairman, Donald J. Trump.”

Certainly, the Trump administration, in claiming new powers of economic management, can hardly be trusted to act in the best interest of American workers. But an autonomous Federal Reserve can hardly be relied upon either. Sober historical evaluation reminds us that it was only in 1951 that the Federal Reserve secured its independence from the Treasury—and then as an agreement between the beleaguered Truman administration and an empowered business community eager to retain control over interest rates to choke off employment booms at a moment when organized labor was at its historic peak. The public restoration of Federal Reserve and Treasury interdependence dispels the illusion that has undergirded central bank policy since the 1970s: that there is such a thing as an apolitical realm of “financial expertise.” When it is no longer possible to argue that “the economy” is separate from—and holds priority over—politics, we have reached a moment that holds significant potential for future governments.

In other words, the battle over the bailout, and the wider struggle over the shape of a post-pandemic economy, has only just begun.

__________

Photo credit: Kurtis Garbutt / Flickr.

 

Mark Engler and Andrew Elrod

Mark Engler is a writer based in Philadelphia and an editorial board member at Dissent. His latest book, written with Paul Engler, is entitled, This Is An Uprising: How Nonviolent Revolt Is Shaping the Twenty-first Century (Nation Books). He can be reached via the website http://www.DemocracyUprising.com. Andrew Elrod is a Ph.D. candidate at the University of California, Santa Barbara. He is writing a dissertation on the history of wage and price controls.

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The Author

Mark Engler is a writer based in Philadelphia and an editorial board member at Dissent magazine. His latest book, written with Paul Engler, is entitled This Is an Uprising: How Nonviolent Revolt Is Shaping the Twenty-First Century (Nation Books). Mark’s full bio is available here.

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