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Money Congress to bail out firms that avoided taxes, safety regulations and spent billions boosting their stock

03:10  26 march  2020
03:10  26 march  2020 Source:   washingtonpost.com

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As Congress debated the details of the bailout this week, lawmakers wrestled with how far Congress should go to help another set of American corporate titans two years after tax reform and less Cruise lines for years have avoided taxes and U.S. safety regulations by registering their vessels abroad.

Congress to bail out firms that avoided taxes , safety regulations and spent billions boosting their stock . Others, such as some coal mining companies, have eschewed health and safety regulations . Cruise ship companies avoided paying U.S. taxes by placing the

a close up of a tower: A view of the Capitol's Rotunda is seen reflected on an ambulance as negotiations on a covid-19 economic bailout continued on Capitol Hill this week. (Brendan Smialowski/AFP/Getty Images) © Brendan Smialowski/Afp Via Getty Images A view of the Capitol's Rotunda is seen reflected on an ambulance as negotiations on a covid-19 economic bailout continued on Capitol Hill this week. (Brendan Smialowski/AFP/Getty Images)

When airline executives realized a few years ago that they could charge passengers extra fees for just about anything — meals, checking bags, even choosing seats — their businesses seemed bulletproof.

“I don’t think we’re ever going to lose money again,” American Airlines chief executive Doug Parker told giddy investors in 2017. As such companies continued to thrive, they also undertook share buybacks, boosting investor value. President Trump and congressional Republicans sweetened the outlook for big businesses further when they passed a $1.5 trillion tax cut that slashed the corporate rate beginning in 2018.

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A bail -in is the opposite of a bail - out because it does not rely on external parties, especially government capital support. A bail -in creates new capital to rescue a failing firm through an internal recapitalization and forces the Government should take an ownership (equity or stock ) interest to

Congress is poised to dole out billions of dollars for a host of different priorities, and the spending spree is being embraced across party lines. On top of that spending , the party is still celebrating its sweeping overhaul of the tax code, casting aside expectations of how it will impact the national debt.

That seems so long ago. Now airlines, hotels, cruise lines, coal-mining companies and others strangled by coronavirus shutdowns are lining up to receive slices of a $2 trillion aid package funded by taxpayers.

Yet many of these companies behaved in ways before the current economic crisis that are making a bailout tough to swallow, labor advocates and some economists say.

The hotel giant Hilton, for instance, announced a $2 billion stock buyback on March 3, weeks after coronavirus cases began affecting the industry. Cruise lines for years have avoided taxes and U.S. safety regulations by registering their vessels abroad. Coal companies put some of their workers in harms way and are now asking to get out of a tax that generates money to compensate former miners who have black lung disease.

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A purely competitive firm 's output is currently such that its marginal cost is and marginal revenue is . Assuming profit maximization, the firm should As long as an additional unit of output yields a marginal revenue larger than its marginal cost it will be adding to total profits of the firm .

Extra: Knowing that their deposits are insured against potential bank failures, consumers are more willing to entrust their money to banks. This gives a source of funding to make loans, which fuels the economy by getting funds to those with potential investments. Banks also profit from interest collected

As Congress debated the details of the bailout this week, lawmakers wrestled with how far they should go to help another set of American corporate titans two years after tax reform and less than a dozen years after the bank and auto industry bailouts of the Great Recession.

The choice is between two options unsavory to many: bail out some of the country’s largest corporations or watch as they put more people out of work.

Among those seeking assistance from a pot of at least $500 billion in the rescue package are companies employing hundreds of thousands of servers, flight attendants, housekeepers, janitors, security guards and other workers. With unemployment already expected to reach as high as 20 percent this year, no one wants to see so many people lose their jobs.

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Thus, these loans are more popular than loans without a tax deduction, and finance companies as well as banks, credit unions, and savings institutions have been attracted to this loan market.Securitized assets refer to those assets that have been placed in a pool and sold directly into the capital markets.

Despite sequestration to curb government spending , deficit spending has increased with the government’s effort to continually boost economic Since then, spending has crept up again despite the sequester. Congress and the president rely on Medicare taxes pay for 8 billion of its cost.

“You don’t want to reward companies for doing shortsighted, short-term things the past 11 years. You don’t want to reward them for stock buybacks and excessive CEO compensation,” said Greg LeRoy, executive director of Good Jobs First, an advocacy groups that tracks corporate subsidies. “The trouble is a lot of the companies that are in trouble right now are the ones that have been doing that.”

Indeed writing checks to some of the companies in need of help may require some Americans to swallow hard and look away.

Airlines and hotel chains have in recent years dramatically increased spending on stock buybacks (which can pump up a share price without building anything or hiring anyone) and sometimes generous dividends (payments to shareholders).

Trump addressed such concerns Monday.

“I don’t want to give a bailout to a company and then have somebody go out and use that money to buy back stock in the company and raise the price and then get a bonus,” Trump said. “So I may be Republican, but I don’t like that. I want them to use the money for the workers.”

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The corporate tax rate in the United States peaks out at 35%. Taking this rate at its face value, the A study from Greenlining Institute estimated that the leading tech firms held some 0 billion outside It cited overseas subsidiaries as a key way for large tech firms to avoid building up sales and In its basic form, the boosting of expenses to offset revenues will lower the tax rates that corporations pay.

Cruise lines are also facing potential cash shortages, but they are domiciled in Liberia, Panama and elsewhere to avoid nearly all U.S. taxes and safety regulations. Some health officials say some cruise operators should have done more to stem transmission of the virus among passengers and crew members aboard their ships.

Coal-mining companies also have asked for help, including a request that the government rescind a $220 million tax increase to support 25,700 disabled coal miners, many of whom have suffered from black lung disease, and their dependents. The industry employs about 51,000 miners in surface and underground mines, federal data shows.

“You’ve probably heard the critics by now. How dare the coal industry ask for relief to weather the covid-19 crisis?” the National Mining Association said Monday. “It’s the kind of absurd question or assertion we’ve come to expect from people who simply don’t value coal jobs like others and who remain completely out of touch with the essential role that coal plays in keeping the lights on, homes warm and industry churning.”

Even Boeing, the aerospace manufacturer that is accused of misleading pilots and federal safety inspectors about lapses that led to two of its 737 Max jets to crash (killing 346 people), is poised to receive a portion of a $17 billion loan program designated for businesses deemed “critical to maintaining national security.”

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With its 737 Max jets still grounded and the novel coronavirus spreading among some of its own workers, Boeing may have to declare bankruptcy if it does not receive a bailout, some analysts said. Critics of the company noted that even if it goes into bankruptcy, the company could continue operating and paying employees, as airlines have done in the past.

But Boeing and its subsidiaries employ 160,000 people worldwide. “We have to protect Boeing,” Trump said last week.

a man wearing a suit and tie: WASHINGTON, DC - MARCH 17 : Marriott International CEO Arne M. Sorenson speaks with President Donald J. Trump during a meeting with tourism and hotel industry executives in response to the COVID-19 coronavirus pandemic in the Cabinet Room at the White House on Tuesday, March 17, 2020 in Washington, DC. Seats were spaced farther apart as they practice social distancing. (Photo by Jabin Botsford/The Washington Post) © Jabin Botsford/The Washington Post WASHINGTON, DC - MARCH 17 : Marriott International CEO Arne M. Sorenson speaks with President Donald J. Trump during a meeting with tourism and hotel industry executives in response to the COVID-19 coronavirus pandemic in the Cabinet Room at the White House on Tuesday, March 17, 2020 in Washington, DC. Seats were spaced farther apart as they practice social distancing. (Photo by Jabin Botsford/The Washington Post)

‘I will be the oversight’

It was not so long ago that Americans were asked to bail out a different set of companies that appeared too big to fail. In 2008, the government propped up big banks, the same institutions that had driven the country into recession, with the $700 billion Troubled Asset Relief Program, or TARP. Months later the government began spending tens of billions of dollars to help General Motors and Chrysler stave off liquidation.

There are important differences between those packages and the current one, which is much larger and moving through Congress more quickly. Some economists say the aid is likely to benefit workers only if it is closely tailored to ensure the money won’t end up bailing out just companies’ stock prices.

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Trump’s declaring “I will be the oversight” for the payouts, as he did Monday, didn’t make these experts feel any better.

“Industry rescues are only worth doing if they’re a rescue of payroll and wages,” said Josh Bivens, research director at the Economic Policy Institute. He said he hoped money could be provided directly to workers to preserve jobs until the “all clear” is sounded. “Then they can make sense,” he said.

Top corporations vowed to do better after the last crisis. Last year, 181 top American chief executives pledged to redefine the purpose of corporations beyond profit by signing a pact for “An Economy That Serves All Americans.” The pact includes promises to support employees and communities.

Perhaps no one could have predicted the depth of the economic devastation wrought by the novel coronavirus. But some companies — at the urging of Wall Street ― often put shareholders and executives first, sometimes to the detriment of preparing for another downturn, labor advocates and some economists said. Now they are in line for cash to pay their staffs as business has ground to a halt.

A year ago Arne Sorenson, chief executive of Marriott, the world’s largest hotel chain, announced the company would return $11 billion to shareholders through buybacks and dividends by 2021. Its share price jumped 3 percent on the announcement.

Now the company has begun furloughing tens of thousands of employees, effectively laying them off but allowing them to maintain health benefits. Sorenson was among executives to meet with Trump, seeking a reported $150 million of direct aid to hotels. The company has since suspended dividend payments, stopped share buybacks and cut Sorenson’s salary for the remainder of the year.

Marriott spokeswoman Connie Kim said the coronavirus closures have created “significant drops in demand at properties globally with an uncertain duration.” Marriott’s last dividend payment will be one announced Feb. 14, she said, “until conditions improve.” MGM Resorts, Delta Air Lines and other companies have stopped dividend payments or buybacks as well.

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Hilton Worldwide has purchased roughly 55 million shares since 2017 for $4.3 billion, including the stock buyback announced March 3.

Hilton has 60,000 employees and 200,000 more work at Hilton-branded hotels. Tens of thousands of those have been furloughed. The company issued a statement to The Washington Post saying it is not seeking “direct financial support” but is working “to secure emergency relief for hotel workers that are employed by thousands of small businesses that own hotels across the country.”

a large passenger jet sitting on top of a tarmac: Airlines such as United Airlines are set to receive up to $50 billion in the Senate bill. The money is aimed at helping companies avoid layoffs until business returns. (Daniel Acker/Bloomberg) © Daniel Acker/Bloomberg Airlines such as United Airlines are set to receive up to $50 billion in the Senate bill. The money is aimed at helping companies avoid layoffs until business returns. (Daniel Acker/Bloomberg)

‘Time is running out’ for airlines

Of all the industries, airlines are considered most likely to get money because of their fundamental role in the travel economy and the quality of their mostly unionized jobs. The airlines are bracing for an estimated $113 billion of losses, according to the International Air Transport Association, because many are able to operate only half or fewer of their usual routes. As of Tuesday night, the Senate bill called for up to $50 billion in aid specifically for the airline industry.

But airlines have employed many of the same practices to boost their stocks. American Airlines, which has 130,000 employees, spent $13 billion on buybacks in the past decade. United, which employs 100,000, has approved $5 billion of buybacks since 2016.

Parker and United chief executive Oscar Munoz joined nine other airline executives in writing to Congress on Saturday saying that “time is running out” for the industry. “Unless worker payroll protection grants are passed immediately, many of us will be forced to take draconian measures such as furloughs,” they wrote.

Aside from the money provided to shareholders, American has also invested aggressively, spending more than $30 billion on capital improvements, $23 billion on planes and $20 billion on increased wages and benefits for employees. In 2017, it gave pilots and flight attendants a mid-contract pay raise, angering some Wall Street banks.

“We wish we didn’t need help to weather this crisis, but we are fighting for a lifeline to help protect our 130,000 team members and their jobs, and the vital role aviation plays in the global economy,” American spokeswoman Shannon Gilson said.

United suspended its share buyback program last month and says it has invested $30 billion in recent years in new planes and technology, plus $3 billion in wages, benefits and profit-sharing with workers. The company says it cannot continue to pay its employees without assistance if business continues to crater.

“Demand continues to drop, and we’ve cut our schedules accordingly,” spokesman Steven Restivo said. “We’re looking at a 60 percent schedule reduction in April — 42 percent domestic and 90 percent international. We expect similar reductions in May.”

Some cruise line executives say they are not seeking a “bailout.”

“We don’t need a bailout in terms of giving us money. Getting a loan guarantee would be helpful,” Carnival chief executive Arnold Donald said recently on HBO.

Carnival spokesman Roger Frizzell said the company has not made jobs cuts as result of the virus and is not seeking a financial bailout because the company has “created a strong balance sheet in the process that is helping us the weather the storm today.” Norwegian did not respond to requests for comment, and Royal Caribbean declined to comment.

Trump has pledged assistance anyway, saying Sunday: “We can’t let the cruise lines go out of business.”

Will Englund contributed to this report.

The biggest tax havens in the world .
It’s tax season, and in the past couple of weeks you’ve probably been checking out your return or figuring out how you’re going to pay your bill. 

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