AND THEY’RE off! On July 8th the window for members to nominate the next director-general of the World Trade Organisation (WTO) closed. Over the next few months members will try to pick between eight candidates, each hoping to rescue the institution from its present sorry state. The process will highlight some of the WTO’s best features—but will also show why the organisation is in such a mess. Fans of the multilateral trading system boast about its openness. In line with that principle, the top job at the WTO is not sewn up for a European or an American, unlike those at the IMF or the World Bank. In fact, there are no candidates from America, China, the European Union, India or Japan. Nominations range from Egypt and Moldova to Mexico and South Korea. Members have several credible candidates to choose from. (Britain’s nominee, Liam Fox, is not one of them.) Nigeria’s candidate, Ngozi Okonjo-Iweala, is a political heavyweight: she is a former finance minister and has years of managing operations at the World Bank under her belt. Kenya’s pick, Amina Mohamed, is a trade heavyweight: she chaired the WTO’s ministerial conference in 2015. From July 15th onwards, candidates will receive a grilling from members. Then the WTO’s consensus-building skills come into play: all 164 members will have to agree on the winner. The process will be a little like therapy, says Hosuk Lee-Makiyama of the European Centre for International Political Economy, a think-tank. “They don’t really understand what they want until they’ve sat and talked about it.” At this point, the messy reality of trade negotiations will kick in. Just as the quest for consensus can sap ambition from trade talks, the search for a new director-general could end with members plumping for whoever gives the least offence. Robert Lighthizer, the United States Trade Representative, has already said that “any whiff” of anti-Americanism could lead him to use his veto. The race will probably also highlight the tendency of the WTO’s constituents to talk past each other. A new survey of government officials, academics, NGOs and business groups published by the European University Institute (EUI) finds that many Geneva-based national representatives want a new chief to prioritise restoring the Appellate Body, a sort of supreme court for trade disputes, which the Americans nixed. But they are less interested in reforming the dispute-settlement system, without which the Americans will not get on board. Expect the months ahead to reveal the disconnect between candidates’ ambitions and what the institution can achieve. Ms Okonjo-Iweala has pledged to mediate between America and China. Good luck with that. Egypt’s Abdel-Hamid Mamdouh has promised to “reboot” the WTO’s ability to negotiate new rules. But the director-general can only move as far as the members want—and members do not want to make the concessions needed. The victor would therefore inherit a difficult job—if, that is, one is eventually chosen. In today’s fraught circumstances, consensus may not be reachable. The bar is low enough that the appointment of any director-general would count as a success. ■ This article appeared in the Finance & economics section of the print edition under the headline "Leading question" Reuse this contentThe Trust Project
ORFORD NESS, on Britain’s east coast, was a site for military tests in the 20th century. Large pagodas on the shoreline, still standing today, were designed to prevent blasts from doing damage to the surrounding wetlands. On July 4th the area braced itself for another sort of explosion. “Super Saturday” marked the opening of pubs and restaurants for the first time since lockdown began. But in Orford the beery bomb never detonated. The Jolly Sailor, a pub near the quay, had only a handful of customers in the garden. Across Britain it was the same story. Restaurant reservations remained 90% lower than they were the year before. The fate of the Jolly Sailor hints at the difficulties that rich countries face as they lift lockdowns. Most forecasters reckon that advanced-economy output, after plunging in the first half of 2020, is likely to regain its pre-crisis level some time after 2021. But not all recoveries will be equal. Some rich countries, such as Germany and South Korea, look best placed to bounce back—a “V-shaped recovery”, in the jargon. The path of GDP elsewhere may look more like an L or a W. The Economist’s analysis of real-time mobility data also shows how easily economic recoveries can go wrong, as consumers react to the possibility of fresh outbreaks. Some countries have a tougher job on their hands because their output has fallen more since February, when lockdowns started to be imposed. No one knows for sure yet who has fared well or badly. GDP data for the second quarter are not yet available, and in any case will probably be subject to large revisions over time, as is often the case in downturns. But industrial structure is one indication. Surveys of economic activity in Germany suggest that it held up better between March and May than it did in France, Italy or Spain. That may be because of its heavy reliance on manufacturing, where maintaining both output and a social distance is easier than, say, in retail or hospitality services. Capital Economics, a consultancy, argues that Poland will experience Europe’s smallest contraction in GDP this year in part because it relies little on foreign tourists. The stringency of official lockdowns, and changes to people’s behaviour, has clearly played a huge role. Research by Goldman Sachs, a bank, finds that lockdown stringency—in terms of both the strength of official rules and how enthusiastically people practised social distancing—is strongly correlated with the hit to economic activity, as measured by surveys. By this measure, Italy had the tightest lockdown for the most time (see chart 1). A back-of-the-envelope calculation suggests that its GDP for the first half of 2020 is likely to come in about 10% lower than it would have been otherwise—a lot of ground to make up for a country that struggled to grow even before the pandemic. By contrast, South Korea’s GDP looks likely to fall by 5%. The lifting of lockdowns is now boosting economic activity. By how much, however, varies from country to country. Real-time activity data suggest that America and Spain are laggards, not only in terms of visits to restaurants but also to workplaces and public-transport stations. Others are powering ahead. By the end of June, economic life in Denmark and Norway had pretty much returned to normal. Danish retail sales actually rose by more than 6% year-on-year in May (compared with a double-digit decline in Britain). Germany’s restaurants were closed in May. But in recent days they have returned to full capacity (see left-hand panel of chart 2). A number of factors influence how fast an economy can bounce back. The state of households’ finances is one. Government support has shored these up: in places where stimulus payments have been large and focused on families, people have built up large cash reserves, which they can now spend. Take the case of South Korea. Households quickly spent over 80% of a 10trn-won (0.5% of GDP, or $8.4bn) emergency handout. As a result, its economy might suffer less than other big advanced economies. Aggregate household income in Japan is forecast to rise this year, thanks in part to generous emergency payments from the state. By contrast, fiscal stimulus in Italy, which had staggeringly high government debt going into the crisis, has been less generous. All this is nothing without consumer confidence. Americans have oodles of stimulus cash in their pockets (see article). Even so, they are cautious. A raft of evidence shows that if consumers are fearful, then lifting lockdowns makes little difference to economic outcomes. An analysis of American counties by Austan Goolsbee and Chad Syverson of the University of Chicago, for instance, finds that a higher number of deaths from covid-19 is associated with lower consumer activity. That seems to be the case at the country level too. Those with a smaller number of deaths from covid-19 per million people have bounced back more decisively, according to an analysis by The Economist using data from Google on visits to retail outlets, workplaces and public-transport stations. Confidence today may also be shaped by the length of time spent under lockdown. Norway took just ten days to halve the intensity of its lockdown from its peak level. Many other European countries took ten weeks, however. That perhaps explains why Britons and Spaniards are still so cautious. The latest mobility figures show precisely how fragile consumer confidence can be. People in American hotspot states, such as Arizona, Florida and Nevada, where the virus is surging, seem to have become more cautious (see right-hand panel of chart 2). A high-frequency measure of American credit-card spending maintained by JPMorgan Chase, a bank, stopped growing around June 21st—and a closely watched measure of weekly retail sales has barely increased since May. More ominously, high-frequency measures of the labour market suggest that employment in small businesses is once again declining. The risk of relapse is not confined to America. A huge drop in Australian restaurant diners in early July coincided with a large coronavirus outbreak in Victoria. Until the virus is stamped out, only one thing can be said about the recovery with certainty: it will be shape-shifting. ■ This article appeared in the Finance & economics section of the print edition under the headline "How to feel better" Reuse this contentThe Trust Project
United Airlines said on Wednesday that it could furlough as many as 36,000 employees, or nearly 40 percent of its global work force, this fall if travel remained weak and more workers did not accept concessions like reduced hours or buyout and early retirement packages.The furloughs, detailed in a memo sent to staff members, would be part of what were expected to be deep, industrywide cuts starting Oct. 1, when a $25 billion federal stimulus program for passenger airlines ends. That aid, intended to help cover payroll expenses, came with restrictions against substantial staffing cuts through Sept. 30.“The reality is that United simply cannot continue at our current payroll level past Oct. 1 in an environment where travel demand is so depressed,” the airline told employees. “And involuntary furloughs come as a last resort, after months of companywide cost-cutting and capital raising.”The furloughs would include about 15,000 flight attendants, 11,000 customer service and gate agents, 5,500 maintenance employees, and 2,250 pilots. United could cut fewer employees if ticket sales pick up significantly or if many thousands of workers accept fewer hours or apply for buyouts and early retirement packages before a mid-July deadline. Workers will know if they are being furloughed by the end of August, and most will be eligible to return to work when travel picks up. United is also cutting about a third of management and administrative employees.“The United Airlines projected furlough numbers are a gut punch, but they are also the most honest assessment we’ve seen on the state of the industry,” said Sara Nelson, president of the Association of Flight Attendants union, which represents nearly 50,000 workers at 19 airlines, including United.
WASHINGTON — The Federal Reserve Bank of Boston on Wednesday released a list of lenders that have signed up for the central bank’s midsize business lending program and are willing to make loans to new customers through the initiative.Noticeably absent from the list are most of the nation’s biggest banks. Only Bank of America has so far agreed to participate and take on new clients, based on the Boston Fed’s map, while lenders like JPMorgan Chase, Citigroup and Wells Fargo are not listed.The detailed participant list released Wednesday was restricted to banks who are willing to lend to new customers. Most states have only a handful of open lenders, with seven listed in California and nine in New York, based on the Boston Fed’s release.Banks can also participate in the program by making loans to existing clients. While thousands of banks are eligible to sign up, only about 300 in total had signed up to participate, Fed officials have previously said. The Fed has not released a full list of all banks participating in the program.The Fed’s midsize business lending program, called the “Main Street” program, opened for lender registration in June and became fully operational on Monday. While the Fed first said that it would set up a Main Street program in late March, it has never attempted to support midsize businesses before, and Chair Jerome H. Powell has said that designing the program was a challenge.Even after multiple revisions, thousands of comments and extensive congressional grilling, it remains unclear how extensively the program will be used. Many lenders report that they are hearing of only limited borrower interest in the program.Some states have few Main Street lender options: In Hawaii, where businesses have been hard-hit by a decline in tourism, Bank of America is the sole bank accepting new borrowers through the program.While many large banks, measured by assets, are absent from the state-by-state list, Truist, Citizens, BBVA and Zions are among the larger lenders that are registered.The program works through banks, which make loans with relatively low interest rates to businesses. The Fed then buys 95 percent of the loans from the bank, leaving the original lender with some skin in the game. The effort is run out of the Boston Fed, and backed up with Treasury funding provided by Congress’ coronavirus response legislation.The minimum loan size is $250,000, and lenders have flagged reporting requirements as something that could dissuade smaller firms from using the program. Because the program offers direct loans, Congress set out restrictions in allocating money for the program, including executive compensation limits, and stock repurchase and dividend payout limits.Far fewer banks are slated to participate in the Main Street program than lend through the Small Business Administration-run Paycheck Protection Program. The programs are very different — the latter was aimed at smaller businesses and offered forgivable loans, which are more like grants, while the Main Street loans are not forgivable. Companies have five years to pay the money back.Some banks stood to make substantial sums of money from the paycheck protection loan originations, based on an S&P Global Market Intelligence analysis, though several of the larger banks have said that they will donate related profits. But the program created problems for banks, entailing fast-evolving guidance, lawsuits and rampant technical errors.While lenders can also earn origination and servicing fees for loans made through the Main Street program, those are capped: For instance, they can only make 1 percent of the loan principal in origination fees on new borrowing.
WASHINGTON — White House officials on Tuesday warned a federally administered retirement plan for railroad workers against investing in Chinese companies and said that additional sanctions could be on the way in return for China’s role in spreading the coronavirus.The national security adviser, Robert C. O’Brien, and the director of the National Economic Council, Larry Kudlow, told the U.S. Railroad Retirement Board in a letter that its investments in China were exposing retirees to “unnecessary economic risk” and channeling funds into companies “that raise significant national security and humanitarian concerns,” including some that supply the Chinese Army.The White House officials said it was “a time of mounting uncertainty” over China’s relations with the rest of the world that presented “the possibility of future sanctions or boycotts that may arise from a wide range of issues, including the culpable actions of the Chinese government with respect to the global spread of the Covid-19 pandemic, the suppression of Hong Kong’s democracy,” and other factors.The warning comes amid worsening ties between the world’s two largest economies, which have frayed as the administration continues to blame China for not doing enough to contain the virus. But even before the pandemic, the Trump administration was considering taking a tougher stance on the investments that have knit together American and Chinese financial markets.Politicians of both parties have questioned whether federal retirement funds should be funneling money to Chinese companies that have links to the Chinese government and military.
WASHINGTON — Car dealers and private schools, restaurants and doctors, hotels and contractors all got money from the program established to help small businesses survive the coronavirus. But a subset of the list of recipients reads like a guide to a professional political class that thrives in the nation’s capital no matter what is happening elsewhere in the country.When the Trump administration publicly detailed on Monday many of the beneficiaries of the $660 billion forgivable loan program, it showed money going to dozens of the lobbying and law firms, political consulting shops and advocacy groups that make up the political industrial complex.Advertising and fund-raising firms assisting President Trump’s re-election campaign were listed alongside companies doing polling and direct mail for his Democratic opponent, former Vice President Joseph R. Biden, Jr.Donor-supported think tanks on both sides of the ideological divide got money, as did lobbying firms that have seen a surge in business related to the pandemic.There is no evidence of any string-pulling on behalf of politically connected outfits, and recipients said they applied for the loans for the same reason as other businesses around the country: to save jobs.But the use of taxpayer funds to prop up Washington’s permanent political apparatus seemed especially discordant to some critics against the backdrop of a pandemic that has shined a bright light on gaping disparities between the haves and the have-nots.“Every lobbying firm, political consultant and huge corporation that received a loan is a reminder that this program was administered to cater to the well-connected and powerful over small businesses,” said Austin Evers, the executive director of the liberal watchdog group American Oversight.The group has filed public records requests for communications between the Small Business Administration, which administered the loan program, and lobbyists with connections to the Trump administration who represented some applicants for assistance.As the program was being developed and put into action, there was an effort to limit the aid going to some of the businesses most emblematic of professional Washington: lobbying and political consulting firms.The version of the stimulus bill originally passed by the House included a provision that would have barred businesses from counting lobbyists’ salaries toward payroll calculations of how much money could be sought. But after negotiations between the House, the Senate and the administration, the restriction fell out of the final version of the legislation signed into law by Mr. Trump in March.Yet the S.B.A. still made clear that applications would be subject to agency regulations prohibiting loans to any business “that derives over 50 percent of its gross annual revenue from political or lobbying” activity.The American Association of Political Consultants sued the S.B.A. in April seeking to overturn the ban as an infringement on free speech rights. But a federal judge upheld the restriction.Lawyers for politically oriented companies and nonprofit groups pointed out that the S.B.A. did not clearly define political or lobbying activity. They said they had advised their clients that they could still apply for the loans as long as they could reasonably argue that less than half of their revenue came from overtly partisan political activity or direct lobbying of government.“It’s a very individualized determination based on the specific kinds of work firms do for clients,” said Jason Torchinsky, a leading Republican political lawyer who argued the political consultants’ case against the S.B.A., and who represents a number of conservative nonprofit groups.Polling conducted by corporations or advocacy groups to assess public attitudes on politically related issues might not be considered political activity by the S.B.A. Nor would advertising and government relations campaigns rallying support for issues without specifically advocating a vote for or against a bill or candidate.For instance, loans of between $350,000 and $1 million went to a pair of firms that have been paid a total of nearly $600,000 to do polling for the Biden campaign. But the firms — Anzalone Research and Lake Research Partners — also both conduct research outside of campaigns.Anzalone, which is based in Alabama, lists companies including Airbnb and Volkswagen, as well as the Chicago Cubs and the Seattle Seahawks, among its clients. Lake Research’s founder and president, Celinda Lake, said less than half of the firm’s revenue was from “electoral politics.” She said, “We do a lot of different kinds of work — marketing, government, nonprofits, labor unions, corporate.”Loans also went to a trio of firms that have collectively been paid more than $3 million for direct mail by the Biden campaign — Belardi Wong, Chapman Cubine and Hussey and Resonance Campaigns.Likewise, at least three firms or their affiliates received loans totaling at least $1.7 million while being paid millions by Mr. Trump’s re-election campaign and the committees supporting it.FLS Connect, a Republican fund-raising firm, has been paid more than $22.6 million since the beginning of 2017 by Mr. Trump’s campaign committees and the Republican National Committee. Yet the firm received between $1 million and $2 million in loans.Jamestown Associates, which received a loan of between $35,000 and $1 million, has been paid $1.5 million between early 2017 and mid-May by Mr. Trump’s re-election campaign and a super PAC supporting it to produce videos and advertisements.And America Rising Corporation — an opposition research vendor that has been paid more than $1.3 million since July 2017 by Mr. Trump’s campaign and allied committees — received a loan worth between $350,000 and $1 million.America Rising used the loan to keep employees on the payroll, said its founder and chief executive, Joe Pounder. He said the company had already completely paid back the loan “with interest.”Loans went to two nonprofit groups that had been in the constellation of outfits associated with David Brock, a longtime ally of Hillary Clinton, that are training their sights on Mr. Trump and his allies.The watchdog group Citizens for Responsibility and Ethics in Washington, where Mr. Brock had served on the board until stepping down a few years ago, has filed complaints and public records requests about Mr. Trump and his allies. It received a loan valued at between $350,000 and $1 million. And Mr. Brock’s flagship group, Media Matters for America, which tracks the conservative news media and Mr. Trump’s allies in it, received between $1 million and $2 million.Between $350,000 and $1 million went to the Center for a New American Security, a think tank co-founded by Michèle Flournoy, a former Defense Department official under President Barack Obama who has supported Mr. Biden’s campaign.Conservative think tanks and policy advocacy groups, some that espoused a small-government ideology, also availed themselves of the loans.The foundation arm of Americans for Tax Reform, which supported Mr. Trump’s signature tax cuts, received a loan of between $150,000 and $350,000.While the group has been a vocal critic of government spending, it said in a statement that it did not oppose the stimulus loans because it considered the money to be compensation for the government depriving it of funds by ordering shutdowns to slow the spread of the virus.Liberty Counsel, a conservative legal group that led a campaign championing Mr. Trump’s push to reopen churches, received between $350,000 and $1 million.Millions of dollars in loans went to K Street, home to many lobbying firms that have seen their fees increase during the pandemic as businesses have paid handsomely for help navigating various government assistance programs.The lobbying firm Van Scoyoc Associates received between $1 million and $2 million.Loans of between $350,000 and $1 million went to lobbying firms headed by William S. Cohen, a Republican former senator from Maine who also served as defense secretary in the Clinton administration, and Michael Chertoff, the former homeland security secretary from the George W. Bush administration.One staple of Washington’s political economy that has been especially hard hit by the shutdowns — power lunch spots — were well represented in the loan lists.The Prime Rib, a K Street steakhouse, got a loan of between $2 million and $5 million; BLT Steak, a nearby see-and-be-seen restaurant, received between $350,000 and $1 million; so did Charlie Palmer Steak, a popular destination for political fund-raisers near the Capitol, and the esteemed Georgetown watering hole Martin’s Tavern, which had been visited by every United States president since Harry S. Truman until Mr. Obama broke the streak.Eric Lipton contributed reporting.
SAN FRANCISCO — Palantir Technologies, a Silicon Valley data start-up, said on Monday that it had filed to go public, setting up one of the largest public listings of a technology start-up since Uber made its debut last year.Palantir is one of the tech industry’s most valuable private companies, with a valuation of $20 billion. Founded in 2003 by Peter Thiel, Joe Lonsdale, Nathan Gettings, Steven Cohen and Alex Karp, who is its chief executive, the company began working with governments, law enforcement and the defense industry to analyze and process their data, but has expanded into other areas.Palantir has attracted more than $3 billion in venture capital funding from investors including In-Q-Tel, the investment arm of the Central Intelligence Agency; Founders Fund, Mr. Thiel’s investment firm; Fidelity; and Tiger Global Management.Despite persistent speculation about its prospects as a public company, Palantir had avoided listing its shares, in part because of the secretive nature of its business. A public listing would reveal a fuller picture of Palantir’s work, particularly with government agencies, for the first time.“The minute companies go public, they are less competitive,” Mr. Karp said in 2014.More recently, Palantir has taken steps to prepare for a listing. California requires companies to have one woman on their boards in order to go public, and in June, Palantir added its first, Alexandra Wolfe Schiff, a former Wall Street Journal reporter. Spencer Rascoff, a tech executive, and Alexander Moore, an early Palantir employee, joined the board as well.If completed, the listing will be part of a wave of tech initial public offerings. New offerings had dried up in recent months because of volatility caused by the coronavirus pandemic. But in June, with the stock market booming again and some companies in a position to benefit from changes in consumer behavior, the I.P.O.s came back in full force.Shares of recent listings have soared. Last week, shares of Lemonade, an insurance start-up, more than doubled on their first day of trading. Investors also embraced the I.P.O.s of the car sales start-up Vroom and the sales software company ZoomInfo.Airbnb, the $31 billion home rental platform, whose business has been pummeled by the lack of travel during the pandemic, has also not ruled out going public this year.
WASHINGTON — The Trump administration, under pressure to reveal which companies received loans from a $660 billion program intended to keep small businesses afloat, on Monday released data showing that restaurants, medical offices and car dealerships ranked high among the top loan recipients. The detailed information was confined to companies that received loans of more than $150,000. The administration said 86.5 percent of the loans were for less than that amount, so the snapshot captured only one sliver of businesses that tapped funds. So far, banks have made about 4.9 million loans through the program, with an average size of $107,000. Nearly 5,000 businesses received individual loans between $5 million and $10 million, according to the data. The administration included ranges for the amounts, not specific figures.And the figures did not include details on the roughly $30 billion in loans that were returned as companies realized that they were not eligible for the program, worried that they couldn’t meet program requirements or reacted to a public outcry about big firms getting funds.Restaurants, medical offices and car dealerships were the top recipients of large loans from the program. More than 40,000 full- or limited-service restaurants received loans worth as much as $32 billion, according to the ranges provided by the government. Sprinkled among the beneficiaries were businesses that are likely to attract scrutiny, including a fancy sushi restaurant at the Trump International Hotel in Washington; Kanye West’s company, Yeezy; and President Trump’s longtime personal lawyer.Washington lobbying shops, high-priced law firms and special-interest groups also received big loans, according to the administration, the latest indication of how of the government’s centerpiece effort to shore up mom-and-pop shops set off a race by organizations far afield from Main Street to secure federal money. The disclosure could further fuel outrage toward the program, which has been complicated by revelations that large, publicly traded companies were taking big loans and concerns that it might leave borrowers saddled with debt.“My 1,000-foot takeaway is that the government was handing out free money and the line went around the corner,” said Aaron Klein, a fellow in economic studies at the Brookings Institution in Washington. “This is not your mom-and-pop shop on Main Street.”The administration said the program had helped to support more than 50 million jobs. The share of overall small-business payroll supported per state ranged from 72 percent in Virginia to 96 percent in Florida, according to the Treasury Department.The program provides forgivable loans to companies that have 500 or fewer employees and meet certain requirements, such as using the bulk of the money to keep workers on the payroll. Lenders are responsible for reviewing recipients’ forgiveness applications to verify that they complied with the program’s rules.More than 100 law firms received loans ranging from $1 million to $10 million, the data showed. The list included well-known names like Boies Schiller Flexner, the high-priced law firm run by David Boies, which received between $5 million and $10 million. “We don’t comment on our financials,” the firm said.Kasowitz Benson Torres, founded and run by Mr. Trump’s longtime personal lawyer, Marc E. Kasowitz, received a loan for between $5 million and $10 million.The firm represented Mr. Trump for over a decade before he was elected president, both in his business dealings and in other matters, such as helping him keep divorce records sealed. Mr. Kasowitz and the firm also represented Mr. Trump during Robert S. Mueller III’s investigation into Russian interference in the 2016 presidential election.Mr. Trump later diminished the role of Mr. Kasowitz in his dealings with Mr. Mueller’s investigators. A spokeswoman for Kasowitz Benson Torres said the loan, along with cost-cutting, “enabled us to preserve the jobs of our hundreds of employees at full salary and benefits without interruption.”The president also appears to have benefited from government support, at least indirectly. While the Trump Organization did not apply for loans under the program, the data showed that dozens of tenants at buildings owned by Mr. Trump or managed by his companies received funds.One reported recipient was a hair salon in the president’s hotel in Chicago. More than 20 businesses listed at 40 Wall Street, an office building near the New York Stock Exchange that Mr. Trump has owned since the mid-1990s, also reportedly received government loans totaling at least $20 million. Among the recipients were law offices, financial service firms and nonprofit organizations.Sushi Nakazawa, a restaurant at the Trump International Hotel in Washington, received a loan of between $150,000 and $350,000. The company did not respond to a request for comment about how it planned to use the funds.Some loan recipients are connected to the president’s son-in-law and senior adviser, Jared Kushner. The data show that a loan of between $350,000 and $1 million was made to Esplanade Livingston, a Kushner family entity that owns the land in Livingston, N.J., where the family’s Westminster Hotel is. In 2018, Mr. Kushner divested his stake in the entity, from which he once derived income generated by that hotel.Princeton Forrestal, a real estate entity owned by various members of the Kushner family not including Mr. Kushner, received a loan of between $1 million and $2 million.“Several of our hotels have applied for federal loans, in accordance with all guidelines, with a vast majority of funds going to furloughed employees,” said Pete Febo, Kushner Companies’ chief operating officer.The program, which was included in the $2 trillion stimulus bill passed by lawmakers in March, also benefited several members of Congress. Car dealerships connected to Representative Mike Kelly, Republican of Pennsylvania, received three loans, each between $150,000 and $350,000. Mr. Kelly, a multimillionaire, owns Mike Kelly Automotive Group, Mike Kelly Automotive L.P.; and Mike Kelly Hyundai, all of which accepted loans.Andrew Eisenberger, spokesman for Mr. Kelly, said that the congressman had properly followed the rules of the disaster aid program and that the money would be used “to sustain the income of workers who would otherwise have been without pay or employment at no fault of their own during the coronavirus pandemic.”Businesses associated with other members of Congress or their relatives, both Democrats and Republicans, received similar disaster aid. They included a farm and other businesses owned by Representative Vicky Harzler, Republican of Missouri, and her husband. Ms. Harzler cited the need “to ensure the continued ability to maintain the employment of all team members during this time.”Many of the biggest and most influential lobbying and political consulting firms received money — despite prohibitions intended to restrict access — most likely qualifying by highlighting lines of business that fell outside the restrictions.Wiley Rein, which has a large lobbying practice focusing on trade issues, received between $5 million and $10 million, according to the data. Van Ness Feldman and Beveridge & Diamond, two law firms that focus on helping energy industry clients push their agendas in Washington, received loans between $2 million and $5 million, according to the administration.A firm that raises money for Mr. Trump’s re-election campaign and the Republican National Committee received a loan of more than $1 million, according to the data set, while a company that produces Mr. Trump’s political advertisements received between $350,000 and $1 million. So did a consulting firm started by President Barack Obama’s former campaign manager Jim Messina and one that Hillary Clinton’s 2008 campaign paid for communications consulting.Several firms that advise companies on how to deal with the government, but are not officially registered to lobby, were also said to have received loans. They include companies run by former Secretary of State Madeleine Albright, who served in the Clinton administration.The administration listed loans worth between $350,000 and $1 million to a consulting firm started by former Senator William S. Cohen, a Maine Republican who also served in the Clinton administration as the secretary of defense, and one run by a homeland security secretary in the Bush administration, Michael Chertoff. And DCI Group AZ, a prominent political and corporate consulting firm, collected as much as $5 million.An affiliate of Americans for Tax Reform, the influential conservative group that has been a vocal critic of government spending, received between $150,000 and $350,000, according to the government’s data. In a statement, the group said the foundation “was badly hurt by the government shutdown” and “does not engage in lobbying.” A number of prominent private schools were listed as loan recipients, despite the controversy over whether such institutions should take the money.In New York City, St. Ann’s School took a loan valued between $5 million and $10 million. Kent Place School, a private school in New Jersey, was reported to have received a loan worth between $1 million and $2 million.Schools with political ties in the Washington area also received loans. Sidwell Friends, which has educated the children of presidents, received a loan worth between $5 million and $10 million, based on the data. Georgetown Preparatory School, which the Supreme Court justices Brett Kavanaugh and Neil Gorsuch attended, received a loan worth between $2 million and $5 million. Georgetown Preparatory’s president, the Rev. James R. Van Dyke, said, “We remain committed to doing all that we can to retain our immensely talented faculty and staff,” adding that many of them accept salaries and wages “lower than what they might earn in the for-profit sector or the public school system.”St. Andrew’s Episcopal School, where Mr. Trump’s youngest son is a student, also received a loan.Touring companies for rock bands also turned to the government for help as concert venues around the country went dark to prevent the spread of the virus.A limited liability company called Eagles Touring Company II Foreign received a loan between $350,000 and $1 million. Documents filed in California show that the entity shares an agent with a similarly named company whose president is Don Henley, a founding member of the Eagles, the rock band that had to postpone its tour this spring.Lil’ Jon Touring and Nickelback Touring 2, among other acts, received loans between $150,000 and $350,000. Lil Jon’s publicist, Tamar Juda, said that the artist had canceled over 75 shows since the beginning of the pandemic and that the funds allowed his core touring staff to remain employed.Yeezy, which California business filings show is a holding company registered to Mr. West, received between $2 million and $5 million to support 106 jobs, based on the disclosures. The holding company appears to be linked to Mr. West’s apparel brand, having recently filed to trademark the phrase “West Day Ever” for use on clothing. Public relations firms that have worked for Yeezy did not respond to emailed requests for comment. There was no apparent link between the amount of economic damage suffered by states and how successful the small businesses in them were at getting the loans from the program.North Dakota, South Dakota, Nebraska and Kansas all saw loan approvals of at least 90 percent of their eligible small-business payroll, even though they rank among the least-affected states in terms of unemployment claims during the crisis. Two of the hardest-hit states for claims, New York and California, saw loan approvals equal to about three-quarters of their eligible payrolls; by that measure, California companies would have received billions more from the program if they had seen approvals at the same rate as the Plains states.Reporting was contributed by Kenneth P. Vogel, Eric Lipton, David McCabe, Luke Broadwater, Steve Eder, Ben Protess, Stacy Cowley and Noam Scheiber.
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AMERICA’S HOUSING market is behaving oddly. Residential property—worth $35trn, slightly more than America’s stockmarket—seems strangely oblivious to the economic carnage around it. House prices in May were 4.3% higher than a year earlier. That rate of growth is only marginally below the average since the end of the housing crash a decade ago. Prices in even the costliest places, such as San Francisco, where the average pad sets you back $1.1m, continue to march upwards. Many economists still expect house prices to fall over the whole of 2020—but such forecasts are looking increasingly shaky. At first glance this is surprising. House prices typically nosedive during recessions. A rising number of mortgage defaults leads to more properties being put up for sale. Falling household incomes reduce buyers’ purchasing power. In the recession of the early 1990s house prices dropped by 10% in real terms; they fell by three times that in the downturn that followed the financial crisis of 2007-09. The fall in GDP associated with the coronavirus pandemic, and the rise in unemployment, is unprecedented. Despite that, there is little sign so far that America’s housing market is about to subside. The rate of foreclosures looks unlikely to reach the heights hit during the last recession. Housing debt, relative to incomes, is lower. The share of mortgages lent to borrowers with very low credit scores is less than half what it was in 2007, in part a consequence of tighter financial regulation. Meanwhile, fiscal help has come a lot faster than it did a decade ago. During the last crash, schemes to help homeowners did not arrive until millions of families had already seen loans foreclosed. This time the government’s stimulus package has made requesting up to a year’s pause in mortgage payments easier: homeowners can get this without having to do very much to prove they need it. All that casts a different light on the apparently alarming increase in the share of mortgages on payment holidays, from practically zero just before the pandemic to close to 10% in May. Analysts at Capital Economics, a consultancy, reckon that many requests for forbearance have been made by borrowers who are in fact able to keep up their mortgage payments, but are “requesting assistance...as an insurance policy”. Cash handouts from the government have also been generous—so much so that, in stark contrast to the usual declines seen during recessions, Americans’ aggregate household income is forecast to rise in 2020 by about as much as it did in 2019. That will help borrowers keep up with their mortgage payments. Indeed, a fifth of Americans receiving a stimulus cheque from the federal government have put it towards their mortgage. Looser monetary policy has also helped. Since the beginning of the year the interest rate on 30-year mortgages has fallen by about half a percentage point, to an all-time low of just over 3%. Mortgage companies are overrun with applications from people seeking to refinance. House-hunters, including those seeking to escape city centres after the pandemic, can now afford more expensive properties. As lockdowns were lifted, pent-up demand for housing led to a 20% year-on-year rise in mortgage applications in June. What happens to the housing market next depends on the evolution of the covid-19 outbreak and, in turn, that of the overall economy. Yet when the fog does eventually clear, a period of even stronger price growth might not be a surprise. A raft of academic evidence draws a strong link between loose monetary policy and bubbly housing markets. Other researchers noted before the pandemic that the supply of new housing in America was failing to keep up with demand—owing in part to increasingly complex land regulations and reduced competition in house-building. Social-distancing requirements are also likely to hold construction back in the coming months. With supply constrained and demand boosted, house prices seem to rest on solid foundations. ■ Editor’s note: Some of our covid-19 coverage is free for readers of The Economist Today, our daily newsletter. For more stories and our pandemic tracker, see our coronavirus hub This article appeared in the Finance & economics section of the print edition under the headline "The house wins" Reuse this contentThe Trust Project
CHINA PUT its first domestically built aircraft-carrier into service last December, the culmination of three decades of work. The government hopes for a faster return on efforts to create what it calls an “aircraft-carrier-class securities firm”—ie, an investment bank powerful enough to prevail amid intensifying competition in the country’s capital markets. It is poised to draft its biggest financial force into battle, by allowing giant state-owned commercial banks to enter investment banking. China has long had its own version of America’s Glass-Steagall separations, which until 1999 barred retail banks from investment banking. China’s commercial banks can neither underwrite stocks nor offer brokerage services, which are left to securities firms—a division that officials believe makes the financial system safer. But now they may grant securities licences to two commercial banks in a trial, as first reported by Caixin, a business publication. The immediate prompt is foreign competition. After years of dragging its feet, China scrapped foreign-ownership limits in its securities sector last year. Big Western players—such as Citigroup, Morgan Stanley and UBS—have either gained control of existing joint ventures or launched wholly-owned operations. Foreign firms have struggled to make a dent in commercial banking in China, held back by their limited branch networks. In investment banking, though, they may be more formidable, thanks to their technical knowhow. Even without the foreign threat, China has been eager to whip its brokers into shape. Officials want capital markets to lessen the burden on banks, which last year provided two-thirds of all new credit. The ten biggest Chinese banks have roughly 30 times more assets than the ten biggest securities firms, and are also far more profitable (see chart). The securities industry’s main problem is extreme fragmentation; 131 registered firms providing similar services fight for clients by slashing fees. Some even underwrite bonds for nothing. Change is unlikely to be revolutionary at first. “It is not China’s way to suddenly implement a new policy and wipe out existing companies,” says Chen Jiahe of Novem Arcae Technologies, a wealth-management firm. Investors agree: the share prices of China’s largest brokers fell by about 5% on June 29th, when the news first broke, but have since recovered. Still, the securities industry could look very different in time. The government wants to see consolidation. Granting banks brokerage licences may squeeze out the also-rans. Consider, for example, medium-term notes, a quasi-bond market in which commercial banks can already participate: of the top 20 underwriters by income, 17 are banks and just three are brokers. A common criticism of universal banking is that it combines two irreconcilable cultures, with the boldness of investment bankers potentially swamping the prudence of commercial bankers. Yet China has shown that there are also dangers to separation. The stockmarket crashed in 2015 after the securities regulator failed to rein in a boom in margin financing by brokers, a risk that the bank regulator might have been better equipped to detect. In any case, it is hard to imagine China’s lumbering banks becoming red-in-tooth-and-claw brokers. The biggest, such as ICBC, already operate investment banks in Hong Kong, primarily offering plain-vanilla services to state-owned firms. More aggressive mid-tier lenders could outdo them in marketing shares and structuring deals. They are still huge by global standards: China Merchants Bank, for example, has a market capitalisation of $120bn, nearly twice that of Goldman Sachs, a Wall Street institution. In Chinese terms, it would count as a naval cruiser—one step down in size from an aircraft-carrier, but still a big step up from the ragtag flotilla in the country’s capital markets today. ■ This article appeared in the Finance & economics section of the print edition under the headline "Xi sank your battleship" Reuse this contentThe Trust Project
“IN WARM WEATHER, fewer people wear socks,” says Paul Rotstein of Gold Medal International, a wholesaler in New York. People may not sport socks in the summer but his firm starts shipping them to retailers in July, ahead of the start of the school year. There is, however, a big lag before he is paid. He normally uses trade-credit insurance to protect against the risk that his invoices go unpaid, but this year the insurers have slashed the amounts they are willing to cover by 50-90%. That leaves him with two options: shoulder huge credit risk himself, or walk away from orders. Mr Rotstein’s dilemma underscores the role of trade finance, an unglamorous but critical bit of the financial system. Many firms are owed a large amount by their customers in the form of receivables; in total the amount is worth around 20% of global GDP. Some firms bear all the risk of non-payment themselves. But others look to an insurer to protect them from default, or take out specialist loans backed by the invoices. Together these financing solutions underpin four-fifths of cross-border transactions, which are worth $15trn a year. Trade financiers face three problems created by the covid-19 pandemic (and the accompanying recession). It has disrupted normal operations by slowing the travel of documents; it has raised the risk that existing loans will sour; and it has made lenders more cautious about making new loans. Take operational troubles first. Trade finance is notoriously paper-based. Processing credit requires involved parties, from financiers and carriers to warehouse managers and customs officers, to exchange an average of 36 documents and 240 copies. But lockdowns trapped bits of paper in shut-down offices. Printing became a palaver. When couriers eventually got to banks, they often found no one there. Financiers have been forced to be nimble. Staff turned up to the Bank of China’s Wuhan office wearing full protective gear. Banks started accepting scanned signatures and documents. A cargo-firm executive says it issued four times as many electronic bills of lading—receipts detailing goods on-board a ship—in March as it did in February. That has helped limit delays, though some in the industry worry that rises in fraud could follow. A second concern is that the existing stock of credit turns sour. Trade finance has long been super-safe: annual default rates on letters of credit averaged 0.11% of transactions in 2008-18, less than a tenth of those for corporate loans. But insurers already report payment delays. A rise in bankruptcies would make matters worse. Coface, a trade-credit insurer, expects these to rise by a third worldwide by 2021. Still, because trade finance is short-term—usually 30 to 90 days—and backed by collateral, lenders have some recourse. Natalie Blyth of HSBC, a bank, reckons that the performance gap between trade-finance assets and corporate loans will widen. The third problem is a possible crunch in new financing. To assess clients, banks and insurers rely on credit ratings. These have plummeted as firms’ cash flows have dwindled. The resulting squeeze may linger, says Ebru Pakcan of Citigroup, a bank; firms are downgraded quickly, but upgraded slowly. Some lenders may focus on large clients or exit some markets entirely. Insurers have cut their exposure to the industry by 8-9%, about half as much as in 2008-09. In emerging economies, sovereign downgrades have also pulled down corporate ratings, says Marc Auboin of the World Trade Organisation (WTO). On July 1st the WTO and six multilateral banks promised to alleviate trade-finance shortages. Still, the damage could have been worse. Thankfully, banks have sturdier equity buffers than in the last recession. Since 2016 Coface has raised its solvency ratios—insurers’ equivalent of banks’ capital-adequacy buffers—from 150% to 190%, says Xavier Durand, its boss. Central-bank action has shored up lenders’ finances. Governments in Europe have let export-credit agencies cover short-term trade, and have offered insurers backstops. The question is how long the support lasts. Banks and insurers will see their capital eaten up as loans sour. Government aid could be withdrawn too soon, worries Alexis Garatti of Euler Hermes, a trade-credit insurer. Support could be taken away just as the demand for finance returns. As new orders work their way through supply chains, exports appear to be bouncing back faster than manufacturing. Still, the pandemic could lead to lasting gains by forcing the industry to digitise. Alexander Goulandris of Essdocs, which promotes paperless trade, says 60 chambers of commerce have opted for its electronic certificates of origin in recent months, compared with the usual rate of ten a year. Some countries have also adopted laws recognising the validity of e-documents. Digital standards could make it easier to bundle trade-finance loans into securities that can be sold on to institutional investors, providing more oxygen to commerce. Trade finance has long followed outmoded practices. Now might be its chance to blow everyone’s socks off. ■ This article appeared in the Finance & economics section of the print edition under the headline "Collateral damage" Reuse this contentThe Trust Project