Matt Katz: You're listening to The Takeaway, and I'm Matt Katz, in for Tanzina Vega. The pandemic has created one of the worst recessions in American history. Millions of people have lost their jobs and small business owners throughout the country have been forced to close their doors, but in a twist of financial irony, reports show that the wealthiest people in the country have only grown richer since the pandemic began, while the economic crisis continues to devastate middle class and low-income households.
According to a study by Americans for Tax Fairness and the Institute for Policy Studies, billionaires in the US from mid-March through early August grew their wealth by $637 billion, potentially stretching the wealth gap to unprecedented levels. Joining us now to talk about how this happened is Dion Rabouin, the Markets editor at Axios and the writer of the AxiosMarkets newsletter. Dion, thanks for being with us.
Dion Rabouin: Matt, thanks so much for having me.
Matt: Tell me about the types of companies and the billionaires that have made the most money during this pandemic. Who are they, and is there a commonality about them?
Dion: The people who've benefited most as this pandemic has hit have been the CEOs, the owners of tech companies. The big names that stand out, Jeff Bezos, Mark Zuckerberg, they've seen the biggest benefit, but really, this has been all about a larger divergence between the wealthy and the poor. Really, anyone who has wealth has prospered and who has publicly available stock or who owns a company that trades on a public stock exchange has done pretty well. I guess it's not everyone, but by and large, if you've got money, you've done quite well during this pandemic.
Matt: Is this just how things tend to work during recessions, that the super-rich just can grow their wealth? How does this compare to the recession in 2008?
Dion: No, this is actually very unusual. Back in 2008 and in most recessions, what typically happens is, everyone in the country feels it at the beginning. What happened and what's different about this recession from 2008, the great financial crisis or the global financial crisis and The Great Recession is that, what would normally happen over a period of years and what happened over about 11 or 12 years from The Great Recession to about 2019, has happened in the span of just about six months for the wealthy.
The wealthy have seen a bounce back in their fortunes from the end of March to September, that was about what you'd expect to over a decade horizon, while poor folks and folks without any financial assets have really seen their position just continue to slide. It's actually been worse because we've seen about four times the number of job losses, and those jobs aren't coming back at the speed that we lost them or anywhere near that.
Matt: I understand billionaires have also benefited from the Paycheck Protection Program, which was part of the CARES Act that was meant to help small businesses stay afloat during the pandemic. How has that happened? How have they gotten a piece of that pie?
Dion: Yes. The Paycheck Protection Program was a well-intentioned program through the CARES Act, which Congress rushed through to try and get money out to people as quickly as possible. One thing they didn't put in place was a lot of protections or restrictions on who could get the money. As a result of that, a lot of these savvy businesses took advantage of the designation of a small business because a small business is really only defined by how many people work for it. It doesn't matter how much money you make.
As a result of the environment we're in, a lot of big companies can make a lot of money without a lot of employees. They were able to get some of this money from the PPP, and then, they were able to use that to pay employees. They were able to go to the debt markets, borrow money, and use that money to basically enrich shareholders or enrich executives and themselves.
Matt: Why is this happening? Why are the rich getting so rich right now?
Dion: You can really point to one culprit, and that's the Federal Reserve. They came in and took unprecedented, tremendous action in March, launching this program that folks in the market have called QE infinity or QE forever. Basically, the Fed has this program called quantitative easing, and what they do is they buy bonds, and it's largely government bonds or mortgage-backed securities. What they did this time was, they said they're buying an unlimited amount, literally, no cap on it. "We'll buy as much as we possibly can or as much as needed," is what they said.
In addition, they bought corporate bonds. They would buy the debt from companies like Apple or Verizon. Literally, trillion-dollar companies, the Fed went in and said, "We will buy their debt." What that did is it created this risk-on environment in markets where, if you were a trader or if you were an investor, you were willing to buy any risky asset and net stocks and some of these high-yield or junk bonds because you were convinced that the Fed had your back and that there was really no risk involved in buying some of these companies that may have been shaky or buying stocks that generally is considered a risky investment. That pushed stock prices up.
We've seen a rise of about 60% on the NASDAQ, about 50% on the S&P 500, an increase in stock prices at levels you've never seen, pushing these companies to all-time highs and stock prices to all-time highs, at a time when the actual economy, the real economy is hurting and really is stalled out over the past couple months.
Matt: Do other countries handle recessions in similar ways by giving massive influxes of money to profitable companies, and then, dumping cash into the markets?
Dion: Yes and no. I think what's happened with the Fed, they've taken it to an extreme that no other central bank has and really just massively blown up this new central bank ecosystem, but the process of quantitative easing, of bond buying, is actually being used by just about every central bank in the world. The European Central Bank has done this, and they've actually pushed interest rates around the eurozone to negative, about negative 0.5%.
I know it sounds crazy but interest rates can actually be negative, meaning that if you were trying to hold money at the European Central Bank, you pay them rather than them paying you. There's all crazy monetary tricks being used around the world to help try to stimulate the economies of the world that have just not gotten any natural growth. We're living in, what I've called a number of times, the make-believe economy, an economy that's just being stood up by a bunch of central bank funny money, which is literally money they create out of thin air and then use to buy government debt, and the Fed is now using to buy the debt of trillion-dollar companies like Apple.
Matt: Are there any efforts by either the public sector or private sector to just change the way this country handles economic crises to prevent the Fed and companies from doing these financial shenanigans in future recessions?
Dion: It's sad to say, no. There's been pushback. There's been a blowback to this, and you see it with the rise of politicians like Donald Trump and Bernie Sanders and Alexandria Ocasio-Cortez, folks who say that the system is broken, the system is rigged, the capitalism isn't working. You're likely going to see more of that as more and more people see that the system isn't working, but because most people don't understand how the federal reserve works or what it does or what's actually going on with the economy, they really don't know who to blame or what to blame or what's even happening or why this situation is occurring. They just know that it feels unfair and it feels like it's not right.
Matt: Dion Rabouin, Markets editor at Axios and writer of the Axios Markets newsletter. Dion, thanks so much for explaining this all to us.
Dion: Yes, no problem. Thanks so much for having me.
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