Preferred stock will help big firms recover from Covid-19

Published Thu, Apr 16, 2020 · 09:50 PM

THE good news from Washington is that, despite partisan divides, Congress and President Donald Trump have moved swiftly to enact the unprecedented Coronavirus Aid, Relief and Economic Security (Cares) Act in response to the Covid-19 crisis.

Yet it is becoming clearer by the day that these measures will not be sufficient, and lawmakers are already talking about the need for another stimulus package. We urge them to take a different approach to supporting large corporations in the next deal. Indeed, many of the options for helping large corporations are not founded on sound economic principles.

One economic remedy included in Cares is lending billions of dollars to distressed large companies. Such large-scale lending at low interest rates creates a dangerous catch-22: some corporations, many have argued, may use the loans for purposes unrelated to the current crisis, such as stock buybacks. Though the Cares Act prohibits that, …