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The back story for a bailout proposal

Andrew Ross Sorkin here …

Having spent so much time reporting on previous crises, I got the sense two weeks ago that the coronavirus represented a crisis of gargantuan scale. That’s why I wrote a column last week saying that we needed to start talking about bailouts, even if some thought I was getting ahead of myself. Now, as I explain in my latest column, the idea for a multitrillion-dollar “bridge loan” for everyone — rather than industry-specific bailouts — seems like the cleanest way to keep companies in business.

What could everyone support? The politics of the 2008 bailouts were so ugly that I was searching for something that could win over Democrats and Republicans. The response to this column has been encouraging: Several political leaders’ staff members asked me how the loans would work, and executives reached out to say they wanted to push the idea in Washington. The NYT reports that there is a proposal already making the rounds in policymaking circles, devised by the economists Glenn Hubbard and Michael Strain, that would forgive emergency bank loans to small businesses, provided they kept all their workers employed.

I received some good feedback to help hone the idea. Perhaps the most interesting came from Peter Orszag, who was the White House budget director under President Barack Obama and is now at Lazard. He suggested:

“Why not have the government immediately re-inject funds into the banks who extend the loans and then do repayment from the company directly through the tax code? The company would only be allowed to deduct X percent of non-labor expenses (where X is less than 100 and could be scaled based on the state of the economy) until the debt is repaid. That repayment approach provides a form of auto-stabilizer — since the repayments will be accelerated if the economy starts booming and delayed if not.”

A special announcement:

We will hold a conference call for DealBook readers this Friday at 10 a.m. Eastern to discuss the business and policy implications of the coronavirus pandemic. DealBook’s editors will be joined by Choe Sang-Hun, our correspondent in Seoul, who has been reporting on the South Korean government’s aggressive response to the outbreak. You’ll be able to ask him about what he is seeing on the ground and which parts of the response are working. We will also debate the options for shoring up economies and rescuing companies hurt by the virus, and take any other questions that you may have.