Companies spent years buying their own stock... ...and in a few weeks have seen sales plummet Weekly U.S. sales, change from a year earlier Stock buybacks $7.5 billion 7.5 7.5 20% 20% 20% 0 0 0 5.0 5.0 5.0 -20 -20 -20 2.5 2.5 2.5 -40 -40 -40 0 0 0 -60 -60 -60 2011 ’19 Jan.9 March 12 Jan.9 March 12 Jan.9 March 12 2011 ’19 2011 ’19 Booking.com Marriott UNIted airlines Booking Marriott UNIted airlines Companies spent years buying their own stock... Stock buybacks $7.5 billion 7.5 7.5 5.0 5.0 5.0 2.5 2.5 2.5 0 0 0 2011 ’19 2011 ’19 2011 ’19 Booking.COM Marriott UNIted airlines ...and in a few weeks have seen sales plummet Weekly U.S. sales, change from a year earlier 20% 20% 20% 0 0 0 -20 -20 -20 -40 -40 -40 -60 -60 -60 Jan.9 Jan.9 March 12 Jan.9 March 12 March 12 Booking.COM Marriott UNIted airlines Companies spent years buying their own stock... Stock buybacks $7.5 billion 7.5 5.0 5.0 2.5 2.5 0 0 2011 ’19 2011 ’19 Marriott Booking.COM ...and in a few weeks have seen sales plummet Weekly U.S. sales, change from a year earlier 20% 20% 0 0 -20 -20 -40 -40 -60 -60 Jan.9 March 12 Jan.9 March 12 Booking.COM Marriott Note: Booking.com represents Booking Holdings, which includes Priceline, Agoda, Kayak, Rentalcars.com and Opentable · Sources: S.&P. Capital IQ (buybacks); Earnest Research (sales)

Are taxpayers rewarding a decade of bad behavior? The $2 trillion coronavirus relief package making its way through Congress will yield payments to most Americans and protections for workers, but also special treatment — bailouts — for a number of industries and companies. The airline industry is expected to get some $50 billion in cash and loans; Boeing, which asked for $60 billion, is widely expected to receive some part of a $17 billion fund. And a general bailout fund of some $500 billion is expected to be used for other industries, like hotels and cruise lines, whose business has dried up.

To what degree are taxpayers being asked to bail out wealthy creditors, and to reward companies that, during years when they made enormous profits, spent their money propping up their own stock prices?

Companies were buying their own stock and enriching shareholders Quarterly buybacks, 2011-2019 $3 billion 2 Marriott spent $16 billion on buybacks since 2011 1 0 Disney Carnival Hyatt Hilton American Delta Southwest United Marriott Booking.com 2 $3 billion 0 1 Disney Booking.com Marriott spent $16 billion on buybacks since 2011 Marriott American Delta Southwest United Carnival Hyatt Hilton $3B 2 Marriott spent $16 billion on buybacks since 2011 1 0 Disney Booking.com Marriott American Delta Southwest United Carnival Hyatt Hilton Source: S.&P. Capital IQ

Few question the need to provide stimulus or emergency aid to an afflicted economy. But the case for aid to individuals is much different than for aid to specific companies. The companies that will be receiving the largest bailouts were, until recently, enjoying unprecedented levels of corporate profitability, thanks to large corporate tax cuts, industry mergers and the avoidance of significant wage increases for employees.

During the past decade, flush with cash, most of the companies in line to get taxpayer money did not prepare for a downturn. Instead, they spent enormous sums on stock buybacks, which reward shareholders and increase executive pay. For example, the airline industry, which is prone to booms and busts, collectively spent more than $45 billion on stock buybacks over the past eight years. As recently as March 3 of this year, with the crisis already beginning, the Hilton hotel chain put $2 billion into a stock buyback.

Share of available cash spent on stock buybacks, 2011-2019 Note: Uses data for S.&P. 1500. Source: S.&P. Capital IQ

The expected bailouts, depending on how they are structured, would also save shareholders from losses that they would otherwise experience in a bankruptcy proceeding.

Hospitality sales continue to dwindle as coronavirus pandemic spreads Weekly U.S. sales, change from a year earlier, Jan. 9-March 12 -60% -40 -20 0 20 Disney Cruise Line Booking.com Marriott American Delta Southwest United Carnival Hyatt Hilton 20% 0 -20 -40 -60 Marriott Disney Cruise Line Booking.com American Delta Southwest United Carnival Hyatt Hilton 20% 0 -20 -40 -60 Disney Cruise Line Booking.com Marriott American Delta Southwest United Hyatt Hilton Carnival Source: Earnest Research

The past decade was also an “easy money” decade, thanks to federal monetary policy that favored liquidity and low interest rates. Many of the firms now asking for bailouts took advantage of low interest rates to borrow heavily. For their part, many creditors lent money at rates that did not fully reflect the risks to these industries. The debt loads have created their own fragilities during the economic downturn.

The debt surged, making many companies financially vulnerable Quarterly long-term debt, 2011-2019 $30 billion American more than doubled its debt since 2011 20 10 0 United Carnival Hyatt Hilton Disney Booking.com American Delta Southwest Marriott $30 billion 20 10 0 Disney Booking.com American more than doubled its debt since 2011 Marriott American Delta Southwest United Carnival Hyatt Hilton $30 billion American more than doubled its debt since 2011 20 10 0 United Carnival Hyatt Hilton Disney Booking.com American Delta Southwest Marriott Source: S.&P. Capital IQ

One consequence of a bailout, depending on how it is structured, would be to save private capital from large losses on these loans — loans that were, in retrospect, much riskier than they appeared.

The economy needs help, and fast. Yet it is hard to escape the conclusion that the $2 trillion aid package validates and indeed further rewards the questionable practices of the last decade. In a normal bankruptcy proceeding, equity holders and shareholders would incur significant losses based on the taking of risks that were not unknown. It is true that the $2 trillion aid package has a condition that would, going forward, temporarily bar further stock buybacks for companies that receive taxpayer loans. But viewed in context, the relief package still amounts to a bailout of private capital and the endorsement of a decade of self-enriching practices.