The Price of the Coronavirus Pandemic – The New Yorker

Meanwhile, New Yorks health-care system was sinking into chaos, as COVID-19 cases swamped hospitals. That day, there were more 911 calls than there had been on September 11, 2001. Some Fokkers, however, felt that it was important not to get swept up in apocalyptic tales or media reports, or to fall for the Chicken Littles. They mocked Jim Cramer, the host of the market program Mad Money, on CNBC, for predicting a great depression and wondering if anyone would ever board an airplane again. Anecdotes, hyperbole: the talking chuckleheads sowing and selling fear.

As in epidemiology, the basis of the financial markets, and of arguments about them, is numbersdata and their deployments. Reliable data about COVID-19 have been scarce, mainly because, in the shameful absence of widespread testing, no one knows how many people have or have had the virus, which would determine the rate of infection and, most crucially, the fatality rate. The numerator (how many have died) is known, more or less, but its the denominator (how many have caught it) that has been the object of such speculation. If I had a roll of toilet paper for every finance guys analysis of the death rate Ive been asked to read, Id have toilet paper. Most of these calculations, it seems, are arguments for why the rate is likely to be much, much lower than the medical experts have concluded. The less lethal it is, the better the comparison to the flu, and therefore the easier it is to chide everyone for getting so worked up over it. As Lawrence White, a professor of economics at George Mason University, tweeted, Almost everyone talking about the #coronavirus is displaying strong confirmation bias. Which only goes to prove what Ive always said.

Still, its hard for a coldhearted capitalist to know just how cold the heart must go. Public-health professionals make a cost-benefit calculation, too, with different weightings. Whats the trade-off? How many deaths are tolerable? Zero? Tens of thousands, as with the flu? Or whatever number it is that will keep us from slipping into a global depression? The public-health hazards of deepening unemployment and povertymental illness, suicide, addiction, malnutritionare uncounted.

Financial people love to come at you with numbers, to cluck over the innumeracy of the populace and the press, to cite the tyranny of the anecdote and the superior risk-assessment calculus of the guy who has an understanding of stochastic volatility and some skin in the gameeven when that skin is other peoples. But while risk and price are intertwined, value and values are something else entirely. It can be hard to find the right math for those.

In the months following the first tidings of COVID-19 from China, Trump played down its potential impactattempting to jawbone a virus, or at least the perception of it. But a virus, unlike a President, doesnt care how its perceived. It gets penetration, whether you believe in it or not. By the time, later in March, that he acknowledged the scale of the pandemic (and sought to convince those who hadnt been paying attention that hed been paying attention all along, except to the extent that hed been distracted), it had long been abundantly clear that he cared more about the economic damageeven if it was only in relation to his relection prospects, or to the fate of his hotel and golf-resort businessesthan about any particular threshold regarding loss of life or the greater good. Others, perhaps on his behalf, have tried to expand his position. For a few days, the message, reinforced by the likes of Glenn Beck (Id rather die than kill the country) and Dan Patrick, the soon-to-be-seventy lieutenant governor of Texas (If thats the exchange, Im all in), was that we might have to sacrifice our elders for the sake of the economy. The politics of it were perverse. Many of the same people who had cited death panels in the fight against Obamacare were now essentially arguing the opposite. One mans cost controls are another mans eugenics.

For Trump, the economy is basically the stock market. Hes obsessed with it, much the way he fixates on television ratings. The stock market is, among other things, a great mood indicator. But it isnt the economynot even close. As were now discovering, to more horror than surprise, the cessation of commercial activitytravel, tourism, entertainment, restaurants, sports, construction, conferences, or really any transactions, in significant volume, be they in lawyering, accounting, book sales, or sparkplugsmeans no revenue, no ability to make payroll or rent, mass layoffs, steep declines in both supply and demand, and reverberations, up and down the food chain, of defaults on debt. Thats the economy.

This brutal shock is attacking a body that was already vulnerable. In the event of a global depression, a postmortem might identify COVID-19 as the cause of death, but, as with so many of the viruss victims, the economy had a prexisting conditiondebt, instead of pulmonary disease. Corporate debt, high-yield debt, distressed debt, student debt, consumer debt, mortgage debt, sovereign debt. Its as if the virus is almost beside the point, a trader I know told me. This was all set up to happen.

The trader was one of those guys who had been muttering about a financial collapse for a decade. The 2008 bailout, with the politically motivated and, at best, capricious sorting of winners and losers, rankled, as did the ongoing collusion among the big banks, the Federal Reserve, and politicians of both parties. Hed heard that the smart money, like the giant asset-management firms Blackstone and the Carlyle Group, was now telling companies to draw down their bank lines, and borrow as much as they could, in case the lenders went out of business or found ways to say no. Sure enough, by Marchs end, corporations had reportedly tapped a record two hundred and eight billion dollars from their revolving-credit linesa revolver frenzy, as the financial blog Zero Hedge put it, in publishing a list of the companies that managed to get their money in time. Corporate America had hit up the pawnshop, en masse. In a world where we talk, suddenly, of trillions, two hundred billion may not seem like a lot, but it is: in 2007, the subprime-mortgage lender Countrywide Financial, in drawing down just $11.5 billion, helped bring the system to its knees.

It is hard to navigate out of the debt trap. Creditors can forgive debtors, but that process, especially at this level, would be almost impossibly laborious and fraught. Meanwhile, defaults flood the market with collateral, be it buildings, stocks, or aircraft. The price of that collateral collapseshaircuts for baldheadsleading to more defaults. The market in distressed debt has already ballooned to about a trillion dollars.

As April arrived, businesses, large and small, decided not to pay rent, either because they didnt have the cash on hand or because, with a recession looming, they wanted to preserve what cash they had. Furloughed or fired employees, meanwhile, faced similar decisions, as landlords sent threatening reminders. Would property owners, without their monthly nut, be able to finance their own debts? And what of the banks, with all the bad paper? In the last week of March, an additional 6.6 million Americans filed jobless claims, doubling the previous weeks record. In New York State, where nearly half a million new claims had been filed in two weeks, the unemployment-insurance trust began to teeter toward insolvency. Come summer, there would be no money left to pay unemployment benefits.

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The Price of the Coronavirus Pandemic - The New Yorker