The Top Line

• As the COVID-19 wave begins to peak in the U.S., President Trump issues guidelines crafted by health care experts and economists to plan the phased reopening of the economy to get Americans back to work.

• The Small Business Administration’s $350 billion Paycheck Protection Program has provided the bridge American small businesses needed to weather the COVID-19 crisis. But more funds are needed quickly.

• President Trump closes historic deal to cut global oil supply as COVID-19 drops demand to record lows, and predictions show the U.S. could become a net importer of crude and petroleum products.

The State of Reopening

With COVID-19 hitting its state-by-state peaks over the next two weeks (see above) attention is beginning to turn to reopening the economy in a manner that is safe for workers and avoids a resurgence of the virus.

• Last week, President Trump announced phased measures to begin opening the economy. The three phases gradually loosen restrictions state-by-state and region-by-region as cases of COVID-19 begin trending downwards.
• The successive phases begin with the first phase in which social distancing is maintained and vulnerable individuals are encouraged to shelter in place. In the second phase, the restrictions loosen further in states and regions showing no signs of a reemergence of the virus. In the third phase, restrictions are relaxed while vulnerable individuals are encouraged to practice social distancing whenever possible, and low-risk individuals are encouraged to minimize large gatherings.
• Groups of governors in the Midwest, Northeast, and West Coast have convened committees to coordinate the reopening of their regional economies in preparation for when reopening is possible.

The Business of Recovery

There has been a stampede in demand for Paycheck Protection Program loans, which has proved to be an important prescription that American small businesses need to get through the COVID-19 crisis.

• The starkest indicator that small businesses need the program’s loans is that within two weeks of lenders beginning to process applications on April 3, the program’s funding had been exhausted.
• Senate Republicans attempted to pass an additional $250 billion in funding for the program, but were thwarted by Senate Democrats seeking additional spending and changes to the loan program’s administration.
• The head of the SBA during the Obama administration, Karen Mills, was adamant that the situation is too dire to wait and that “things that have to be implemented quickly can’t have a lot of bells and whistles,” as “we don’t have time to delay.”

Myth vs. Fact

MYTH: Amid the COVID-19 crisis and the government-required shutdown of thousands of businesses, some commentators have suggested that companies should be allowed to fail and that bankruptcy proceedings won’t affect workers.

FACT: There are several types of business bankruptcy proceedings, all of which affect workers.

• In a Chapter 11 bankruptcy, a company generally has the goal of reorganizing its business while it continues operations. Reorganization involves reducing expenses and renegotiating obligations with creditors. Labor costs, such as wages and benefits, are typically among a company’s largest expenses and are often reduced, for example, through layoffs.
• In a Chapter 7 bankruptcy, a company liquidates. Its debt is so unmanageable that it ceases operations entirely and lays off all workers. The company sells its assets and distributes the proceeds to its creditors, with secured creditors having priority. Employees are unsecured creditors and are paid only after secured creditors. 

Oil, Oil, Everywhere

After weeks of uncertainty, plummeting demand, and conflict between Saudi Arabia and Russia, the world’s major oil powers finally came to an agreement to decrease future production. But is it enough to limit the damage, keep long-term prices level, and boost the U.S. energy sector?

• Over the past two months, the global oil market has faced both a sharp decline in demand and a supply-side price war with two of world’s largest producers flooding the market with additional product.
• Caught in the middle, U.S. producers have seen their benchmark price for oil drop from $54/barrel at the end of February to as low as $19.20/barrel last week. This has forced the shutdown of hundreds of production sites across the country, impacting hundreds of thousands of jobs.
• In an effort to stabilize prices, and thanks to some last minute pressure from the U.S., last weekend, the Organization of the Petroleum Exporting Countries (OPEC), Russia, and a handful of other countries agreed to cut production by roughly 10 million barrels a day for the next three months.
• Recognizing the implications of a long-term U.S. decline in production, the Trump Administration recently took action to protect American energy workers, but whether that will decrease long-term volatility remains to be seen.

Disruption of the Week

Silicon Valley fintechs are providing services to help Americans more quickly access economic impact payments and recovery funding, but at what cost to personal financial data and long-term privacy?

• Financial technology companies, also known as fintechs, are broadly defined as businesses that develop or oversee technology that provide or supplement traditional financial services practices such as banking, investment management, or payment processing.
• Even before the economic crisis caused by COVID-19, fintechs were helping provide financial services to underserved and younger, tech-savvy Americans.
• However, after the passage of the CARES Act and the sudden availability of hundreds of billions of federal dollars for families and small businesses, fintechs are stepping up to provide additional capacity and get dollars out the door.
• Despite long-standing privacy issues, and recent concerns that the crisis could lead to greater consumer data harvesting and misuse, the need for social distancing and digital payment has also led to massive increases in the use of fintech apps over the past few weeks.
• As the economy moves to reopen, fintechs are poised not only to help us financially navigate the crisis but have the long-term potential to provide critical future services and increased financial inclusion for all Americans.

Further Reading

• In the time of the largest government intervention in the economy since World War II, one writer reminds us of the value of the grassroots entrepreneurial spirit that America used to rise from its modest beginnings to an economic powerhouse and should use again to emerge stronger than ever from the COVID-19 crisis. That spirit, we are reminded, is embodied in the clipped phrase laissez faire, originally laissez nous faire, or translated: ‘let us do it.’ Wall Street Journal