The government (in the form of the Federal Deposit Insurance Corporation, Federal Reserve, and Treasury) did just that. The ensuing intervention redounded to the benefit of Ackman’s billionaire buddies in Silicon Valley who were exempted from a very explicit guarantee: the FDIC ostensibly only insures deposits up to $250,000 per depositor.
Ackman is one of many characters that Liz Hoffman follows in Crash Landing, her new book on the government’s pandemic response. It offers a wide-ranging look at the cafeteria capitalists who reap billions in profits during good times and then demand government bailouts when their gravy train crashes. Hoffman has worked as a senior reporter at the Wall Street Journal and now is an editor for Semafor, a nascent news website that launched in 2022. Crash Landing is her first book.
The book’s subtitle, The Inside Story of How the World’s Biggest Companies Survived an Economy on the Brink, stirs memories of the major book releases in the wake of the Great Recession, in particular Henry Paulson’s On the Brink. The reference indicates how some of the major characters in Hoffman’s book navigated their respective crises during the pandemic and, as in the case of SVB or 2008 instability, begged the government for bailouts. Previewing these individual stories for the reader, I don’t believe that Crash Landing is an appropriate moniker for these outcomes because Hoffman’s examples show how much the government was willing to “foam the runway” and avoid allowing actual crash landings for some of the largest companies in the United States during the pandemic. Companies that did not rely on government support were also able to navigate the pandemic era and avoid a crash landing.
Hoffman’s organizational style for the book is like Andrew Ross Sorkin’s Too Big to Fail (Viking, 2009), the leading book chronicling the global financial crisis of 2007–2009. Like Sorkin, Hoffman traces her cast of characters throughout the pandemic, from the early months of 2020 when people were getting their heads around the idea of a global pandemic, to the early days of 2021 when evidence was beginning to build that the government bailouts were too generous. She weaves her story through this time frame, checking in on primary characters and the key industries they work in to determine progress in procuring their own tailored favors from the government.
Ackman is an outlier in the book, as his primary objective during the crisis was to solve the puzzle of how to make an investment killing while the world struggled with the pandemic. The book’s prologue starts in February 2020 as he gives one of his many speeches before “the wannabe billionaire crowd,” this one in London. At the time, he struggled to piece together the available evidence on the building pandemic. Weeks later, when Hoffman checks in with Ackman again, he wakes up in the middle of the night with a premonition: “The stock market is going to crash.” His conclusion: “We need to either sell everything or put on a massive hedge.” The latter strategy would “pay out if stocks cratered as he suspected.” Selling everything would cut against his moves to “shed his reputation as a corporate raider for a softer image…. A massive hedge it was, then.” The next time Hoffman checks in on Ackman, in late February 2020, he “had bought more than $1 billion of credit-default swaps.” His firm “paid $27 million in premiums and commissions. Ackman thought it was the bargain of a lifetime.” It took a few days to unwind the underlying trades, but by the end of March 2020, “the trade would ultimately net nearly $2.6 billion in profits on an initial investment of just $27 million.”
Just another bailout story / The companies Hoffman examines in Crash Landing include airlines, automakers, and more modest-sized hospitality industry players. Although she does not trace back predecessor government interventions, any historian of bailouts can rattle off examples of when these first two industries were the beneficiaries of previous interventions. Aviation industry bailouts began in the 1970s with the rescue of Lockheed and continued through the airline bailout after the September 11, 2001, terrorist attacks. Auto bailouts go at least as far back as the Chrysler bailout of the early 1980s and more recently the GM and Chrysler (yes, again) bailouts in 2008. So, when the pandemic rolled around, it was no surprise that these same industries traveled to Washington hat-in-hand to avoid the fate of so many smaller businesses and industries.
Automobile industry / After some tough years in the early 2000s, by 2019 Ford “seemed to have found its way back.” The iconic company had just released an electric powered Mustang and it was developing its first electric F‑150 truck. But by April 2020, Ford was a “fallen angel” and “nobody wanted what they had to sell,” resulting in its debt being downgraded to junk territory. Bill Hackett, the Ford CEO, called Fed Chairman Jerome Powell to plead for support. Hoffman writes, “He was under pressure from his board, from investors, from his competitors, to raise cash, and there was no doubt Ford needed it.” Like the banks that pleaded for bailouts in 2008, he was desperate: “The last thing Hackett wanted was to cut Ford’s dividend, which offered steady income to thousands of the company’s retirees…. Almost apologetically [while talking to Powell], he hinted at some type of federal aid.” Powell responded: “The U.S. government is going to be here.” Hoffman writes: “Now the U.S. government had said it was willing to buy Ford’s bonds which … would send a message to the rest of Wall Street’s investors that they were safe. And right on cue, the price of Ford’s existing bonds shot up on the news.”
Airline industry / Delta and the other airlines had enjoyed what Hoffman calls a “champagne decade” from 2006 to 2019, bouncing back after the bankruptcies of the mid-2000s. At the beginning of 2020, Delta CEO Ed Bastian, for instance, was celebrating a $2 billion investment in South America’s biggest airline. But by March 4, Doug Parker, the CEO of American Airlines, along with his counterparts from Southwest, Alaska Airlines, Hawaiian Airlines, JetBlue, and United Airlines were meeting with President Donald Trump and Vice President Mike Pence in the White House.
Trump politely ignored a reporter’s question on a possible bailout. Hoffman writes:
[A] reporter asked Trump whether he was weighing financial support for the industry and Trump responded: “Don’t ask that question please. I don’t want you to give them any ideas.”
But by mid-March the bailout began to take shape:
The industry was looking for grants, not loans…. The airlines wanted a suspension of the 7.5 per cent tax … on all flights … and [the airlines] would promise not to lay off employees.
The final price tag came into view as Parker told Treasury Secretary Steve Mnuchin that “the industry would need $50 billion to stay afloat…. The airline executives had decided that what they needed to do [was] beg the government for a bailout.” In typical Chicken Little fashion, Parker told Senate Majority Leader Mitch McConnell, “If this continues without assistance, there won’t be an airline industry.”
Hotels and Airbnb / In mid-2019, Chris Nassetta, the president and CEO of Hilton Worldwide was “toasting a decade-long economic boom that had been very good to corporate America and to Hilton,” according to Hoffman. But by early March, “corporate travelers … had disappeared overnight. Big conferences … were being cancelled. Spring leisure bookings were dropping by half…. Hilton might not make it.”
In the same industry about this same time, Brian Chesky, CEO of Airbnb, was preparing for an initial public offering worth tens of billions of dollars after a decade of explosive growth. But by the early months of 2020, he was worrying about an 80 percent drop in bookings in China over a three-week period.
Although hard hit like the airline and automobile industries, the players in the hospitality industry took a different route. Hilton leveraged itself in March 2020 by drawing down $1.5 billion on a credit line and “raising another $1 billion from a credit-card points deal … with American Express.” Airbnb relied on a war chest of $3 billion of cash twinned with a $1 billion loan at 11 percent interest combined with $500 million in debt that would convert into shares of the company. Airbnb also laid off about a quarter of its staff, with a severance package worth a minimum of 14 weeks’ pay and assistance transitioning to new jobs.
Conclusion / Hoffman does a good job of contrasting the different approaches of the industries in navigating the challenges of the pandemic, especially the contrast between self-help and government bailouts.
She does, however, engage in one of my pet peeves from the Great Recession when, without much supporting evidence, she mimics those in government who argued that, without interventions, the financial system would have turned into a pile of rubble. She does her best to track this style of rhetoric: “The efforts undertaken by Mnuchin and others in the government—like the actions taken by their predecessors in 2008, many of them equally unpopular—would keep the largest economy in the world from imploding,” and, “Programs that they hoped would calm chaotic trading markets and lessen the risk that what had begun as a health crisis would take down Wall Street and, with it, the economy,” and, “Powell would later admit the Fed had crossed a lot of red lines that had not been crossed before in its effort—ultimately successful—to keep the economy on the rails,” and, “The federal government needed to keep the entire economy from collapsing,” and “The 2020 playbook from financial regulators and elected officials in Congress staved off an economic collapse.” Yet, there are no citations in the book that support the case for these potential dire outcomes.
In fact, Hoffman’s book is rather light on citations (just over seven pages) as compared to what I have come to expect from such books. Other books I have reviewed contain substantial supporting citations, such as the 70 pages in Nomi Prins’s recent book Permanent Distortion (see “Collecting Evidence on Central Banks’ Distortions,” Summer 2023).
Nonetheless, Hoffman tells a good story. The lesson here is if you are a big enough company or industry and have a loud enough megaphone and the right connections, you too can get bailouts to help you weather tough times.
