Private Capital Cannot Be Shut Off for Coronavirus Recovery | Citizens Against Government Waste

Private Capital Cannot Be Shut Off for Coronavirus Recovery

The WasteWatcher

The catalog of damaging socialist ideas from Sen. Elizabeth Warren (D-Mass.) and Rep. Alexandria Ocasio-Cortez (D-N.Y.) continues to grow as they try to take advantage of the coronavirus crisis to change America to fit their vision.

Their latest proposal, the “Pandemic Anti-Monopoly Act,” would establish a prohibition on mergers and acquisitions until the coronavirus pandemic is over, which of course means this temporary moratorium would become permanent.  The two members of Congress have at least one more ally in House Judiciary Antitrust, Commercial, and Administrative Law Subcommittee Chairman David Cicilline (D-R.I.), who told Politico on April 23, 2020 that he wants to add a provision to the next coronavirus relief till that would prohibit M&A only if a company is in bankruptcy or about to fail.  Like many other bad ideas floating around Congress that would expand the size, scope, and power of the federal government, stopping M&A is not new.  For those members of Congress, the idea of private capital being used to buy any company, regardless of its financial circumstances, is abhorrent. 

Sen. Warren has been intensifying her attack on private equity, even though the industry has been a bright spot in the economy both in her home state and across the country.  PE firms employ 400,000 people in Massachusetts and the U.S. Chamber of Commerce calculated that “the multiplier effects” of PE firms and PE-backed companies “support over 26 million jobs and contribute over $475 billion in annual Federal and state/local tax revenues.”  

Federal Trade Commissioner Noah Phillips told Bloomberg News in April 28 interview that “it strikes me as a profoundly counter-intuitive time to try to ban M&A.”  He said that the information that the FTC uses to determine the amount of M&A is showing a “downturn” and the financial situation during the coronavirus crises means that “companies are less eager to get engaged in M&A.”  While the intent of the bill is supposedly to prevent “anticompetitive” M&A, when asked if that is something that is under the jurisdiction of the FTC and whether they are concerned, Commissioner Phillips said, “Anticompetitive M&A is something we worry about every day.”  He noted that along with the Department of Justice Antitrust Division, the FTC is one of two “cops on the beat” reviewing deals all the time, and when concerns cannot be resolved they will go to court.  Nonetheless, the legislation would not just prevent anticompetitive mergers, it would prevent all mergers.

Commission Phillips makes it clear that the antitrust laws are being enforced.  But that is not enough for the proponents of the Anti-Monopoly Act.  In her one-pager describing the legislation, Sen. Warren notes it would impose “a moratorium on risky mergers and acquisitions until the Federal Trade Commission (FTC) determines that small businesses, workers, and consumers are no longer under severe financial distress.”  That is not the same timeline as the end of pandemic and will be under a subjective standard.  

Perhaps most damaging of all to the potential for economic growth after the pandemic ends, the bill would require the FTC to conduct a “rulemaking to establish a legal presumption against mergers and acquisitions that pose a risk to the government’s ability to respond to a national emergency.”  This is subterfuge for creating a permanent presumption (prohibition) against M&A.  Since the National Emergencies Act was signed into law by President Ford on September 14, 1976, according to a March 23, 2020 Congressional Research Service report, 57 national emergencies have been declared, 34 are still in effect, and 23 have expired.  The “presumption” against M&A in a “national emergency” would ipso facto be effective immediately and permanently upon the enactment of the Pandemic Anti-Monopoly Act.

Sen. Warren’s attempt to create a permanent ban on M&A has been exposed, but it is not a surprise.

In an April 13, 2020 WasteWatcher blog post about the exclusion of affiliated companies from the Paycheck Protection Act (subsequently, these companies have also been kept out of the $500 billion Federal Reserve facility), Citizens Against Government Waste wrote about Sen. Warren’s Stop Wall Street Looting Act,” S. 2155, “which would impose a number of onerous mandates on private investors that that would tie up capital and reduce investors’ returns, thereby reducing incentives to take risks and invest.”  The blog cited the Chamber of Commerce report noted earlier in this post, which “concluded that the enactment of Sen. Warren’s legislation would ‘be so impactful that … even in a modest-case scenario, the country’s workforce would be reduced by approximately 6 million jobs, and combined federal, state, and local tax revenues would drop by approximately $109 billion per year in the long run.’”

The (un)intended consequences of prohibiting the investment of private capital during and after the pandemic would only increase the disastrous economic impact that has spread across the country.  While some have dismissed Rep. Cicilline’s efforts to amend the next relief bill and the passage of the Warren/Ocasio-Cortez bill as being unlikely to be agreed to by Republicans, it would be foolish not to be vigilant and take all necessary action to stop these damaging ideas from being adopted.

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