Dukes of Moral Haz­ard

THANKS TO THE FED­ERAL RE­SERVE’S LOW-RATE RE­LI­GION, BIG COM­PA­NIES HAVE SPENT THE LAST DECADE GORG­ING ON DEBT, SOME RECK­LESSLY. BUT IN­STEAD OF HEAD­ING TO­WARD BANKRUPTCY, THEY’RE NOW BE­ING PROPPED UP BY THE GOVERN­MENT.

Forbes - - CONTENTS - By An­toine Gara and Nathan Vardi

Thanks to the Fed­eral Re­serve’s low-rate re­li­gion, big com­pa­nies have spent the last decade gorg­ing on debt. In­stead of head­ing into bankruptcy, though, they’re now be­ing propped up by the govern­ment.

His U.S. Air­ways had fi­nally bagged a ma­jor part­ner by agree­ing to com­bine with bank­rupt Amer­i­can. The new com­pany would emerge with mod­est debt as the na­tion’s largest air­line, with only three do­mes­tic car­ri­ers left among its global com­peti­tors.

The fi­nan­cial cri­sis was well in the past, the econ­omy was hum­ming and travel seemed to be en­ter­ing a new golden age. Car­ri­ers like Amer­i­can had mas­tered the sci­ence of dy­namic fare pric­ing, and now nearly ev­ery seat on ev­ery flight was full, max­i­miz­ing rev­enue and ef­fi­ciency. Hail­ing the ar­rival of a “new Amer­i­can” by early 2014, Parker was ea­ger to please Wall Street. “I as­sure you that every­thing we’re do­ing is fo­cused on max­i­miz­ing value for our share­hold­ers,” he said on a call with in­vestors.

Over the next six years, Parker bor­rowed heav­ily, tap­ping cap­i­tal mar­kets no fewer than 18 times to raise $25 bil­lion in debt. He used the money to buy new planes and shore up Amer­i­can’s pen­sion obli­ga­tions, among other things. A host of pas­sen­ger fees for ad­di­tional bag­gage, more legroom, in-flight snacks, drinks and more helped swell the bot­tom line to $17.5 bil­lion in com­bined prof­its from 2014 to 2019. Keep­ing his pledge, Parker de­clared a regular div­i­dend in 2014—Amer­i­can’s first in 34 years—and be­gan buy­ing back bil­lions of the air­line’s stock.

“Hold­ing more cash than the com­pany needs to hold is not a good use of our share­hold­ers’ cap­i­tal,” he rea­soned. That was mu­sic to hedge fun­ders’ ears as they piled into Amer­i­can stock. Even Berk­shire Hath­away’s War­ren Buf­fett bought a chunk of the com­pany. Out of bankruptcy, its stock took off al­most immediatel­y, dou­bling dur­ing Parker’s first year on the job. For his man­age­rial bril­liance, Parker was re­warded with an­nual com­pen­sa­tion sur­pass­ing $10 mil­lion.

Fast-for­ward to April 2020, and a con­ta­gion known as SARS-CoV-2 has lev­eled the travel in­dus­try. Amer­i­can Air­lines is flat broke, in part be­cause of Parker’s prof­li­gate spend­ing. Now the U.S. govern­ment has agreed to ad­vance it $5.8 bil­lion in the form of grants and low-in­ter­est

→ When chief ex­ec­u­tive Doug Parker took the pi­lot’s seat at Amer­i­can Air­lines in De­cem­ber 2013, it seemed as though clear skies were ahead.

loans—the largest pay­ment to any air­line in the govern­ment’s $25 bil­lion in­dus­try bailout pack­age. Many hedge fund in­vestors have sold their shares, as has Berk­shire Hath­away. Amer­i­can stock is now worth just one-third of the $12 bil­lion Parker spent on buy­backs alone.

De­spite re­cent boom times, Amer­i­can’s bal­ance sheet is a dis­grace. Over the last six years, Parker added more than $7 bil­lion in net debt, and to­day its ra­tio of net debt to rev­enue is 45%, about dou­ble what it was at the end of 2014. Amer­i­can says it plans to pay down its debt “ag­gres­sively” as soon as busi­ness re­turns to nor­mal.

Debt-laden Amer­i­can Air­lines is not an out­lier among the na­tion’s largest cor­po­ra­tions, though. If any­thing, its fi­nan­cial gym­nas­tics might well have been a play­book for board­rooms around the coun­try. Year after year, as the Fed­eral Re­serve pumped liq­uid­ity into the econ­omy, some of the big­gest firms in the United States—Coca-Cola, McDonald’s, AT&T, IBM, Gen­eral Mo­tors, Merck, FedEx, 3M and Exxon—have binged on low-in­ter­est debt. Most of them bor­rowed more than they needed, often re­turn­ing it to share­hold­ers in the form of buy­backs and div­i­dends. They also went on ac­qui­si­tion sprees. Their ac­tions drove the S&P 500 in­dex ever higher—by 13.5% on av­er­age an­nu­ally from 2010 through 2019—and with it came in­creas­ingly rich pay pack­ages for the CEOs lead­ing the charge. The coup de grâce was Pres­i­dent Trump’s 2017 tax cut, which added even more he­lium to this cor­po­rate-debt bal­loon.

Ac­cord­ing to a Forbes in­ves­ti­ga­tion, which an­a­lyzed 455 com­pa­nies in the S&P 500 In­dex—ex­clud­ing banks and cash-rich tech giants like Ap­ple, Amazon, Google and Mi­crosoft—on av­er­age, busi­nesses in the in­dex nearly tripled their net debt over the past decade, adding some $2.5 tril­lion in lever­age to their bal­ance sheets. The anal­y­sis shows that for ev­ery dol­lar of rev­enue growth over the past decade, the com­pa­nies added al­most a dol­lar of debt. Most S&P 500 firms en­tered the bull mar­ket with just 20 cents in net debt per dol­lar of an­nual rev­enue; to­day that fig­ure has climbed to 38 cents.

But as the coro­n­avirus pan­demic crip­ples com­merce world­wide, Amer­i­can cor­po­ra­tions face a grim real­ity: Rev­enues have evap­o­rated, but their crush­ing debt isn’t go­ing any­where.

A year ago, Fed­eral Re­serve chair­man Jerome Pow­ell sounded an alarm, but he could barely be heard above the roar of the as­cen­dant stock mar­ket. “Not only is the vol­ume of debt high,” said Pow­ell last May, “but re­cent growth has also been con­cen­trated in the riskier forms of debt. . . . Among in­vest­ment-grade bonds, a near-record frac­tion is at the low­est rat­ing—a phe­nom­e­non known as the ‘triple-B cliff.’” Pow­ell was re­fer­ring to the fact that a large num­ber of com­pa­nies’ bonds were dan­ger­ously close to junk sta­tus. “In­vestors, fi­nan­cial in­sti­tu­tions and reg­u­la­tors need to fo­cus on this risk to­day, while times are good.”

Pow­ell has stopped preach­ing. Fac­ing the fright­en­ing prospect of wide­spread cor­po­rate in­sol­ven­cies, the Fed on March 23 an­nounced a credit fa­cil­ity de­signed to sup­port the cor­po­rate bond mar­ket. Two weeks later, the cen­tral bank stunned Wall Street by say­ing it would go into the open mar­ket to buy junk bonds as well as shares in high-yield bond ETFs.

All told, the Fed­eral Re­serve is now ear­mark­ing $750 bil­lion, sup­ported by $75 bil­lion from tax­pay­ers, to help large com­pa­nies sur­vive the pan­demic—all part of its $2.3 tril­lion res­cue pack­age.

“We have a buyer and lender of last re­sort, cush­ion­ing pain but tak­ing over the role of the free mar­ket,” groused Howard Marks, the bil­lion­aire co­founder of Oak­tree Cap­i­tal, in a memo April 14. “When peo­ple get the feel­ing that the govern­ment will pro­tect them from [the] un­pleas­ant fi­nan­cial con­se­quences of their ac­tions, it’s called ‘moral haz­ard.’ Peo­ple and in­sti­tu­tions are pro­tected from pain, but bad lessons are learned.”

The les­son to cor­po­rate-debt junkies is clear: Tax­pay­ers be damned, the fed­eral spigot is wide open. In the last two months alone, ac­cord­ing to Refini­tiv, no fewer than 392 com­pa­nies have is­sued $617 bil­lion in bonds and notes, in­clud­ing a record num­ber of triple-B is­sues, pil­ing on still more debt that they may not be able to pay back. As War­ren Buf­fett ob­served dur­ing Berk­shire’s an­nual share­holder meet­ing on May 2, “Ev­ery one of those peo­ple that is­sued bonds in late March and April ought to send a thank-you let­ter to the Fed.”

Since 2014, McDonald’s has been able to re­turn more than $50 bil­lion to its share­hold­ers. The special sauce in its suc­cess? Debt.

Amer­ica’s fore­most cor­po­rate ci­ti­zens—com­pa­nies found in nearly ev­ery re­tire­ment ac­count—did not be­come debt de­pen­dents all by them­selves. It took some prod­ding, mostly by Wall Street’s savvi­est par­tic­i­pants. Take the case of McDonald’s, known for restau­rants in nearly ev­ery town in the U.S., its iconic golden arches of­fer­ing fast, bud­get-friendly meals to bil­lions.

It all started be­fore the 2008 cri­sis, when bil­lion­aire in­vestor Bill Ack­man be­gan ag­i­tat­ing the Chicago-based burger be­he­moth, de­mand­ing that it di­vest most of its 9,000 com­pany-owned stores to in­de­pen­dent op­er­a­tors in or­der to buy back $12.6 bil­lion in stock. McDonald’s suc­cess­fully re­pelled the hedge fund ac­tivist, but dur­ing the re­cov­ery, its growth stalled.

Start­ing in 2014, McDonald’s chief ex­ec­u­tive, Don Thomp­son, be­gan pil­ing on lever­age to fund share re­pur­chases. A year later his suc­ces­sor, Steve Easter­brook, amped up Thomp­son’s strat­egy by sell­ing com­pany-op­er­ated restau­rants to fran­chisees, just as Ack­man had wanted. To­day, 93% of the 38,695 McDonald’s world­wide are op­er­ated by small en­trepreneur­s who cover main­te­nance costs and pay the par­ent com­pany rent and roy­al­ties for the priv­i­lege of op­er­at­ing in its build­ings, us­ing its equip­ment and sell­ing its food.

The new and im­proved “as­set light” McDonald’s no longer man­ages cum­ber­some as­sets; in­stead, it re­ceives those pay­ments and is sit­ting on tens of bil­lions in debt. From 2014 through the end of 2019, McDonald’s is­sued some $21 bil­lion in bonds and notes. It also re­pur­chased more than $35 bil­lion in stock and paid out $19 bil­lion in div­i­dends, re­turn­ing over $50 bil­lion to share­hold­ers, far in ex­cess of its profit ($31 bil­lion) over that pe­riod.

That was just fine by Wall Street. McDonald’s be­came a hedge fund dar­ling, its shares more than dou­bling dur­ing Easter­brook’s ten­ure, from 2015 to 2019. His re­ward was $78 mil­lion in gen

er­ous pay pack­ages over five years.

The risk added to McDonald’s bal­ance sheet has been dra­matic, how­ever. In 2010, the com­pany car­ried just 38 cents in net debt per dol­lar of an­nual sales, but by the time Easter­brook was fired in late 2019 amid news of a work­place af­fair, it had $1.58 in net debt per dol­lar of rev­enue.

To­day its net debt stands at $33 bil­lion, nearly five times greater than be­fore the fi­nan­cial cri­sis. Its bonds are rated triple-B, two notches above junk, down from their A rat­ing in 2015.

With most of its restau­rants nearly empty dur­ing the pan­demic, McDonald’s stock ini­tially fell by al­most 40%. Thanks to the Fed’s in­ter­ven­tion, though, McDonald’s debt, which at first slumped to 78 cents on the dol­lar, re­cov­ered along with the stock, as the com­pany quickly raised an ad­di­tional $3.5 bil­lion. McDonald’s in­sists that it en­tered the cri­sis with a strong bal­ance sheet and over­all fi­nan­cial health. It re­cently sus­pended its share re­pur­chases.

The star­tling truth, though, is that the burger gi­ant’s lever­age is ac­tu­ally mod­est com­pared to one of its fore­most com­peti­tors, Yum Brands, the $5.6 bil­lion (rev­enue) owner of Pizza Hut, Taco Bell and KFC. After Greg Creed took charge as CEO in 2015, ac­tivist hedge fund man­agers Keith Meis­ter, of Corvex Man­age­ment, and Daniel Loeb, of Third Point, took big po­si­tions. By Oc­to­ber of that year, Meis­ter was on Yum’s board of di­rec­tors; days after his ap­point­ment, the com­pany said it was “com­mit­ted to re­turn­ing sub­stan­tial cap­i­tal to share­hold­ers” and spin­ning off its Yum China di­vi­sion, which gen­er­ated 39% of its prof­its.

Over the next year, Creed bor­rowed $5.2 bil­lion to fund $7.2 bil­lion of stock buy­backs and div­i­dends. Yum re­tired some 31% of its com­mon shares, and as ex­pected, its stock price dou­bled to over $100 by the end of 2019. Share­hold­ers were thrilled, but Yum’s fi­nan­cial stay­ing power was se­verely com­pro­mised. In 2014, Yum had just $2.8 bil­lion of net debt, ac­count­ing for 42% of net rev­enue; by 2020, that fig­ure had swelled to $10 bil­lion, or 178% of net rev­enue. Head­ing into the coro­n­avirus econ­omy, Yum was a bas­ket case, but thanks to the Fed and a $600 mil­lion bond is­sue in April, it will live to see an­other day.

Yum man­age­ment scoffs at the idea that the Fed helped in any way. “We’re not aware of Fed­eral Re­serve in­ter­ven­tion in the high-yield mar­ket or in our abil­ity to is­sue $600 mil­lion of high­yield bonds,” the com­pany says.

Like McDonald’s, Yum sold many of its com­pany-owned out­lets to in­de­pen­dent fran­chisees. With­out ac­cess to cap­i­tal mar­kets and the Fed’s largesse, their fu­ture isn’t so cer­tain. Yum is giv­ing some of its fran­chise own­ers a 60-day grace pe­riod to make their roy­alty pay­ments. David Gibbs, who re­placed Creed as CEO in Jan­uary, spec­u­lated at the end of April that if need be it would take over the fran­chises and sell them off.

Of course, some ar­gue that the de facto lever­aged buy­outs of pub­licly traded com­pa­nies like McDonald’s and Yum were ac­tu­ally pru­dent given the Fed­eral Re­serve’s decade-long easy-money ap­proach to mon­e­tary pol­icy. “As a cor­po­rate fi­nance mat­ter, it was al­most ir­re­spon­si­ble to over­fi­nance with eq­uity given that [debt] was un­be­liev­ably cheap,” says Arena In­vestors’ Dan Zwirn.

Ac­cord­ing to the St. Louis Fed­eral Re­serve, as of the end of 2019, non-fi­nan­cial busi­ness debt to­taled $10 tril­lion, climb­ing 64% from the be­gin­ning of the decade. “Ev­ery penny of the quan­ti­ta­tive eas­ing by the Fed trans­lated into an equal match of cor­po­rate debt that went into share buy­backs, which ul­ti­mately drove the share count of the S&P 500 to the low­est level in two decades,” says econ­o­mist David Rosenberg. “This was a debt bub­ble of his­toric pro­por­tions . . . . Then again, no­body seemed to mind as long as the gravy train was still op­er­at­ing.”

If there were an award given for cor­po­rate reck­less­ness, how­ever, few would chal­lenge mighty Boe­ing, the world’s largest aero­space and de­fense man­u­fac­turer and the na­tion’s sin­gle big­gest ex­porter. Once the pride of in­dus­trial in­ge­nu­ity in Amer­ica, Boe­ing has been hyp­no­tized by the lure of fi­nan­cial en­gi­neer­ing.

Start­ing in 2013, the Chicago-based com­pany de­cided it would make sense to com­mit nearly ev­ery penny of profit, and then some, to its share­hold­ers. It sent $64 bil­lion out the door—$43 bil­lion worth of buy­backs and $21 bil­lion in div­i­dends—sav­ing lit­tle un­der CEO Den­nis Muilen

Even War­ren Buf­fett’s Berk­shire Hath­away got caught up in the great debt binge. His in­vest­ment in debt-laden Kraft Heinz has been a big loser.

berg to cush­ion against the in­dus­try’s ex­pected haz­ards, such as man­u­fac­tur­ing dif­fi­cul­ties, la­bor dis­putes and re­ces­sions.

After two of its 737 MAX planes crashed within five months and the FAA grounded the air­craft in 2019, Boe­ing’s ag­gres­sive fi­nan­cial poli­cies were ex­posed, and it was forced to turn to debt mar­kets for emer­gency cash. The com­pany, which had es­sen­tially no debt in 2016, ended 2019 with $17 bil­lion in net debt. This March, Boe­ing drew fully on a $13.8 bil­lion credit line to con­tend with the ground­ing of air travel, and Stan­dard & Poor’s down­graded its credit rat­ing to the low­est rung of in­vest­ment-grade.

Boe­ing flirted with a bailout, ini­tially ask­ing the govern­ment for $60 bil­lion for the aero­space in­dus­try. But in late April, chief fi­nan­cial of­fi­cer Greg Smith told in­vestors the De­fense Depart­ment was tak­ing steps to bol­ster its liq­uid­ity, and that the Coro­n­avirus Aid, Re­lief and Eco­nomic Se­cu­rity (CARES) Act had helped it de­fer some tax pay­ments. Boe­ing also be­gan weigh­ing fund­ing op­tions from pro­grams run by the Trea­sury and Fed. “We be­lieve that govern­ment sup­port will be crit­i­cal to en­sur­ing our in­dus­try’s ac­cess to liq­uid­ity,” said Boe­ing’s new CEO, David Cal­houn, on April 29. The next day, Boe­ing launched a $25 bil­lion bond of­fer­ing, elim­i­nat­ing the need for a di­rect bailout. The is­suance, which in­cludes bonds that aren’t re­deemable un­til 2060, was over­sub­scribed, as in­sti­tu­tional in­vestors no doubt as­sumed that Boe­ing’s re­cov­ery was a mat­ter of na­tional im­por­tance to the govern­ment.

While de­liv­er­ing cash back to share­hold­ers was an ob­ses­sion of Boe­ing’s CEO, be­com­ing a gi­ant in en­ter­tain­ment via ac­qui­si­tions has been the hall­mark of Ran­dall Stephen­son’s 13-year ten­ure as CEO of AT&T. Since his start atop the 143-year-old com­pany once revered as Ma Bell, Stephen­son has spent more than $200 bil­lion— mostly on ac­qui­si­tions of DirecTV and Time Warner, among oth­ers, but also on stock buy­backs and the tele­com’s $2 an­nual div­i­dend. All told, Stephen­son piled on al­most $100 bil­lion in new net debt. “AT&T is the most in­debted non­fi­nan­cial com­pany the world has ever seen,” says tele­com an­a­lyst Craig Mof­fett.

Hedge fund share­holder El­liott Man­age­ment minces few words when it comes to Stephen­son’s an­tics: “It has be­come clear that AT&T ac­quired DirecTV at the ab­so­lute peak of the lin­ear TV mar­ket,” El­liott said of the $67 bil­lion pur­chase in a Septem­ber 2019 let­ter to the board. As for the $109 bil­lion Stephen­son spent on Time Warner, “AT&T has yet to ar­tic­u­late a clear strate­gic ra­tio­nale for why AT&T needs to own Time Warner.”

El­liott, long known for rat­tling cor­po­rate cages, con­tends that Stephen­son’s worst deal was his $39 bil­lion run at T-Mo­bile in 2011. “Pos­si­bly the most dam­ag­ing deal was the one not done,” El­liott said in the same let­ter, re­fer­ring to the year-long waste of cor­po­rate re­sources capped by AT&T’s ul­ti­mate with­drawal from the deal, which forced it to pay T-Mo­bile a record $6 bil­lion breakup fee. “[AT&T] cap­i­tal­ized a vi­able com­peti­tor for years to come,” El­liott’s let­ter said.

El­liott and other in­vestors were no doubt feel­ing ripped off by AT&T. Un­like Boe­ing, whose debt gorg­ing and buy­backs caused its stock to soar, AT&T’s shares have gone nowhere for a decade. What the debt-de­pen­dent duo do have in com­mon is that fi­nan­cially, at least, they bear lit­tle re­sem­blance to their for­mer blue-chip selves.

Shock­ing as the pan­demic of 2020 has been to the global econ­omy, the fall­out from a decade of debt binges by cor­po­rate giants might be only be­gin­ning. The land­scape is lit­tered with com­pa­nies suf­fer­ing from self-in­flicted wounds. A pro­longed re­ces­sion could push some over­lever­aged firms to­ward in­sol­vency, es­pe­cially if in­ter­est rates rise and the Trea­sury’s mul­ti­tril­lion-dol­lar “save the econ­omy at any price” plan makes in­fla­tion do the same.

Al­tria, the seller of Marl­boro cig­a­rettes, in­creased its net debt from $10 bil­lion to $26 bil­lion over the past decade, spend­ing most of its op­er­at­ing cash flow on div­i­dends and share re­pur­chases and wast­ing $15 bil­lion on stakes in Juul Labs and cannabis com­pany Cronos Group with lit­tle pay­off. The cig­a­rette mer­chant now holds $1.31 of net debt per dol­lar of an­nual rev­enue, up from 58 cents in 2010.

For most of its 118-year his­tory, Minnesota’s

Given its woes, much of Al­tria’s $12.8 bil­lion in­vest­ment in e-cig­a­rette maker Juul may va­por­ize—but the avalanche of debt it has is­sued isn’t go­ing away.

CEO Vicki Hol­lub has boosted Oc­ci­den­tal Petroleum’s net debt nearly five­fold since 2016. Covid-19 and oil’s col­lapse have put Oxy on bankruptcy watch.

3M, the maker of N95 masks, Post-It notes and Scotch tape, car­ried al­most no lever­age. From 2010 to to­day, how­ever, its net debt has swollen 17-fold to nearly $18 bil­lion, or 55% of rev­enue. Stan­dard & Poor’s down­graded 3M’s bonds in Fe­bru­ary, and it was among the first is­suers to tap un­frozen bond mar­kets in late March.

O’Reilly Au­to­mo­tive, the $10 bil­lion (rev­enue) Mis­souri-based auto-parts re­tailer, has been one of the decade’s stock mar­ket dar­lings. The fam­i­lyrun busi­ness dis­cov­ered cheap debt in the 2010s, us­ing it to buy back $12 bil­lion in stock and re­tire nearly half its out­stand­ing shares. Over the decade, its net debt bal­looned al­most 12-fold to $4 bil­lion. O’Reilly took on an­other $500 mil­lion, just in case, on March 25.

Gen­eral Dy­nam­ics, known for its Navy ships, Gulf­stream jets and govern­ment con­tracts, had lit­tle debt in 2010, but since CEO Phebe No­vakovic took over in 2013, it has bought back about $13 bil­lion in stock and paid out $6 bil­lion in div­i­dends, fin­ish­ing last year with $11 bil­lion of net debt.

IBM has been a buy­back cham­pion for years, pay­ing 90% of its free cash flow to share­hold­ers to re­turn $125 bil­lion to them from 2010 to 2019. Big Blue’s debt, in­clud­ing cus­tomer fi­nanc­ing, has grown from 17% of net rev­enue to 70%, with $52 bil­lion in net debt cur­rently out­stand­ing.

Even Berk­shire Hath­away got caught up in the great debt binge. In 2013, Buf­fett teamed up with Brazil­ian pri­vate eq­uity firm 3G Cap­i­tal, co­founded by bil­lion­aire Jorge Paulo Le­mann, to buy H.J. Heinz for $28 bil­lion and, two years later, Kraft Foods for $47 bil­lion. The re­sult­ing com­pany was stocked with brands of yore such as Jell-O, Velveeta and Os­car Mayer—as well as $30 bil­lion of debt. After float­ing a $143 bil­lion takeover of Unilever that would have re­port­edly re­quired $90 bil­lion of ad­di­tional debt, busi­ness at the mas­sive food con­glom­er­ate be­gan to spoil.

Kraft’s mar­ket cap­i­tal­iza­tion has plunged from $118 bil­lion at its peak in Fe­bru­ary 2017 to $38 bil­lion, and Berk­shire Hath­away’s shares, which are car­ried on its books at $13.8 bil­lion, now trade for just $10 bil­lion. In Fe­bru­ary, both S&P and Fitch cut Kraft’s bonds to junk. Kraft Heinz main­tains that its bal­ance sheet, and the de­mand for its brands, are strong.

In the oil patch, mean­while, many are too sick even to take ad­van­tage of the Fed’s gen­eros­ity. Vicki Hol­lub, the CEO of Oc­ci­den­tal Petroleum, has in­creased its net debt nearly five­fold since she took over in 2016, to $36 bil­lion, not count­ing the $10 bil­lion in pre­ferred fi­nanc­ing Hol­lub took from Buf­fett. Her $55 bil­lion takeover of Anadarko Petroleum closed last Au­gust—just in ad­vance of the worst oil­price plunge since the 1980s as Rus­sia and Saudi Ara­bia flooded mar­kets with sup­ply early this year. With West Texas In­ter­me­di­ate crude hov­er­ing near $30 a bar­rel as of press time, Oc­ci­den­tal looks to be head­ing for re­struc­tur­ing or even bankruptcy.

If Oxy is al­lowed to go bust, though, it will prob­a­bly be the ex­cep­tion. The U.S. govern­ment can’t af­ford to let mar­ket forces alone dic­tate the fu­ture of too many com­pa­nies. Al­ready, re­tail­ers Neiman Mar­cus, J.Crew and JCPen­ney have filed for bankruptcy. The Fed­eral Re­serve has made it clear that to try to avoid global eco­nomic dev­as­ta­tion worse than that seen dur­ing the Great De­pres­sion, it re­gards the na­tion’s largest pub­licly traded com­pa­nies as, ba­si­cally, too big to fail. “The Fed and Trea­sury have es­sen­tially cre­ated a new moral haz­ard by so­cial­iz­ing credit risk,” wrote Scott Min­erd, CIO of Guggen­heim Part­ners.

Black­Rock is pre­dict­ing an ex­pan­sion of the Fed­eral Re­serve’s bal­ance sheet by a “stag­ger­ing” $7 tril­lion by the end of the year.

In some ways, it seems, the Fed’s ac­tions are tan­ta­mount to try­ing to cure ad­dic­tion by in­creas­ing the dosage of the very sub­stance the ad­dict is abus­ing.

It’s Rain­ing Debt, Hal­lelu­jah! For a decade, chief ex­ec­u­tives of the world’s largest com­pa­nies wel­comed Fed-sanc­tioned debt on their bal­ance sheets and made them­selves and their share­hold­ers rich. Covid-19 has turned the strat­egy into an ad­dic­tion.

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