Billionaires and hedge funds don’t deserve a bailout. They should get wiped out and file bankruptcy, said former Facebook executive Chamath Palihapitiya, CEO of venture-capital firm Social Capital.
The venture capitalist’s comments went viral after he spoke to Scott Wapner on CNBC’s “Fast Money Halftime Report”.
Boards and CEOs of poorly performing companies have been disproportionately represented in the Fed’s massive coronavirus bailout, Palihapitiya said during the interview. It’s the shops and retailers on Main Steet and the employees, not the rich CEOs, who are getting wiped out.
Based in Silicon Valley, Social Capital has about $1.2 billion in total assets. It specializes in investing in startups that serve the greater good including health care, education and financial services.
Palihapitiya argued that the Fed’s massive coronavirus bailout is helping the ultra-rich at the expense of ordinary U.S. workers, MarketWatch reported.
“We’re talking about a hedge fund that serves a bunch of billionaire family offices. Who cares? They don’t get the summer in the Hamptons?” Palihapitiya said. “Who cares? Let them get wiped out.”
Palihapitiya joined Facebook in 2007 and became its vice president for user growth. After he left, he said he felt “tremendous guilt” about the company he helped make.
“I think we have created tools that are ripping apart the social fabric of how society works,” he told an audience at Stanford Graduate School of Business, before recommending people take a “hard break” from social media.
Palihapitiya “unapologetically brushed off concerns for Wall Street’s financial giants, comparing their relative discomfort to the real economic pain being suffered by unemployed workers,” Reed Richardson wrote for Mediaite.
When businesses fails, Palihapitiya said they typically do not fire their employees. Instead, they go through bankruptcy in a process that often preserves pensions. Employees end up owning more of the company in the end.
“The people that purport to be the most sophisticated investors in the world — they deserve to get wiped out,” Palihapitiya said. “But the employees don’t get wiped out. The pensions typically don’t get wiped out.”
Economists say the unemployment rate is probably more than 10 percent and will go higher. Jobless claims approached 17 million on Thursday, and they’re also expected to go higher as businesses around the U.S stay closed to slow the spread of COVID-19.
“On Main Street today, people are getting wiped out. And right now, rich CEOs are not,” Palihapitiya said. “Boards that had horrible governance are not. People are. Six million people saying, ‘I don’t know how I’m going to make my own expenses for the next few week, days, months.’ It’s happening today to individual Americans. What we have done is disproportionately protect poor-performing CEO companies and boards. You have to wash these people out.”
The Fed’s new $2.3 trillion coronavirus bailout package is helping to keep small and mid-sized businesses afloat.
Instead of giving workers $1,200 checks, the U.S. would be better off giving everyone larger payments directly and skip businesses entirely, Palihapitiya said.
“It would be better for the Fed to have given half a million to every man, woman and child in the United States,” he said.”
A clip from the Palihapitiya’s CNBC interview has been seen 5 million times. “You keep saying ‘propping up zombie companies,'” the CNBC host asked. “Are you arguing to let airlines, for example, fail?”
“Yes,” Palihapitiya replied, apparently shocking the host.
Listen to GHOGH with Jamarlin Martin | Episode 70: Jamarlin Martin Jamarlin goes solo to discuss the COVID-19 crisis. He talks about the failed leadership of Trump, Andrew Cuomo, CDC Director Robert Redfield, Surgeon General Jerome Adams, and New York Mayor de Blasio.
On social media, people commented on the hypocrisy that Palihapitiya helped underscore. “America has always practiced socialism for the rich and capitalism for the working class,” tweeted Garikai Chengu, an author, speaker and Harvard grad student. “The fact that it is standard practice to bail out the rich and not the poor shows how corrupt and undemocratic the system is.”
Another person tweeted, “This is spot on. You want to play at capitalism? Play all the way. If you’re an airline that wasn’t prepared to weather this storm, that’s not the problem of the rest of us. Go bankrupt, let the next guy pick up the pieces and build a better company. Too big to fail is a lie.”
Palihapitiya was not without his critics, BuzzFeed reported. MSNBC host Chris Hayes was skeptical of Palihapitiya’s argument that bankruptcy and reorganization of a company can benefit its shareholding workers. Hayes tweeted, “I’m not sure that bankruptcy is quite as low impact for workers as he says here, but still bracing.”