fortune--2020-07-24--What the hell just happened to Intel?

What the hell just happened to Intel?

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It was, as Yogi Berra used to say, deja vu all over again when Intel released its earnings last night. And not in a good way.
At first glance, the news looked good, even very good. Despite the coronavirus pandemic and low expectations from Wall Street, second quarter revenue jumped 20% to almost $20 billion and profits did even better, rising 22% to over $5 billion.
But hiding in plain sight at the top of the release, at the end of the fourth bullet point, was quite the line: “7nm product transition delayed versus prior expectations.”
That short sentence sent fund managers leaping to sell their shares, analysts pulling the rip cord on their ratings, execs at PC makers grabbing for their Tums and Rolaids, and likely more than a few folks at Advanced Micro Devices popping champagne corks. (This morning, Intel’s stock is down 14% in premarket trading and AMD’s is up 8%.)
Why such a reaction? Because it immediately brought back memories of another July earnings release. Back in July 2015, then-CEO Brian Krzanich announced that Intel’s move to 10 nanometers was running behind schedule and new products slated for 2016 would arrive in 2017, a slight delay of only six to nine months, he said. Flash forward to 2020 and we’re still awaiting some of those products and Krzanich is long gone, replaced by his former CFO, Bob Swan.
Swan promised such a short product delay on Thursday night. But as he was named CEO in part to clean up the mess of Krzanich’s delayed 10-nanometer, the news of today’s delay did not inspire confidence. And Swan upended 50 years of Intel strategy when he revealed that the company’s contingency plan, in case the delays worsened, was to outsource chip manufacturing to rivals, an unprecedented move with unknown impact on Intel’s finances.
The announcement also sheds light on other recent events, like Apple’s decision to dump Intel chips from its Mac computers and, possibly, the departure of star chip designer Jim Keller, who lasted just two years.
The success of the entire tech industry has relied on chipmakers’ ability to cram more and more transistors on a silicon wafer. First highlighted by Intel co-founder Gordon Moore in 1965, Moore’s Law says the industry should be able to fit twice as many transistors on the same size chip every two years or so. It’s what has enabled computers to go from the size of a house to tinier than a smartwatch and what has unleashed a thousand new industries.
But Moore’s Law has been slowing down for a while as companies like Intel, Samsung, and Taiwan Semiconductor have pushed the transistors to smaller and smaller scales. The 7-nanometer scale Intel was aiming for is about 1/10,000th the width of a human hair. Apple’s A13 Bionic processor in the iPhone 11, made at 7-nanometer scale by Taiwan Semiconductor, fits 8.5 billion transistors on a chip smaller than a dime.
Even if Intel can’t be the best chip manufacturer, it could still be the best chip designer. That outsourcing strategy, and some big decisions Keller pushed to compartmentalize chip design, may ultimately save Intel’s market share. Keller likes to quote Steve Jobs, whom he worked for a few years at Apple, and one quip he has repeated to me is this: “Why screw up two things when you can only get one thing right?”
Intel, its investors, and the rest of the industry are probably wondering the same thing right about now.
Aaron Pressman
@ampressman
aaron.pressman@fortune.com
NEWSWORTHY
I've only sad stories to tell this town. Put your popcorn popper back on the shelf, people. Monday's blockbuster tech hearing in Congress has been postponed due to memorial services for the late Rep. John Lewis. Instead, the CEOs of Apple, Amazon, Facebook, and Google will appear before the House Judiciary Committee's antitrust subcommittee likely in another week or two. But will anyone ask to add Microsoft CEO Satya Nadella? The software giant has been skating past all of the recent scrutiny of tech giants, but scrappy messaging app maker Slack called out Microsoft for unfair competition this week.
An expensive look. Illinois's law regulating facial recognition apps is hitting Facebook in the wallet. The company agreed to pay Illinois residents $200 to $400 each if their picture appeared on Facebook after 2011, as Facebook failed to ask for permission to scan their faces. Speaking of not asking permission, a long investigative piece by the Wall Street Journal claims Amazon meets with cloud and A.I. startups and then copies their products. Amazon denied using confidential information improperly. And in fresh lawsuit news, Apple co-founder Steve Wozniak and others are suing YouTube claiming the site is permitting bitcoin scammers to use their images in videos that should be banned.
L’appel du vide. In the scooter wars, Lime beat out Bird in Paris. Lime and two much smaller rivals, Tier and Dott, got permission to each put up to 5,000 rental electric scooters in La Ville Lumière for the next two years. Bird got le rien. (Full disclosure: I do not speak a lick of French. All hail Google Translate.)
That's a very respectable neighborhood. Under fire from U.S. authorities, TikTok is pulling out all the stops to make itself indispensable to U.S. users. Earlier this week it pledged to hire 10,000 more U.S. workers and Thursday the service unveiled the $200 million "TikTok Creator Fund" designed to "encourage those who dream of using their voices and creativity to spark inspirational careers." Need a quick primer on what sells on TikTok? YouTube has you covered.
The tracks of my tears. I am sad there were no good Quibi stories this week—fare thee well, Kberg and the Whit—and I hope I have not failed you loyal Data Sheet readers. But Elon Musk has been doing his best to stay in the news, what with announcing he'd build a new Tesla factory in Austin and dissing California, while again promising fully self-driving cars are just months away. On Thursday came news that Musk's SpaceX is seeking to raise another $1 billion of private backing in a deal valuing the startup at $44 billion, 25% more than its last round raised in March.
FOOD FOR THOUGHT
As everyone knows, the Internet arose out of a Defense Department project to create a robust communications network. Now the Energy Department has a new project that could lead to a similar breakthrough. Washington Post reporter Jeanne Whalen has the story of the government's new "quantum Internet." What is that?
Quantum technology seeks to harness the distinct properties of atoms, photons and electrons to build more powerful computers and other tools for processing information. A quantum Internet relies on photons exhibiting a quantum state known as entanglement, which allows them to share information over long distances without having a physical connection.
David Awschalom, a professor at the University of Chicago’s Pritzker School of Molecular Engineering and senior scientist at Argonne National Laboratory, called the Internet project a pillar of the nation’s quantum-research program. “It’s the birth of a new technology. It’s becoming a global competition. Every major country on earth has launched a quantum program … because it is becoming clearer and clearer there will be big impacts,” he said in an interview.
FOR YOUR WEEKEND READING PLEASURE
A few long reads I came across this week:
Airbnb Was Like a Family, Until the Layoffs Started (New York Times)
What happens when a kumbaya office culture meets the business realities of a pandemic?
How Harvard’s Star Computer-Science Professor Built a Distance-Learning Empire (The New Yorker)
CS50 is one of Harvard College’s most popular courses; it’s also the only one that students can watch live, in high definition, from their dorms.
Special Report: Drug cartel ‘narco-antennas’ make life dangerous for Mexico’s cell tower repairmen (Reuters)
“I was so nervous...Seeing them armed in front of you, you don’t know how to react,” the worker told Reuters, recalling the 2018 encounter. “Little by little, you learn how to coexist with them, how to address them, how to make them see that you don’t represent a threat.”
The Parrot King (Audubon)
Over the past 14 years, Martin Guth has built a monopoly on some of the world’s rarest birds. Will his secretive organization ultimately help put more parrots in the wild, as he says—or push them closer to extinction?
IN CASE YOU MISSED IT
These big companies have cut the most daily ad dollars during the Facebook boycott By Danielle Abril
Who will Bill Ackman’s blank check company buy? By Lucinda Shen
AT&T’s 5G prices come down as carriers get more competitive By Aaron Pressman
5 hotly anticipated games Microsoft detailed during its Xbox Series X event By Jonathan Vanian
A breathalyzer for the coronavirus gives instant results, but don’t expect a widespread rollout By David Meyer
As plastic waste in world’s oceans continues to soar, efforts to stem the pollution are falling short By Katherine Dunn
(Some of these stories require a subscription to access. Thank you for supporting our journalism.)
BEFORE YOU GO
Taylor Swift got a brief mention in yesterday's newsletter, but maybe you missed it. Her new album, Folklore, is getting a lot of play in the Pressman household from listeners of various ages. It's more low key than some of her more pop anthem-filled releases, but still a good play in these socially distant, shut-down times. As Variety notes: "She’s celebrating the masked era by taking hers off again." Have a good weekend.


fortune--2020-07-24--Will Alexandria Ocasio-Cortez’s speech end the ‘daughter excuse’ for good?

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Good morning, Broadsheet readers! Susan Pompeo is a powerful force at the State Department, Taylor Swift drops a surprise quarantine album, and AOC delivers a speech for the ages. Have a wonderful weekend.
– 🔥🔥. Something tells me you have already seen the video of the speech Rep. Alexandria Ocasio-Cortez gave on the House floor yesterday. But, please—do not let that stop you from watching it again!
To recap: After reportedly calling AOC a “f***ing bitch” on the steps of the Capitol, Rep. Ted Yoho offered a non-apology apology, saying he was sorry for the “abrupt manner” of their exchange, but insisting that he never engaged in “offensive name-calling” and that as a man with a wife and daughters he was “very cognizant of my language.”
In response, Rep. Ocasio-Cortez set the House on fire—well, rhetorically, anyway! In that moment on the steps with Rep. Yoho, she says, she represented every congresswoman, and in fact every woman, “because all of us have had to deal with this in some form, some way, some shape, at some point in our lives.”
AOC was clear that she’s no delicate flower, unable to handle the abuse. “But what I do have issue with is using women, our wives and daughters, as shields and excuses for poor behavior,” she said. “I am someone’s daughter too. My father thankfully is not alive to see how Mr. Yoho treated his daughter. My mother got to see Mr. Yoho’s disrespect on the floor of this House towards me on television. I am here because I have to show my parents that I am their daughter and they did not raise me to accept abuse from men….What I believe is that having a daughter does not make a man decent. Having a wife does not make a decent man. Treating people with dignity and respect makes a decent man.”
I’m not quite sure when or how it became a thing that having a mother, sister, wife, or daughter proved that a man could not possibly be a misogynist, sexist, sexual harasser or whatever else he might have been accused of—but I’m sure ready for it to come to an end. It’s wonderful to hear that these men have loving relationships with some women—but that fact in no way reflects on their relationships with the other 50% of the world’s population. And indeed, I have to believe that someone who would use this kind of language toward his own colleague must, at heart, believe there’s some fundamental difference between the humanity of the women he’s invoking as a defense, and the ones he deems worthy of attack.
Whether you agree with her politics or not, there’s a lot to love about AOC’s barnburner of a speech. Let’s hope her message resonates far beyond Congress and is heard by any man who tries to hide behind his female family members as a call to come out and do what Rep. Yoho has refused to do: take responsibility.
Kristen Bellstrom
kristen.bellstrom@fortune.com
@kayelbee
Today’s Broadsheet was curated by Emma Hinchliffe.
ALSO IN THE HEADLINES
- Power couple? Susan Pompeo, wife of Secretary of State Mike Pompeo, has played a crucial role in his political rise. Known to intervene in matters as small as a misplaced comma on a candidate's job application, her level of involvement now that the couple is at the State Department has no precedent, Politico reports. Politico
- TS8. Surprise! Quarantine brought us a new produced-in-isolation Taylor Swift album, Folklore. The pop star is selling merch, including cardigans, in honor of the first single "Cardigan." Fortune
- Class action. Four former Google employees suing for gender pay discrimination are trying to secure class-action status representing 10,000 workers—or all women who worked for Google in California after September 2013. Google says the company "analyzes pay every year to make sure salaries, bonuses and equity awards are fair." Bloomberg
MOVERS AND SHAKERS: The Bank of England named Laura Wallis private secretary, making her the first woman to hold the influential role. Crown Media Family Networks, home of the Hallmark Channel, hired former TV One CEO Wonya Lucas as its new chief executive. Oakland Park, Florida Vice Mayor Jane Bolin was named chair of the global governance committee for the Entrepreneurs' Organization. Gathered Foods named Christine Mei CEO. FaceBank Group, home of fuboTV, hired Gina DiGioia as general counsel and corporate secretary. Twilio hired SAP Concur's Michelle Grover as chief information officer.
IN CASE YOU MISSED IT
- A bad deal. We've heard a lot about how technology can be weaponized by domestic abusers, but there's another piece of modern life that can make escaping abuse even more difficult: the family phone plan. Canceling family plans can be expensive and logistically challenging, creating further hurdles for victims of abuse. Wired
- Co-pay problems. A new rule from the Department of Health and Human Services curtails co-pay assistance, or co-pay coupon cards from drug manufacturers that provide financial help to patients. That will mean huge increases in drug costs to individuals, warns Stacey Worthy, counsel to Aimed Alliance and a partner at DCBA Law & Policy, in a Fortune op-ed. Fortune
- Housing bubble. With the future of federal unemployment benefits unclear, advocates are worried about an "eviction apocalypse" in the fall. The burden of those evictions is likely to fall disproportionately on Black women. The Lily
ON MY RADAR
Is it safe to return to day care? 7 experts weigh in Fortune
New York Times to buy production company behind Serial podcast New York Times
Actually care about RBG? Quit it with the memes The Lily
PARTING WORDS
"We saw this problem coming."
-Rep. Lauren Underwood on the women elected to Congress in 2018, and their efforts on paid family leave, health care, and other issues that have come to the fore during the pandemic


fortune--2020-07-24--Goldman Sachs reaches $3.9 billion settlement with Malaysia over role in 1MDB scandal

Goldman Sachs Group Inc. has reached a deal that would see Malaysia drop all criminal and regulatory proceedings against the bank in exchange for $3.9 billion of reparations for its role in raising money for the troubled sovereign wealth fund 1MDB.
The settlement includes a payment of $2.5 billion to Malaysia, the ministry of finance said on Friday. It also guarantees that at least another $1.4 billion will come from 1MDB assets seized by authorities around the world, according to a Goldman Sachs statement.
The lender expects to “materially increase” provisions for litigation and regulatory proceedings for the second quarter of 2020 due to the settlement, which does not resolve other pending governmental and regulatory probes related to 1MDB, it said.
The resolution with Malaysia moves Goldman closer to ending its biggest legal threat since the darkest days of the 2008 financial crisis. Goldman helped the Malaysian government raise $6.5 billion for the 1MDB fund, collecting some $600 million in fees from bond sales in 2012 and 2013, according to court filings. Prosecutors allege that part of that money was diverted to 1MDB officials and their associates.
The lender and the Department of Justice are close to an agreement in the U.S. after tussling over a potential guilty plea, Bloomberg News reported earlier this month.
For Malaysia, the agreed sum along with money it has received from the Justice Department would amount to more than $4.5 billion, the finance ministry said.
Malaysian prosecutors brought charges against three units of the bank in 2018, then followed with additional accusations against Goldman’s 17 current and former executives last year. The bank has consistently denied wrongdoing, saying that former Malaysian officials lied about how proceeds from the bond sales would be used.
The settlement covers pending criminal proceedings against Goldman Sachs subsidiaries and certain current and former directors, the bank said in its statement. The deal won’t affect charges against fugitive financier Low Taek Jho or other parties, according to Malaysia’s finance ministry, which didn’t specify who that includes.
“This settlement represents Goldman’s acknowledgment of the misconduct of two of its former employees in the broader 1MDB fraudulent and corruption scheme,” Malaysia’s finance ministry said.
Goldman’s former Southeast Asia Chairman Tim Leissner has pleaded guilty to U.S. charges including conspiracy to launder money and has admitted to bribing officials in Malaysia and the United Arab Emirates to get bond deals for the bank. Former Goldman banker Roger Ng has been extradited from Malaysia to the U.S. to face similar charges.
The settlement is a major milestone for Prime Minister Muhyiddin Yassin, a step toward ending Malaysia’s years-long effort to recover billions of dollars lost through the scandal. In 2018, the affair led to the country’s first change of government since its independence, when Mahathir Mohamad took over as prime minister from Najib Razak, who now faces multiple charges related to 1MDB. The Mahathir government demanded as much as $7.5 billion from Goldman Sachs, while its negotiators had touted figures of around $2 billion to $3 billion in private discussions.
The state fund remains a sore political point even after another power shift this February, as Malaysia’s current government under Muhyiddin counts on the backing of United Malays National Organisation, the former ruling party once led by Najib.(Updates with additional details from Goldman Sachs statement)
–With assistance from Cathy Chan.


fortune--2020-07-24--A deep dive into Bank of America’s financials yields evidence of the economy’s big disconnect

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Bank of America at this juncture epitomizes a never-before-seen disparity between an economy that just underwent the fastest, deepest dive ever, and consumers who keep paying their bills as if the good times never stopped rolling. Like all of the nation’s lenders, BofA is tasked with forecasting the trend, that more than any other, will determine the course for the recovery: how high the coming wave of losses on credit cards, car loans, mortgages, and the like will rise once the government’s unprecedented support in the form of cash payments, extra jobless benefits, and big subsidies to small business run out.
BofA’s second-quarter report, released last week, indeed forecasts a big wave of defaults to come. In the first half of 2020, America’s second largest bank by assets to JPMorgan Chase took by far the largest loan loss provisions for any six-month period since the first two quarters of 2011, when the aftermath of the financial crisis was still pummeling its credit and capital. Those additions to its reserves hammered what had been a run of stellar earnings through 2019.
But BofA’s projections are more a shot in the dark than at the onset of any other steep recession. The reason is twofold. First, the origins of this downturn are so unusual that its length and depth are far harder to forecast than for previous recessions. Second, BofA is trying to project a deterioration in credit that, five months into the crisis, hasn’t started yet––in part thanks to the never-before-seen level of government support to families and businesses, as well as forbearance on payments from the banks. So far, the consumer is defying 11.5% unemployment and the quickest, sharpest drop in GDP since the Great Depression, to keep making payments on loans just as regularly as before the crisis erupted. If you’d gone to sleep on Valentine’s Day, and just awoke to see BofA’s still terrific second-quarter numbers for bad loans, you’d never know that the economy was in free fall.
That disconnect is flummoxing CEO Brian Moynihan, who stated on the conference call, “We are seeing nothing that is consistent with an 11% unemployment rate in actual consumer payment behavior. And that has to do with the stimulus…That’s helping substantially.” Moynihan also notes that BofA is navigating “the most tumultuous period since the Great Depression,” and that the dizzying crosscurrents pose huge challenges in forecasting consumer credit.
Although it’s never been more difficult to foresee where the consumer is headed, BofA provides one of the best guides in its second-quarter report. Its view is also a reasonable road map for the overall economy, since its course depends, more than anything else, on the credit performance of America’s families, and companies in airlines, hospitality, and other industries that rely on their spending.
BofA is reckoning that the wage and salary earners will endure a long voyage on rough seas. It’s taking big provisions based on that conservative outlook. A sweeping new accounting rule should make the estimates for loan losses that BofA and other big banks are making right now the most comprehensive forecasts ever on consumer and corporate credit. The regime requires that the banks predict losses much farther into the future than under the previous rules, and take the entire hit upfront instead of spreading out the pain quarter after quarter.
So let’s examine where BofA is building reserves, and by how much, and what that tells us about how it’s handicapping the fate of the consumer.
Big provisions for losses, decent profits
Until March of this year, the banks were experiencing a golden period of profitability––chiefly because consumers were making their credit card, mortgage, and other payments more reliably than ever before, and corporate borrowers were just as steady. Then, the COVID-19 outbreak in March transformed the credit outlook overnight from sunny to dark, hammering their earnings. BofA’s profits dropped 45% in the first quarter versus the first quarter of last year, from $7.3 billion to $4 billion. In the second quarter, it suffered a steeper, year-over-year slide of 52% to $3.5 billion, slashing total earnings in half so far this year. The biggest driver by far was an explosion in provisions for bad loans. That burden rose from minuscule $1.9 billion in the first two quarters of last year to $9.9 billion.
Still, BofA managed to book $7.5 billion in profits through the June quarter, or $15 billion on an annualized basis. The Fed’s emergency rate reductions curbed its interest income to $11 billion, an 11% drop from the second quarter of 2019. But its deposits soared as customers poured cash into their checking balances in a flight to safety, and its Global Markets franchise boosted profits by 96% to $2.18 billion as traders profited from a surge in investors’ growing hunger for the relative security of bonds. In recent years, BofA’s tight expense management has helped surmount super-low rates to keep profits growing. That discipline delivered again in the second quarter, as costs barely budged from the same period a year ago.
The metric Moynihan most stresses is pretax, pre-provision income, since it measures the bank’s long-term earning power across good and bad periods for credit. Those are also the profits available for bolstering reserves in tough times like today. The bigger the pretax, pre-provision earnings, the greater the strength for weathering the COVID-19 hurricane. For the first half, BofA booked $18.2 billion in that category, only 7% below the $19.6 billion recorded in the same period last year. In other words, excluding the big new provisions, BofA’s underlying profits remained almost as strong in the pandemic as in the flush times that extended through early spring.
A new rule makes BofA front-load the hit from future defaults
Those new provisions are the result of a rule change the Financial Accounting Standards Board quietly implemented on Jan. 1, 2020. Previously, when it came to credit card loans, the rules didn’t require estimating losses on current but endangered loans (i.e., customers regularly paying interest but likely to default) beyond a year ahead.
The current expected credit losses (CECL) standard transformed that methodology by mandating that banks forecast potential losses for the entire life of the loan. “Now they’re provisioning not just for the loans that have gone delinquent, but the ones that are current and may go bad at any time in the future,” says David Fanger, a senior VP at Moody’s Investors Service. For example, if a card loan is now current but BofA projects a high probability that it will default in 18 months, BofA is required to book a loss now, whereas under the “incurred” model, it would have booked the provision a few quarters hence, when the borrower actually stops paying interest. The idea is to front-load all the provisions based on the best estimate of all losses to come for current and delinquent loans alike.
As Fortune previously reported, under the old rule based on the accrual model, provisions tended to build gradually as a deepening recession caused more and more defaults. “But the new regime means that banks are taking much larger provisions based on their best guess at the moment of what total losses will be on still current loans,” says Bain Rumohr, senior director of North American banks at Fitch Ratings. CECL’s arrival coincided with the COVID-19 crisis, and the combination is forcing banks to take the entire hit right now for all estimated future losses on all their loans caused by the crisis.
That’s a tall order for two reasons. First, the pandemic started as a health and not an economic crisis so the shape of the recovery is far harder to predict than the comeback from a normal recession. Second, it’s extremely difficult to predict how much of the consumer’s excellent performance so far stems from the big waves of government support, and how much that gold star record will deteriorate once the federal dollars stop flowing. “What the banks are attempting to do is figure out what level of loss comes through when the programs phase out,” says Rumohr.
It’s remarkable that BofA’s portfolio as of the second quarter is looking almost as strong as during the flush times that lasted until February. In part, that’s because it’s been offering broad forbearance to its customers. Since March 16, it has extended 1.8 million payment deferrals, mostly on credit card loans, to its customers. In a good sign, requests for deferrals pretty much ceased by late June. BofA reports that 60% of credit card holders who’ve gotten forbearance have made at least one payment since. But since the cardholders with deferrals owe $7.6 billion, that still leaves a large number of customers, and large balances, at risk.
“There’s a notable disconnect between what you see so far in their delinquency and charge-off rates, and what you would typically see with high unemployment,” says Rumohr. In its consumer lending book, which includes $84 billion in credit card loans, its nonperforming credit has actually dropped from $3 billion to $2.2 billion in the past year, lowering the share from 0.67% to 0.49%. In commercial lending, the nonperformers total $2.2 billion, or just 0.41% of the portfolio.
It’s the same story with charge-offs, loans that have previously been expensed but are recognized as uncollectible and removed from loan loss reserves. That number for the entire bank was just $1.1 billion in the second quarter, a mere $200 million more than in the second quarter of 2019 when the credit outlook was terrific. “Looking at those delinquencies and charge-off levels, you wouldn’t think there’s a crisis going on,” says Fanger.
Looking ahead
It’s hard to imagine a starker contrast than the divide between customers’ current performance, and how BofA sees the future. Since the close of 2019, it has doubled allowances for loan losses from $9.4 billion to $19.4 billion. The biggest increase came in cards, where reserves mushroomed two-and-a-half times from $3.7 billion to $9.25 billion, rising from 3.8% of the portfolio to 11%. The second biggest jump came in commercial real estate. “That’s another area where the virus is causing a lot of uncertainty because it’s damaging the retail and hospitality market,” says Fanger. Real estate reserves more than doubled to $2.2 billion. That category and cards account for two-thirds of the total increase in allowances for credit losses.
The question is whether BofA is making assumptions that truly reflect the extent, and probable duration, of the downturn. Moynihan last week shared the assumptions on the economy that the bank is employing to estimate loan losses. He’s assuming that unemployment ends the year at 10%, just a one-point improvement from the current rate, and joblessness remains high at 9% through the first half of 2021, easing to 7.5% by year-end.
It’s instructive to compare that outlook with the “most adverse” scenario that the Fed used in the latest stress test, completed in June. That test is based on conditions that prevailed before the outbreak, but is consistent with a V-shaped recovery from the crisis. The Fed’s recession scenario posits that the unemployment rate rises to 10% over six quarters, then drifts back to 8% over the next 18 months, meaning that joblessness remains elevated well beyond mid-2023. Under that scenario, BofA would have sufficient reserves today to cover 45% of future losses. The Fed deems that level BofA is holding sufficient capital to cover the projected charge-offs and still maintain a strong capital buffer.
BofA is betting that although the COVID-19 downturn is more sudden and severe than the Fed’s pre-pandemic, worst-case test, it will cause less long-term damage because it will pass much faster. In effect, BofA is saying that it’s already taken all the reserves it will need to cover damage from the pandemic, and that the hit will be about half as severe as the Fed’s test case where joblessness remains stubbornly high three years hence.
Keep in mind that CECL requires BofA to front-load all the loan losses it anticipates going forward. If BofA’s forecasts are correct, that’s great news for the bank and the U.S. economy. But the pandemic crisis is the ultimate in moving targets. “So if the COVID crisis is extremely long-lasting, it’s possible that the reserves won’t be big enough, and BofA will be forced to keep increasing provisions,” says Fanger. Whether BofA indeed has big enough allowances to get through the crisis will also depend on how many more consumers default once the banks end forbearance, and the government stimulus ceases.
It’s encouraging, however, that BofA has increased reserves dramatically, in theory to the point where current allowances will cover all future losses, and still booked over $7 billion in profits in the past two quarters. It has also suspended all share buybacks, so it’s replenishing capital at the same time that it’s adding to reserves. BofA also deserves credit for keeping its credit card portfolio at much more modest levels than its rivals, potentially limiting the extra reserves it will need to take if the recovery is slower than the already lengthy comeback it predicts. Moynihan proudly noted that BofA is now carrying half the loans to cardholders it did at the start of the Great Recession.
BofA is heading into this recession a lot stronger than the last time and, in part because of CECL, is being what looks like extra prudent in bracing for future losses. Here’s the problem: We’re in dangerous, uncharted waters, where the dragons that no model can predict may be lurking.


fortune--2020-07-27--What’s behind Bitcoin’s surge? Experts have several theories

Everything we know so far about the second round of stimulus checks

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Bitcoin is famous for it volatility, but has been unusually quiet in recent months. The digital currency had been hovering in a tight band between $9,000 and $10,000 for nearly all of the last three months—until a sudden breakout in the past week.
On Monday, the price of Bitcoin brushed $11,000, which is up from around $9,100 a week ago. This is notable given how Bitcoin has failed to stay above $10,000 on the few occasions when it’s broken that mark, and how it hasn’t crossed $10,500 in nearly a year. This chart shows the last year:
So what’s driving the new price surge? There doesn’t appear to be a single catalyst, but rather several overlapping factors, according to experts.
In an email to Fortune, Eric Turner of Messari Research noted that crypto traders have been reaping large gains from obscure digital currencies on so-called “DeFi” (decentralized finance) platforms. Turner speculates that many of these traders have been plowing their gains into the two most mainstream crypto assets, Bitcoin and Ethereum, and driving up the price.
Bitcoin prices may also be getting a tailwind thanks to last week’s letter from the Office of the Controller of the Currency, which stated banks can hold Bitcoin on behalf of their customers. Many in the crypto industry have treated this as a bullish signal, and predicted it could lead to new investment in cryptocurrencies from large funds.
Another possible reason for the recent price spike is a general sense of fear and uncertainty around the globe. Such sentiments can lead investors to seek out assets like gold, which has been on a tear amid worries over the pandemic and geopolitical uncertainty. A report from the The Block suggests Bitcoin may be benefiting from same phenomenon.
Finally, Bitcoin may be surging based on underlying fundamentals.
“We remain positive on the overall precise structure for Bitcoin and do expect it push through $10,000-$10,500 as part of its longer term bullish technical profile,” Rob Sluymer, a technical strategist at Fundstrat Global Advisors told Bloomberg.
Sluymer also noted that Bitcoin needs to break through a “resistance band” of $10,500. Once it does—as it appears to have done on Monday—he suggested the currency will encounter the next such “resistant band” at $13,800.
This sort of technical analysis is consistent with a “wave theory” of price movements—and a related analytic tool known as the Fibonacci sequence—which gained traction during the cryptocurrency bubble of 2017.
None of this provides a definitive explanation for Bitcoin’s latest uptick, however, and the latest surge could—like so many other crypto rallies over the years—be a temporary one.
More must-read finance coverage from Fortune:


fortune--2020-07-27--Everything we know so far about the second round of stimulus checks

These major retailers are already planning to be closed on Thanksgiving Day because of the pandemic

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On Monday Senate Majority Leader Mitch McConnell outlined Republicans plans for another stimulus bill, which would send most Americans another $1,200 stimulus check.
Though that $1,200 number may ring a bell from the last time around, there are some important tweaks, including when it comes to dependents.
The stimulus checks themselves are actually one of the least controversial parts of an overall package. Both parties support another round of stimulus checks. The more contentious issues include extending the $600 unemployment checks, state and local government funding, and providing immunity to businesses from COVID-19 related lawsuits.
Senate Republicans hope to get the bill signed in the coming weeks, and have said the stimulus checks could come as early as August.
What’s in the Republicans proposal? Here’s what we do and don’t know so far.
Will there be an income limit for the second stimulus check?
The Republicans proposal for second stimulus check is nearly identical to the first stimulus. It would send a stimulus check worth as much as $1,200 for individuals or $2,400 for married couples, plus $500 for each qualifying child. That amount would decrease for adjusted gross income above $75,000 per individual or $150,000 per qualified couple. And the checks phase out for individuals earning above $99,000, head of household filers with one child above $146,500, and joint filers with no children at $198,000.
The GOP plan also explicitly bars any individual in prison from receiving a stimulus check.
Will dependents get a second stimulus check?
Young adults who are claimed as dependents on their parents taxes did not receive a stimulus check the first time around. However, McConnell said Monday his plan would provide “more support” for adult dependents. His party is proposing to provide $500 per dependent regardless of age (it was capped age 17 in the first round of stimulus checks).
Democrats also support sending stimulus money for dependents. The HEROES Act passed in May by House Democrats would have provided $1,200 stimulus checks for dependents.
The latest: Round 2 stimulus checks are likely coming for college age dependents—but there’s a catch
Will you get a stimulus check if you’re married to a foreign national?
The first stimulus check didn’t go to Americans who file taxes jointly and are married to a foreign national who isn’t a citizen. But some representatives in both parties are pushing to change that.
“No American should be denied a federal stimulus check because they are married to a foreign national who is not a U.S. citizen,” wrote Senators Thom Tillis (R-NC) and Marco Rubio (R-FL) in a statement Saturday.
It’s unclear where McConnell stands on the issue.
Do you need a Social Security number (SSN)?
The HEROES Act passed in May by House Democrats, which died in the Senate, would’ve sent payments to tax filers with a valid tax ID number, instead of based on Social Security number—seeing as the latter excludes many noncitizens and people in the country on Permanent Resident Cards. This is not something Republicans are proposing to change.
When would I get my second stimulus check?
It will likely take a few weeks after President Donald Trump’ signs the final bill for the checks to go out. Republican leaders hope to reach a deal in the coming weeks, and get checks out in August. However, given the Republican infighting and disputes between the House and Senate, that may be overly optimistic.
Read: 4 ways the Senate GOP’s new coronavirus stimulus bill ‘falls short,’ according to critics
What if you still haven’t filed taxes for 2019?
For the first round of checks the IRS used 2018 tax returns for Americans who hadn’t filed their 2019. It’s likely this will still be the case, given that many taxpayers have opted for October extensions.
Will non taxpayers and retirees get their checks late again?
Americans who are not required to file a tax return, including many retirees living on Social Security Income, received their payments later during the first round of stimulus payments. The IRS delayed their checks as it waited for them to verify if they had any qualifying children.
Given that information was already confirmed in the last round, it is possible that delay wouldn’t occur again. However, such guidance will not be released until—or unless—a bill passes.


fortune--2020-07-27--How Rep. Ilhan Omar’s daughter showed her that Congress cannot ‘pass the buck’ to the next generatio

How Rep. Ilhan Omar’s daughter showed her that Congress cannot ‘pass the buck’ to the next generation

In 2017, Rep. Ilhan Omar was serving in the Minnesota House of Representatives when a group of young people held a rally at the state capitol in St. Paul, calling for stronger gun control legislation. The demonstration hit home for her in more ways than one—it was led by her daughter, Isra Hirsi.
In that moment, Omar was reminded that she had been just a year older than her daughter’s age when the Columbine High School massacre occurred in 1999. “If my generation had acted with the urgency that her generation had acted,” she wonders, “would my daughter be at the state capitol asking for us to introduce sensible gun laws and to protect the lives of young people?” Omar shared the memory on Monday, when she and now 17-year-old Hirsi—who is cofounder of the U.S. Youth Climate Strike—joined a virtual conversation as part of Fortune Most Powerful Women’s “Paying It Forward” series.
Omar, a Democrat who in 2019 was elected to represent Minnesota’s Fifth District in the U.S. House of Representatives, said that moment of realization is one of the reasons she fights for “transformative change, because I know that complacency is what brought us here.” Hirsi’s action helped her understand “how we don’t have the luxury of waiting another year or two or three and passing the buck to the next generation.”
She said that while she’s not naive, she does tend to be the optimist in the room, and she is hopeful that the current social justice movement taking place in the U.S. would prevail.
Omar, who is one of just two Muslim women in Congress, pointed to history for supporting evidence, noting that the Montgomery bus boycott lasted 395 days before a single change took a place. The police killing of George Floyd occurred on May 25, and on June 25, the George Floyd Justice in Policing Act was passed. “Within 30 days, not only did we introduce a piece of legislation, we debated it in committee and passed it on the House floor,” she said. “That kind of rapid change has never been possible in our nation’s history, period.”
Omar, who fled Somalia with her family as a child and spent four years in a refugee camp before being granted asylum in the U.S., said that one of the reasons she—someone who experienced war and famine—remains optimistic, is that she is alive today because someone chose to invest in her. “Someone was optimistic about saving my life,” she said. “So I remain optimistic about what’s possible for us to save the lives of others who are not as fortunate as us.”
Omar also discussed why she decided to join her colleague Rep. Alexandria Ocasio-Cortez in responding to Rep. Ted Yoho, who reportedly called Ocasio-Cortez a “f—ing bitch” on the steps of the U.S. Capitol. (Yoho has said he is sorry for the “abrupt manner” of the exchange but that he never engaged in “offensive name-calling” and that as a man with a wife and daughters he was “very cognizant of my language.”)
Omar said the incident was part of “a shared experience that women have across communities across the world.”
“What we’re asking for is fundamental respect and fundamental equality,” she said. She noted that in her House remarks, she talked about how she did not want men to act decently toward women because they have a wife, sister, or mother. “We want men to act decently with us because they think of us as equal humans deserving of decency and respect,” she said.
Omar added that out of the thousands of people who have served in Congress, only 79 have been women of color. “It’s an important milestone,” she said. “But once again that reminds you that people are still getting comfortable with the fact that we are here as colleagues equal to them, and wielding the same power and influence as them.”


fortune--2020-07-27--Tinder has a new CEO

Tinder has a new CEO

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Match Group, the Dallas company that controls much of the Internet dating scene (OkCupid, Hinge, Plenty of Fish), has named a new chief executive for its hottest property: Tinder.
Jim Lanzone, the former president and CEO of CBS Interactive and former chief digital officer of its parent company, CBS, will take the helm of the Los Angeles company, according to a Wall Street Journal report published Monday. He’ll start Aug. 3.
Lanzone left CBS at the end of 2019 as the company prepared to (re-)merge with onetime sibling Viacom. He replaces current Tinder CEO Elie Seidman, who will return to work “with early stage, venture-backed companies,” the Journal reports. Seidman occupied the post for two and a half years.
Lanzone has his work cut out for him. The spread of the novel coronavirus has all but shattered the ability for people—let alone singles—to meet each other, and the initial reaction to the pandemic slowed Tinder sign-ups, its parent company said in its May earnings report. But the prolonged nature of the pandemic—including extended stay-at-home orders—has led to fresh uses of the app by people hungry for (virtual) interaction.


fortune--2020-07-27--These major retailers are already planning to be closed on Thanksgiving Day because of the pandemic

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Black Friday might soon become Cyber Friday at this rate.
Over the past several years, many major retailers have been opening their doors for holiday shopping earlier and earlier on Black Friday—to the point where these stores have launched mega weekend sales starting on Thanksgiving Day itself.
But like with everything else since the onset of the COVID-19 pandemic, that is going to change this year. Big-box stores—including Walmart and Target—started announcing in July that their brick-and-mortar locations will not be open on Thanksgiving Day. Stores typically become extremely crowded during holiday sales events, with chaotic scenes and tensions running high even without a public health crisis going on. Keeping these frenzied events safe under current social distancing guidelines would prove near impossible.
While there could be a transition to bring these bargain offers online (similar to Amazon rolling out special deals over the course of the month of November), this move could have huge repercussions for retailers, which are already suffering amid the economic crisis and count heavily on the holiday-quarter sales. Opening on Thanksgiving Day has become part of the playbook to jump-start Black Friday sales and the rest of the holiday shopping season through Dec. 25. Many of the online-only sales have been reserved for the following Monday, now known as “Cyber Monday,” but shoppers still looking to get special deals could be looking at a whole cyber weekend instead.
Below is a running list of retailers altering their Thanksgiving holiday weekend opening hours. This list will continue to be updated through Thanksgiving Day on Nov. 26, 2020.
Walmart
Walmart, the largest U.S. retailer, said on July 21 that it would be closed on Thanksgiving Day this year to thank employees for their hard work during the pandemic, which has given Walmart a big sales boost. The last time Walmart closed on Thanksgiving was in the late 1980s. The company says it will release more details regarding its Black Friday plans at a future date.
Target
Target followed suit on July 27, announcing that all of its stores would be closed on Nov. 26. Instead, the retailer is moving many of its promotions for big-ticket items online as early as October. Target is also making 20,000 more products—including fresh and frozen groceries—available via pickup and delivery services at 1,500 locations across the country by this fall.
Dick’s Sporting Goods
Dick’s Sporting Goods also announced on July 27 that it will close all store locations and distribution centers on Thanksgiving Day, Nov. 26, 2020. This closure includes specialty stores Golf Galaxy and Field & Stream. In previous years, most Dick’s Sporting Goods stores were open with limited evening hours on Thanksgiving, the company said in a statement. All Dick’s Sporting Goods locations will follow standard business hours on Wed., Nov. 25. Information on holiday hours, which begin Fri., Nov. 27, will be shared at a later date. The company also noted store and distribution center teammates will continue to receive a 15% pay premium through the end of the year.
Kohl’s
Kohl’s announced on July 29 that it would keep stores closed on Thanksgiving Day 2020—not only out of safety and convenience, but also because the retailer expects more customers to shop earlier and online more frequently. Kohl’s also said it would provide more information on its holiday hours at a later date.
Best Buy
Best Buy also said in late July that it will be closed on Thanksgiving, promising promotional deals will roll out online earlier than November 26. The electronics seller also said it would be “enhancing the way we fulfill orders,” from offering more convenient pickup options to better ensuring BestBuy.com orders arrive at the right time.
JCPenney
JCPenney announced on August 3 that it made the decision to close our stores this Thanksgiving. In the meantime, for customers who do choose to shop in stores before and after the holiday, JCPenney says it has implemented a number of safety precautions, such as requiring face coverings and providing hand sanitizer for customers and associates, diligently cleaning stores with a focus on high-touch areas, and installing plexiglass at open registers in all stores. JCP also has contactless curbside pickup available at select locations.
Foot Locker
A representative for Foot Locker told Fortune on August 10 that all Foot Locker, Inc. stores will also be closed on Thanksgiving this year.
Forever 21
For the first time in the brand’s 36-year history, all Forever 21 stores are closing for Thanksgiving day. The fashion retailer will reopen doors on Black Friday, November 27.


fortune--2020-07-27--The Americans with Disabilities Act turns 30 and shows how far we still need to go

This is the web version of The Capsule, a daily newsletter monitoring advances in health care and biopharma. Sign up to get it delivered free to your inbox.
Happy Monday, readers. I hope you had a wonderful weekend.
Yesterday was the 30th anniversary of President George H.W. Bush signing the Americans with Disabilities Act (ADA) into law. It was a watershed moment—legislation that stood at the nexus of civil rights and health care by requiring accommodations for disabled people.
It didn’t come easy. Disability rights groups banded together to shine light on a long-festering injustice, a system where people with everything from intellectual to physical disabilities were often ignored, dismissed, and ridiculed.
Public and private facilities had few provisions such as elevators, wheelchair ramps, or other means of assisting disabled Americans. In one searing moment during March 1990, dozens of disabled protesters left their wheelchairs to literally crawl up the steps of the nation’s Capitol, refusing to accept help as they made their way up more than 80 steps to demonstrate the indignities of the status quo and champion the ADA.
There’s no doubt that the law’s passage was a milestone victory. But three decades later, disability rights groups are still fighting for broad enforcement of the ADA and local anti-discrimination laws in some of the nation’s largest cities.
The Metropolitan Transit Authority (MTA) of New York is facing a class action lawsuit over the subway system’s inability to provide elevators for those with mobility problems. Just about one in four stations in the sprawling public transport system provide stair-free access, according to the nonprofit Disability Rights Advocates.
In the job market, discrimination is still common despite the ADA and the Fair Labor Standards Act (FLSA). Employers may not openly admit they’re less willing to hire someone with a physical or mental disability, but there are plenty of anecdotal accounts of people receiving more interview opportunities when they don’t mention their disability in a job application.
Under the FLSA, it’s legal to pay less than minimum wage to certain people with disabilities. Former President Barack Obama signed an executive order in 2014 requiring all federal contractors, including those with disabilities, to be given a minimum wage hike after pushback on an original pay increase proposal which didn’t include them.
The ADA is an historic law. There’s clearly still a long way to go.
Read on for the day’s news.
Sy Mukherjee
sayak.mukherjee@fortune.com
@the_sy_guy
DIGITAL HEALTH
Color receives authorization for an unmonitored COVID test. The Food and Drug Administration (FDA) has granted genomics company Color emergency authorization for its coronavirus test, which the company says can mitigate bottlenecks in the testing supply chain that have prolonged turnaround times. You can take Color's test at home or in a community health care facility and other public settings. "The process authorized by the FDA makes it possible for patients to utilize Color’s test at home and return a sample by mail, as well as on-site as part of a test collection process," said the company in a statement. "The latter makes it possible for Color’s test to be used to support onsite testing in critical public health contexts, such as community testing sites, places of employment, universities, and more."
INDICATIONS
Trump signs four executive orders on drug pricing. President Donald Trump on Friday signed a slew of executive orders aimed at lowering drug prices, including allowing for drug importation from Canada and tweaking the way that pharmacy benefits managers (PBMs), the middlemen in the pharmaceutical supply chain, can negotiate discounts. It also would force Medicare to charge prices comparable to other nations—all moves that were heavily condemned by the drug industry's main lobbying group, PhRMA, in a statement slamming the orders as anti-competitive and bad for patients. It's also unclear how much patients would actually save under the orders and Trump himself seemed to indicate that they're more of a shot across the bow at a generally unpopular industry. He's slated to meet with executives this week. (NPR)
Moderna's coronavirus vaccine trial launches in the U.S. Moderna's late-stage trial for a COVID-19 vaccine candidate officially launched nationwide on Monday, the company and the National Institutes of Health (NIH) announced. Earlier-stage studies have suggested promise in the experimental drug's ability to create coronavirus antibodies (although the level of immunity is still unclear). This new trial will enroll 30,000 participants across 89 sites in the U.S.—and it will pit the actual vaccine against a placebo, making it a controlled trial that would offer more evidence about just how effective it is.
THE BIG PICTURE
Six types of COVID-19. We're still learning a lot about COVID, which is proving to be a truly strange disease. It manifests in all sorts of weird ways. But a new study from King's College London suggests that six distinct forms of the disease, with varying types of symptoms, are possible. These can vary from having flu-like symptoms, to having a cough (or not having a cough), fatigue, gastrointestinal problems, muscle aches, rashes, loss of smell and taste, loss of appetite, or barely any symptoms at all in multiple permutations. (CBS News)
REQUIRED READING
Herd immunity works—if you don't care how many people die, by Laurie Garrett and John Moore
SAP says goodbye to Qualtrics, by Michal Lev-Ram
How to celebrate milestones while social distancing, by Brooke Henderson
Sign up for other Fortune newsletters.


fortune--2020-07-27--Republicans have a woman problem, and it could cost them the Senate

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Democrats fall in love, and Republicans fall in line, so the old saying goes.
The Republicans’ mindset of platform over person has led to a solid aversion to identity politics and diversity initiatives over the years. The GOP has long trailed the left in recruiting, running, and electing women into office, a story clearly shown through demographic data of Republicans in office. But now, a series of poll numbers and controversial events show that deprioritizing gender diversity could come back to hurt the GOP this November.
The number of female Republican candidates running for office has risen over the past 30 years (though at a lower rate than Democratic women), but the rate of GOP women who win their elections has fallen dramatically. The number of Republican women in the House is now at the lowest it’s been since the early 1990s, according to data obtained by the Rutgers Center for American Women and Politics (CAWP).
Over the past four years, the number of female Republican senators has doubled, but the right could lose those gains entirely in 2020. Four of the nine women in their caucus are looking at tight races this November in Arizona, Georgia, Iowa, and Maine. There are 23 Republican seats and just 12 Democratic seats up for grabs this November—the left only needs to win four to take control.
A series of recent public incidents regarding the harassment of women by Republican politicians adds to growing concern that the party is not hospitable to female candidates.
Last week, Republican congressman Ted Yoho of Florida and Roger Williams of Texas approached their Democratic colleague Alexandria Ocasio-Cortez on the steps of the Capitol building.
In front of reporters and with no provocation, Yoho told Ocasio-Cortez that she was “disgusting” and out of her “freaking mind.” The 30-year-old New York representative said the comments were rude and walked away. He responded by calling her a “fucking bitch.”
Two days later, Ocasio-Cortez addressed the confrontation on the floor of Congress.
“This issue is not about one incident. It is cultural,” she said. “It is a culture of lack of impunity, of accepting of violence and violent language against women, an entire structure of power that supports men. Because not only have I been spoken to disrespectfully, particularly by members of the Republican Party and elected officials in the Republican Party, not just here, but the President of the United States last year told me to ‘go home to another country,’ with the implication that I don’t even belong in America. The governor of Florida, Governor DeSantis, before I even was sworn in, called me a ‘whatever-that-is.’”
The harassment occurred shortly after Liz Cheney, the third-ranking Republican in Congress, was berated on Twitter by male colleagues and President Donald Trump for supporting Dr. Anthony Fauci and opposing military withdrawal from Germany and Afghanistan.
On Thursday afternoon, House Minority Leader Kevin McCarthy was presented with the two incidents and asked if Republicans have a “woman problem.”
The congressman pointed to numbers that show a record number of women ran for Congress this year, though he added there was room for improvement. He then said, still addressing the question about a lack of respect for and representation of women within the party, “Our newest member elected to this Congress, Mike Garcia, is not a woman, but he’s a first-generation American.”
McCarthy’s comments, equating female representation with first-generation American representation, were puzzling. But his statement about women running for office also doesn’t paint the full picture of the struggle for female representation in Washington.
In 2018, about a quarter of all Republican female candidates were successful in their bid for office—over half of Democratic women were.
Among nonincumbents, only 2.9% of Republican women were successful in November 2018—there was one female House GOP freshman—compared with the 19% of nonincumbent Republican men who won races and the nearly 28% of nonincumbent Democratic women who were successful.
Republican congresswoman Elise Stefanik called the moment a “stark, stark wake-up call,” and launched a PAC to recruit more Republican women to run for office. But Democrats have had organizations like Emily’s List that encourage women to run for decades, while PACs like Stefanik’s are just beginning.
And those Republican women who are running for office face uphill battles. They’re largely up against incumbents, and some haven’t yet won their primaries, a stage where Republican women tend to struggle. The problem isn’t that Republican women aren’t running for office. The problem is that they’re not winning when they run against men.
“The Republican base is very conservative, and that’s who’s voting in primaries,” said CAWP associate director Jean Sinzdak. “Voters on the Republican side are more traditional in what they expect from their elected officials, and historically those officials aren’t female. They’re older, male, and white.”
The Republican women who win their primaries are also more likely to live in districts that are solidly Democratic or that lean Democratic, according to data from the Cook Political Report. Even if they do win primaries, the chances that they win the general election in blue districts are minuscule.
“As far as 2020 being ‘the year of the Republican woman,’ the early data casts doubt on that,” reads a CAWP report.
“A big part of this has to do with identity politics,” Sinzdak told Fortune. “The Democratic party has been the party to say that diversity is a valuable asset that brings something unique to politics, though they’re not perfect. That hasn’t been the case on the Republican side where it’s more about the party line and less about background.”
Republicans say that these particular races just happen to be competitive and have nothing to do with gender, but Democrats counter that this is the result of a sustained loss of suburban female voters. Joe Biden currently leads Trump with female voters by a historic margin of 59% to 35%, the most female support for a nominee in 70 years.
“The biggest issue is delving into why Republicans don’t recognize identity politics and what can be done by the GOP from the top down to place a value on the diversity of their candidates,” said Sinzdak. “It’s just so hard to get Republican leadership past the standard line of ‘We just want the best person for the job regardless of what they look like.’”


fortune--2020-07-27--Republican plan for $200 weekly unemployment extension would mean a benefit cut for 30 million Ameri

Republican plan for $200 weekly unemployment extension would mean a benefit cut for 30 million Americans

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Around 30 million jobless Americans are in the process of receiving their final $600 weekly federal unemployment benefit, which expired over the weekend. The $1 trillion stimulus plan that Senate Republicans will release Monday will reportedly cut and replace that benefit.
The Republican bill would reduce the unemployment benefit bonus—which is paid on top of state benefits—from $600 to $200 per week for the next two months, according to Bloomberg News. After that period, the benefit would transition into covering 70% of the unemployed persons’ previous income through the end of the year.
States have already said it would take weeks for to create systems to pay laid-off workers a percentage of their previous pay. States say a lump sum is easier to distribute. That’s why the Republican plan would pay out a weekly $200 benefit before transitioning it to the 70% replacement.
More than 17.3 million Americans were on state unemployment rolls and receiving the $600 weekly benefit as of the week ending July 11. But if you include the 13.2 million getting Pandemic Unemployment Assistance
benefits and the 940,113 on Pandemic Emergency Unemployment Compensation, in all 31.4 million Americans were receiving the $600 bonus before it expired. That’s larger than the population of the country’s 19 smallest states.
For months Republican leaders have said they wanted to move away from the $600 weekly unemployment benefit. The reason? Around 7 in 10 Americans receiving unemployment benefits are earning more than they did at their job, which businesses and Republican leaders argue could deter workers from returning to work.
Read: Everything we know so far about the second round of stimulus checks
“We’re not going to use taxpayer money to pay people more to stay home,” said Treasury Secretary Steven Mnuchin to a group of reporters outside the Whitehouse over the weekend.
The Heroes Act passed by House Democrats would’ve extended the $600 weekly benefit into January 2021. It’s unclear if Democrats are willing to allow the unemployment benefit to shrink, let alone to $200.
A Fortune-SurveyMonkey poll of 2,802 U.S. adults between July 17 and 21 found 68% of the country supports the federal government extending the extra $600 weekly federal unemployment benefit beyond its July expiration. But there is a political divide: Only 48% of Republicans support extending the $600 weekly federal unemployment benefit beyond July, versus 86% of Democrats.


fortune--2020-07-27--Herd immunity works—if you don’t care how many people die

From Wall Street to Main Street, much hope in the COVID-19 crisis has been placed on “herd immunity,” the idea that a sufficient number of people will eventually develop antibodies to stop virus spread and curtail the pandemic. That thinking is behind President Donald Trump’s insisting, “The virus will disappear. It will disappear.”
The Swedish government chose to pursue herd immunity during the spring when COVID-19 overwhelmed many European nations, favoring voluntary control measures over strict lockdown procedures. This week, 21 Swedish infectious diseases experts denounced the policy, writing, “In Sweden, the strategy has led to death, grief, and suffering, and on top of that there are no indications that the Swedish economy has fared better than in many other countries. At the moment, we have set an example for the rest of the world on how not to deal with a deadly infectious disease.”
The United Kingdom also flirted with a herd immunity strategy in March, but it soon backtracked as the death toll rose and Prime Minister Boris Johnson was hospitalized with COVID-19.
The problem with herd immunity is the word “herd.” Some 400 vaccines are used on livestock, fish, pets, and zoo animals worldwide: all creatures without free will. A herd can be protected against a disease by allowing a pathogen to spread within it, killing some but leaving the survivors resistant to infection. The same outcome can be achieved, at less cost in lives, by vaccinating a sufficient percentage of the herd. In both scenarios, the percentage needing protection depends on the pathogen’s infectiousness. For example, if 70% of domestic dogs are vaccinated against rabies, the worldwide canine herd is protected and dog bites do not transmit this lethal virus to humans.
In a democracy, humans have free will, including the ability to choose to do idiotic things that put themselves and others at high risk for infection. They chafe at restriction, bridle at confinement, and often defy the best interests of the herd.
Modeling of SARS-CoV-2 indicates that an infection rate of 65% to 70% is needed to protect the rest of our freewheeling human herd. Thus, two-thirds of the U.S. population must become resistant to the virus before our epidemic shifts from collective catastrophe to isolated incidents. But allowing infection of about 200 million Americans translates to more than 1 million deaths, a morally reprehensible toll. The 10% antibody-positive rate among Swedes, the 5% seen in survivors of Spain’s epidemic, and even the 45% found among London health care workers involved in COVID-19 patient care come nowhere near herd immunity levels.
A study of blood samples collected this spring in 10 U.S. cities found the highest seropositivity rate, 22.7%, was in New York City at its March/April epidemic peak. The city’s chief medical officer, Jay Varma, says, however, that this antibody rate offers no solace, since “herd immunity is a very unlikely explanation…We’re not nearly at a level where we would expect that immunity would play a major role in decreasing transmission.”
Moreover, a positive result on an antibody test does not guarantee protective immunity; the detected antibodies may be neither strong enough to counter the virus nor targeted appropriately. It seems paradoxical, but the strongest antibody responses are seen in the sickest patients, including those who die. People with asymptomatic or mild infections usually develop weak responses.
The common perception that someone who recovered quickly had strong antibodies that “beat the virus” is flawed. It’s unknown whether the weaker antibody responses are protective against reinfection, and we’re still foggy on how T cell immunity kicks in. Isolated cases are increasingly reported of individuals who survived COVID-19, tested negative for the virus, and then weeks later were reinfected and took ill. These cases are rare but may become more common.
The key issue is duration: How long does immunity to SARS-CoV-2 last? We are still very early in this pandemic. No studies have tracked immune responses in people for much longer than three months. Results are mixed. In New York City, local researchers say people seem to still be robustly immune after three months. But a London study saw immunity waning strongly over that period, and in the Chinese district of Wanzhou, 40% of asymptomatically infected people and 12.9% of COVID-19 cases rapidly became antibody-negative.
Such findings should come as no surprise. Immunity to the related coronaviruses that cause common colds wanes after about a year, so people can catch colds over and over again. Nobody discusses herd immunity for common cold viruses—because there is no such thing.
If herd immunity via infections is off the table, the world needs a vaccine. Several Operation Warp Speed (a public-private program designed to speed up COVID-19 vaccine development and distribution) vaccine candidates have elicited antibodies and T cells in human trials, but it’s too early to tell whether any will protect against infection or reduce the severity of disease. Only large-scale efficacy trials can provide those much-needed answers. However, the urgency of the pandemic and other pressures will probably mean that vaccines will be approved for mass use well before we know their duration of protection. Nobody wants to wait a full year to see if immunity is sustained for 70% of the human herd.
It is quite foreseeable that immunity to the first approved COVID-19 vaccines will diminish over time, requiring frequent booster injections.
Of course, a vaccine can only confer herd immunity if it is widely used. Opinion surveys show many American “herd” members have already decided to reject a SARS-CoV-2 vaccine. Polling results in May found only 49% would take it, and 31% were unsure, while 20% would refuse a vaccine under any circumstances. A July survey found similarly sobering results. A scientific task force has warned that the Operation Warp Speed vaccine effort “rests upon the compelling yet unfounded presupposition that ‘if we build it, they will come.’”
To boost public confidence, it is essential that vaccines are approved only after both efficacy and safety are rigorously proved. Any rushed political interventions and election year politics that compromise safety assessments could render mass immunization impossible by further fostering public distrust.
As prominent economists have put it, “Absolute economic recovery rests on the eradication of COVID-19. The reality is that the timeline, efficacy, cost, and distribution of a vaccine all introduce factors that we do not believe are appropriately reflected in the markets and public sentiment.”
This killer coronavirus will not simply “disappear” as long as human behavior allows it to spread within the herd. A Wall Street miracle, where powerful, lasting immunity emerges en masse and allows the world economy to return to its 2019 ways, is delusional. Until a vaccine or multiple vaccines are developed and used on a global scale to confer herd immunity, human beings must exercise free will to protect themselves and the rest of the human herd by using masks, social distancing, and good old-fashioned common sense.
Laurie Garrett is a Pulitzer Prize–winning science writer, author of Betrayal of Trust: The Collapse of Global Public Health and other books, and a science contributor for MSNBC News.
John Moore is a professor of microbiology and immunology at Weill Cornell Medicine who has conducted research on HIV and, more recently, SARS-CoV-2, neutralizing antibodies, and spike glycoproteins.


fortune--2020-07-27--Twitter faces 48-hour boycott over anti-Semitic posts by rapper Wiley

Some Twitter users are staging a 48-hour boycott of the platform over its handling of a stream of anti-Semitic comments that were posted on British rapper Wiley’s social media accounts.
The boycott, under the hashtag #NoSafeSpaceForJewHate, followed complaints that Twitter was too slow to remove offensive material. Some offensive material was also posted on Instagram.
U.K. Home Secretary Priti Patel has written to the social media companies demanding an explanation as to the speed of their response. Some of Wiley’s posts were visible for more than 12 hours before being removed.
Prime Minister Boris Johnson did not take part in the boycott, as he needed to communicate “important public health messages,” his Downing Street office said.
“But at the same time we have set out very clearly that Twitter’s performance has not been good enough in response to the anti-Semitic comments made by Wiley and it needs to do much better,” his spokesman James Slack said.
London’s Metropolitan Police are investigating.
Twitter banned the grime artist for seven days after posts Friday and Saturday. He was also dropped by his management company after he shared the comments, which called Jews “cowards’’ and “snakes,’’ among other things.
The 41-year-old artist, whose real name is Richard Cowie, is known as the Godfather of Grime. He received an MBE for services to music in 2018.
Neither Twitter nor Facebook, the parent company of Instagram, could immediately be reached for comment.


fortune--2020-07-27--How to celebrate milestones while social distancing, according to public health and medical experts

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Millions of people are finding new ways to celebrate anniversaries, birthdays, weddings, graduations, and other milestones in the era of social distancing.
Take this example of two friends: When the global pandemic made Hannah Wilson’s dream of walking across the stage at graduation impossible, Ashayla Blakely started brainstorming.
“She was trying to be optimistic about everything, but I knew deep down inside she was sad about it,” Blakely said. “I wanted her to know that her friends and family supported her no matter the circumstances.”
With the help of Wilson’s family and friends, Blakey organized a surprise Zoom party. After a great cheer of “Surprise!” loved ones went one by one, expressing their pride and happiness at Wilson’s accomplishments.
Celebrating in quarantine can be just as special with a little creativity and helpful supplies. To help you get started, Fortune asked public health and medical experts for their tips on how to stay safe while recognizing these special moments.
Their responses have been edited for length and clarity.
A drive by birthday celebration in Leesport, Pennsylvania on May 23. Ben Hasty—MediaNews Group/Reading Eagle/Getty Images
Dr. Hugh Mighty, dean of Howard University’s College of Medicine: “Virtual celebrations work. It takes a little planning, but start by inviting smaller numbers of people at a time. Give them a theme to follow if you have one. It is a good time also to celebrate your birthday over several days, that way you can have day one for family and day two for friends. You may find that you actually share more time with each person attending. This is a good time and way to connect with friends even if you have not seen them for a while. In the event that someone crashes the virtual party, you can always disinvite them by disconnecting them. It is truly your birthday.
“Virtual celebrations for younger children can be a challenge, but doable. First, remember that the younger the child, the less the attention span. A 15-minute birthday with a focused theme—construction, favorite animal, sport—may be good for the 4- to 5-year-old group. Get to the ‘Happy Birthday’ song quickly, do a short activity, and thank everyone. If you rotate the birthdays, there will be plenty of opportunities for parents to say hello and children to see their friends. For older children, there are more options, because of multi-person online games.
“For those who lack Internet connectivity, masks, distance, and limiting the size of the gathering is essential. Activities that encourage distancing and that can be done outdoors, such as kicking around a soccer ball or passing a football, would be preferable to actual games or tackling. Hand washing and avoiding face touching should be remembered.
“Eat with distancing in mind, use individual utensils, and don’t share containers. Prepare food in advance and make it easy to pick up. Sandwiches are better than serving food from a common container, for example.”
Dr. Norman Beatty, professor at the University of Florida College of Medicine: “Since social distancing is essential to fighting the spread of this virus, having a birthday party is nearly impossible to swallow. The reality of keeping a face covering on little ones—or even a teenager—and social distancing itself seems a bit challenging and unrealistic. One popular approach to safely celebrate someone’s birthday is to have friends and loved ones drive by your house with signs, sirens, and honking car horns. This is one simple way to show your support and celebrate with social distancing in mind. I know my daughter loved seeing her grandma and grandpa’s truck decorated in streamers, colorful flags, and even a unicorn (her favorite animal) as they drove by our home. Virtual hangouts using your favorite video-calling device can also be fun.”
Nicolette Louissaint, executive director of Healthcare Ready in Washington, D.C.: “My birthday was actually a couple of weeks ago on July 4. It is a bit different. One thing that I was able to do for both of my parents who both had birthdays as well and are quarantined in New York City: We were able to stagger balloon and gift deliveries, so that they were able to feel like they were kind of getting something every couple of hours to kind of keep things exciting. We did a Zoom party for my own birthday. It was a lot quieter, and I just had a great dinner at home. One thing I would recommend is to lean into some of the really cool and inexpensive services that are being offered now. There are things like a quarantine party in a box that allows you to decorate the space behind you and have a really cool Zoom party with a background. There are also services that make it very easy for you to send cute packages or cake to loved ones overnight. That allows you to still be able to express care without having to congregate.”
Dr. Lindsay Thompson, medical director of the Pediatric Research Hub at the University of Florida: “Overall, it is important to celebrate special moments during the pandemic, although these celebrations should be in a tempered format. If someone is in quarantine, however, they need to be completely separate. Online parties can be effective: Platforms like Zoom allow a ‘gallery’ view of friends and family and can make the birthday person feel special. Drive-by parades of cars with friends and family can also be a fabulous way to honor a person in quarantine.”
Dr. Robert Johnson, dean of the Rutgers New Jersey Medical School: “We’ve been doing a lot of drive-by celebrations, especially for the seniors in our family. We’ve done—I’m sorry, I’m saying ‘we,’ but it’s really my wife, Maxine—we’ve done three or four of them, even some graduations. I belong to a family of organizers, so they sent out formal email invitations to everybody and signed people up to help.
“They pick a place for everyone to meet, like a fast-food parking lot. As each car arrives, we decorate them with balloons. Then, when the whole caravan is ready, we drive together to the house of the person we’re celebrating and honk. The one we just went to was actually a 50th anniversary celebration, and the couple came out on the porch to wave to everybody.
“I know that some are having celebrations in parks. It gets to be a little a little risky as far as social distancing goes.”


fortune--2020-07-27--Movie delays are stacking up. Where does Hollywood go from here?

Things were supposed to be better by now. When Hollywood’s major movie studios started delaying blockbuster releases in the spring, there was hope among the industry’s decision-makers that the coronavirus pandemic would subside enough for theater chains to welcome back moviegoers in the summer. In April, much of the U.S. was in the grips of strict stay-at-home orders—but by implementing them, the rate of infection would curve downward, allowing businesses like theaters to operate with some degree of normalcy. Or so the film industry hoped.
In some states, that has happened. But in the majority of others, case counts have risen over the past two weeks, sending the U.S. past the unwanted milestone of 4 million total cases. The situation has left many industries reeling, and Hollywood is no exception. With the ebb and flow nature of American case rates, studios are finding it impossible to plan guaranteed release dates.
Last week, Warner Bros. announced the upcoming blockbuster Tenet, from director Christopher Nolan, would be delayed for the third time—without specifying a date. Disney’s live-action Mulan remake suffered the same fate on its fourth delay, following Disney’s previous three attempts to set concrete dates. It was originally slated to release in March.
In some cases, studios have opted to delay films until next year. Paramount’s highly anticipated sequels A Quiet Place Part II and Top Gun: Maverick were pushed, as well as Universal’s Fast & Furious 9, while Sony delayed almost its entire movie slate until 2021. At this rate, there is not a single major Hollywood release set for August, meaning it’s looking increasingly likely that there won’t be a summer box office season. And there’s no end in sight.
“The uncertainty is the most certain thing we have,” says Paul Dergarabedian, senior media analyst for media analytics firm Comscore. “If we were to talk in a few days, the dynamic could be different. It’s really like trying to crystal ball things, because this is an ever-changing situation.”
Dergarabedian says studios’ hands are tied when it comes to releasing their biggest blockbusters, because those movies are made with huge budgets that can only be recouped—yet alone profitable—with theatrical sales. For some smaller-scale, midsize-budget movies, studios have experimented with releasing directly to streaming on demand. In the case of Universal’s Trolls World Tour such a release was highly successful—though it prompted a furious reaction from AMC, the nation’s largest theater chain. NBCUniversal was quick to follow up that any digital release would be complementary rather than a replacement for the theater experience.
Attendees wait for the start of a movie at the Mayfair Theatre in Ottawa on its first day of reopening, July 17. Some Canadian theaters are starting to resume business, but most in the U.S. remain closed. Justin Tang—Bloomberg/Getty Images
As AMC would argue, the theater-studio relationship is symbiotic, and that’s evident from the enormous revenues tentpole films have made at the global box office. Avengers: Endgame made nearly $3 billion worldwide, with a staggering $1.9 billion, or almost 70%, coming from international cinemas. With that much money flowing from outside the U.S., there’s an argument to be made that studios should consider premiering their finished-but-unreleased vault of movies in foreign countries.
“Every studio is asking themselves about international right now,” says Shawn Robbins, chief analyst of Boxoffice Pro, the trade publication of the National Association of Theatre Owners. “We’ve been talking for years about how important the overseas market has become to the box office. This could be the shining example of how important they could be now. With multiple countries, especially China, signaling they might be ready to open, then I’m sure the studios are considering [this market].”
China is the world’s second-largest box office, projected to soon overtake the U.S. The country has dramatically reduced new COVID-19 infections, with daily life somewhat returning to normalcy—including the opening of theaters. Other prominent movie markets in Europe such as Germany and Italy have quelled the virus as well. But the threat of pirated titles leaking to North America makes the decision less clear cut. “It might lessen the demand [in the U.S.]; there are those inherent risk factors,” Robbins says, while adding: “We’ll probably start to see movies come out internationally first. It’s just a matter of who’s going to move first.”
On Monday, Warner Bros. officially announced Tenet would open in more than 70 countries Aug. 26, while opening in select U.S. cities Sept. 3, according to the Hollywood Reporter. It’s still far from a traditional release strategy, and it’s not immediately clear how many films will follow.
Beyond revenue, the success of international markets is a silver lining even for U.S. theaters that may lose out on ticket sales if initial global releases leak. In that case, it would be more about encouraging signs of consumer behavior. This past weekend was the second in a row where IMAX reported $1 million box office weekends for the first time since March. During the first weekend, South Korea’s Peninsula garnered $750,000 in sales from just 45 screens in five different Asian markets. Of that, $365,000 came from South Korea, representing the fourth best debut ever of a local language release in IMAX despite limited seating capacity. That’s encouraging not only for the prospect of anticipated American movies doing well overseas, but the willingness of moviegoers in the U.S. to return to theaters once the pandemic declines.
Dergarabedian also pointed to the resurgence of drive-in theaters as an uplifting trend for the film industry. Once considered a near-obsolete venue of entertainment, drive-ins have flourished as an option for audiences to enjoy a communal big-screen experience while maintaining social distance. Walmart recently announced it was getting in on the act, with plans to convert 160 of its U.S store parking lots into pop-up drive-ins.
“The outpouring of support for drive-ins despite the fact that there’s so much content at home on streaming shows there’s a desire for people to go back to brick-and-mortar theaters,” Dergarabedian says. While the relatively small number of drive-ins around the country almost certainly means studios won’t premiere major blockbusters in them, the appetite for the big screen looks poised to rebound.
Update: This article has been updated to include the rolled-out release for Tenet, which was announced shortly after this piece initially published.


fortune--2020-07-27--Goldman Sachs predicts these stocks will benefit from a weakening dollar

The U.S. dollar is slumping, but investors could still make some greenbacks off of a few key stocks.
FX strategists at Goldman Sachs predict the trade-weighted USD will weaken some 5.3% in the coming year, off of a roughly 4% slump from mid-May, strategists at the firm wrote in a note Friday.
To be sure, the dollar has taken a beating recently (the U.S. Dollar Index is down about 4% in the last month)—And there are those that are predicting the coronavirus crisis could topple its supremacy altogether. But despite the selloff, strategists at Goldman believe “the greenback remains overvalued by most metrics and offers poor fundamentals.”
Indeed, Morgan Stanley’s chief investment officer Lisa Shalett wrote in a Monday note that “we finally see the dollar bull dying, too, as the forces that created dollar scarcity—superior relative growth and yields, a shrinking current account deficit and more effective post-crisis policies—fade.”
For investors, that means it might be time to consider repositioning. While a weaker dollar likely bodes ill for domestic-heavy stocks like consumer discretionary, strategists at Goldman point out it could be a boon for a few key sectors with a heavy focus in international sales: Namely, “international-facing” tech and energy (which have 57% and 39% of sales internationally, Goldman points out).
And the big news? Goldman notes since times of weakness for the USD typically make U.S. stocks more appealing for foreign investors, strategists at the firm expect foreign investors to snap up $300 billion of U.S. equities
this year “and replace corporations as the largest source of US equity demand,” strategists wrote.
While the firm notes that “exchange rates are often a reflection of underlying economic conditions rather than a direct driver of stock returns,” stocks in info tech and energy (and those that are higher growth and quality) have historically been the stronger performers. Or, in other words, “When the USD weakens, investors should favor firms with a larger share of revenues generated abroad,” the strategists wrote.
Some stocks that should benefit?
Those with a high concentration in international sales like tech giants Nvidia, Applied Materials, Qualcomm, Texas Instruments, Facebook, Alphabet, and Intel; and some energy names including Baker Hughes and TechnipFMC.
Additionally, the firm points out that stocks with higher sales in Western Europe and BRICs countries (Brazil, Russia, India, and China) have also performed well while the U.S. dollar was down. A few top names in those baskets include PayPal, Accenture, Exxon Mobile and Netflix.


fortune--2020-07-27--Google will allow employees to work from home until July 2021

Alphabet Inc.’s Google will let employees work from home until July 2021, once again pushing back the re-opening of its offices as the coronavirus continues to rage in many parts of the U.S.
The company had previously said workers could stay home until the end of this year. The change was made to help them plan ahead and applies worldwide, Chief Executive Officer Sundar Pichai wrote in an email sent to employees on Monday.
Many school districts have said they won’t open in time for the new academic year, leaving parents facing the prospect of managing their kids while also trying to work. “I hope this will offer the flexibility you need to balance work with taking care of yourselves and your loved ones over the next 12 months,” Pichai wrote.
With Covid-19 cases surging, many U.S. companies are revising their plans to reopen offices. Google was one of the first major corporations to send employees home when the coronavirus began spreading through the country in March. Other major tech companies, including Facebook Inc. and Amazon.com Inc. have also said corporate employees can stay home until at least the beginning of 2021.
The Wall Street Journal reported Google’s work-from-home extension earlier.


fortune--2020-07-27--How the government could boost women- and minority-owned businesses—while turning a profit

Small companies are the engine of the U.S. economy. They’ve accounted for nearly half of all output, half of employment, and two-thirds of net new jobs since 2000, and one-third of total imports.
And what powers that engine, increasingly, is diversity. Minority entrepreneurs created 4.7 million jobs in the past decade. Almost 2,000 women-owned businesses were launched every day in 2019. Indeed, since 2007, the number of women-owned businesses surged 58%, while all businesses increased only 12%.
These accomplishments came despite a dire challenge facing many minority and women business owners: access to capital. Traditional sources of financing are elusive for these entrepreneurs, and many had little choice but to “bootstrap” their businesses.
The current economic crisis presents the ideal moment to fix this. The National Bureau of Economic Research has reported that 42% of jobs lost in the current COVID-19–driven downturn in the U.S. are unlikely to come back, and that between February and April, active Black ownership of businesses fell by 41%. Under circumstances this extreme, we can no longer afford to have our small-business sector bypassed by our capital markets, or by the capital sources that are supposed to be providing that financing. Instead, small businesses, especially women- and minority-led ones, should be targeted for significant increases in capital if for no other reason than they’ve proven their capacity to rapidly and efficiently create jobs.
Fortunately, we already have the template for a solution. In 2018 Congress created the U.S. International Development Finance Corp. (DFC), a government entity with a $20 billion balance sheet, to help investors place capital abroad to spur economic growth and create jobs all over the world. Why not deploy the same model to catalyze private investment in our own neighborhoods?
The establishment of a U.S. development corporation—a government institution with a singular focus on driving capital directly to small businesses by partnering with the private sector—is something our government already has deep experience with.
The U.S. was a founding partner of the World Bank, the Asian Development Bank, and the European Bank for Reconstruction and Development. Development banks use specific types of tools to address gaps where capital markets are undeveloped or are otherwise nonfunctioning. For instance, they offer forms of risk-mitigation, or risk-sharing, to catalyze private lending. They can also make a profit: In fiscal 2019, for example, the Overseas Private Investment Corp., the predecessor agency to the DFC, returned $244 million in profits to the U.S. Treasury.
Congress should take a page from international development finance and establish a U.S. Development Bank to catalyze private capital to small businesses in key sectors and regions where it is needed most: health care, food systems, even resilience and preparedness. The goal would be to create jobs and economic growth.
The USDB could build on lessons from big international development institutions and use technology to ensure its agility. It could use data to assess the creditworthiness of businesses, for instance, speeding loans to market. It could create and partner with community branches that operate in neighborhoods and bring expertise that ensure effectiveness.
In the same way that the International Finance Corp. or the U.S. International Development Finance Corp. back investors in developing markets, the USDB could foster and support locally oriented, private investment funds, largely serving urban neighborhoods. That would allow entrepreneurs to retain control of their businesses while providing growth capital. The USDB should help to scale up and replicate such funds to provide appropriate capital to entrepreneurs in neighborhoods across the country.
The USDB could also entice other institutional investors, who are providers of capital at scale, to participate by pooling investment opportunities into investments that would attract this capital.
Wharton finance professor Jeremy Siegel recently observed that mom-and-pop businesses have been hit “far worse than what we saw in the stock market.” There is no reason to think that these companies will come back quickly on their own.
A U.S. government-sponsored development corporation would provide a comprehensive solution, and a way for the government to move forward to deal with deep-seated structural problems in a way that could also provide a much-needed stimulus. The time is now for government to take the action needed to change the equation for small businesses, and for the resourceful and resilient entrepreneurs who seem well suited for a challenge of such serious national consequence.
Dale Mathias has had a 25-year career in finance in both the U.S. and sub-Saharan Africa, and is a former associate dean at Columbia Business School. Agnes Dasewicz leads the Capital Access Lab, an initiative at the Ewing Marion Kauffman Foundation to increase capital investment to underserved entrepreneurs. Both worked on the development of the BUILD Act, which established the U.S. International Development Finance Corporation.