Illustration: Sarah Grillo/Axios

What to do about the billions of dollars of non-payroll liabilities that can't or shouldn't be paid? In normal times, companies file for bankruptcy protection when they can't pay their debts — but these aren't normal times.

The big picture: The costs of bankruptcy are enormous. It is a huge burden on the court system, it can last for years, and it tends to destroy institutional capital. Few companies come out of it unscathed, with a motivated and largely intact workforce.

Nobel economics laureate Joe Stiglitz has long been a proponent of what he calls "Super Chapter 11," which would be implemented in times of crisis, when a large number of companies are defaulting on their debts at the same time.

  • His metaphor: If a student fails an exam, that's probably her fault. If 70% of the class fails an exam, that's probably the teacher's fault. In that case, you don't start from the assumption that the student did something wrong and deserves some kind of terrible consequence.

How it works: Under Super Chapter 11, there would be a strong presumption that companies would continue to operate with their existing workforce and their existing management. Then there's a quick-and-dirty formula — "rough justice," Stiglitz calls it.

  • The top claimants are wage earners: Keep paying employees.
  • Then come suppliers, followed by tax obligations. (Normally, tax liens always come first.)
  • Bank lenders and bondholders receive nothing until the company is profitable.
  • Shareholders are mostly wiped out, but receive warrants which allow them to start making some money if the company achieves its pre-crisis valuation.

Of note: Toys R Us would still be going if Super Chapter 11 had been an option.

  • Between the lines: In times of full employment, it might be OK for such companies to go under. But society as a whole can't afford to see thousands of retailers closing permanently because of the crisis.

The bottom line: In times of global crisis, the normal financial architecture needs to be reworked. Some creditor protections are lost, but the gains for workers, citizens and corporate continuity make that a worthwhile bargain.

Go deeper: JCPenny weighing bankruptcy amid strategies to deal with coronavirus

Go deeper

Jul 31, 2020 - Health

GlaxoSmithKline and Sanofi nab $2.1 billion federal vaccine deal

A Sanofi vaccine manufacturing plant in France. Photo: Joel Saget/AFP via Getty Images

The Trump administration is paying GlaxoSmithKline and Sanofi $2.1 billion to help the companies get their coronavirus vaccine through clinical trials, cover some manufacturing costs and purchase an initial batch of 100 million doses.

The big picture: The deal, which also includes the option of buying another 500 million doses, is part of the federal government's plan to accelerate the development of as many promising vaccine candidates as possible.

Mike Allen, author of AM
Jul 31, 2020 - Politics & Policy

Biden campaign vows virus focus

Joe Biden puts on a mask after a campaign event in Wilmington, Del., on Tuesday. Photo: Andrew Caballero-Reynolds/AFP via Getty Images

Joe Biden's campaign contends that President Trump's talk of delaying November's election is an effort to distract, and vows to be what a Biden aide called "laser-focused" on Trump's pandemic response.

Why it matters: After aides convinced the president that the issue was hurting him badly in the polls, Trump has tried for the past two weeks to show renewed focus on the coronavirus, including the restoration of his briefings.

Updated Oct 7, 2020 - Health

World coronavirus updates

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Data: The Center for Systems Science and Engineering at Johns Hopkins; Map: Axios Visuals

New Zealand now has active no coronavirus cases in the community after the final six people linked to the Auckland cluster recovered, the country's Health Ministry confirmed in an email Wednesday.

The big picture: The country's second outbreak won't officially be declared closed until there have been "no new cases for two incubation periods," the ministry said. Auckland will join the rest of NZ in enjoying no domestic restrictions from late Wednesday, Prime Minister Jacinda Ardern said, declaring that NZ had "beat the virus again."