Have all the CEOs and Venture Capitalists Gone Crazy? (Spoiler Alert: No)

By John Banks

When it comes to re-opening the economy, Americans are cautious.

A new poll of 900 registered voters, conducted April 13-15 by NBC News and the Wall Street Journal, shows that 58% of respondents were more concerned about the risks of re-opening too quickly, versus the costs of re-opening too slowly.

Based on this poll, it seems a majority of Americans “get it.”

They recognize that COVID-19 is a serious threat, that social distancing has saved lives, and that the current death toll — more than 40,000 Americans as of this writing — would have been far higher by now had no action been taken.

And yet, the poll result suggests a significant contingent of Americans — those in the other 42% — still have not bought into the merits of social distancing and sheltering in place, or at least not fully. Some would rather re-open sooner, and some still insist this is “just the flu” or some variant of such.

Then, too, based on photos from demonstrations that have popped up in multiple states these past few days, “COVID-19 IS A LIE” has become a protester rallying cry.

(The most amusing pic showed a demonstrator holding up their “COVID-19 IS A LIE” sign while wearing a breathing mask and head-to-toe personal protective equipment.)

To be clear, we’re not exactly sure what it means for a virus to be a “lie.” Is the virus itself a lie? The origins? The level of danger? The threat posed to the economy? Something else?

For the sake of argument, we’ll assume the “lie” being referenced is the belief that social distancing measures are worth it — and that the overall pandemic response is logical rather than hysterical.

If one views a commitment to shelter-in-place and social distancing measures as the “lie,” this would imply the 58% of Americans who support caution, and only want to end shelter-in-place slowly and carefully, are the ones buying the lie.

Whether the protesters believe this specifically, we have no idea — but a significant chunk of Americans seem to. Given that backdrop, today we’ll address the “COVID-19 IS A LIE” hypothesis with a behavior-and-motives inquiry.

To be sure, the math-and-data-based case for shelter-in-place and social distancing remains compelling to the point of being overwhelming. We’ll have more on that tomorrow (with respect to new data and evidence coming in).

But today we’ll make a non-math argument, based on the power of behavioral signaling from intelligent and well-resourced individuals who have “skin in the game,” meaning, their signals are genuine because they have a lot to lose.

So let’s begin.

If you are personally partial to the belief that COVID-19 is a “lie” in the sense that shelter-in-place and social distancing measures are unnecessary — and that the entire government response is an overreaction — and that actions taken to stop the spread were overblown and continue to be overblown — try asking yourself the following:

Is Jamie Dimon, the CEO of JPMorgan Chase, dumb or crazy?

How about David Solomon, the CEO of Goldman Sachs?

Or how about Bob Iger, the ex-CEO of Disney (who still runs the show from behind the scenes)?

Or Adam Silver, the commissioner of the National Basketball Association (NBA)?

Or how about the vast majority of CEOs in the S&P 500, and all the venture capitalists in Silicon Valley?

Are they dumb or crazy, too?

If your answer is “no” or “of course not” — and yet you believe COVID-19 is a “lie” — then why would all these smart, powerful, rich individuals go along with that “lie” at great cost to their empires and fortunes?

The CEOs and entities just mentioned are collectively losing trillions in revenue and profits right now. 

The cost of social distancing and economic shutdowns has turned world-beating companies into temporary basket cases.

With a handful of exceptions, these companies’ earnings are falling off a cliff — and the pain is going to get worse, and in some cases could become catastrophic, due to the “medically induced coma” (to borrow a Paul Krugman phrase) that the global economy has been placed in.

And yet none of these CEOs or venture capitalists or titans of sports, media, and finance are mounting a fiercely funded shelter-in-place rebellion, or otherwise spearheading a data-driven media assault on the “faulty” science and math behind the shutdown measures that are killing their companies.

If COVID-19 is a “lie,” why would the smartest and most powerful capitalists put up with it, when the lie is hurting them specifically? Admit it — that doesn’t make sense.

It is one thing to assume government officials are getting the math, and the overall COVID-19 story, wrong. Those who assume every government official is corrupt or incompetent can plausibly make this argument if they reach a little (or maybe reach a lot).

But assuming the same for juggernauts of the capitalist system — who employ droves of brilliant people, and operate first and last from a bottom-line profit motive, and do cost-versus-benefit analyses all day long as their job — is a different story.

To put it another way: If the COVID-19 mitigation response comes down to a math error, that would imply that Jamie Dimon, the billionaire CEO of JPMorgan, either can’t use a calculator or has somehow lost his mind.

Either that, or Dimon and all his fellow bankers and Fortune 500 CEO colleagues are willfully tolerating a delusion that, on balance, is costing them hundreds of billions per month in revenues and profits as their businesses sit idle and consumer spending collapses.

How is that supposed to make sense? 

The big banks are greedy — all of financial history supports this basic notion.

What’s more, for every publicly traded company — let alone every company in the S&P 500 — the capitalist mantra of “maximizing shareholder returns” enshrines a hunger for profit into cultural law.

In fact, if a publicly traded company does something that hurts shareholder returns, or somehow credibly fails to maximize shareholder returns within the operating bounds of the law, the company can get sued. It happens all the time.

If COVID-19 is transparently a “lie,” as protesters claim, then the big banks (and many more) are sacrificing their profits — and possibly their solvency via mass loan defaults — in exchange for a lie.

And getting what in return exactly? A pat on the head? The profits are supposed to be the point. Why would they set those on fire?

Or take the behavior of Brian Chesky, the CEO of Airbnb, and his Silicon Valley backers.

Airbnb, the home-sharing giant, is a Silicon Valley darling. It was also once that rarest of beasts, a Silicon Valley “unicorn” with a sensible business model that is profitable at scale.

Prior to the pandemic, Airbnb was valued at more than $30 billion. The company was also en route to a hugely lucrative initial public offering (IPO), widely anticipated to be one of the biggest IPOs of 2020.

But now — thanks to pandemic response measures — Airbnb is facing an existential crisis.

The company has raised billions in emergency short-term loans at a punishing 10% interest rate. Hopes of an IPO are a distant memory. 

And there are now questions as to whether Airbnb can even survive in a post-pandemic landscape — nobody traveling, nobody wanting to stay in strangers’ homes — and gloomy inquiries as to whether or not Airbnb’s best hope is survival at a fraction of its former size. 

This translates to epic amounts of vaporized profit and long-term capital destruction via revenue losses and valuation shrinkage — tens of billions in cash-out value that would have gone into the pockets of Airbnb’s still-private shareholders.

And those still-private shareholders, by the way, happen to be a “who’s who” of the smartest, most connected, and powerful venture capitalists in Silicon Valley.

And all of these aforementioned losses are coming directly from COVID-19 mitigation measures, which, in turn, are directly crushing the Airbnb valuation and outlook.

So if it’s all a “lie,” why aren’t these people screaming?

If there was a genuine case to be made that the COVID-19 math is faulty — and that sheltering in place was a waste of time and a grossly inappropriate, unnecessary blunt instrument — then Brian Chesky (the billionaire co-founder and CEO of Airbnb) and his coterie of super-wealthy and super-connected VC backers would be making that case at full volume. Chesky especially, as his personal baby and life’s work and fortune are now getting splattered like a bug on a pandemic windshield.

Furthemore, with regard to Silicon Valley, Airbnb is just a single high-profile example. The carnage behind the scenes is just as bad, if not worse.

All kinds of Silicon Valley portfolio companies, unicorns and pre-unicorns not yet public, are seeing their valuations ravaged, and revenues smashed, by the mitigation measures now in place.

If their losses are down to a “lie” around the seriousness of COVID-19 — and a transparently dumb lie at that, enforcing harmful stoppage measures for no valid reason — then the Silicon Valley elite should be howling from the rooftops out of pure self-interest in putting things right.

But again, they aren’t making a peep. Why?

Because the epidemiologists and the trained experts are stone-cold correct, that’s why. The measures being taken are the correct thing to do, not based on ideology or squishy feelings but the cold, hard math of what will happen if a “do-nothing” course of action is taken.

Then, too, if COVID-19 is a “lie,” then every major company that accepts this lie as fact is doing its shareholders a disservice in rolling over and allowing the disruption of commerce. That sure sounds like negligence if it’s true.

And yet, where are the shareholder lawsuits? Why is the system not flooded with them?

As we said earlier, shareholders sue publicly traded companies on a routine basis.

If management of a publicly traded company makes a decision that is deemed negligent in a way that hurts shareholders, those actions can warrant a lawsuit under a blanket designation of “securities fraud.”

In fact, as Bloomberg columnist Matt Levine likes to say, “everything is securities fraud,” meaning, when shareholders get mad at management for doing almost anything at all that hurts the share price, they can find a justification to file with the SEC on grounds of the share price going down unnecessarily.

These lawsuits are a normal thing. Meanwhile the COVID-19 shutdown has created the most epic vaporization of shareholder wealth (in a space of mere weeks) that anyone has seen in their lifetime.

So why aren’t shareholder lawsuits happening en masse with COVID-19 if it is all based on a “lie” transparently weak enough to be taken apart on a witness stand?

Why isn’t counterfactual evidence and a pounding of the table for the “correct” math pouring in from every corner, and being wielded in a court of law? Where are the “real” experts to counter the bogus ones?

And where are the activist hedge funds in all this?

Activist hedge funds are some of the most litigious and deep-pocketed players on the planet. They love to sue. They love to write poison pen letters to management. They love to build up their case in the court of public opinion to influence company boards or the SEC. And they love to force strategy changes on CEOs and their boards to generate quick upward movement in the stock price.  

If COVID-19 mitigation measures were a giant mistake, and CEO compliance with shutdowns and public acceptance of massive business losses was tantamount to a mistake, you would see activist hedge funds having a field day.

Carl Icahn, and a great many other activist legends, would be on a rampage.

You would see hundreds of thousands of work hours in a collective high-powered hedge-fund effort, led by a phalanx of the highest-profile activist hedge fund billionaires and their lawyers, with a veritable cornucopia of media campaigns and cable interviews spilling forth, all aimed at changing the strategy of these “lie”-oriented COVID-19 strategies, and wrangling compensation for losses created by “hysteria.”

And yet we see none of that. Why?

Either all these razor-sharp activist hedge-fund managers are bamboozled, too — or all of them are somehow going along with mass wealth destruction out of weird complicity (this requires expanding the conspiracy theory to cover everything!) —  or, as door number three, you have the only option that makes sense: The basic math and science of COVID-19 totally checks out, which is why nobody in a place of deep privilege, power, and incentive is pushing back in a serious way.

It’s the dog that didn’t bark.

Every major CEO is supposed to be out to lunch on COVID-19? Every shareholder with the means and motivation to sue, somehow missing in action? Every activist hedge fund, off the mark or asleep at the wheel? Every venture capitalist with a portfolio being ravaged, too meek to rise up in fury?

How does that make sense? It doesn’t.

The more realistic conclusion is that the COVID-19 threat is real, the math and science behind the mitigation efforts are real, and the 58% of Americans on board with this are using common sense.

It’s the old “follow the money” rule of thumb, but applied in reverse.

People show you what they’re about with their actions.

Right now, the most powerful capitalists on the planet are on board with COVID-19 mitigation measures, at a dramatic — and in some cases catastrophic — cost to their own bottom lines.

If they are doing all that for a delusion, they would have to be fiscally suicidal, or astonishingly inept, or both at the same time.  

The simple and straightforward conclusion — which we can arrive at through a simple examination of behavioral signaling, watching the people with ample means and incentive to push back — is that the COVID-19 mitigation measures are justified.

A critical mass of razor-sharp individuals, who are paid to conduct cost-benefit analyses and make forward-thinking decisions as their job, can see that clearly enough to accept epic destruction to their own bottom lines as a necessary side effect.

And that is why they are quiet, instead of screaming bloody murder.

So when you “follow the money” and put two and two together, you realize that upper-echelon capitalists are willing to endure a crushingly painful profit loss — to their own enterprises and their own bottom lines — for a simple reason:

Because they understand the COVID-19 threat is legitimate, and that short-term hits to revenue and profit, while huge and immensely painful, are a logical trade-off to avoid catastrophic losses born of doing nothing (or not doing enough).

Can we make it any more clear? The COVID-19 response measures, while harsh in an unprecedented way — appropriate, it’s a 100-year pandemic! —  are not “hysteria” or “crazy” or a “lie.”

To argue as much is to argue, by extension, that all the world’s captains of capitalism have lost their marbles. That is a hypothesis one could truly deem nuts.