Corporations should keep paying to entities who don't have as much wealth as them. For some people who aren't extraordinarily rich, it maybe their only source of income.
Many of these retailers were barely holding on as it was. Any "wealth" that they have is heavily encumbered by debt. They have bills to pay and severely reduced income. Someone's not getting paid.
You realize that the retail business can be quite difficult and that a monthlong shuttering can and will drive many into bankruptcy. Rent payments without income will put the nail in the coffin for many businesses.
I do agree with your sentiment. Paying their workers who are probably struggling significantly at the moment would be ideal. I don't feel that landlords need the $'s as much as those workers.
> a monthlong shuttering can and will drive many into bankruptcy.
They should have saved up- a decent emergency fund is three+ months of expenses, or so I'm told.
In a better world...
Didn't save up? You lose your business. Either it goes under or you sell it at fire-sale prices to somebody who has the assets to keep it afloat until things stabilize (possibly the government).
Your workers? Of course, the government will support them as individuals. And you, too! You won't be homeless or starving, even if your business fails completely. You just won't have your business anymore.
"But what about startups or very small businesses who haven't had time to accumulate enough capital to survive this?" Then you do what you usually do to turn a rare risk into a predictable expense: buy insurance.
But everyone will end up poorer if we let mass bankruptcy to wash over the economy. Many of these SMBs and large corps took years to establish and have domain knowledge, trained work forces, supply chains that can’t just spin up easily. A little collective sacrifice and collaboration goes a long way when everyone is sinking together.
> Many of these SMBs and large corps took years to establish and have domain knowledge, trained work forces, supply chains that can’t just spin up easily.
And the value of all that will help get them a higher price when they sell the company.
Investors too scared to snap up these bargains? Cool- the government buys it and nationalizes it.
A little collective sacrifice and collaboration goes a long way all the time- not just when you get run over by the steamroller you were picking up pennies in front of.
In normal times we have the bankruptcy courts to facilitate an orderly wind down and prevent fire sales. Its called the automatic stay, it prevents creditors from taking any action against a company in the zone of insolvency to seize assets, restrict credit or in any way gain a first mover advantage. In a crisis of the current scale, the normal system can not handle the volume of bankruptcies.
I would be ok with the government buying companies to preserve value but most American leaders are morally opposed to this type of intervention so it is basically impossible to do what you're suggesting.
"Didn't save up? You lose your business. Either it goes under or you sell it at fire-sale prices to somebody who has the assets to keep it afloat until things stabilize (possibly the government)."
In this scenario a wealthy person who owns a business can simply keep their business afloat with their personal money, whereas someone with a more modest financial situation would go bankrupt and be forced to sell at pennies on the dollar to...someone who happens to be sitting on a pile of cash. That clearly leads to a consolidation of capital in the hands of the wealthiest people, which most people would consider to be a bad thing. Plus, more rural communities in general are a lot more dependent on middle class small business owners, many of whom are likely already struggling even before a crisis do to a stagnating local economy.
If we're talking SMBs: That's rarely possible in a small business, especially where costs are high and margins too thin. Business interruption insurance (with often mandatory flood insurance) is supposed to handle that, but it's an added cost and may have exclusions that make it pointless.
For landlords, BII may or may not be worth it.
EDIT: BII doesn't cover unlisted force majeure incidents, so most tenants and landlords are hooped. The only entity with enough money and power to make people whole is Congress. They can buy a few less F-35's and nukes, and help the people on the home front.
I'm really, really confused when I read comments like yours. I mean, what problem are you trying to solve? What goal are you trying to accomplish? Why would you blame the businesses for a problem that the government caused? [0]
Just think about it for a second. The real goal here isn't the eradication of businesses. The idea behind a quarantine is to prevent the spread of a disease. This involves reducing contact with other people and therefore as a side effect businesses that involve a lot of people being in contact have to shut down or at least make their employees work from home. So our goal is clear. We must defeat covid-19 and all sorts of other future diseases.
Now, let us think about what prevents us from deploying an effective quarantine. First of all people need to meet their basic needs like food, drinks and shelter (without it quarantine is impossible). The way we structured our society is that everyone pays for what they need with money. That money is obtained through employment and it is used to make workers perform tasks that ensure we have food, drinks and shelter. For a successful quarantine we need to maintain a working economy before, during and after the quarantine. If we fail to do so then future quarantines may fail. If the economy and businesses collapse because of a disruptive quarantine then we might decide to never have quarantines again in the future. If the economy collapses because of a government intervention, such as a quarantine, then it only makes sense to use a government intervention to prevent the collapse of the economy. We could decide that it's the responsibility of each individual business to weather a government intervention and let them collapse but this would significantly decrease the popularity of quarantines and make them less effective because people will simply break the rules.
Now that we have decided to intervene, what types of intervention are necessary to counteract the effect of quarantines? Well for starters the problem most businesses face is that they are fundamentally working but the quarantine is temporarily preventing them from functioning but they are almost guaranteed to make money in the near future. This can indeed be solved by having an emergency fund but it can also be solved by simply giving the businesses a loan. It is effectively the same principle. Businesses forgo profits to cover emergencies.
Does this type of "bailout" create a moral hazard? Will businesses stop having emergency funds because they can get a 0% interest loan? Fortunately there is no moral hazard. If a business gets the loan it covers the missing 3 months but if it is unprofitable then it will collapse anyway. Any money that wasn't paid back is effectively an unorthodox form of unemployment benefits. Now lets imagine a different type of bailout.
What if we simply let struggling companies let the government pay the wages of their employees? This could be abused by profitable companies that can keep their employees busy but somehow manage to trick the government to cover their expenses. What if we pause rent and mortgages? The banks end up holding the bag. They do have access to cheap loans but putting the banking system at risk will just encourage more bank focused protectionism/bailouts because the bank is now responsible for every collapsed business that didn't repay the loans.
So let me summarize this. The effectiveness of quarantines depends on public acceptance and low disruption. Disruption can be prevented by providing just liquidity to businesses. Bad businesses use the money to pay their workers before they inevitably collapse after the quarantine. Good businesses will keep functioning after the quarantine and pay their loans back but they do not gain unfair benefits compared to companies that have emergency funds.
[0] Yes, Covid-19 will kill a lot of people but it certainly will never kill the _entire_ economy like the every government on the planet is doing right now.
That's obvious. Corporations like Target and Walmart can weather the storm and shouldn't be gaming the situation for their advantage when they already receive enormous tax breaks, have lobbyists and corporate welfare, where mom&pop and regional chains may not be able to.
Consider Louis Rossmann, who's now had to close up shop with $37500 in rent deferred, not including salaries. There are no emergency grants or no interest loans for small businesses, only "low" interest loans which don't help recoup losses.
My mechanic, who has $16k in expenses per month, may have to default on his business, lay-off his brother-in-law, and find a salary job because his landlord is an ahole who will demand all of the back rent when the 90 days is up.
Maybe business interruption/income insurance, which often requires buying flood insurance, is worth it if actually covers force majeure.
Edit: It turns out the vast majority of BII policies do not cover pandemics, so almost all small businesses and landlords in the US are fucked. This will absolutely require federal bailout action or there will be revolution-level seething anger ready to explode.
I'm not sure how widespread this will be, but it will be interesting to see the impact on commercial real estate in SF and NYC where empty storefronts are already a major issue.
I'm imaging a lot of businesses were barely scraping by before the shelter-in-place.
We might see a huge increase in empty storefronts after this passes.
Hopefully the landlords realize there is not going to be anybody lining up to take over these leases if they evict. Forgiving a couple months so a business doesn't have to close is almost certainly the shrewd business choice as well as the moral one.
The problem is many REITs don’t care. They are so large and so far removed from any one property that they would rather it sit empty for years than lower prices and have that affect the market rate and pull their portfolios average price per square foot down.
Storefronts in NYC routinely stay empty for years waiting for a large corporate client to come along, because the long-term stability and rent beat the pants off of any smaller tenant. Losing the stability and rent, I think they're okay with waiting again.
Some of the underlying idea is true (most businesses don't feel confident that remote workers are as efficient as those they can directly supervise), though it was unnecessarily snarky and dramatic. I don't like the idea put forth that employers have a motivation driven by emotion; how you manage your employees is mostly driven by efficiency and profit.
Requires Congress to act, as they have fiscal policy authority (versus the monetary policy authority granted to the Federal Reserve).
If neither are assisting, you have to play hardball yourself. Banks and commercial REITs have more to lose right now than retail tenants, hence why those businesses are firing the first shot and putting their offer to landlords on the table. “Pray I don’t alter the deal further”
Did the recent money-market bailout fall under the Fed's remit? Yes, the mechanism was different, but they were basically acting like the FDIC in that they were rescuing household savings.
In times of crisis, folks are going to argue any actions the Fed takes are within their remit [1] (accepting equity securities as collateral for short term cash through a primary dealer facility?). The vast majority of households do not use a money market fund; their savings are in FDIC deposit accounts or credit unions.
If you want government insurance, use a government insured account, or let’s do away with the idea that some types of assets will be allowed to fail; the Fed will simply step in and backstop the entire economy with “unlimited support”.
Yes. That is the whole concept of lender of last resort. The goal is to avoid a panic fueled fire sale where prices become decoupled from anything resembling fundamentals and instead collapse as everyone acts in concert to irrationally unload otherwise valuable assets. By acting in this capacity the government can allow the market price seeking mechanisms of capitalism to operate on an appropriately longer time horizon.
The government is uniquely situated to do this because 1. It can use future tax revenue over the long term to pay for supporting the broader economy in the short term thereby providing redistribution over time, 2. Can address the entire economy in a systematic fashion rather than having individual actors chaotically rush to negotiate individual deals, and 3. Can print money to prevent markets from seizing up when panic sets.
The alternative is to let everything just liquidate with the resulting mass panic, cash shortages, bank runs, needless bankruptcy, supply chain disruptions, and eventually massive reduction in demand making the market smaller for everyone.
The liquidationist mindset was dominant in the 1920s and espoused by Hoover’s Secretary of the Treasury. Some argue this made the Great Depression far worse than it needed to be. We largely avoided that in 2008 because the government stepped in.
>By acting in this capacity the government can allow the market price seeking mechanisms of capitalism to operate on an appropriately longer time horizon.
This makes it sound like the Market is primary to the State, where observation/history very much paints things as being the other way around. I don't know as one should even be talking about the Market doing anything in this case seeing as the preconditions for it's stable existence are coming into question.
Thats a valid point, I am not suggesting the Market is primary in all things, merely the narrow function of price setting. In the US, the Market is primary for price setting in ordinary times. Very rarely does the US government set prices. You're right though, when push comes to shove, unstable market conditions such as War, financial panic, the Government has stepped in to mandate setting stable prices. Still it would be better if the government can create stable market conditions.
Aside from the economic effects of the epidemic, I would consider this to be part of the public health response. If retail stores don't need to pay rent, they're going to feel less pressure to stay open and get customers in where they can infect each other.
“The court system is just going to get flooded with a million of these disputes between tenants and landlords,”
I'm absolutely not a big fan of collectivism, but sometimes, individualism just doesn't work. Sometimes, you have to step in and solve problems collectively. No, it won't be fair, yes it will be one-size-fits-all, no you can't please everyone. Suck it up, buttercup.
Whether you like it or not, we're in this current shit together, all of us.
I'm able to pay my rent. If me paying mine means the newly unemployed people don't have to during this thing then I would prefer the situation that's unfair toward me.
We really kick the lowest people into the dirt here and the place we do it the most is housing. It makes our economy extremely unstable, not to mention it's pretty unpleasant to know that you're only a couple mistakes away from being in a similar situation and to be around a bunch of people who feel the same way. It doesn't need to be like this, the US is mostly trees and all but the most dense places have lots of room for growth. We've prevented it and now it's time to pay for our mistakes.
Americans live in relatively huge houses, with tons of stuff that we don't need, use, or even get any sentimental value out of. I'm not saying we need to transform into Japan - it was truly nice to be able to visit wealthier family and their big houses with their "fk you" foyers and finished basements bigger than any apartment I've ever lived in - but the average American nuclear family does not need more then 2000 square feet (if that), day-to-day. Once you eliminate speculation on grandiose properties - which in turn drives up the prices of your given McMansion or SF bungalow - maybe you can figure out a way to provide everyone with decent, dignified housing that's appropriate for their family size and lifestyle. People like to say that the economy isn't zero sum, nosiree, but it's mighty suspicious how much homelessness rises in cities where apartments go for 7 figures cash, or $3k+ a month in rent.
This moral grandstanding is not helpful. If you want to talk to about the endemic problems of American housing I'm happy to, after this pandemic has passed. Until then, we all should be focused on solving the immediate problems and helping each other. Pointing fingers at the broken bits and complaining about them distracts everyone.
Are we spilling ink for the sake of the owners of these retail spaces? Do you think they are going to be any better off if these retailers just stop paying rent, and go out of business, instead?
Instead of grousing, the landlords should be petitioning for their mortgage payments to be suspended for this time period.
Then your response is a non-sequitor - because your criticism can be levied against both the person endorsing that solution, and the person endorsing the status quo.
Oh, we are all going to pay for this crisis, one way of the other.
If burning everything to the ground because pausing the economy is somehow unimaginable, then a lot more people will be unemployed, a lot more businesses will go bankrupt, and to restart the economy a couple of months from now, a lot of tax money will have been spent in unemployment benefits, food stamps, and various stimulus packages and bailouts. That's my tax money being spent, given that I'm keeping my job and my salary.
If a pause means it takes less tax money to get the economy up and running again, to get everyone back on their feet, back in jobs, back to paying rent, back to getting salaries, then that's a good thing for me as well, even though it's "unfair" and "collectivist" and "socialist".
Now, I'm not saying a pause is the best solution I'm not an economist, I have no idea. I'm saying it's a solution, and you shouldn't dismiss it on reflex just because it's a collectivist solution.
No, that's the complete opposite of what I'm saying. Keep paying rent if you can pay rent.
But I understand that it's extremely difficult for some people to accept a solution that's unfair for some individuals, even though it's the solution with the least amount of total negatives. As collective solutions tend to be.
You ask them. If they say no, then they can't pay rent.
"OMG everyone is going to totally take advantage of this!"
Not everyone, but yes, plenty of people and business will.
"OMG that's unfair."
Yes, I acknowledged that from the start. The whole point of my argument is that this might still be preferable to the alternative, it might still be better than sticking to what's 100% fair, because collectively we might emerge stronger from this crisis if struggling businesses are afforded leniency, while the rest of us keep paying our bills on time.
But thank you for perfectly illustrating my sidenote on how this way of thinking is completely alien to many Americans.
not all landlords are rich and/or have rent as their entire income in normal times. my friend is a "landlord", in the sense that she rents out the spare room in her house to help pay the mortgage. now her entire industry is shut down and her tenant isn't getting paid either. no matter how responsibly they manage their finances, most people can't handle suddenly having multiple sources of cashflow go to zero.
Ah yes, because there are so many people in the market to buy rental properties in a giant economic downturn. Nevermind the reason you are selling is because its impossible to rent out.
I'm sure a buyer can be found at the right price, it's called supply and demand.
We wanted a free market for housing and ended up with EUR 500k studios in Paris. Can't people wrap their minds around the fact that house prices also go down?
Same way that your tenants who cannot work will buy groceries. Either private charity, savings, or government intervention would have to cover the income gap to keep people alive in this time of crisis.
I think that fundamentally what I'm trying to criticize, is the original proposal shifted all the burden from one class of people to another class. And then assumed that the problem just goes away, without having to do anything expensive like the government providing emergency funding. But its not that simple - its not like debt holders can neccesarily just take the hit. They have things they need money for. They have people they employ who need to get paid. Sure, there is a certain amount of a hit that can be taken - but ultimately money has to come from somewhere or your just shifting which class of people are totally screwed by this, which doesnt solve anything.
To be clear, i'm a hypothetical landlord. Not actually a landlord.
> You’d buy groceries with your emergency fund. As a self employed person it is your responsibility to do this for yourself.
Its everyone's responsibility to have an emergency fund. Why is the answer that the landlord should rely on his/her fund instead of the tennant relying on their fund to pay rent?
Having acted as a landlord before, and having rented before, the only thing either party can really do is ask nicely and hope for the best.
On either side of the table, I'd hope for the fastest return to an ideal situation.
Luckily my company is doing fine, and I can work from home, so my income is still stable. Hopefully that makes it easier for the guy I'm paying rent to, to be easier on his other tenants that can't afford to pay.
It's one of those "I might need it myself someday" kinda things.
Stop interest on all loans for 90 days. Defer principal on all loans by 90 days. In 90 days, payments start up as before (and just end 90 days later). Same thing bubbles for all contracts. Leases and rents are free for 90 days. Contracts switch from net 30 to net 120 terms. Etc.
You pause the cycle of debt.
It works for home mortgages, small businesses, airlines, and almost everyone else. And it avoids the need for a 2 trillion bailout / stimulus package. It allows much more targeted aid at a fraction of the cost.
As a whole nothing connects the financial system to the real world. Therefore it cant fail. If the robots take over and humanity goes extinct the financial system will continue to work just fine.
You just said there should be no stimulus package. Why did you suddenly change your mind and say "We can shift the problem to the banks and then give the banks a stimulus package"?
It feels very weird. Why does it matter whether businesses or banks receive the 0% interest loans? It's just a shell game. You didn't solve anything but yet you make your own solution sound better.
As a side note, a down vote shouldn't be the same as "I disagree." If you disagree, please explain why. So far, I've heard no helpful criticisms. Nor have I heard any reason for the down votes -- if I'm doing something wrong, you need to say what it is, or I'll keep doing it.
If you want an echo chamber, then by all means bump this down to -50 with no further explanation.
No, huge tax cuts and cutting regulations that prevent sub prime loans that leave the government incapable of handling a crisis is what causes Banks to fail...
If a huge amount of small and large businesses go bankrupt at the same time, stop paying salaries and fire all their employees, making a huge amount of people unemployed, and stop paying rent, making a huge amount of real estate companies go bankrupt, don't you think we're already in the largest financial crisis in human history?
If we can pause the economy, preserving all employment contracts, lease agreements, loan agreements, etc, then we're in a much better position for restarting the economy once quarantines and lockdowns can be lifted.
But you would rather let everything burn down because existing contracts must be honoured as-is because won't somebody think of the poor bankers?
So, for starters, total personal monthly income is $1.4 trillion dollars.
Most people need their monthly salary to survive. We already need several hundred billion dollars just to shore up unemployment insurance funds, which just pay for a fraction of people’s salary.
This has nothing to do with “the poor bankers”. Mostly it had to do with small businesses which make up the backbone of the American economy and which are collapsing at an extremely alarming rate.
The government can’t just press a big magical pause button on the DVR. The government can try to pickup some of the bills, or it can loan money out at good rates, or it can fire cash bazookas directly into people’s checking accounts, but even the Fed can’t just print enough money to single handedly keep the entire economy afloat while legally restricting people from doing business.
As long as everyone has stopped buying anything and everything discretionary, businesses will be failing and unemployment will skyrocket. Unemployment is a massive drag on GDP because consumer spending is the majority of consumption.
GDP of -25% is not just a “tighten the belt and we’re gonna deal with this” type of event. It’s not merely a question of “we have to do this to save lives” because shooting the economy in the gut actually costs lives too.
You put people out of work and into financial insolvency, and their general health is very negatively affected, and some of them will die. Look at the opioid crisis, for example.
Most people need that salary to survive due to fixed obligations: mortgages, rents, credit card debt, car leases, etc. That's what we need to pause.
Beyond that, you have discretionary spending, which can be cut.
And finally, you have essentials: food, medicine, and similar. That's a tiny, tiny fraction. That's what we need to bail out.
Yes, there will be long-term consequences of lost production, which will shrink our economy a little bit. But that's fundamentally different from debt defaults, bankruptcies, and evictions. Hitting a pause button avoids all of that.
Those payments in turn pay for other things. Stopping them, stops everything. Pensions and 401ks, all kinds of commercial paper holding money short term stops, almost all home and commercial property sales stop, companies can't pay their own big bills due to vendors or fulfill order to customers, or can't convert bonds to stocks.
It's too simple of an idea. What you are looking for is the time equivalent of printing money. Right now that's magical, it's a deus ex machina event. It's implausible. You have to innovate it, and until then it's a fantasy.
> Those payments in turn pay for other things. Stopping them, stops everything.
That's correct. We stop everything for 3 months to get rid of the virus.
Or almost everything.
> almost all home and commercial property sales stop
Have you tried buying or selling a house these days? In most parts of America, you can't -- the registries of deeds aren't open for business with coronavirus. This is already stopped.
> What you are looking for is the time equivalent of printing money
It is like a time-equivalent of printing money. By virtue of the time-limit, it doesn't have nearly the same inflationary pressure. We need to relieve a short-term financial crunch, and the stimulus, zero interest, etc. all do that, but when the crunch is over, that stuff explodes into inflation. This cleans itself nicely.
> Have you tried buying or selling a house these days? In most parts of America, you can't -- the registries of deeds aren't open for business with coronavirus.
You don't actually need to immediately record the deed to buy/sell real estate. I believe this used to be the norm back when remote towns would batch up all their new deeds and send them to the county seat by horse.
The metric needs to be, equally miserable. The innovation needed, is a misery metric. Once most everyone is equally pissed, that's the solution - doesn't matter how bizarre or ideological is seems.
But of course, the track record suggests the actual solution we get will look more like neo-feudalism.
That's a bit romantic don't you think? If society devolves enough to make me completely and utterly miserable, opposed to my baseline misery, then there'll probably be mushroom clouds on the horizons. Whereas some of my friends and neighbors are having panic attacks because they can't go to aruba, or screaming matches with grocery clerks, etc.
All rent should be suspended, across the board, for everyone. Rent is a passive expense that businesses and individuals alike who are not getting any income right now will have no hope of paying.
Do you consider property tax to be 'rent'? Because a large percent of rent is getting funneled right back into property tax, which isn't (yet) adjusted down.
(to be clear, I'm fine with a lot of rent deferment / freezing, but I do think there needs to be equivalent property tax forgiveness for at least retail space)
Not all rent is giant corporations. My mother is a retiree who basically pays her living expenses every month by renting out the first floor of her two-floor home. "All rent should be suspended" would drive her into bankruptcy, and ultimately leave both her and her tenant without a place to live.
Under the circumstances, the only living expenses should be gas and food. If someone who owns hundreds of thousands of dollars worth of capital doesn't have enough money set aside to weather a bad month, hopefully they've been kind and fair enough to their tenants to receive help, or have supported community efforts to help feed those in need and can receive support in turn.
Like, this is why people need to be active participants in their interests, and in the things around them.
Calling it "hundreds of thousands of dollars of capital" somehow makes it sound like massive wealth, as opposed to the single accumulated asset of a lifetime of lower middle-class labor.
It's not pennies, and it's supposed to be evidence of fiscal sophistication. That's what Capitalism is marketed as: the people who are most responsible and talented gain the most wealth. Are you telling me it's not true?
For commercial landlords, we should probably let them stop paying their mortgages, etc., and then the Fed can give 0% loans to the banks who hold the other side of those loans.
That’s an awesome idea. You should write a more concrete proposal and send it to the fed. I have a few friend there and and some of the larger REITs. I’d be happy to help get it in the right hands.
I used to criticize the big tech companies for stockpiling dozens of billions of dollars instead of investing them into their businesses, but it's only now I can see why a move like that was wise.
If at all possible, businesses, like people, should keep a rainy day fund. I wonder if all the companies that used their money for stock buybacks are kicking themselves in the foot right now.
They're not going to have to re-issue shares at a lower price; they're going to get bailed out by the taxpayers.
The conditions for government money should be:
1. All current debt is converted into shares, erasing payback preferences and on-going payments to creditors.
2. Companies must issue new shares as collateral to the government at current market rate, in exchange for the money.
3. Rather than repayment, the government will sell the shares on the open market in years 2-6 (a 5 year window).
4. All share buybacks at the company are banned for a period of 10 years.
It's okay to nationally support critical businesses, but make the shareholders take it in the wallet for their reckless business practices leading up to this.
They took a gamble by buying shares instead of saving -- let them take the hit for losing.
Yeah, I'm not fan of "the corporations" but the decisions that would made by various corporations to leverage to the hilt came from the overall market conditions rather than individual enterprise decisions.
(not that I think much of the parent's idiosyncratic money-scheme but still).
> make the shareholders take it in the wallet for their reckless business practices
The problem is that those business practices weren't decided by the shareholders. The shareholders in most cases are mutual funds holding millions of people's retirement savings. Those people had no say in the business decisions made by the companies; they don't even control which individual stocks the mutual funds invest in. Their retirement savings are not what should be taking the hit.
So where is the accountability, then? Does it fall on whatever % of owners who are active investors? Or are they shielded by the fact that there's a mutual fund present who pledges to simply vote with the board on every decision?
Doesn't saying that these are people's retirement savings and so structurally should only ever be allowed to go up in value create perverse incentives and remove all of the responsibility from.. everyone involved?
Shareholders benefited massively and accumulated huge rewards from the market leveraging up during the borrow-for-buybacks period, and now in a downturn we're throwing our hands up and saying that we can't let those companies face any negative consequences for taking on that risk because nobody was in control? Or some people were in control, but there were also some who weren't?
Something is missing here if a company having passive shareholders means it should do well, business-practices-be-damned.
There isn't any real accountability as far as shareholders being able to hold corporate executives and boards of directors accountable. That is a huge breakage in corporate governance that won't be easily fixed.
> saying that these are people's retirement savings and so structurally should only ever be allowed to go up in value
Who said that?
All I said is that, since the shareholders weren't the ones that made the questionable business decisions, they shouldn't be the ones that are shafted because everyone wants a scapegoat.
> perverse incentives
There are certainly perverse incentives for corporate executives and boards of directors, but they aren't of the form you describe. It's simpler than that: it's just what I said above, that there is no practical way for shareholders to hold them accountable.
> Shareholders benefited massively and accumulated huge rewards from the market leveraging up during the borrow-for-buybacks period
And now they are taking the hit from the market tanking. My 401k is down quite a bit.
> now in a downturn we're throwing our hands up and saying that we can't let those companies face any negative consequences for taking on that risk because nobody was in control?
I'm not saying that. I'm just saying that (a) the shareholders weren't the ones that made the bad decisions, and (b) the shareholders are already taking a hit anyway.
If you really want the government to Do Something, it should fix the perverse incentives that corporate executives and boards of directors face. Having real criminal penalties for breaches of fiduciary responsibility, and stricter rules for what companies that take any investment from retirement funds can do, would be a good start.
An alternative path: The bailees issue preferred stocks to US taxpayers. In case of failure, the taxpayer collects first. In case of success, they get repaid for their investment.
It's easier to stockpile billions of dollars when you have no idea what to do with it. The typical business does not have this luxury. Some tech companies are worth more than some country's GDPs. This advice is analogous to a billionaire telling a minimum wage employee to save more.
> It's easier to stockpile billions of dollars when you have no idea what to do with it.
You are missing the point entirely. A company only stockpiles money if it evaluates all other options, including paying dividends to shareholders, and still decides their best course of action is to not spend it. This is not a decision made passively or by forgetting to make a decision.
Not necessarily at the minimum wage level, but I see a lot of low-income earners with new iPhones or nice cars. Of course corps are operating a different level, but at the end of the day, we all would should try to rid ourselves of debt-mentality.
you are right that most companies should have a rainy day fund, but tech companies like Apple are way way way past a rainy day fund. Apple is sitting on US treasury department level money.
Each month, the US treasury spends close to 4x (~$370 billion) the stockpile of cash that Apple has accumulated over decades ($100 billion.) It's a whole different level.
I'm not sure you got the point. The argument has nothing to do with the absolute amount of cash an organization amasses. The whole argument is about organizations building up economic reserves that enable them to endure long periods of recession or market downturn or a bad product launch or an earthquake. Some companies might have more cash than most states, but the same argument holds if a fruit vendor stocks up a few thousand euros that enable them to remain in business during a disaster.
Apple almost died in the 90s, and that organizational trauma persists to this day. That is probably partly one reason why they amassed so much cash, and why they don't pay as well as other SF bigtech companies.
And Apple, well, all of their stores are closed and I highly doubt they're selling a ton of expensive luxury goods right now -- as millions of Americans fear unemployment and a deep recession.
Cloud is dependent on large corporate spending, which may be in for a contraction as companies cut back or go under.
Startups may find deals harder to land as investors flee to safety.
Perhaps we'll look back and see WeWork as peak bubble, and Covid-19 as the impetus for a sever pullback.
Tech is everywhere so it depends on what industry you're in and how your contributions of tech are funded.
With that said, I think were going to see pressure everywhere. As a recent switch to a new employer, I'm concerned, even if our source of revenue currently appears solid.
Most companies don’t want to suddenly try to rebuild teams from scratch in 6 months. So generally a furlough is preferred outside of the most generic skills. Giant tech companies are likely more concerned about how long the economic recovery takes and if anything can be done remotely.
Apple did feel good enough to launch new hardware, which is now available. Seems to me it would have been smarter to wait and feed off the momentum of people wanting to touch the goods immediately after they were announced.
When presented with the opportunity to either accrue savings, reinvest in the business, or inflate the stock price the executives and boards of these companies chose the latter. This happened to also be a decision that benefited them personally, since the majority of their compensation is in equity. Draw your own conclusions.
Just to play devils advocate. Wouldn’t that be a large dead weight loss if every corporation had six months of operating expenses sitting around in low interest accounts? In total it could be as large as half the worlds GDP?
Doesn't seem like a good idea to keep your rainy day fund in an index. When things go to crap, you're going to take a huge hit before you can turn it into cash.
You're probably missing a lot of financial basics if you have to ask this. The reason why we have stock buybacks and dividends is so that the investors can allocate the money any way they'd like. Instead of letting Apple sit on $100 billion and hoping they are smart enough to invest the money wisely you instead pay that excess money out and then you are free to invest this money into more apple shares, an index fund, bonds or even use it yourself. If you want to invest into a holding company that does nothing but own other companies then you can choose a company that specializes into that and that company is definitively not Apple.
Why is it better for the investor to allocate the money than Apple? Well, it is pretty obvious. Apple has a different risk profile. If it keeps money for a rainy day like covid-19 then the value of the assets it owns must not be correlated with the "disaster" that it is supposed to help you against. An index fund under performs during covid-19 so it's an awful choice for a rainy day fund. Meanwhile investors probably don't care about rainy day funds for day to day phone manufacturing. They might be interested in high risk VC investments that lead to a lot of dead companies but a few unicorns. They might be interested in low risk bonds because they are reaching retirement age. That's information that Apple doesn't have and therefore it will never make a good decision on your behalf.
> Wouldn’t that be a large dead weight loss if every corporation had six months of operating expenses sitting around in low interest accounts? In total it could be as large as half the worlds GDP?
That should be enough to sustain the whole world economy then during something like Covid, no?
>I used to criticize the big tech companies for stockpiling dozens of billions of dollars instead of investing them into their businesses, but it's only now I can see why a move like that was wise.
I'm a member of the Church of Jesus Christ of Latter-day Saints (Mormon). Around December a 'whistle blower' came forth claiming, with extremely limited information available to him, that the Church had as much as 100 billion dollars invested to the press and the IRS [1].
People crawled out of the woodwork to try and vilify the Church for having a considerable amount of money invested legally via one or more investment funds.
Fast forward 3 months, the Church is having to recall missionaries and send them back to their countries of residence, Church buildings are closed worldwide until further notice, the Bishops' Storehouse system that helps local communities via food distribution have added shifts to meet demand for food as unemployment numbers are sky rocketing.
We told the world we save for a rainy day, as we were being accused in December this virus was beginning to spread in China. Now here we are in March with a cushion to keep the Church running while tithes likely dip considerably with unemployment rising as well as being able to assist members and non-members as the global economy grinds to a halt.
The media and those opposed to the Church were quick to rip us apart in December for having a cushion, now they are nowhere to be found when we're in a position to help ourselves and others with that cushion.
Realistically, who else is the landlord going to rent the space to right now? Seems to me it's in the landlord's interest to corporate. All lessees are going to be in more-or-less the same boat.
What surprises me is that they didn't just work this out quietly...
For that to happen there needs to be strong leadership from the top incentivizing standing down behavior with subsidies, not winner take all rock em sock em race to tragedy of the commons
Possibly many did but the ones that didn't went to the press. The press is always on the lookout for stories that either demonstrate some new societal trend or generate outrage, and this is both. All it takes is a couple of disputes between major brand names and their landlords and they have a story.
Yes, this is a critical point. It’s one advantage of the fact that this is happening simultaneously across the whole nation. The entire commercial real estate market has no choice but to work out a single solution of some sort.
“If you owe the bank a million dollars, you have a problem. If a million people owe the bank a million dollars, the bank has a problem.”
The problem is, the landlord probably has a mortgage, and their mortgage has been securitized just like everything else. So modifying the terms probably has more of a ripple effect than you’d think. And who knows who is left holding the bag when thousands of commercial mortgage-backed securities suddenly get down-rated and start to default.
Real estate is next to fall. The bailout will need to be like 10 trillion there. Too much leverage out there on a useless resource (congested land) in a world of remote knowledge work and people scared of physical contact due to ubiquitous viruses. Let all the leverage / bags go to the fed and let it slowly deleverage itself over 10 years.
With real estate, places like India are much less leveraged and their economy more resilient. Most people own their land outright because they didn’t want to get a loan and have to pay tax on it.
The economy is effectively frozen. But you have to distinguish the production process from the monetary, contractual and ownership relations that normally control the production process. We can continue to produce necessary, essential good during this crisis and let the rest of the economy stay frozen 'till the end of this mess.
The situation should be the equivalent of a war or a different natural disaster. Essentially, the processes of finance will need to just stop for a while and then be restarted in a reasonably orderly fashion.
I'm not even sure what everyone howling for immediate and potentially restart of the American economy is even thinking, obviously they aren't thinking much. The economy previous are essentially on life-supports but life supports for the only the rich. Now we basically need literal and metaphorical life supports for everyone but once the situation is stabilized, the negotiations begin.
Just think, a robust restart of the economy would be far easier once an entity to deal with the virus is constituted and can act effectively.
The US economy has recovered from war and terrorist attacks quite well (better than a lot of times). The government directed the lions share of production during WWII and things turned out fine. Come on folks.
You can't turn off and on the economy like a switch.
People need to pay rent and mortgages, or loans will not be repaid. If loans don't get repaid, banks fail. If banks fail, we have another financial crisis. The last one took a decade to recover from and there weren't even that many bad mortgages (as a percent of all mortgages).
Businesses right now are eating a bunch of costs. That can't last for very long before they run out of money, fire everyone, and throw in the towel. They will not have savings to restart after the closure.
Sure you can. You stop rent. You stop mortgage interest. You pause mortgage principal. You do that across the board for every rental, contract, and debt obligation in America. In 90 days, it expires, and everything starts back up again.
International obligations, where governed by US law, get placed on hold too. Ideally, other countries join in the regime. If not, you're just talking about a much smaller amount of debt (US debt held under foreign jurisdictions).
Mortgage-backed securities generate no income for a couple of months.
If you stop paying other countries, the goods stop flowing. Or are you going to swing the military dick around to force people to give you stuff for free?
That's where you need much smaller bailouts and stimuli. Agriculture is less than 1% of the GDP. The currently-discussed bailout is big enough to feed all of America for years. And it's actually not a bad idea to nationalize food distribution -- supermarkets are where the virus spreads. Many countries have switched to safe deliveries of food.
And conversely, the current bailout, as proposed, doesn't come anywhere close to stopping mortgage defaults, layoffs, and the slew of other issues.
Now, this plan basically means you don't buy new things (cars, laptops) for 3 months, but I think that's okay. But yes, it only covers 95% of the problem. Companies might need help with, for example, restarting production lines, maintenance costs, supply chain delays, or other issues. All that is pocket change compared to what we're looking at spending right now.
Joke aside, you’re spot on in that the economy can only bear a certain level of rent-seeking. That level is going down now, which might also be seen as a return to normal.
Pumping money in ETFs and real estate (aka passive income) can’t enrich everybody, productive output is required.
That joke isn't funny because it's at the expense of the tenants. A broke landlord will prioritize living in his own property instead of renting out.
Also, general hate of landlords only hurts tenants because there are actually quite a lot of very forgiving landlords. My mother owns property and when her tenant couldn't pay she offered the tenant the option to remodel the apartment (she paid for the materials) while the tenant was looking for a new job. Well, 3 months/missed payments later the tenant just disappeared and didn't do any remodeling at all. Needless to say, my mother won't make this mistake twice.
I've met some landlords that are willing to offer special discounts to families instead of just renting the 100m² apartment out to some single tech dude who is guaranteed to pay rent. (in rent controlled markets like Berlin the tech guy always wins)
And those were just the private landlords. Housing association here are municipal and they basically offer you 10+ year leases where you do everything yourself, including the floors and kitchen and in exchange the rents are very low.
Hating landlords and abusing goodwill just makes that goodwill disappear.
First, the situation is not that dire to start with, most people and businesses can meet their obligations. We don't have anything remotely close to a financial crisis. It makes no sense to effectively turn the entire economy into a command economy and effectively declare a default to save what appears to be a fairly small part of the economy that will have trouble. You can have targeted intervention and get most of the benefit without dragging the rest of the economy into this.
Second, you can't just remove credit from the system. Credit is fundamental to nearly all transactions at scale - transactions in the real world aren't atomic, which means businesses are always dealing with receivables and payables, not to mention lines of credit that are designed to help businesses manage them.
There are tons of offsetting contracts, whether in terms of derivatives or insurance, and no one is going to be able to figure out which side of each contract is covered and which isn't and how to price anything given the uncertainty. Do health insurance companies have to pay hospitals? Do car insurance companies have to pay? These are all payments. Nothing happens in an economy without a payment. Do you have to pay insurance premiums? The effective result of this would be all financial markets not functioning and nearly all real markets too, since they are tied to the financial markets for pricing, settlement and credit.
It would be like the global financial crisis but a substantially worse version where every company becomes the Lehman Brothers. You'd have to basically nationalize everything across the entire world and run a command economy because the markets simply won't function at all even on a purely basic level.
> First, the situation is not that dire to start with, most people and businesses can meet their obligations.
76% of americans live paycheck-to-paycheck. Regardless of if you like it or not, a time will come when massive amounts of rents aren't paid. It can either fully immiserate the economy (most likely course of action), or it can be paused.
> the markets simply won't function at all even on a purely basic level
Can we please stop pretending that this zombie market we've propped up since 2008 works? If you like markets, then you shouldn't agree with the fact that the government can effectively be held hostage every decade or so due to "too big to fail."
That day is coming April 1st. The unemployment numbers will come out soon. April 1st will be bad, but May 1st will be terrible. There will be millions of Americans unable to pay for basic necessities. The money from the stimulus will go to rent-seeking and basic necessities.
Ditto. HN is going to be highly irregular in that regard -- a lot of programmers and engineers (and similar desk worker types) who can work from home and still pick up full paychecks. The rest of the world ain't like that.
> 76% of americans live paycheck-to-paycheck. Regardless of if you like it or not, a time will come when massive amounts of rents aren't paid. It can either fully immiserate the economy (most likely course of action), or it can be paused.
And not all of these 76% of Americans are going to lose their jobs. Many people will, many others will have benefits, some others will be able to tighten their belts to make it work. And we can also just give everyone $$$ to ease the transition..
> Can we please stop pretending that this zombie market we've propped up since 2008 works? If you like markets, then you shouldn't agree with the fact that the government can effectively be held hostage every decade or so due to "too big to fail."
My definition of not working here isn't about some people getting unfairly rich at the expense of others. Literally people won't be able to get basic stuff at all. Entire supply chains will collapse since they are based on credit. You can't buy and sell at scale - these all involve contracts and payments. Credit isn't just about lending money for interest.
> Can we please stop pretending that this zombie market we've propped up since 2008 works? If you like markets, then you shouldn't agree with the fact that the government can effectively be held hostage every decade or so due to "too big to fail."
Let's also not forget that what's being proposed here is a TBTF argument. The argument here is that letting a bunch of small businesses that don't have enough saved up to survive a few months of no revenue go under is going to be so bad for the economy that we have to literally suspend the enforcement of contracts more generally to save them. Of course, if this is actually the case, we could just bail out the affected businesses instead of saying goodbye to the system of contracts more generally. And I don't believe we in such a situation yet either. We can probably just let them fail. Most small businesses are very replaceable and failure rates are very high to begin with.
20% is not "most" and no we don't have the figures yet. 20% of Americans being unemployed isn't a good reason to freeze the entire economy such that effectively 100% of Americans are unemployed.
You don't remove credit. You delay payments by 60 days.
And you don't have a command economy. Net 30 terms become Net 90 for a while. That's not a world-shattering explosion. Everyone who buys something has to pay -- they just have the option to pay a little bit later. Everyone who borrows something gets it free for a short while.
And there are two pieces that really make this work:
1. Much of that is offset by the current ~0% interest from the fed. Ultimately, if the 60 day gap kills you, then you chains (ultimately landing with banks) can borrow money with effectively zero interest.
2) Relationships matter. I don't think businesses will do douchebaggy things: Most want to keep employees, customers, and partners.
Credit is something entities are willing to extend because they expect to get paid. Once you break this expectation, no one's going to lend. People and businesses have to borrow, explicitly or implicitly on an ongoing basis. Credit makes the world go around. No one is going to lend if the government makes it possible not to pay and still keep the other side of the transactions. This completely breaks the economy.
And policy decisions cannot be made instantly. The moment something like this is close to being implemented, this will freeze the credit system entirely. And there goes the economy.
We got a global financial crisis last time due to a small number of actors becoming less creditworthy and it being unclear whether they could pay their obligations. That slight change in expectations threatened to freeze the entire economy. To do this on purpose for every entity such that no one is creditworthy? That's insanity.
Don't dramatize. You do get paid. You (potentially) get paid a few months later, and in the meantime, the Fed provides loans at effectively 0% interest.
Who would you rather have: a pile of debtors in your portfolio who have a 50/50 shot of going under in the next few weeks (where a lot of Americans and small businesses are today)? Or a pile of debtors who will pay you with 95% odds in 3 months, and in the meantime, a no-interest loan from the government to provide short-term liquidity until they do pay you?
This doesn't make any sense - the Fed isn't going to provide loans to everyone, individual and business access to these loans is still gated by their own creditworthiness. And if you can make credit that easy, why do you have to do this at all? Why can't we just lend everyone money and have them pay all existing obligations? Why do you have to turn everyone who's involved in simple transactions into long-term creditors, when they aren't in the business of doing that?
And you can't actually lengthen payments for everything - some businesses and people with important resources will simply demand an up-front payment. Which will worsen the crunch for those that are stuck in the middle - some businesses will have to pay upfront, but get paid 3 months later. And no, banks won't want to lend to these businesses and if they can't determine whether you're one of those businesses or not, they will tighten credit on most businesses. Not to do so puts their own creditworthiness at risk.
This is all assuming you have perfect execution too - in reality, there will literally be millions of lawsuits since no one will be able to actually define what you're saying precisely enough to make the implied alterations to existing contracts unambiguous. It's also important to understand that most payments aren't interest payments - some of these cover actual costs.
Edit: consider what every company in the world will do in response to do this - they will review every contract they have to see if there's an angle that will help them optimize for this situation, and what kinds of addendum that they can force on others would put them in a more advantageous situation. No one will just sit and work according the spirit of the new rule, any ambiguities and angles will be exploited and lots of businesses and people will go end up on the wrong end of this.
Banks can get loans for free, and pass that onto credit-worthy businesses. Less credit-worthy businesses can get loans through the SBA through the stimulus. The government's existing programs (assuming the stimulus passes) will breach the extra 90 day gap for most.
And to flip it around, if 50% of small businesses go under, banks will be left holding a lot of bad debt. Banks will go under. Landlords won't have renters, and will be left holding mortgages. Without action, the whole system collapses.
You're assuming the economy is humming along right now. It isn't. Large parts are shut down. Some parts aren't. Those frictions are causing massive structural collapse as we debate.
Also: In most cases, up-front payment is fine while everything else is shut down. I understand the importance of credit. But the alternative is worse. If this continues for 18 months, virtually all mortgages, private and commercial, will be under water. Virtually all renters will be evicted, or rents will have gone down many-fold. Etc.
> Banks can get loans for free, and pass that onto credit-worthy businesses.
Why would they? And who's creditworthy in your world? Are banks going to be able untangle every single contract you have to see how this affects you? Especially in a world where every single customer and every single supplier is going to look at renegotiating contracts with you? The general notion of creditworthiness implies a relatively static world - changing everything is going to make everyone questionable from a credit perspective.
> Less credit-worthy businesses can get loans through the SBA through the stimulus. The government's existing programs (assuming the stimulus passes) will breach the extra 90 day gap for most.
Then why do we need this at all? Why can't we just have the affected businesses borrow from the government? Instead of A not paying B and B borrowing from the government to cover for not being paid, why not just have A borrow from the government so that we don't have to modify every single contract in the world in a highly unpredictable manner and freezing the entire economy?
> You're assuming the economy is humming along right now. It isn't. Large parts are shut down. Some parts aren't.
Most parts aren't shut down. No one is predicting a GDP decline of over 50% or an unemployment rate above 50%. Some parts are shut down, others are doing okay.
> Those frictions are causing massive structural collapse as we debate.
And this proposal literally is the massive structural collapse - it's the equivalent of eradicating COVID-19 by killing everyone.
> Also: In most cases, up-front payment is fine while everything else is shut down. I understand the importance of credit. But the alternative is worse. If this continues for 18 months, virtually all mortgages, private and commercial, will be under water. Virtually all renters will be evicted, or rents will have gone down many-fold. Etc.
Everything isn't shut down and again your business is toast if you're forced to make up-front payments while you're not getting paid. This is silly considering that there's a perfectly reasonable alternative of bailing out from the bottom up.
And no, this isn't continuing for 18 months, that's completely absurd. The economy will simply have to go on if an extended shutdown fails to work and the economic pains reach a certain threshold. Also, it's not honest to compare the impact of a shutdown without your proposal for 18 months with the impact of removing credit from the system for a couple of months. The economy as we know it is completely done if you freeze credit for 18 months.
> And to flip it around, if 50% of small businesses go under, banks will be left holding a lot of bad debt. Banks will go under. Landlords won't have renters, and will be left holding mortgages. Without action, the whole system collapses.
A lot of businesses are going to go under no matter what and this isn't directly preventable. I don't think exposure to "small businesses" is large enough to cause a systematic failure and in any case, delaying payments doesn't solve the problem, if the small businesses themselves are insolvent. What systematically delaying payments does in this case is that you're turning everyone else into a bank. In that world, a lot more entities are left holding questionable debt and you significantly increase the systematic risk this poses, as no one will be able to trust anyone.
What you want to protect are the ordinary people, not businesses and this can be done through direct payments. Business owners are on average wealthier than others - it makes no sense to try to turn the entire system upside down to help them. Keep in mind, under your proposal, most people will lose their income, since income for most people is a payment that I suppose can now be deferred.
You make a whole slew of unsubstantiated statements.
1) Businesses going under is preventable. If a lot of businesses go under, so will banks when those businesses default on debts.
2) Direct payments would need to be astronomical to protect ordinary people for this duration.
3) Loans from the government directly to people and businesses might work if we had the apparatus for it. The critical thing, though, would be to freeze rents and interest if we did that. It'd be a much more complex scheme to implement. If I have a 10 years left on my mortgage, I could get a 10 year loan from the government for the principal, while the bank would lose out on 3 months' interest.
> 1) Businesses going under is preventable. If a lot of businesses go under, so will banks when those businesses default on debts.
And more businesses will go under with your system. Most businesses that are losing most of their revenue can and have planned for losing revenue for a few months. Businesses can't realistically plan for the kinds of changes you're proposing because in a world where the government can modify by fiat every single contract in the whole world, nothing can realistically be planned. It's a total, forced default. And the specific scheme you're proposing turns every business into a bank - any time anyone owes a payment, you become a lender. This magnifies the effect of all insolvencies - now every business is tangled in a web of credit. It literally is the worst of both worlds - you introduce a shock the same way a large default would and ensure that no one could trust anyone, while also actually adding to the systematic risk by entangling every business in the system of credit. At least mass bankruptcies lead to deleveraging.
This is even if you assume that some sort of super AI can magically modify every contract in the world in such a way to best follow the spirit of what you want and have every party somehow agree with this. In reality, contracts are complicated beasts and you can't just modify one aspect of every contract in the world and expect things to be fine. Contracts are going to have all sorts of contingencies that are going to be highly ambiguous in a world where the government steps in and says certain obligations can be deferred. Again, people not being able to meet their obligations is absolutely nothing new in this world and the system is already designed to deal with this.
> 2) Direct payments would need to be astronomical to protect ordinary people for this duration.
No it doesn't. Keep in mind, it doesn't have to protect everyone from everything. $2000 a month for everyone for 2 months is $4000 * 300,000,000 or roughly 1.2 trillion dollars. This isn't much in the grand scheme of things and you're proposing an intervention of substantially larger magnitude. You can also effectively structure this as a loan for most of the people who don't need it by adding a deferred progressive tax on top of it.
> 3) Loans from the government directly to people and businesses might work if we had the apparatus for it. The critical thing, though, would be to freeze rents and interest if we did that. It'd be a much more complex scheme to implement. If I have a 10 years left on my mortgage, I could get a 10 year loan from the government for the principal, while the bank would lose out on 3 months' interest.
This doesn't make any sense - you're the one who proposed that businesses that are screwed by your scheme could survive by borrowing from the government. Why would that work in your scheme but not here? I don't understand the bit about your mortgage - why would you need to borrow (and why would anyone lend you) more than the payments you need to make for the next couple of months? Any sort of emergency government funding would be a credit line akin to extending payments, not a long fixed-term loan.
Again, I don't see any kind of realistic proposal here - it feels like a word game to come up with a vaguely workable-sounding (to people who don't understand how the economy works) plan that helps specific classes of people at the expense of everyone else.
retail (paused) -> land lord (paused) -> bank (paused) -> everyone else -> retail
Do you see the problem? You forgot to pause "everyone else". You'll have to add millions of special case laws to pause everything. That guy with his gym membership who can't use it? Pause it! ISP subscription? Pause it! Mom's knitting club membership fee? Pause it! ... million pauses later you're done.
It's like having 1 million bolts each with a different size. You'll need a different wrench for each bolt. Why not just standardize on a single screw head? Sure screws aren't exactly bolts but anyone who wants a screw can get it. If you're handing out bolts and wrenches then you're picking winners. This is known as a bailout for special interests by only pausing certain hand picked industries.
Meanwhile, a loan works for anyone who wants one. It still means that the economic machine is empty but at least it keeps running and doesn't need to be restarted from scratch.
You can't turn off and on the economy like a switch.
Actually, you can. Money transactions can be suspended and goods can be distributed directly.
If banks fail, we have another financial crisis. The last one took a decade to recover from.
Not even, what we're looking at is the dead Frankenstein construction created to avoid dealing excess speculation of last time. The economy has been artificially supported by QE since 2008 (sure, it stopped periodically but everyone knew it could start up again, stocks values were completely absurd. Half of what happened just now was that fantasy falling rather than the cost of Covids.
If it goes on for any length of time there will be an explosion in organized crime as people seek out the black market. This is how you get a failed state.
Normally yes, but criminals are just as vulnerable to viral infection as anyone else.
The basic question needs to be answered - is this virus bad enough to shut down an economy? If the answer is yes, then renaming the economy from "state sanctioned" to "black market" does nothing - the black market is just as crushed by the pandemic as any other.
What people are arguing for when they argue for a shutdown is that the economy is going to be wrecked no matter what if the pandemic is allowed to rage unchecked. That being the case, there is no tradeoff - shut down the economy to save lives and wreck the economy, or continue with business as usual AND wreck the economy AND have many more lives lost.
What are you smoking? This isn't Captain Planet where the gangs all come from wide ranging and diverse backgrounds, most people who might engage in black market activities are not the same people who are at risk of dying from the virus. There's no scythe of correction in play here. Similarly, the people who are most willing to go outside to engage with a black market as consumers aren't in that group either.
This fantasy where you can just shut down a country for an undisclosed amount of time and break even is an almost archetypical example of why most democracies are representative democracies.
> most people who might engage in black market activities are not the same people who are at risk of dying from the virus.
That is a very bold claim.
Do you have data on the age distribution and comorbidities of criminals vs the general population? I find the claim that on average criminals will be both younger and healthier than the general population to be quite dubious. At the very least, I'd expect you to be able to show some evidence of this claim.
And here I thought that it was Common Knowledge that gang members were young and stupid. Looking at this .gov site I just found [0], it appears that 30-60% of gang members are under 18, and I imagine the remainder isn't going to be over 30.
So maybe criminals in general wouldn't be younger and healthier, but there's a really strong chance that gang members are - and it would likely be gangs running black markets anyways.
Well its certainly true you can do that (World wars prove that) i doubt the united states has its shit together to even attempt that. Even if it did, i doubt it could do it quickly enough to be useful.
Depending on the degree to which they are leveraged, they are counting on loan payments to be able to meet the withdrawal demands of their deposit accounts.
I feel you don't understand the magnitude of the problem. Yes, your money will be fine but will your insurance claim be processed before you have to pay rent?
A bank is like a multiplayer game company. Once the company shuts down, the servers are gone as well. If you can't access your bank account then you lost access to the money until it will be restored by the government. This is why we have bank runs at all. People cash out so they have a buffer until their claim is processed, not because they won't get their money bank.
Maybe we should learn how to, because this may not be the last pandemic we face.
Retailers and citizens can't pay rent. Landlords only need that money (per se) because they owe money to banks via mortgage, or the government via taxes. So government should order the banks to halt collections on real estate, and government should halt collections of property taxes.
Banks might go under? Have the fed print them money. Governments can't afford it? Have the government print money.
Inflation due to increased monetary supply? That's where my idea ends. Perhaps instead of the printed money being a gift, perhaps it is a zero percent long term loan.
Landlords need the money to live? Give its employees the same cushioning we should be giving all citizens through the pandemic.
edit - I am absolutely going to ask people who downvote to give a reason.
This is a huge overstatement. Certain sectors of the economy are frozen: basically, those sectors which serve demand that is discretionary and non-essential, the sorts of things people have stopped doing because they don't want to get infected. Grocery stores, drugstores, etc. aren't frozen--in fact their sales have probably skyrocketed over the past few weeks. All of the supply chains that feed those places aren't frozen either. Not to mention that there is now a huge new demand for various health care items, from masks to ventilators, that companies will be wanting to meet and will be hiring people for.
I should say, the finance and stock part of the economy is effectively. Even, the prices retailers charge are frozen (because this is an emergency and appropriately so).
Essentially production continues and will ramp up. But the process of market adjustment, basically, is frozen and should remain frozen for a while.
My wife and I just bought a small commercial building 6 months ago (great timing). We have already offered rent deferment to our tenants (a restaurant, a bookstore and a few professional offices) with a gradual payback. We are all in this together.
Honestly curious, but I'm sure it will sound accusatory. They (your tenants) permanently lose the business for the months the economy is shut down. But you as a land lord expect to be made whole just over a longer timespan. How is that in it together? In it together feels like you'd lose some portion of the rent you are charging or all of it and expect some amount of relief from the government.
I mostly ask because I'm not fully sure what should be fair for all parties involved. Restaurants, bookstores and offices shouldn't fail because they can survive a once in a hundred year plague. Neither should property owners who are leasing said property. But I don't understand the rules in this situation. You may be preaching about how you're in it together, but if your tenant goes under you may be screwed on your loan payments.
There is no magic solution here, all parties are going to get somewhat screwed by this.
Its not like defering the rent is neccesarily in the best interest (from a purely ecconomic perspective of the landlord). If you defer rent for many months only for tenant to go under when this ends (and lets be real, many tenants are going to go under when this is all said and done), the landlord would be better off being heartless and not defering rent
During the high of the coronavirus outbreak, for individual or company, one could call the banks to postpone mortgages, loans or credit card payment for 1 to 3 months. Business may get longer extension if the situation worsen. That was possible in February, less so now as life turns normal gradually since March. Work resumed, shopping mall reopened etc. schools still closed though.
As for rent, Business tenants negotiate with landlord for rent forgiveness, something like half month or one month rent.
Being a landlord is his business. If the bookstore and restaurant lose business and can't pay their rent, he is losing business and potentially can't pay his mortgage on the building.
Being "in it together" means he's giving them time to repay the back rent instead of evicting them if they can't pay, as he legally could. Commercial lease tenants have far fewer rights than residential ones do.
It's easy to spout "rent forgiveness" but where is that money coming from?
I think the crux is in the wording. For me, being "in it together" means if you're struggling I'll struggle with you. The bookstore is losing business and the landlord, in the spirit of helping out, should lose business as well.
Maybe OP is struggling making their own payments because they don't have the rent money. But ultimately it seems the bookstore ends up with the rough end of the deal. The landlord will recover deferred rent, but the bookstore will not get their lost business back.
To clarify, I applaud OP for doing something that eases the stress of payment. But I think the wording could have been better.
Yes, to me being "in it together" means suffering is shared.
I said it was a nice gesture, and it is, but to me in the long run (assuming the book store doesn't go out of business) you still get your pound of flesh, you just get it a bit later, that's not really suffering together.
The loanlord (bank) has enough money to defer payments for a few months. They might have to skip the huge bonuses for a bit and cut back on lavish perks and parties. A small sacrifice. The Fed could temporarily ease up on the reserve rule a bit to help.
Epidemiologists have terms like R0, CFR, and IFR to describe the spread and deadliness of a virus. Similar terms could be used to describe economic contagion.
When parts of the economy seize up, there are systemic risks that can spread through the system as debtors fail to make payments, causing creditors who rely on those payments to default themselves to higher level obligations. When the vast majority of an economy the size of the USA seizes up... we are in uncharted territory.
The lessor of a commercial storefront can't just "defer" taking rent payment for a month or two just because they're holding property versus, say, a corporation that has to make payroll. The lessor has monthly payments of their own, likely interest payments and property taxes at the very least.
While there are no shortage of estimates (arm-chair or otherwise) for the ultimate fatality rate the world will see from COVID, there have been far fewer attempts to analyze the economic fallout of wide-spread suppression measures like state-wide shelter-in-place orders.
Trillions of dollars in acute losses suffered in just a few weeks will propagate through an economy, like a virus, and magnify the ultimate damages. Restarting an economy that has suffered such a shock, like restarting an electrical grid from a wide-spread outage, is something that requires tremendous care and effort.
Speaking anecdotally, a SaaS business I work with which runs around ~$1 million in ARR has gone from effectively $0 in Accounts Receivable historically to over $100k in AR just this month. Every customer with a payment due has simply stopped paying their bills, as they wait to see how this will all shake out.
A typical small business will have ~3 months of expenses in the bank. By the end of April, if customers haven't started paying their bills, the average small business will no longer exist. The total economic impact of small business is no less than 50% of all US employment. Experts are predicting we could see 30% unemployment next month, which equates to roughly half of all small businesses caving.
So would I. Maybe I should ask a different questions: would you give OP the same critique if they'd offered their tenants rent reductions instead of deferrals?
That's absolutely what should happen actually (rent decrease coupled with price falls). There's no way that real estate prices can stay stable given the current environment.
Prices should be going downward fast across the board, due to the drying up of overall chances to transact for most people. Without those opportunities to engage in business, what little business we can keep going should be kept going.
I think the solution is somewhere in the realm of "pay what you can, and everyone keep adjusting prices down to keep as many people doing the necessary work that we can keep taking place."
Trying to act like the securities depending on on pre-covid conditions mean anything now is like clutching a Reichsmark or Confederate dollar and expecting a satisfactory exchange with a vending machine. The apparatus simply won't support it. The social structure that backed that store of value isn't there.
I think when we look back on this, this pandemic may be quite literally the transition point in Market philosophy moving forward. I'm not sure what it'll look like, but I know if I had a choice in what to hand down to those coming after me, it would be a reset in which those that come after me can have a chance to build up what my parents and grandparents had the chance to.
Maybe I'm just resigned to being the Lost Generation v.2; but the Gilded Age nonsense we've been cruising with up until now needs to stop; both in a normative moral sense, and in a pragmatic, people need to not be sacrificed so the inequality created by current market structures can be perpetuated.
Tear down/stop the pumps trickling wealth up, dump value back in the bottom, let people sit on what productive assets they are physically using, and let people adapt to this new physical threat. We'll figure out the rest in time.
Frankly, the people worrying about a transition to a command economy should realize we were already in one. It was just one where the top 1% were accountable to no one, and growth numbers were what was being optimized for even if there wasn't any net benefit to society at large. See the increasing frequency of corporate malfeasance (Boeing, opioid epidemic, Telcos, PG&E etc) if you really don't believe that everything was reaching the point of too big to fail. We just needed something like this pandemic to happen in order for everyone's physical survival to decouple from the economy's idea of survival to ram the point home.
Around each and every person is the corpse of an industrialized society. We need to figure out what the hell to do with it to maintain carrying capacity. Then we need to just do it.
It seems like a pretty reasonable offer — if you understand how rental markets work.
Landlords take on the substantial risk of long-term ownership, maintenance, and uncertain market demand for their product. Operating costs —- that’s excluding financing costs — typically run 45% of rents. Tenants usually, but not always, pay a higher rental rate than the equivalent ownership cost but have no obligations and no capital commitment beyond the term of their lease. Think about the tenants the OP listed — a bookstore and a restaurant. Do you honestly think someone would start a bookstore or a restaurant if their only option was to buy a building to operate in? The time option is of a huge benefit to the typical tenant and, of course, like anything it costs something.
Of course, there are some terrible landlords out there, but if they were all so bad, tenants would band together and jointly purchase property as a co-op. That this doesn’t happen on a broad basis in the commercial property market even in markets where there is availability of small to medium spaces at relatively low cost tells me the tenants are getting something valuable out of the arrangement.
What matters in this scenario is that these businesses are under government order not to operate. They are unable to make money. Deferment, then, amounts to a catch-22: pay now and go bankrupt; defer, have finances hampered well into the future, and still go bankrupt; or break the lease, shutter the business, and start up elsewhere. The building owner loses a tenant should any of these scenarios play out, and only receives income in the first (wildly cynical) two.
The proper thing to do would be to either waive rent, ask for a percentage relative to the business that could be completed, or to automatically defer payments if they don't arrive on schedule.
You can understand why some would find it unconscionable to insist on anything resembling business-as-usual during this time. Capital owners should be expected to be active supporters of their community interests. If not, I'm unconvinced that they shouldn't simply be chucked out with whatever charity proffered; what good are they?
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[ 5.3 ms ] story [ 222 ms ] threadI do agree with your sentiment. Paying their workers who are probably struggling significantly at the moment would be ideal. I don't feel that landlords need the $'s as much as those workers.
They should have saved up- a decent emergency fund is three+ months of expenses, or so I'm told.
In a better world...
Didn't save up? You lose your business. Either it goes under or you sell it at fire-sale prices to somebody who has the assets to keep it afloat until things stabilize (possibly the government).
Your workers? Of course, the government will support them as individuals. And you, too! You won't be homeless or starving, even if your business fails completely. You just won't have your business anymore.
"But what about startups or very small businesses who haven't had time to accumulate enough capital to survive this?" Then you do what you usually do to turn a rare risk into a predictable expense: buy insurance.
And the value of all that will help get them a higher price when they sell the company.
Investors too scared to snap up these bargains? Cool- the government buys it and nationalizes it.
A little collective sacrifice and collaboration goes a long way all the time- not just when you get run over by the steamroller you were picking up pennies in front of.
I would be ok with the government buying companies to preserve value but most American leaders are morally opposed to this type of intervention so it is basically impossible to do what you're suggesting.
/s
In this scenario a wealthy person who owns a business can simply keep their business afloat with their personal money, whereas someone with a more modest financial situation would go bankrupt and be forced to sell at pennies on the dollar to...someone who happens to be sitting on a pile of cash. That clearly leads to a consolidation of capital in the hands of the wealthiest people, which most people would consider to be a bad thing. Plus, more rural communities in general are a lot more dependent on middle class small business owners, many of whom are likely already struggling even before a crisis do to a stagnating local economy.
For landlords, BII may or may not be worth it.
EDIT: BII doesn't cover unlisted force majeure incidents, so most tenants and landlords are hooped. The only entity with enough money and power to make people whole is Congress. They can buy a few less F-35's and nukes, and help the people on the home front.
Just think about it for a second. The real goal here isn't the eradication of businesses. The idea behind a quarantine is to prevent the spread of a disease. This involves reducing contact with other people and therefore as a side effect businesses that involve a lot of people being in contact have to shut down or at least make their employees work from home. So our goal is clear. We must defeat covid-19 and all sorts of other future diseases.
Now, let us think about what prevents us from deploying an effective quarantine. First of all people need to meet their basic needs like food, drinks and shelter (without it quarantine is impossible). The way we structured our society is that everyone pays for what they need with money. That money is obtained through employment and it is used to make workers perform tasks that ensure we have food, drinks and shelter. For a successful quarantine we need to maintain a working economy before, during and after the quarantine. If we fail to do so then future quarantines may fail. If the economy and businesses collapse because of a disruptive quarantine then we might decide to never have quarantines again in the future. If the economy collapses because of a government intervention, such as a quarantine, then it only makes sense to use a government intervention to prevent the collapse of the economy. We could decide that it's the responsibility of each individual business to weather a government intervention and let them collapse but this would significantly decrease the popularity of quarantines and make them less effective because people will simply break the rules.
Now that we have decided to intervene, what types of intervention are necessary to counteract the effect of quarantines? Well for starters the problem most businesses face is that they are fundamentally working but the quarantine is temporarily preventing them from functioning but they are almost guaranteed to make money in the near future. This can indeed be solved by having an emergency fund but it can also be solved by simply giving the businesses a loan. It is effectively the same principle. Businesses forgo profits to cover emergencies.
Does this type of "bailout" create a moral hazard? Will businesses stop having emergency funds because they can get a 0% interest loan? Fortunately there is no moral hazard. If a business gets the loan it covers the missing 3 months but if it is unprofitable then it will collapse anyway. Any money that wasn't paid back is effectively an unorthodox form of unemployment benefits. Now lets imagine a different type of bailout.
What if we simply let struggling companies let the government pay the wages of their employees? This could be abused by profitable companies that can keep their employees busy but somehow manage to trick the government to cover their expenses. What if we pause rent and mortgages? The banks end up holding the bag. They do have access to cheap loans but putting the banking system at risk will just encourage more bank focused protectionism/bailouts because the bank is now responsible for every collapsed business that didn't repay the loans.
So let me summarize this. The effectiveness of quarantines depends on public acceptance and low disruption. Disruption can be prevented by providing just liquidity to businesses. Bad businesses use the money to pay their workers before they inevitably collapse after the quarantine. Good businesses will keep functioning after the quarantine and pay their loans back but they do not gain unfair benefits compared to companies that have emergency funds.
[0] Yes, Covid-19 will kill a lot of people but it certainly will never kill the _entire_ economy like the every government on the planet is doing right now.
Consider Louis Rossmann, who's now had to close up shop with $37500 in rent deferred, not including salaries. There are no emergency grants or no interest loans for small businesses, only "low" interest loans which don't help recoup losses.
My mechanic, who has $16k in expenses per month, may have to default on his business, lay-off his brother-in-law, and find a salary job because his landlord is an ahole who will demand all of the back rent when the 90 days is up.
Maybe business interruption/income insurance, which often requires buying flood insurance, is worth it if actually covers force majeure.
Edit: It turns out the vast majority of BII policies do not cover pandemics, so almost all small businesses and landlords in the US are fucked. This will absolutely require federal bailout action or there will be revolution-level seething anger ready to explode.
https://www.bisnow.com/dallas-ft-worth/news/commercial-real-...
I'm imaging a lot of businesses were barely scraping by before the shelter-in-place.
We might see a huge increase in empty storefronts after this passes.
If neither are assisting, you have to play hardball yourself. Banks and commercial REITs have more to lose right now than retail tenants, hence why those businesses are firing the first shot and putting their offer to landlords on the table. “Pray I don’t alter the deal further”
This does not work for residential leases.
If you want government insurance, use a government insured account, or let’s do away with the idea that some types of assets will be allowed to fail; the Fed will simply step in and backstop the entire economy with “unlimited support”.
[1] https://www.federalreserve.gov/newsevents/pressreleases/mone...
The government is uniquely situated to do this because 1. It can use future tax revenue over the long term to pay for supporting the broader economy in the short term thereby providing redistribution over time, 2. Can address the entire economy in a systematic fashion rather than having individual actors chaotically rush to negotiate individual deals, and 3. Can print money to prevent markets from seizing up when panic sets.
The alternative is to let everything just liquidate with the resulting mass panic, cash shortages, bank runs, needless bankruptcy, supply chain disruptions, and eventually massive reduction in demand making the market smaller for everyone.
The liquidationist mindset was dominant in the 1920s and espoused by Hoover’s Secretary of the Treasury. Some argue this made the Great Depression far worse than it needed to be. We largely avoided that in 2008 because the government stepped in.
This makes it sound like the Market is primary to the State, where observation/history very much paints things as being the other way around. I don't know as one should even be talking about the Market doing anything in this case seeing as the preconditions for it's stable existence are coming into question.
I'm absolutely not a big fan of collectivism, but sometimes, individualism just doesn't work. Sometimes, you have to step in and solve problems collectively. No, it won't be fair, yes it will be one-size-fits-all, no you can't please everyone. Suck it up, buttercup.
Whether you like it or not, we're in this current shit together, all of us.
We really kick the lowest people into the dirt here and the place we do it the most is housing. It makes our economy extremely unstable, not to mention it's pretty unpleasant to know that you're only a couple mistakes away from being in a similar situation and to be around a bunch of people who feel the same way. It doesn't need to be like this, the US is mostly trees and all but the most dense places have lots of room for growth. We've prevented it and now it's time to pay for our mistakes.
Are we spilling ink for the sake of the owners of these retail spaces? Do you think they are going to be any better off if these retailers just stop paying rent, and go out of business, instead?
Instead of grousing, the landlords should be petitioning for their mortgage payments to be suspended for this time period.
It means it's easy to suggest a solution that costs you nothing personally.
If burning everything to the ground because pausing the economy is somehow unimaginable, then a lot more people will be unemployed, a lot more businesses will go bankrupt, and to restart the economy a couple of months from now, a lot of tax money will have been spent in unemployment benefits, food stamps, and various stimulus packages and bailouts. That's my tax money being spent, given that I'm keeping my job and my salary.
If a pause means it takes less tax money to get the economy up and running again, to get everyone back on their feet, back in jobs, back to paying rent, back to getting salaries, then that's a good thing for me as well, even though it's "unfair" and "collectivist" and "socialist".
Now, I'm not saying a pause is the best solution I'm not an economist, I have no idea. I'm saying it's a solution, and you shouldn't dismiss it on reflex just because it's a collectivist solution.
So are you saying that we do not have to pay rent either?
No, that's the complete opposite of what I'm saying. Keep paying rent if you can pay rent.
But I understand that it's extremely difficult for some people to accept a solution that's unfair for some individuals, even though it's the solution with the least amount of total negatives. As collective solutions tend to be.
How in the hell is anyone going to know if retailers or people can actually afford to pay rent?
"OMG everyone is going to totally take advantage of this!"
Not everyone, but yes, plenty of people and business will.
"OMG that's unfair."
Yes, I acknowledged that from the start. The whole point of my argument is that this might still be preferable to the alternative, it might still be better than sticking to what's 100% fair, because collectively we might emerge stronger from this crisis if struggling businesses are afforded leniency, while the rest of us keep paying our bills on time.
But thank you for perfectly illustrating my sidenote on how this way of thinking is completely alien to many Americans.
We have come to a compromise that keeps both parties fed.
You've bought an asset which is not returning as expected for the time being, but has for the past n years. What do you expect now, a bailout?
We wanted a free market for housing and ended up with EUR 500k studios in Paris. Can't people wrap their minds around the fact that house prices also go down?
I bet if you and your tenants got together, you could acquire enough food for all of you.
You’d buy groceries with your emergency fund. As a self employed person it is your responsibility to do this for yourself.
> You’d buy groceries with your emergency fund. As a self employed person it is your responsibility to do this for yourself.
Its everyone's responsibility to have an emergency fund. Why is the answer that the landlord should rely on his/her fund instead of the tennant relying on their fund to pay rent?
On either side of the table, I'd hope for the fastest return to an ideal situation.
Luckily my company is doing fine, and I can work from home, so my income is still stable. Hopefully that makes it easier for the guy I'm paying rent to, to be easier on his other tenants that can't afford to pay.
It's one of those "I might need it myself someday" kinda things.
Stop interest on all loans for 90 days. Defer principal on all loans by 90 days. In 90 days, payments start up as before (and just end 90 days later). Same thing bubbles for all contracts. Leases and rents are free for 90 days. Contracts switch from net 30 to net 120 terms. Etc.
You pause the cycle of debt.
It works for home mortgages, small businesses, airlines, and almost everyone else. And it avoids the need for a 2 trillion bailout / stimulus package. It allows much more targeted aid at a fraction of the cost.
It ain't rocket science.
Banks get payments 3 months later. They can also get 0% interest loans from the fed.
Why do they fail?
It feels very weird. Why does it matter whether businesses or banks receive the 0% interest loans? It's just a shell game. You didn't solve anything but yet you make your own solution sound better.
If you want an echo chamber, then by all means bump this down to -50 with no further explanation.
If we can pause the economy, preserving all employment contracts, lease agreements, loan agreements, etc, then we're in a much better position for restarting the economy once quarantines and lockdowns can be lifted.
But you would rather let everything burn down because existing contracts must be honoured as-is because won't somebody think of the poor bankers?
Most people need their monthly salary to survive. We already need several hundred billion dollars just to shore up unemployment insurance funds, which just pay for a fraction of people’s salary.
This has nothing to do with “the poor bankers”. Mostly it had to do with small businesses which make up the backbone of the American economy and which are collapsing at an extremely alarming rate.
The government can’t just press a big magical pause button on the DVR. The government can try to pickup some of the bills, or it can loan money out at good rates, or it can fire cash bazookas directly into people’s checking accounts, but even the Fed can’t just print enough money to single handedly keep the entire economy afloat while legally restricting people from doing business.
As long as everyone has stopped buying anything and everything discretionary, businesses will be failing and unemployment will skyrocket. Unemployment is a massive drag on GDP because consumer spending is the majority of consumption.
GDP of -25% is not just a “tighten the belt and we’re gonna deal with this” type of event. It’s not merely a question of “we have to do this to save lives” because shooting the economy in the gut actually costs lives too.
You put people out of work and into financial insolvency, and their general health is very negatively affected, and some of them will die. Look at the opioid crisis, for example.
Beyond that, you have discretionary spending, which can be cut.
And finally, you have essentials: food, medicine, and similar. That's a tiny, tiny fraction. That's what we need to bail out.
Yes, there will be long-term consequences of lost production, which will shrink our economy a little bit. But that's fundamentally different from debt defaults, bankruptcies, and evictions. Hitting a pause button avoids all of that.
It's too simple of an idea. What you are looking for is the time equivalent of printing money. Right now that's magical, it's a deus ex machina event. It's implausible. You have to innovate it, and until then it's a fantasy.
That's correct. We stop everything for 3 months to get rid of the virus.
Or almost everything.
> almost all home and commercial property sales stop
Have you tried buying or selling a house these days? In most parts of America, you can't -- the registries of deeds aren't open for business with coronavirus. This is already stopped.
> What you are looking for is the time equivalent of printing money
It is like a time-equivalent of printing money. By virtue of the time-limit, it doesn't have nearly the same inflationary pressure. We need to relieve a short-term financial crunch, and the stimulus, zero interest, etc. all do that, but when the crunch is over, that stuff explodes into inflation. This cleans itself nicely.
> It's too simple of an idea
What's wrong with simple ideas?
Or are we also expecting that grocery stores provide food on credit that they are not expected to collect on any time soon?
You don't actually need to immediately record the deed to buy/sell real estate. I believe this used to be the norm back when remote towns would batch up all their new deeds and send them to the county seat by horse.
Targeted aid is a code word for bailout.
But of course, the track record suggests the actual solution we get will look more like neo-feudalism.
(to be clear, I'm fine with a lot of rent deferment / freezing, but I do think there needs to be equivalent property tax forgiveness for at least retail space)
2. In many municipalities, they can be deferred for a long time, without serious penalties, even when we're not in a state of emergency.
Like, this is why people need to be active participants in their interests, and in the things around them.
Renters are going to get screwed over! Again. They get nothing. And most of them are going to lose their jobs.
They’re talking about spending $8 Trillion on bailouts for large businesses. Government Motors. Government Hilton. Government Boeing.
Instead, they should just pay everyone’s rent for the next 2 years as a universal basic income, until this blows over.
At this level of insane money printing, then what is the difference between $8 Trillion vs. $10 Trillion? Nothing. It’s just a decimal point.
It's turtles all the way down.
Stopping rent will stop these people and you'll have a cascade effect. You need to stop everything.
Layoffs, across-the-board closures, mortgage holidays.
Hyperbole, but the property owners who get paid to stand still are the only ones still expecting to get paid.
It's the ciiircle of cash!
If at all possible, businesses, like people, should keep a rainy day fund. I wonder if all the companies that used their money for stock buybacks are kicking themselves in the foot right now.
They're not going to have to re-issue shares at a lower price; they're going to get bailed out by the taxpayers.
The conditions for government money should be:
1. All current debt is converted into shares, erasing payback preferences and on-going payments to creditors.
2. Companies must issue new shares as collateral to the government at current market rate, in exchange for the money.
3. Rather than repayment, the government will sell the shares on the open market in years 2-6 (a 5 year window).
4. All share buybacks at the company are banned for a period of 10 years.
It's okay to nationally support critical businesses, but make the shareholders take it in the wallet for their reckless business practices leading up to this.
They took a gamble by buying shares instead of saving -- let them take the hit for losing.
(not that I think much of the parent's idiosyncratic money-scheme but still).
The problem is that those business practices weren't decided by the shareholders. The shareholders in most cases are mutual funds holding millions of people's retirement savings. Those people had no say in the business decisions made by the companies; they don't even control which individual stocks the mutual funds invest in. Their retirement savings are not what should be taking the hit.
Doesn't saying that these are people's retirement savings and so structurally should only ever be allowed to go up in value create perverse incentives and remove all of the responsibility from.. everyone involved?
Shareholders benefited massively and accumulated huge rewards from the market leveraging up during the borrow-for-buybacks period, and now in a downturn we're throwing our hands up and saying that we can't let those companies face any negative consequences for taking on that risk because nobody was in control? Or some people were in control, but there were also some who weren't?
Something is missing here if a company having passive shareholders means it should do well, business-practices-be-damned.
There isn't any real accountability as far as shareholders being able to hold corporate executives and boards of directors accountable. That is a huge breakage in corporate governance that won't be easily fixed.
> saying that these are people's retirement savings and so structurally should only ever be allowed to go up in value
Who said that?
All I said is that, since the shareholders weren't the ones that made the questionable business decisions, they shouldn't be the ones that are shafted because everyone wants a scapegoat.
> perverse incentives
There are certainly perverse incentives for corporate executives and boards of directors, but they aren't of the form you describe. It's simpler than that: it's just what I said above, that there is no practical way for shareholders to hold them accountable.
> Shareholders benefited massively and accumulated huge rewards from the market leveraging up during the borrow-for-buybacks period
And now they are taking the hit from the market tanking. My 401k is down quite a bit.
> now in a downturn we're throwing our hands up and saying that we can't let those companies face any negative consequences for taking on that risk because nobody was in control?
I'm not saying that. I'm just saying that (a) the shareholders weren't the ones that made the bad decisions, and (b) the shareholders are already taking a hit anyway.
If you really want the government to Do Something, it should fix the perverse incentives that corporate executives and boards of directors face. Having real criminal penalties for breaches of fiduciary responsibility, and stricter rules for what companies that take any investment from retirement funds can do, would be a good start.
This doesn't mean much. Plenty of people are worth more than some countries' GDPs. Wikipedia's list of countries by GDP goes down to US$42 million.
You are missing the point entirely. A company only stockpiles money if it evaluates all other options, including paying dividends to shareholders, and still decides their best course of action is to not spend it. This is not a decision made passively or by forgetting to make a decision.
"their best course of action is to not spend it." is equivalent to "we have no (better) idea what to do with it"
Yes, companies have cash, but ad spending has dropped tremendously overnight.
https://www.msn.com/en-us/news/other/facebook-twitter-revenu...
And Apple, well, all of their stores are closed and I highly doubt they're selling a ton of expensive luxury goods right now -- as millions of Americans fear unemployment and a deep recession.
Cloud is dependent on large corporate spending, which may be in for a contraction as companies cut back or go under.
Startups may find deals harder to land as investors flee to safety.
Perhaps we'll look back and see WeWork as peak bubble, and Covid-19 as the impetus for a sever pullback.
With that said, I think were going to see pressure everywhere. As a recent switch to a new employer, I'm concerned, even if our source of revenue currently appears solid.
The outside shareholders of these companies: absolutely
The executives and board: lol, no
Large corporations aren’t like people - they can easily move markets on accident.
Why is it better for the investor to allocate the money than Apple? Well, it is pretty obvious. Apple has a different risk profile. If it keeps money for a rainy day like covid-19 then the value of the assets it owns must not be correlated with the "disaster" that it is supposed to help you against. An index fund under performs during covid-19 so it's an awful choice for a rainy day fund. Meanwhile investors probably don't care about rainy day funds for day to day phone manufacturing. They might be interested in high risk VC investments that lead to a lot of dead companies but a few unicorns. They might be interested in low risk bonds because they are reaching retirement age. That's information that Apple doesn't have and therefore it will never make a good decision on your behalf.
That should be enough to sustain the whole world economy then during something like Covid, no?
I'm a member of the Church of Jesus Christ of Latter-day Saints (Mormon). Around December a 'whistle blower' came forth claiming, with extremely limited information available to him, that the Church had as much as 100 billion dollars invested to the press and the IRS [1].
People crawled out of the woodwork to try and vilify the Church for having a considerable amount of money invested legally via one or more investment funds.
Fast forward 3 months, the Church is having to recall missionaries and send them back to their countries of residence, Church buildings are closed worldwide until further notice, the Bishops' Storehouse system that helps local communities via food distribution have added shifts to meet demand for food as unemployment numbers are sky rocketing.
We told the world we save for a rainy day, as we were being accused in December this virus was beginning to spread in China. Now here we are in March with a cushion to keep the Church running while tithes likely dip considerably with unemployment rising as well as being able to assist members and non-members as the global economy grinds to a halt.
The media and those opposed to the Church were quick to rip us apart in December for having a cushion, now they are nowhere to be found when we're in a position to help ourselves and others with that cushion.
Perfect example to go with your comment.
[1] https://www.washingtonpost.com/investigations/mormon-church-...
What surprises me is that they didn't just work this out quietly...
“If you owe the bank a million dollars, you have a problem. If a million people owe the bank a million dollars, the bank has a problem.”
The problem is, the landlord probably has a mortgage, and their mortgage has been securitized just like everything else. So modifying the terms probably has more of a ripple effect than you’d think. And who knows who is left holding the bag when thousands of commercial mortgage-backed securities suddenly get down-rated and start to default.
The situation should be the equivalent of a war or a different natural disaster. Essentially, the processes of finance will need to just stop for a while and then be restarted in a reasonably orderly fashion.
I'm not even sure what everyone howling for immediate and potentially restart of the American economy is even thinking, obviously they aren't thinking much. The economy previous are essentially on life-supports but life supports for the only the rich. Now we basically need literal and metaphorical life supports for everyone but once the situation is stabilized, the negotiations begin.
Just think, a robust restart of the economy would be far easier once an entity to deal with the virus is constituted and can act effectively.
The US economy has recovered from war and terrorist attacks quite well (better than a lot of times). The government directed the lions share of production during WWII and things turned out fine. Come on folks.
People need to pay rent and mortgages, or loans will not be repaid. If loans don't get repaid, banks fail. If banks fail, we have another financial crisis. The last one took a decade to recover from and there weren't even that many bad mortgages (as a percent of all mortgages).
Businesses right now are eating a bunch of costs. That can't last for very long before they run out of money, fire everyone, and throw in the towel. They will not have savings to restart after the closure.
https://docs.google.com/document/d/1YbtJGn7ida2IYNgwCFk3Sjhs...
Mortgage-backed securities generate no income for a couple of months.
And conversely, the current bailout, as proposed, doesn't come anywhere close to stopping mortgage defaults, layoffs, and the slew of other issues.
Now, this plan basically means you don't buy new things (cars, laptops) for 3 months, but I think that's okay. But yes, it only covers 95% of the problem. Companies might need help with, for example, restarting production lines, maintenance costs, supply chain delays, or other issues. All that is pocket change compared to what we're looking at spending right now.
I'm joking, well put, thanks.
Pumping money in ETFs and real estate (aka passive income) can’t enrich everybody, productive output is required.
Also, general hate of landlords only hurts tenants because there are actually quite a lot of very forgiving landlords. My mother owns property and when her tenant couldn't pay she offered the tenant the option to remodel the apartment (she paid for the materials) while the tenant was looking for a new job. Well, 3 months/missed payments later the tenant just disappeared and didn't do any remodeling at all. Needless to say, my mother won't make this mistake twice.
I've met some landlords that are willing to offer special discounts to families instead of just renting the 100m² apartment out to some single tech dude who is guaranteed to pay rent. (in rent controlled markets like Berlin the tech guy always wins)
And those were just the private landlords. Housing association here are municipal and they basically offer you 10+ year leases where you do everything yourself, including the floors and kitchen and in exchange the rents are very low.
Hating landlords and abusing goodwill just makes that goodwill disappear.
First, the situation is not that dire to start with, most people and businesses can meet their obligations. We don't have anything remotely close to a financial crisis. It makes no sense to effectively turn the entire economy into a command economy and effectively declare a default to save what appears to be a fairly small part of the economy that will have trouble. You can have targeted intervention and get most of the benefit without dragging the rest of the economy into this.
Second, you can't just remove credit from the system. Credit is fundamental to nearly all transactions at scale - transactions in the real world aren't atomic, which means businesses are always dealing with receivables and payables, not to mention lines of credit that are designed to help businesses manage them.
There are tons of offsetting contracts, whether in terms of derivatives or insurance, and no one is going to be able to figure out which side of each contract is covered and which isn't and how to price anything given the uncertainty. Do health insurance companies have to pay hospitals? Do car insurance companies have to pay? These are all payments. Nothing happens in an economy without a payment. Do you have to pay insurance premiums? The effective result of this would be all financial markets not functioning and nearly all real markets too, since they are tied to the financial markets for pricing, settlement and credit.
It would be like the global financial crisis but a substantially worse version where every company becomes the Lehman Brothers. You'd have to basically nationalize everything across the entire world and run a command economy because the markets simply won't function at all even on a purely basic level.
76% of americans live paycheck-to-paycheck. Regardless of if you like it or not, a time will come when massive amounts of rents aren't paid. It can either fully immiserate the economy (most likely course of action), or it can be paused.
> the markets simply won't function at all even on a purely basic level
Can we please stop pretending that this zombie market we've propped up since 2008 works? If you like markets, then you shouldn't agree with the fact that the government can effectively be held hostage every decade or so due to "too big to fail."
I am very thankful to still be working.
And not all of these 76% of Americans are going to lose their jobs. Many people will, many others will have benefits, some others will be able to tighten their belts to make it work. And we can also just give everyone $$$ to ease the transition..
> Can we please stop pretending that this zombie market we've propped up since 2008 works? If you like markets, then you shouldn't agree with the fact that the government can effectively be held hostage every decade or so due to "too big to fail."
My definition of not working here isn't about some people getting unfairly rich at the expense of others. Literally people won't be able to get basic stuff at all. Entire supply chains will collapse since they are based on credit. You can't buy and sell at scale - these all involve contracts and payments. Credit isn't just about lending money for interest.
Let's also not forget that what's being proposed here is a TBTF argument. The argument here is that letting a bunch of small businesses that don't have enough saved up to survive a few months of no revenue go under is going to be so bad for the economy that we have to literally suspend the enforcement of contracts more generally to save them. Of course, if this is actually the case, we could just bail out the affected businesses instead of saying goodbye to the system of contracts more generally. And I don't believe we in such a situation yet either. We can probably just let them fail. Most small businesses are very replaceable and failure rates are very high to begin with.
No they can't, for some it is that dire. 1/5th of Americans are unemployed as of last week - how many of them were living paycheck to paycheck?
And you don't have a command economy. Net 30 terms become Net 90 for a while. That's not a world-shattering explosion. Everyone who buys something has to pay -- they just have the option to pay a little bit later. Everyone who borrows something gets it free for a short while.
And there are two pieces that really make this work:
1. Much of that is offset by the current ~0% interest from the fed. Ultimately, if the 60 day gap kills you, then you chains (ultimately landing with banks) can borrow money with effectively zero interest.
2) Relationships matter. I don't think businesses will do douchebaggy things: Most want to keep employees, customers, and partners.
And policy decisions cannot be made instantly. The moment something like this is close to being implemented, this will freeze the credit system entirely. And there goes the economy.
We got a global financial crisis last time due to a small number of actors becoming less creditworthy and it being unclear whether they could pay their obligations. That slight change in expectations threatened to freeze the entire economy. To do this on purpose for every entity such that no one is creditworthy? That's insanity.
Who would you rather have: a pile of debtors in your portfolio who have a 50/50 shot of going under in the next few weeks (where a lot of Americans and small businesses are today)? Or a pile of debtors who will pay you with 95% odds in 3 months, and in the meantime, a no-interest loan from the government to provide short-term liquidity until they do pay you?
And you can't actually lengthen payments for everything - some businesses and people with important resources will simply demand an up-front payment. Which will worsen the crunch for those that are stuck in the middle - some businesses will have to pay upfront, but get paid 3 months later. And no, banks won't want to lend to these businesses and if they can't determine whether you're one of those businesses or not, they will tighten credit on most businesses. Not to do so puts their own creditworthiness at risk.
This is all assuming you have perfect execution too - in reality, there will literally be millions of lawsuits since no one will be able to actually define what you're saying precisely enough to make the implied alterations to existing contracts unambiguous. It's also important to understand that most payments aren't interest payments - some of these cover actual costs.
Edit: consider what every company in the world will do in response to do this - they will review every contract they have to see if there's an angle that will help them optimize for this situation, and what kinds of addendum that they can force on others would put them in a more advantageous situation. No one will just sit and work according the spirit of the new rule, any ambiguities and angles will be exploited and lots of businesses and people will go end up on the wrong end of this.
And to flip it around, if 50% of small businesses go under, banks will be left holding a lot of bad debt. Banks will go under. Landlords won't have renters, and will be left holding mortgages. Without action, the whole system collapses.
You're assuming the economy is humming along right now. It isn't. Large parts are shut down. Some parts aren't. Those frictions are causing massive structural collapse as we debate.
Also: In most cases, up-front payment is fine while everything else is shut down. I understand the importance of credit. But the alternative is worse. If this continues for 18 months, virtually all mortgages, private and commercial, will be under water. Virtually all renters will be evicted, or rents will have gone down many-fold. Etc.
Why would they? And who's creditworthy in your world? Are banks going to be able untangle every single contract you have to see how this affects you? Especially in a world where every single customer and every single supplier is going to look at renegotiating contracts with you? The general notion of creditworthiness implies a relatively static world - changing everything is going to make everyone questionable from a credit perspective.
> Less credit-worthy businesses can get loans through the SBA through the stimulus. The government's existing programs (assuming the stimulus passes) will breach the extra 90 day gap for most.
Then why do we need this at all? Why can't we just have the affected businesses borrow from the government? Instead of A not paying B and B borrowing from the government to cover for not being paid, why not just have A borrow from the government so that we don't have to modify every single contract in the world in a highly unpredictable manner and freezing the entire economy?
> You're assuming the economy is humming along right now. It isn't. Large parts are shut down. Some parts aren't.
Most parts aren't shut down. No one is predicting a GDP decline of over 50% or an unemployment rate above 50%. Some parts are shut down, others are doing okay.
> Those frictions are causing massive structural collapse as we debate.
And this proposal literally is the massive structural collapse - it's the equivalent of eradicating COVID-19 by killing everyone.
> Also: In most cases, up-front payment is fine while everything else is shut down. I understand the importance of credit. But the alternative is worse. If this continues for 18 months, virtually all mortgages, private and commercial, will be under water. Virtually all renters will be evicted, or rents will have gone down many-fold. Etc.
Everything isn't shut down and again your business is toast if you're forced to make up-front payments while you're not getting paid. This is silly considering that there's a perfectly reasonable alternative of bailing out from the bottom up.
And no, this isn't continuing for 18 months, that's completely absurd. The economy will simply have to go on if an extended shutdown fails to work and the economic pains reach a certain threshold. Also, it's not honest to compare the impact of a shutdown without your proposal for 18 months with the impact of removing credit from the system for a couple of months. The economy as we know it is completely done if you freeze credit for 18 months.
A lot of businesses are going to go under no matter what and this isn't directly preventable. I don't think exposure to "small businesses" is large enough to cause a systematic failure and in any case, delaying payments doesn't solve the problem, if the small businesses themselves are insolvent. What systematically delaying payments does in this case is that you're turning everyone else into a bank. In that world, a lot more entities are left holding questionable debt and you significantly increase the systematic risk this poses, as no one will be able to trust anyone.
What you want to protect are the ordinary people, not businesses and this can be done through direct payments. Business owners are on average wealthier than others - it makes no sense to try to turn the entire system upside down to help them. Keep in mind, under your proposal, most people will lose their income, since income for most people is a payment that I suppose can now be deferred.
1) Businesses going under is preventable. If a lot of businesses go under, so will banks when those businesses default on debts.
2) Direct payments would need to be astronomical to protect ordinary people for this duration.
3) Loans from the government directly to people and businesses might work if we had the apparatus for it. The critical thing, though, would be to freeze rents and interest if we did that. It'd be a much more complex scheme to implement. If I have a 10 years left on my mortgage, I could get a 10 year loan from the government for the principal, while the bank would lose out on 3 months' interest.
And more businesses will go under with your system. Most businesses that are losing most of their revenue can and have planned for losing revenue for a few months. Businesses can't realistically plan for the kinds of changes you're proposing because in a world where the government can modify by fiat every single contract in the whole world, nothing can realistically be planned. It's a total, forced default. And the specific scheme you're proposing turns every business into a bank - any time anyone owes a payment, you become a lender. This magnifies the effect of all insolvencies - now every business is tangled in a web of credit. It literally is the worst of both worlds - you introduce a shock the same way a large default would and ensure that no one could trust anyone, while also actually adding to the systematic risk by entangling every business in the system of credit. At least mass bankruptcies lead to deleveraging.
This is even if you assume that some sort of super AI can magically modify every contract in the world in such a way to best follow the spirit of what you want and have every party somehow agree with this. In reality, contracts are complicated beasts and you can't just modify one aspect of every contract in the world and expect things to be fine. Contracts are going to have all sorts of contingencies that are going to be highly ambiguous in a world where the government steps in and says certain obligations can be deferred. Again, people not being able to meet their obligations is absolutely nothing new in this world and the system is already designed to deal with this.
> 2) Direct payments would need to be astronomical to protect ordinary people for this duration.
No it doesn't. Keep in mind, it doesn't have to protect everyone from everything. $2000 a month for everyone for 2 months is $4000 * 300,000,000 or roughly 1.2 trillion dollars. This isn't much in the grand scheme of things and you're proposing an intervention of substantially larger magnitude. You can also effectively structure this as a loan for most of the people who don't need it by adding a deferred progressive tax on top of it.
> 3) Loans from the government directly to people and businesses might work if we had the apparatus for it. The critical thing, though, would be to freeze rents and interest if we did that. It'd be a much more complex scheme to implement. If I have a 10 years left on my mortgage, I could get a 10 year loan from the government for the principal, while the bank would lose out on 3 months' interest.
This doesn't make any sense - you're the one who proposed that businesses that are screwed by your scheme could survive by borrowing from the government. Why would that work in your scheme but not here? I don't understand the bit about your mortgage - why would you need to borrow (and why would anyone lend you) more than the payments you need to make for the next couple of months? Any sort of emergency government funding would be a credit line akin to extending payments, not a long fixed-term loan.
Again, I don't see any kind of realistic proposal here - it feels like a word game to come up with a vaguely workable-sounding (to people who don't understand how the economy works) plan that helps specific classes of people at the expense of everyone else.
Do you see the problem? You forgot to pause "everyone else". You'll have to add millions of special case laws to pause everything. That guy with his gym membership who can't use it? Pause it! ISP subscription? Pause it! Mom's knitting club membership fee? Pause it! ... million pauses later you're done.
It's like having 1 million bolts each with a different size. You'll need a different wrench for each bolt. Why not just standardize on a single screw head? Sure screws aren't exactly bolts but anyone who wants a screw can get it. If you're handing out bolts and wrenches then you're picking winners. This is known as a bailout for special interests by only pausing certain hand picked industries.
Meanwhile, a loan works for anyone who wants one. It still means that the economic machine is empty but at least it keeps running and doesn't need to be restarted from scratch.
Actually, you can. Money transactions can be suspended and goods can be distributed directly.
If banks fail, we have another financial crisis. The last one took a decade to recover from.
Not even, what we're looking at is the dead Frankenstein construction created to avoid dealing excess speculation of last time. The economy has been artificially supported by QE since 2008 (sure, it stopped periodically but everyone knew it could start up again, stocks values were completely absurd. Half of what happened just now was that fantasy falling rather than the cost of Covids.
Do you mind expounding a bit on this claim? What does it mean to suspend all money transactions and who will distribute the goods?
The basic question needs to be answered - is this virus bad enough to shut down an economy? If the answer is yes, then renaming the economy from "state sanctioned" to "black market" does nothing - the black market is just as crushed by the pandemic as any other.
What people are arguing for when they argue for a shutdown is that the economy is going to be wrecked no matter what if the pandemic is allowed to rage unchecked. That being the case, there is no tradeoff - shut down the economy to save lives and wreck the economy, or continue with business as usual AND wreck the economy AND have many more lives lost.
This fantasy where you can just shut down a country for an undisclosed amount of time and break even is an almost archetypical example of why most democracies are representative democracies.
That is a very bold claim.
Do you have data on the age distribution and comorbidities of criminals vs the general population? I find the claim that on average criminals will be both younger and healthier than the general population to be quite dubious. At the very least, I'd expect you to be able to show some evidence of this claim.
So maybe criminals in general wouldn't be younger and healthier, but there's a really strong chance that gang members are - and it would likely be gangs running black markets anyways.
0: https://www.nationalgangcenter.gov/survey-analysis/demograph...
COVID-19 has killed people under the age of 20, and even the most hardened gangster under the age of 20 has a family and friends to avoid endangering.
They are also vulnerable to bullets.
It doesn't make any difference.
They keep doing criminal stuff.
A bank is like a multiplayer game company. Once the company shuts down, the servers are gone as well. If you can't access your bank account then you lost access to the money until it will be restored by the government. This is why we have bank runs at all. People cash out so they have a buffer until their claim is processed, not because they won't get their money bank.
Retailers and citizens can't pay rent. Landlords only need that money (per se) because they owe money to banks via mortgage, or the government via taxes. So government should order the banks to halt collections on real estate, and government should halt collections of property taxes.
Banks might go under? Have the fed print them money. Governments can't afford it? Have the government print money.
Inflation due to increased monetary supply? That's where my idea ends. Perhaps instead of the printed money being a gift, perhaps it is a zero percent long term loan.
Landlords need the money to live? Give its employees the same cushioning we should be giving all citizens through the pandemic.
edit - I am absolutely going to ask people who downvote to give a reason.
This is a huge overstatement. Certain sectors of the economy are frozen: basically, those sectors which serve demand that is discretionary and non-essential, the sorts of things people have stopped doing because they don't want to get infected. Grocery stores, drugstores, etc. aren't frozen--in fact their sales have probably skyrocketed over the past few weeks. All of the supply chains that feed those places aren't frozen either. Not to mention that there is now a huge new demand for various health care items, from masks to ventilators, that companies will be wanting to meet and will be hiring people for.
Essentially production continues and will ramp up. But the process of market adjustment, basically, is frozen and should remain frozen for a while.
I mostly ask because I'm not fully sure what should be fair for all parties involved. Restaurants, bookstores and offices shouldn't fail because they can survive a once in a hundred year plague. Neither should property owners who are leasing said property. But I don't understand the rules in this situation. You may be preaching about how you're in it together, but if your tenant goes under you may be screwed on your loan payments.
Its not like defering the rent is neccesarily in the best interest (from a purely ecconomic perspective of the landlord). If you defer rent for many months only for tenant to go under when this ends (and lets be real, many tenants are going to go under when this is all said and done), the landlord would be better off being heartless and not defering rent
During the high of the coronavirus outbreak, for individual or company, one could call the banks to postpone mortgages, loans or credit card payment for 1 to 3 months. Business may get longer extension if the situation worsen. That was possible in February, less so now as life turns normal gradually since March. Work resumed, shopping mall reopened etc. schools still closed though.
As for rent, Business tenants negotiate with landlord for rent forgiveness, something like half month or one month rent.
In it together would be rent forgiveness.
The bookstore and restaurant have lost business, their customers aren't deferring payments with a gradual payback.
Being "in it together" means he's giving them time to repay the back rent instead of evicting them if they can't pay, as he legally could. Commercial lease tenants have far fewer rights than residential ones do.
It's easy to spout "rent forgiveness" but where is that money coming from?
Maybe OP is struggling making their own payments because they don't have the rent money. But ultimately it seems the bookstore ends up with the rough end of the deal. The landlord will recover deferred rent, but the bookstore will not get their lost business back.
To clarify, I applaud OP for doing something that eases the stress of payment. But I think the wording could have been better.
I said it was a nice gesture, and it is, but to me in the long run (assuming the book store doesn't go out of business) you still get your pound of flesh, you just get it a bit later, that's not really suffering together.
When parts of the economy seize up, there are systemic risks that can spread through the system as debtors fail to make payments, causing creditors who rely on those payments to default themselves to higher level obligations. When the vast majority of an economy the size of the USA seizes up... we are in uncharted territory.
The lessor of a commercial storefront can't just "defer" taking rent payment for a month or two just because they're holding property versus, say, a corporation that has to make payroll. The lessor has monthly payments of their own, likely interest payments and property taxes at the very least.
While there are no shortage of estimates (arm-chair or otherwise) for the ultimate fatality rate the world will see from COVID, there have been far fewer attempts to analyze the economic fallout of wide-spread suppression measures like state-wide shelter-in-place orders.
Trillions of dollars in acute losses suffered in just a few weeks will propagate through an economy, like a virus, and magnify the ultimate damages. Restarting an economy that has suffered such a shock, like restarting an electrical grid from a wide-spread outage, is something that requires tremendous care and effort.
Speaking anecdotally, a SaaS business I work with which runs around ~$1 million in ARR has gone from effectively $0 in Accounts Receivable historically to over $100k in AR just this month. Every customer with a payment due has simply stopped paying their bills, as they wait to see how this will all shake out.
A typical small business will have ~3 months of expenses in the bank. By the end of April, if customers haven't started paying their bills, the average small business will no longer exist. The total economic impact of small business is no less than 50% of all US employment. Experts are predicting we could see 30% unemployment next month, which equates to roughly half of all small businesses caving.
I see clickbait titles are having to battle filters
>Deferment
>We are all in this together.
Not quite sure how these square.
Prices should be going downward fast across the board, due to the drying up of overall chances to transact for most people. Without those opportunities to engage in business, what little business we can keep going should be kept going.
I think the solution is somewhere in the realm of "pay what you can, and everyone keep adjusting prices down to keep as many people doing the necessary work that we can keep taking place."
Trying to act like the securities depending on on pre-covid conditions mean anything now is like clutching a Reichsmark or Confederate dollar and expecting a satisfactory exchange with a vending machine. The apparatus simply won't support it. The social structure that backed that store of value isn't there.
I think when we look back on this, this pandemic may be quite literally the transition point in Market philosophy moving forward. I'm not sure what it'll look like, but I know if I had a choice in what to hand down to those coming after me, it would be a reset in which those that come after me can have a chance to build up what my parents and grandparents had the chance to.
Maybe I'm just resigned to being the Lost Generation v.2; but the Gilded Age nonsense we've been cruising with up until now needs to stop; both in a normative moral sense, and in a pragmatic, people need to not be sacrificed so the inequality created by current market structures can be perpetuated.
Tear down/stop the pumps trickling wealth up, dump value back in the bottom, let people sit on what productive assets they are physically using, and let people adapt to this new physical threat. We'll figure out the rest in time.
Frankly, the people worrying about a transition to a command economy should realize we were already in one. It was just one where the top 1% were accountable to no one, and growth numbers were what was being optimized for even if there wasn't any net benefit to society at large. See the increasing frequency of corporate malfeasance (Boeing, opioid epidemic, Telcos, PG&E etc) if you really don't believe that everything was reaching the point of too big to fail. We just needed something like this pandemic to happen in order for everyone's physical survival to decouple from the economy's idea of survival to ram the point home.
Around each and every person is the corpse of an industrialized society. We need to figure out what the hell to do with it to maintain carrying capacity. Then we need to just do it.
Ugly times these. Ugly times indeed.
Landlords take on the substantial risk of long-term ownership, maintenance, and uncertain market demand for their product. Operating costs —- that’s excluding financing costs — typically run 45% of rents. Tenants usually, but not always, pay a higher rental rate than the equivalent ownership cost but have no obligations and no capital commitment beyond the term of their lease. Think about the tenants the OP listed — a bookstore and a restaurant. Do you honestly think someone would start a bookstore or a restaurant if their only option was to buy a building to operate in? The time option is of a huge benefit to the typical tenant and, of course, like anything it costs something.
Of course, there are some terrible landlords out there, but if they were all so bad, tenants would band together and jointly purchase property as a co-op. That this doesn’t happen on a broad basis in the commercial property market even in markets where there is availability of small to medium spaces at relatively low cost tells me the tenants are getting something valuable out of the arrangement.
What matters in this scenario is that these businesses are under government order not to operate. They are unable to make money. Deferment, then, amounts to a catch-22: pay now and go bankrupt; defer, have finances hampered well into the future, and still go bankrupt; or break the lease, shutter the business, and start up elsewhere. The building owner loses a tenant should any of these scenarios play out, and only receives income in the first (wildly cynical) two.
The proper thing to do would be to either waive rent, ask for a percentage relative to the business that could be completed, or to automatically defer payments if they don't arrive on schedule.
You can understand why some would find it unconscionable to insist on anything resembling business-as-usual during this time. Capital owners should be expected to be active supporters of their community interests. If not, I'm unconvinced that they shouldn't simply be chucked out with whatever charity proffered; what good are they?
https://news.ycombinator.com/newsguidelines.html
We detached this subthread from https://news.ycombinator.com/item?id=22680612.