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Comment by eyegor | Hacker News Reader

This is going to be an economic catastrophe unless there's somehow a nationwide bailout to literally all brick and mortar businesses. I know of several local bar/restaurants that are considering shutting down for good, and a colleague near Melbourne told me of 4 that already have (I'm eastern US). Even if this all blows over in 3 months, we'll have a huge surge in homelessness and folks needing social assistance across the board.

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Such a bailout is feasible. During the financial crisis houses were physically built and purchased without enough people with the income to cover the loan. The difference here is that there is no underlying financial issue. People will still want to go to restaurants and bars after this is over, and it will end.

What about solvency, and the knock on effect to creditors. They can't pay the booze supplier and they go out of business etc. This could go on for months. Most businesses don't make those sweet SaaS margins. Same for airlines.

This is why the money has to go to the bottom so it can bubble up. All debts get paid off along the way. Government bails out the small business, the small business pays the distributor, they pay their creditor, etc. Investors still make money at the top.

If bubble up economics becomes a thing I want full credit.

Yes, I hope that would work.

If the 700 billion dollars for quantitative easing went to 200 million U.S. adults, that'd be $3,500 apiece. If spent at the rate of $700 a week, that'd be five weeks' worth.

QE was a combination of asset purchases and loans. It couldn't have gone to individual people.

Andrew Yang has been pushing for this kind of "trickle-up" economics for awhile now with his UBI platform.

Creditors can experience some of the pain that they normally inflict on others. They are not sacrosanct and are the least important parties in economic relations during an emergency. As normality is restored, they will have new opportunities during the ensuing large scale financial restructuring.

The thing is that a lot of creditors (suppliers basically) are just other businesses. It’s not all bankers holding onto a bunch of debt obligations

Probably ironically banks will be able to make even more money as people pull into credit lines to go over this hump

Bob’s Drywall Supply has net 60 for a delivery of drywall.

Constructor Bill now can’t pay. Bob’s Drywall is a creditor and is on the hook for a product he already shipped. Now Bob’s Drywall Supply can’t pay the company that provided him with Net 90 terms.

So Bob and Bill are now insolvent. And they fire their employees.

Suggesting that creditors somehow deserve “pain,” is just cruel. Creditors don’t “inflict pain” on people — they provide capital to people with a reasonable expectation of getting paid back. Of course I don’t care much about the Payday Lender/predatory lenders so much, but suggesting that creditors deserve some sort of payback is ridiculous. The vast majority of businesses rely on credit, without credit, you would have an economic collapse. And they aren’t the “least important” parties — they are the most important because they’re the ones providing the capital for businesses to operate.

The problem is when everybody takes a hit except the "too big to fail" banks. That's what happened in the last financial crisis, the government bailed out only the big banks by buying their toxic loans at face value. When Obama tried to also bail out individual homeowners it sparked the Tea Party backlash and he pretty much backed off on those plans.

You're twisting history. The tea party backlash was to the bailing out of banks.

You misremember. [1] has the video on CNBC that started the Tea Party.

“Yesterday Rick Santelli, who reports from the floor of the Chicago Board of Trade the for CNBC, unleashed a rant against Obama’s newly announced housing bailout plan, intended to help some homeowners refinance mortgages and avoid foreclosure.”

1: https://opinionator.blogs.nytimes.com/2009/02/20/rick-santel...

Their main issue was being pro-austerity. Most of what they focused on was cutting funding for Social Security, Medicare, Medicaid, and other social services. They wanted a smaller government at all costs (though curiously they never called for reducing military spending).

Occupy Wall Street, on the other hand, was the group that was specifically against bailing out the banks. The Tea Party was more about not helping regular people.

The spark for the Tea Party was a viral rant by CNBC's Rick Santelli against a program to help individuals avoid foreclosure. Look it up.

The company, Construction Materials Inc, that supplied Bob's Drywall Supply should accept a delay in payment. In order to ensure payment comes as quickly as possible, an order block (no new orders are accepted from Bob's) or a shipping block (orders are accepted but not shipped) or both are placed on Bob's account.

Now, of course, what of Construction Materials, Inc? Surely they buy the raw materials from someone and ...so on. Everyone does - or should do - the same: don't adjust the terms, simply accept that the past due items are past due and will be paid a bit later than normal.

Eventually it will hit a bank or large financial institution, and they ought to do the same: accept the situation and wait. It's costly when businesses go bankrupt and everyone knows that this situation is affecting everyone else and will blow over in about six weeks.

At some point it hits Joe the employee and he can’t wait 6 months to get paid because he lives paycheck to paycheck and will starve by then. Overall you are right until it comes to individuals. A dry wall supplier can close its doors for six months and their products will t go bad. Joe the employee can’t just not eat for six months. If we do this systematically we would arrive at UBI. We would also need to delay all tax collection and so forth.

I thought it was obvious I was talking about financial institutions, which are just going to have to eat it for a while, although with interest rates now at 0% that will be more manageable. I can't address every aspect of the economy in a short comment.

I thought it was obvious I was talking about financial institutions

It's not obvious at all.

The comment you were replying to said "can't pay the booze suppliers" so it's pretty clear they we using the normal business definition of creditor.

As normality is restored, they will have new opportunities during the ensuing large scale financial restructuring.

Yes, creditors restructure payment schedules all the time.

That's where 0% credit comes in. It needs to take the whole chain. We shut down for 3 months. Net 60 terms become net 150. Net 90 becomes net 180. Everyone pays as planned, just up to 6 months later and with no interest.

This could help, but note that it still puts a crimp in things, because entities that extend credit (in any form) are counting on previous debts being paid in order to offer money/goods to other customers.

This applies even to the banks at the top of the chain -- at least until you get to (in the U.S.) the Fed itself, which can will money into existence if needed.

Creditors absolutely inflict pain on people who do not pay. That the borrower agreed to the pain is hardly a moral high ground.

Other countries are doing loan payment, rent, and interest moratoriums, etc.

We've built everything with growth as an underlying assumption with no ability to pause things and focus on essential services for a month or two and then start back up.

> The difference here is that there is no underlying financial issue.

This is like looking at just the income statement as sign of business health. Balance sheet and cash flow are pretty important.

There may be no underlying financial issue, but percentage wise we're going down much faster. September to Oct 2008 was a 9.5% drop (steepest month drop). Past 30 days was a 20.5% drop. Tracking s&p 500.

The stock market is not the economy.

It doesn't even seem to be a real index on economic activity anymore either...

In my personal view 'The Market's purely reflect consumer confidence. They appear divorced from actual reality, aside from how that affects the mindset of easily panicked lemmings.

Money purely reflects consumer confidence, and as long as the economy is based on money, so does the entire economy.

Not really. There's tons of steady demand to drive money forward. You can double or half average consumer confidence and it won't change the price of a burger or a t-shirt.

One consumer? No. All consumers, it definitely will.

How big of an area do you need to see this effect? I've never heard of this kind of pricing difference on a city, county, or state basis.

And the stock market varies wildly on a daily and monthly basis without affecting the prices of almost anything.

It seems clear to me that money is not even close to affected by consumer confidence the way the stock market is.

The difference in this case is that the stock market is a highly efficient process, where feedback paths are short, information is shared widely, and there is potential to make a lot of money on other's misjudgements, automatically correcting the price in the process. This means changes in confidence are almost immediately reflected in the price.

T-shirts, on the other hand, much more slowly change to match confidence, for the same reasons. If you think people collectively over- or undervalue T-shirts, it is rather hard to make money off of that mistake. In part because it implies moving physical stock, but also because they are a relatively refined product. Markets for natural resources see some of the same fluctuations as stock markets, although not to the same degree.

Thinking something is over or under valued is very different from general confidence in the economy. In daily life you're not betting on the economy, you're part of it. You work and spend even if you think the nukes are going to kill everyone. Confidence has a vastly weaker connection to demand for goods.

If people think the dollar is significantly overvalued, they'll switch to gold, bitcoin, rolls of toilet paper, or other forms of ad-hoc currency. That's what happens in countries with 1000% inflation, for example.

Stock market is a tricky gauge. People sell for all sorts of reasons even if some of it is rational. Always good to remember that the fact that there’s a sale also means there’s a buyer. Another fact is there could be large number of shares that never traded. It’s hard to dissect this information from price alone. All we know from a dip is that there’s more demand to sell than buy. That’s hardly enough information to see the full picture.

That's because of people panic selling, and it's a wonderful opportunity to buy cheap stocks.

The problem is stocks continue to fall — hard — and nobody knows where the floor is.

It’s also unclear how long it will take everything to recover, if they do continue to fall.

Stock prices don't really matter in the short-term, and we are lucky that the underlying financials are good, and that -- at the end of the largest bull run in history -- many of the largest companies have lots of cold hard cash. Apples hundreds of billions don't look so silly now, do they?

Oh, BTW, the floor is hard-set at zero, which they'll never get to, since -- given there is no underlying financial issue, and that demand is going to be higher than ever once we're done with this -- all these companies have intrinsic value.

I won't opine on the correct value of the stock market at the moment, but the drop in demand due to measures needed to preserve life cause a financial issue. Many/most consumer-facing businesses can't withstand a drop in demand to near zero for a period of at least several months. So those businesses, absent some sort of national bailout, will go bankrupt. Or at the very least, they will go dormant. Either way there will be layoffs, and of course the laid off employees will reduce their spending further. Even once the virus is under control, it will take time to reverse this damage.

Yes, of course, the market won't go to zero. But some firms will go under, and we don't know how severe the economic impact will be. Just because the crisis began with a natural disaster rather than a financial one doesn't mean there can't be serious financial impact.

Sure, but economic fallout from natural disasters typically recover much faster. It doesn't shock our trust in the financial system, and people are more community minded, since no person can be blamed for it. Already, we are seeing bipartisan attempts at governmental stimulus. Did you ever think you'd see Trump and Pelosi agree on government spending, because the white house was pretty quick to endorse the house's plan.

But back to pandemics. Pandemics typically result in major booms due to (a) the die off, (b) the pent-up demand, and (c) the fact that everyone still trusts the financial system. The 1918 pandemic certainly caused major GDP losses, and short-term pain, but also caused the 20s

But doesn't the 20's then lead to the 30s? And can't an argument be made that WW1 would have contributed as well?

I think you’re overlooking the cascading effect of a lot of small businesses closing doors (voluntarily or involuntarily) while this blows over — not knowing how long it will take to blow over.

Short of a bailout, that’s not going to be easy to recover from. And even a bailout won’t be enough to bring about a full recovery anytime soon.

One potential path here is:

- Local and state governments provide bailout funds to suffering local businesses

- Said governments issue new bonds to pay for this relief

- Fed uses the recently-announced QE funds to buy the government bonds

The question then becomes if communities can get organized enough to approve this, and then convince ratings agencies that the new bonds are good.

No issue? Corporate debt ...

https://www.economist.com/finance-and-economics/2020/03/12/c...

I am down 1 large in the uk today £10k

You should only buy now if you a) suddenly have a lot of cash, AND b) can definitely take a long-term position without needing the money for 5-10 years.

Everyone else should wait for the upward trend to make sure it's not going to get much worse. You want to "predict the staircase" and not "the floor".

> Everyone else should wait for the upward trend to make sure it's not going to get much worse.

"Don't try to catch a falling knife."

https://www.investopedia.com/terms/f/fallingknife.asp

To put a finer point on it, a fully funded safety net is a good idea before moving money into investments. Enough to cover basic expenses for, let’s say, a year. How long exactly depends on your risk tolerance.

Not a financial advisor, standard disclaimers, etc.

> there is no underlying financial issue

As someone with an economics degree I can assure you that a complete and utter collapse of aggregate demand is an underlying financial issue.

Several restaurants in downtown Seattle have already closed. More will probably come over the next few weeks.

As I expect this to largely continue to be a problem through summer the tourism industry in downtown is going to be hit very hard.

The economic side of this is going to hit like a ton-of-bricks. It's going to be very painful, and we should do everything we can as a society to take care of those that are hit hardest by it.

The Alaska cruise season will likely not happen this year. The Canadian government has banned cruise ships from Canadian ports until 1 July. Legally, the foreign-flagged ships of major cruise lines must call at a foreign port between calls at US ports. All Alaska cruises call at Vancouver on their way from Seattle to Alaska.

https://www.seattletimes.com/nation-world/canada-suspends-cr...

Arbitrary legal restrictions can be changed, especially if unusual circumstances require some changes.

Maybe they'll sail under the US flag?

Then they'd have to pay U.S. wages and working conditions. Avoiding that is the whole reason they are foreign flagged.

Cruise ships were the a primordial Uber -- regulatory arbitrage to compete in an existing industry. The put a hotel on water just to avoid hotel regulations.

More generally, just US laws period. That affects a lot more than just worker compensation and conditions.

I know. That'd be a great ancillary upside to this pandemic.

Relevant video. https://youtu.be/m3yyA12PAy0

Could they go to Russia?

Who do you think will be on the death boats?

Over 50 restaurants in Seattle have announced temporary or permanent closure (as of a couple days ago)

Totally agree. The bailout of the banks has started with 0% rates and massive QE, which at the end of the day while I think necessary to prevent a credit crisis will do nothing to help the real economic situation; demand is dead for a while because of the health situation.

We should consider more radical measures like temporary rent/mortgage freezes.

> The bailout of the banks has started with 0% rates and massive QE, which at the end of the day while I think necessary to prevent a credit crisis

Well, no, if you bailed out businesses and consumers directly, there also wouldn't be a credit crisis.

Structurally, though, that's fiscal stimulus, which isn't the Feds job, and good luck getting much of that through Congress, and by that I mostly mean the Senate Republican Caucus.

> We should consider more radical measures like temporary rent/mortgage freezes.

While not that particular measure, a number of states and localities have adopted or are considering eviction and/or foreclosure bans, which leaves mortgage/rent technically due but limits nonpayment consequences.

The gap between the rates on the 30 year treasury and the 30 year mortgage increased from ~1.5% to over 3% and getting worse, before QE4 was announced (and this was already pricing in some fed action). This indicates that investors stopped buying mortgage-backed securities which would have eventually resulted in home buying activity stopping and a housing market crash. I don’t think any bailout for restaurants and bars or mortgage/rent holiday would have helped with this. I’m not saying such stimulus isn’t necessary, but it doesn’t replace fed policy.

HN's culture against partisan political statements looks particularly like sticking one's head in the sand these days.

Coronavirus is not a political thing, but our (partisan) elected leaders had an enormous amount of power over how prepared we were, and their agendas shape the on-going response. It's impossible to talk accurately about the problem or solution without mentioning parties and politicians by name.

This is crazy. There is nothing any party could do to have prevented the virus from reaching the United States, aside from a complete shutdown of the borders, including for American citizens. It is too transmissible, too undetectable, etc, to prevent it. Containment is the only feasible option, and America is actually ahead of the curve. Unlike Italy and France and Europe, American states are shutting down before hospitals have yet to be overrun.

There is so much the US could have done if it had exercised an international leadership role earlier in the crisis.

And the current administration messed up big time by not manufacturing sufficient coronavirus tests and instituting some sort of testing regime.

Yes, they screwed up testing.

However, no administration could have prevented it from reaching the US. Trump's closure of the Chinese border is more than almost any president would have dared done.

Of course we could have contained it. See Taiwan for a golden example. About one case per day since this started.

China, Japan, and South Korea or other examples.

China? China is why we're in this mess. They were unable to contain it, which is why it's now a pandemic. Their actions to shut down society (which the US is now taking, well before our hospitals are overrun) came way way way later.

Japan, I don't know about.

South Korea is doing a good job, however it only took one rogue patient (patient 31) to go from 'well-contained' to 'nation-wide' epidemic. This is why containment measures are doomed to fail if the goal is to prevent the spread entirely. It only takes one person to screw it up.

You're attacking an argument I didn't make.

I did not say anyone could prevent the infection from reaching the US. The damage can vary wildly once it's here. Containment is not a binary outcome.

Among the tools govt has: funding science, appointing competent officials at CDC and State Dept, travel bans, quarantines, financial relief, effective messaging, targeted testing, subsidizing tests and treatment, restrictions on gatherings, anti-smoking campaigns, regulations to reduce air pollution, not telling people that it's an exaggeration or a hoax, inviting the other party to discuss a compromise on life-saving measures, acting on the CDC's recommendations, sending govt workers home, enforcing anti-gouging laws... it's a long list.

As has been discussed here and elsewhere, many of Trump's behaviors and much of the Republican agenda has pulled us in the opposite direction of where we needed to be to deal with this. In the CDC, many people are "acting" roles because Trump refuses to fill vacancies. The same is true of the State Dept.

Most likely, given that both the White House and the Speaker agree that there should be a financial package aimed at those individuals affected, this is one of those times when both banks and individuals will be given relief.

A restaurant near me already laid off 20 and we aren't even that far into this. A lot of restaurants, bars, and gyms are operating close to the edge of insolvency as it is.

Oh and by the way the timetable on the retail apocalypse just got pushed up to this week.

They announced $50 billion in SBA loans (up to $2 million per business) for small and medium businesses. Interest rate is 3.75%. These kind of funds will help a lot of businesses float through:

https://www.sba.gov/about-sba/sba-newsroom/press-releases-me...

Loans? Not grants? While large businesses get quantitative easing, bailouts of airline industries, etc? Sounds about right.

Also from the announcement, lol:

"businesses with credit available elsewhere are not eligible"

Ah, so if you can get credit elsewhere, you can't get our help, even if it's needed.

Quantitative easing and most of the bailouts I can think of are in form of loans, not grants. The 9/11 airline bailout was 1/3 grants and 2/3 of it was in form of loans. Loans are the default form of bailout pretty much always. They turn into "grants" when the worst-hit businesses can't repay them, but they still allow business to continue and not bankrupt their suppliers and amployees.

Governments have more fiscal freedom to give out loans than grants. Many of the prior bailouts were also loans (at terms that no bank would offer hence the bailout bit).

Businesses should take advantage of these, and a restaurant operating in a city where operating a restaurant is illegal will not have credit available anywhere else.

I haven't read about the QE4 plans. How will it work?

This is just tip of the iceberg, now that this is declared national emergency, FEMA money and other sources are unlocked. Meanwhile, it's just the first week of things heating up to the point of these shut downs. Give the government time.

>> Give the government time.

They have time enough to shut down businesses in a snap of their fingers. I don't think it's too much to expect at least a basic outline of a remuneration plan at the same time. I do not see why we should give them time on one issue but not the other.

Well you're talking state government vs federal government. Different departments.

Those numbers are atrocious. But if SBA is offering that I wonder what small business loans from banks will look like, 1-1.5%?

Atrocious? For an unsecured loan?

This is crazy to ponder given it’s only been a couple weeks. I feel terrible about so many smaller businesses teetering close to insolvency.

It's less about insolvency and more about having a ton of savings. The entire business model is driven by customers, and they go from netting $2k/day to losing on salaries and rent. How long do you think a successful bar could survive hemorrhaging money on a daily basis, with no hopes of when customers would be allowed to return? What bank is going to write a loan that risky to keep them afloat?

Give them what the government gives large industries: Bailouts and direct cash payments, plus a loan.

At least in California, there will be guidance about evictions and the plan is to provide housing for all 108,000 homeless people. Italy has frozen many financial/property/contractual relations and it's likely that this will spread to other jurisdictions.

A lot of restaurants stay in the red for the first 3~5 years. I have a friend who just opened a brewery in Tennessee in December. They don't serve food; it's just beer, so they might be alright - but I should probably call and see how he's doing. I sure hope they've started bottling to canning.

You'd hope owners would keep a buffer of either cash or loans/credit-line to last three months, but a lot of them starting up may not have that bootstrap capital. Restaurants that have been around for years with good management can probably weather a month or two. Even the best well restaurants are going to feel the strain if we go to month three.

This time of year is the beginning of a slump past Mother's Day for restaurants too (at least in the UK). And they probably won't get much out of Mother's Day this year either.

Coming out of the Xmas period, May, June, July looming which are low turnover periods.

If you're already teetering, you're going to fail. The UK's had a lot of big chains shut down or scale back recently too, there was a big explosion in restaurants and bars about 5 years ago and the first round of losers happened over the last couple of years.

I'm a little surprised that commercial landlords of businesses that are affected aren't stepping up to offer rent concessions. Yes, I get they don't want to take a hit -- but they're generally in much better positions to do so than restaurants and cafés that run on less than 5% profit margins during good times.

(And, yes, I'm sure the more leftist and anti-capitalist out there will say "but are you really surprised?," and they'll absolutely have a point.)

It is your government's responsibility, local or federal I don't mind. This is why you pay taxes, to provide services to your citizens, one of which is disaster preparedness. I wouldn't be quick to put the burden onto businesses. If such a thing were mandated you would pretty quickly bankrupt a bunch of landlords who were not in the position to take it, and you would shift a bunch of property ownership to the banks, the consquences of which I am not sure of.

It isn't so much about greed but rather responsibility. Is it really a businesses responsibility to take care of citizens? Shouldn't the government be doing that, and don't you pay them to do that?

I know America is skewed a bit, having businesses provide you your healthcare probably confuses their role in society. But something is off if you feel we should turn to a commercial realtor for community support.

I don't disagree with that, to be clear -- my thought is more that everyone is in this together. There's a lot of actions only a government can practically take, and others they would probably do better than private actors even if private actors could also do it. (Health insurance being a prime example.) But none of that precludes a landlord from giving businesses (and, of course, individuals and families) a rent break without waiting for the government to compel them to do so.

You're certainly not wrong, and I've seen a number of instances where landlords are being lenient with rent to tenants which is certainly commendable.

definitely not just eatery. Someone I know work in retail front and interior design firm. Needless to say, they had to let go a few workers because many retail clients are putting all their projects on hold.

Australia already has an economic stimulus under way, but I am not sure how much it will help brick and mortar retail and hospitality.

Suspend rent payments

Without work, I can’t make hours to keep my health insurance, so I’ll be forced to buy COBRA, which is just as expensive as rent.

(Or I could risk going without, while living at this continent’s ground zero for a pandemic.)

Entire industries are being shut down. There are no easy answers here.

Protip: COBRA is almost always more expensive than a comparable plan you can buy from an exchange. Often hundreds of dollars a month more expensive if you have a family.

The only problem with getting a plan on an exchange is that you may need to satisfy a deductible again. YMMV of course.

With COBRA I believe you can also pay your premium after the month it's due. This can be advantageous because you can opt to not pay for your last month before switching to another plan if you end up not using any services from your COBRA plan that month.

Helicopter money to small businesses.

I'm curious how this works in practice? Rent pays for groundskeepers, repairs and maintenance, your landlord's income, insurance, etc. Mortgages seem more straightforward. You would still owe the original amount and are likely still accruing interest.

Who pays the landlords, they aren't public utilities after all. Yet, a government stimulus to landowners instead of citizens would be a bit disingenuous in my opinion.

New problem: debt secured on property investments to businesses.

Landlords don't have expenses?

Yes it's like the "cancel all debts" idea. Great idea, but emm.. by the way you do realise that "money in your bank account" is technically a debt that the bank owes you, so that gets cancelled too!

Ah "cancel all debts to people not banks". Great idea, but emm. OK so the bank now doesn't have the assets on it's books, goes bankrupt can't pay you that money in your savings account.

"cancel all debts to people not banks, and let the government bail out those banks". Great Idea, but.... something something hyperinflation.

etc.

Let them go bankrupt or have the banks suspend mortgages.

Not having a homeless crisis is far more important than protecting rentiers. Just throw them under the bus.

They are not actually doing anything anyhow.

> Let them go bankrupt or have the banks suspend mortgages.

Is this a serious comment or are you trolling?

Forget about a recession, the devastation a policy like this would cause would plunge the US into a full blown depression. Deflation and asset price collapse across the board. YEARS of stagnation.

(To me) the answer here seems clear: A direct bailout in the form of $ to consumers and some mix of direct $ and tax credits to businesses.

"No such thing as a free lunch" - some 80's unpopular lady, but she might have a point!

I have property tax. It's not just mortgages. And there's all sorts of compliance issues even in a closed building.

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