https://www.wsj.com/articles/financing-an-economic-shutdown-...
It’s fundamentally different from me starting a small business and going to Chase saying, look here’s a healthy prospect and I’ll be able to pay it back within x years.
Agreed on this. But the rent paid out during the period of reduced revenue coming in creates a delta that this loan is filling in. The loan still needs to be paid back (even assuming 0% interest). That extra money needs to come from somewhere: increased prices, increased traffic, or decreased expenditures.
Throw in food stamps for the unemployed and you're most of the way to keeping a nation going.
If you force rental payments to stop, then who gets hit? The landlord is going to default on their obligations. So do you then bail them out? If the landlord defaults, the banks (presumably) will repossess the property. So it's just somebody else suffering, rather than the tenant.
The loans work, because the obligation to pay back this loan will come from a future where you have the capability. The govt is the eventual guarentor of this loan, and hence, they take the hit if the eventual future does not come to pass (e.g., the restaurant never regain their full business). The gov't can't take the full hit of all these defaults all at once, but they can if it is spread out. So a loan will spread them out into the future (even perhaps, far future), and the economy survives, even if a lot of the business that took the loan didn't.
Read my post again. The rent holiday goes hand in hand with a debt holiday. That's the only way this works. Tenants don't have to pay rent, and landowners don't have to pay a mortgage.
Sure some businesses will fail as a result of this, but far more (on a massive scale) will fail if you don't do this.
They'll be bailed out by the govt as usual. Which is the point.. the govt has to keep humans fed and housed through this. This is the best way to achieve that end. Kicking the can down the road is exactly what needs to be done. The economic problems and readjustments can happen later. The immediate problem is people fucking dying.
As others have pointed out, this is not what any of us are saying. Those debts are paused too.
The loans DO NOT work, because most of these businesses are barely profitable at all. Now they have to recover to their previous levels of income AND pay back a loan? They can't. It's a ridiculous expectation.
I know this would help for people I personally know in this industry.
Dine in has been reduced almost entirely but takeaway orders hasn't deviated too much from the standard.
The reality here is that a lot of small hospitality businesses don't actually make much profit at all so it's unlikely that they'd survive too long with this forced reduced business. And it's always unhelpful to hear (in general not from you) comments like "maybe they should have saved up more earlier" or "they shouldn't be opening up a restaurant then" because a lot of times they can't work in any other industry - this is all they know.
Imagine having reduced business through no fault of your own yet you're still liable for paying the commercial rent of $1.2k per week. You can't sell the business because no one is buying. You can't sell it because you lose all the goodwill which is bad especially if you've spent any money renovating the place up to standard.
But if it’s just a pause in collection, and you still owe that money, then it’s the same old margin problem: very few restaurants make enough money to repay that loan no matter who it comes from.
It has to be a pause in collection (and interest), but at the end of the day the lender also has to get their money back.
Some landlords were letting people stay rent free out of compassion because no one had money and it was tough all over and no one else was going to rent it. Then the government decided to bleed the landlords and insist it get paid if the unit was occupied, even if no rent was being paid.
Landlords had no choice but to begin evicting people. Things got ugly fast.
It's an indication of how things can go wrong with the government working against you, but I don't know that it maps well to the current pandemic.
I wasn't ascribing good intentions to Westminster. I was saying that their intentions, good or bad, and the intentions of the current American government are irrelevant. What's relevant here is they did a thing and it got x result. So we should use that example to wonder what will really happen should we do a similar thing now.
Except nobody is suggesting a similar thing. I started this thread by suggesting that the government do x, and you replied with the assumption that the government would do x+y.
Six months from now, when the quarantine ends, you aren't going to go to your local Teriyaki and Wok, and order six months wroth of Chinese food.
The restaurant will never recoup those six lost months of rent. The employees will never recoup those six lost months of wages. These loans will never be repaid.
Low margins are the result of heavy competition. If there is less competition margins will be high again.
2. The problem is that after the pandemic ends, the margins will remain low. Because new entrants, with no outstanding debts or obligation will eat the lunch of any of the restaurants that remained 'open' during the pandemic.
I have thought quite a bit about whether this situation will cause long-term behavioral changes.
Do you expect the restaurant business to bounce back to where it was after the crisis ends? I would expect that to happen for a short-duration event. But what if this persists for months, or into next year?
I have searched for papers that explore this idea (say after the 1918 Spanish Flu), but haven't found anything relevant.
Loans will help them bounce back when the crisis is over. Makes no sense right now.
That hourly worker w/o a job will pay rent and food. Software engineer...a carwash, new lawn equiment, or hell even a vacation.
Giving an airline a tax break won't drive them more customers. Giving their customers more money will give them customers.
You need to think long term what this money can do.
Most "excess wealth" is tied up in business and other investments. It's not like wealthy people just horde cash like Scrooge McDuck. That wealth is currently working to support the economy. It is hardly passive.
Forcing the wealthy to pay increased tax on this value will cause them to close business functions, sell stocks, etc.
Is that really wise at this point in time? To redistribute value from existing, proven formats into unspecific, theoretically useful ones?
Theft is not immoral simply because it is unfair or mean. It's because it causes systemic dysfunction.
Suspend loan repayments and rent collection for 6 months, and print food stamps for the unemployed.
Throwing out a credit lifeline can be a practice that benefits everyone in times of crisis.
Like I said in my earlier comment, the best hope for these businesses is to return to normal revenue numbers. They aren't going to make up for the business they are currently losing. They don't have a liquidity problem. They have a lost revenue problem. They are still accruing costs without accruing revenue. Delaying those costs doesn't fix that disconnect.
>Paying down the debt is a common business practice that people do all the time.
Taking on debt to allow you to make investments and improve future outlook is a smart business decision. Taking on debt in order to meet recurring operating costs rarely works out when there is no hope of future growth.
A profitable restaurant's unit model might be: 10% net profit, 30% COGS, 30% fixed cost, 30% labor cost
During this one month shutdown, the restaurants won't incur labor cost or COGS. So, they're really only in the hole 30% of one month's revenue. With a little back of the envelope math, you'll see that the restaurant owner can pay back a loan for this amount by allocating 10% of their monthly profits (or 1% of monthly revenue) to loan payback.
Now, if the restaurant is NOT profitable, then we have a problem. But, they were probably going to go out of business soon anyways in that case.
Frankly, I think the restaurant industry is over built and many of them deserve to close. The margins are non existent, most of the food is terrible, it's the ultimate bubble economy business.
Not that it would happen though.
The restaurant is TOAST when the loan starts being due as they try to reopen in the middle of recession after a forced closing and they'll all be out of work trying to feed themselves, pay rent and take care of their loved ones.
You mean free money, just because? How could you even begin to figure out who deserves it? That'd be a lot of offices and bureaucracy to set up to solve the question. Unless you just want to give wads of cash to any restaurant claiming to need help, in which case I'm glad you're not leading the economy.
Maybe it could be like farm subsidies, but we pay restaurants to close for a certain amount of time / certain days of the week, on the condition that they pay employees normal wages for those days.
"Normal wages" for many restaurant workers in the U.S. exclude tips. Without tips, "normal wages" is below the minimum wage.
While it might better than nothing, it's not liveable.
Restaurants are required to bump tipped employees up to the non-tipped minimum wage if the tips don't put them over it. Thus, "normal wages" in this case would be the non-tipped minimum wage.
So you could employ a restaurant worker at $0/h and then bump them to minimum wage, because the tips will never cut it? Basically, you'd be collecting all the tips? This cannot seriously be legal!?