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Comment by Cshelton | Hacker News Reader

So you need to understand how the commercial real estate world works to know you can’t just “hold off on mortgage payments” for very long. Most loans backed by CRE are securitized. So they are packaged into bonds. These bonds are not just banks, they are funds. Funds that hold and generate monthly payments for millions of American’s pensions/retirement/etc. This isn’t just rich old landlords won’t get their money, it is a large number of Americans, the money will stop. Bonds will simply default from lack of loan payments. Yes, the Gov can keep it afloat for a short period, but we’re talking trillions of dollars. This is the giant elephant in the room right now that the “Main Street’ is unaware of. It could potentially be very nasty. What happens if 50 million+ Americans stopped receiving/had cut significantly their pension/retirement payments? CRE is a top asset class, one of the biggest.

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Sounds like what you're saying is that those bonds and investments carried unrealised or unrepoeted risk.

That's the lenders' (and regulators') responsibility.

Fixed-income investors are still granted emergency income. Their previous lifestyles may no longer be sustainable, but they'll be able to afford food, clothing, shelter, and other true necessities.

I would look at this as being more of a black swan event. No investor can factor those in because they are unknown by definition.

This isn't about lifestyle. If CRE crashes, this is 2008 all over again and probably an order of magnitude worse. Commercial real estate has been a very active asset class over the past decade and it's huge.

"Global Catastrophic Risk Survey", 2008 [pdf]

http://www.global-catastrophic-risks.com/docs/2008-1.pdf

Includes discussion of a "biggest natural pandemic".

Posted to HN, if not discussed, on Oct 2, 2016.

https://news.ycombinator.com/item?id=12623582

The question of GCR has been raised numerous other times on HN, though admittedly more recently of late:

https://hn.algolia.com/?dateRange=all&page=0&prefix=false&qu...

Infectious disease features prominantly among discussions of GCR:

https://web.archive.org/web/20120912020526/http://gcrinstitu...

Even software executives have suggested concern, this example from 5 years ago:

https://youtube.com/watch?v=6Af6b_wyiwI

As has the US military, from 2017:

https://www.darpa.mil/program/pandemic-prevention-platform

Economic impacts of pandemic have seen significant scholarly treatment, here looking at 1990-2018:

https://scholar.google.com/scholar?as_ylo=1990&as_yhi=2018&q...

Less black swan than head-buried ostrich, it might appear.

s/unrepoeted/unreported/

No disrespect to poets.

It sounds like the main issue you're addressing is that mortgages need to keep getting paid. New York City suspended mortgage payments however, so how were they able to do that without causing all the problems you're describing?

So the way these Deals are structured, you have "people in charge" of each deal, in simple terms. They also monitor all of these properties (Asset Managers) all the time. Right now they are basically marking them as "COVID" Forbearance. But that has been going on for some time now, and we are at risk of the bonds starting to default. I expect the Gov. to step in soon on this even more, but that will only buy a small amount of time. What needs to happen is to get tenants paying. It is a very complicated system that was never designed to handle something like this.

Except, of course, that tenants are not paying because the economy is being shut down in response to COVID. The better solution would be for the government to take over some fraction of the loans, large enough to prevent contagion but small enough to avoid zombie businesses. Not an easy balance to strike but probably the only way to see this through to the end of the crisis.

And how convenient it is, that a system that's designed to benefit the wealthiest, is also rigged to sink everybody else with it, if it's brought down. And so, for a while now, whenever anybody tries to enact some reforms that'd make it more equitable, they're defeated by appeals to retirement security. That's one nasty hack of democracy.

Commercial bonds carry risks (even very unusual but not unprecedented risks such as a global pandemic). Maybe the bondholders should have thought about this?

They have. Demand for US Treasury Bonds and other safe haven assets increased as capital holders seek to de-risk.

I wouldn’t worry too much about that, our whole political system is run by old people and they’ll throw everybody else into a giant blender before they let return on investment drop for the elderly and wealthy.

Cut pensions then. Right now the working are paying full price to the retired. Everyone should get a haircut.

Ok I'll bite on the terms of someone bought into the way things are: pensions are just deferred compensation; by cutting them you would effectively be unilaterally tearing up a contract that both sides agreed to. In addition: pensions are paid for when the work is done, not after the fact.

Pensions are earned when the work is done. They are paid in the future. It's easy to imagine a pension scheme that overpays to the point where the work becomes uneconomical but because the costs are delayed and/or borne by someone else it exists anyway.

Whether it is representative of the average scheme I have no idea. Anecdotally, my grandfather received a 100% of wage pension from the government after 10 years of service started in his mid 30's (Australia). The expected value of that would far exceed any self contribution scheme, even with tax advantages.

Well yes, if people can't pay their rent, then that's tearing up a contract as well. Contracts aren't going to hold either way. Giving pensions a haircut is just a more equitable way to rebalance.

Can't get blood from a stone. If the money isn't there then pensioners are going to take a haircut. That isn't right or fair, it's just reality.

This is why defined benefit pension plans are just too risky for most people. We should shift all retirement plans to defined contribution with individual named accounts. Those are much safer.

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