It reduces spending and purse strings get tightened. When the mortgage doesn't get paid, the mortgage backed security isn't getting its repayments. The retirees living off the dividends from the REIT don't get paid. Then the retiree spends less in the economy, which would've paid the restaurant worker's wages.
When the chain breaks, the whole system is impacted. Think of it as a graph. When payments aren't flowing from one node to the next due to crisis, the solution is to have the government ensure those payments be made via taking on debt in bad times (and less borrowing in good times).
The vast majority of the ownership of the stock market is owned by the very wealthy.
Most of main street's wealth is in their home, and while home values dropping can hurt them, these assets aren't usually income generating.
I don't see the problem, I see restaurants close only to see a new one move in a few months later. Even during good times its a risky business.
If I buy a piece of land a build a house on it and rent it out, I'm adding value to society by creating value.
> David Ricardo introduced the term “rent” in economics. It means the payment to a factor of production in excess of what is required to keep that factor in its present use. So, for example, if I am paid $150,000 in my current job but I would stay in that job for any salary over $130,000, I am making $20,000 in rent.
Similarly, a landlord charges rent in excess of what it costs to maintain the land and building. Unless I’m misunderstanding Ricardo’s definition, that fits neatly inside of it.
A landlord is not “rent seeking” just by charging rent. For instance they are providing value in the form of risk arbitrage in most cases.
The only case a landlord is purely rent seeking in the economic sense is if they only captured the difference in value of their properties due to external factors.
Similarly, one of the classic examples of ER is wage premiums paid to closed-shop union members: the clearing price for the labor involved is, say, $20, but your union bumps that up to $25; the extra $5 is ER. There is directly substitutable labor that could be acquired at a discount to union labor, but closed-shop rules lock in the extra rents.
That consolidation is going to happen anyways. It's inevitable. The only factor is how long it takes for it to happen, and how big the payout will be for small landlords when they finally decide to cash out. There's much more at stake for the renters.
Forcing small landlords into choosing between selling immediately or facing bankruptcy in the near future is morally preferable to putting the burden on renters. The world isn't really a worse place if a landlord has to liquidate their assets at a 150% net profit now instead of 320% in ten years (after accounting for all rent collected and taxes paid).
If they had the capital to afford a commercial property in the first place, this won't be potentially life-ruining. You can't assume the same for a non-chain restaurant or grocer that serves as the owner's livelihood.
Most of these businesses could barely keep up during the best of times; the vast majority of them will never be able to repay a single months missed rent, let alone half a years worth.
Mortgage and eviction deferral have only put off the inevitable; without forgivance or direct cash infusions, they’ll still fail, probably right after the last whisps of political will to fix this disappears.
It sounds nice, but I think it benefits the poor too much to catch on.
Contracts should have a “disaster clause” suspending payment during an officially declared disaster. Perhaps Freddie Mac and Fannie Mae could require this for home mortgages?
French always sounds more impressive.[1][2] Lawyers love to sound grand, as though they're worth what they're paid.
1."Paté de foie" sounds a lot nicer than "liver paste," n'est-ce pas?
> Q: If a contract does contain a Force Majeure clause that includes “epidemic” or some form of the “other causes beyond the reasonable control of a party” language, does that mean one or more of the contract parties do not have to perform, as a general rule?
> A: Not necessarily. First, it should be noted there is not much jurisprudence in the U.S. that address “epidemics” as a Force Majeure event. So the courts have not, to date, had an opportunity to provide clear interpretation or guidance. That is likely to change soon. Second, there needs to be a real causal connection between the occurrence of a Force Majeure event and a party’s ability or inability to perform under the contract. By way of an over-simplified comparative example, consider today’s situation, where there is undoubtedly an “epidemic” of COVID-19 occurring. Most homeowners cannot simply stop paying monthly home mortgage payments even if the loan documents contain language that includes “epidemic” as a Force Majeure event. This is because the Force Majeure event, as expressly stated in the contract, has not directly created an effect that excuses the homeowner’s performance – to pay monthly installments to the mortgage company. In contrast, if a public school district engages a consultant to observe and evaluate students’ use of a new technology in the classroom, and the contract contains similar Force Majeure language, the government’s decision to temporarily close all public schools because of the epidemic precludes the consultant from completing the evaluation.. Very likely, the Force Majeure clause would excuse the delay in the consultant’s performance.
> In between these very simple examples are countless real-world situations that will likely arise as businesses try to predict their respective futures.
https://www.lexology.com/library/detail.aspx?g=5e3f36b8-6ce8...
> For this reason, we turn to testing the hypothesis that variation in the share of small businesses with existing bank financing explains the variation of PPP loans approved across states. The top panel of the figure below shows the share of small businesses with bank financing in 2019, while the bottom panel shows the share of firms receiving PPP loans.
> We can see that there is strong similarity in shading between the top and bottom panels, consistent with the lenders’ preference explanation. This relationship is further confirmed in unreported regressions. Our interpretation is that banks’ preference for their own customers causes the PPP to favor firms with existing lending relationships.
It seems like it could have all sort of just been put on 'pause' for the duration of the pandemic.
When you consider that the appreciation of these markets only serves to widen the wealth gap, it becomes clear that the Fed's mandate is to preserve the wealth of the rich. They're pursuing "trickle down" economics at full speed, despite the overwhelming evidence that "trickle down" is a myth.
The US population is too busy arguing over race issues and partisan politics to realize the financial system is stealing from the poor and giving to the rich.
Pshh - the Fed is focused on hitting unemployment and inflation targets. Low yields in the credit market shifts investment demand towards equity.
The "downward pressure in the equity market" is also deflationary pressure and accompanied by a rise in unemployment. Just because the two coincide doesn't mean the Feds principal goal is high asset prices.
The Fed can only absorb so much (currently at a record 30% of mortgage bonds). Banks and the financial markets are not stupid and quickly resell everything. In 2008 they were caught with just ONE batch of mortgage backed securities and it bankrupted a couple. It's not going to happen again.
It's dismaying how GP proposes such a terrible idea. And what worries me the most is the majority of voters have the same feel-good ideas. We are going to get screwed from both sides.
On the other hand one could argue, that a government has to pay damages for business lost if they implement regulation shutting down that business.
At least, that is something that is part of modern international trade agreements. I know I shortened the argument here.
What I am trying to get to is the fact that there are no easy answers and that potential solutions will necessarily be colored by political leaning. This is a situation that is new and not solved with an easy fix.
Sadly.
Dealing with debt is risky, whether you are the lender or the borrower. I completely agree with opinions that it is utter BS that the government effectively bailed out banks and corporations while leaving the rest out to dry, but the solution isn't further bailouts.
Life sucks sometimes, governments can't fix that. A pandemic spreading fast enough to bring broad shutdowns doesn't come free, and unfortunately small businesses sitting on piles of debt and tight margins are the first to bleed. Economic systems have pros and cons; with Capitalism we often get accelerated growth and innovation but the downside is that when things go south it can be a much faster and deeper cut.
There are various degrees of being scathed. "Everyone gets scathed" is not an argument. Some did way, way better than others.
In a short pandemic world, it's likely that the European strategy will perform better, while in a long pandemic world, the US strategy may perform better.
I do agree with the OP though, it's far too early to tell (except letting the unemployment benefits lapse in the US was almost certainly a bad idea).
And again, I wouldn't call out a "winner" just yet. Those decisions will likely have vastly different impacts post-epidemic.
Can we, though? We are not even half time yet (most likely). How are we going to judge a government in the beginning of a pandemic as if the pandemic was already over? Maybe what looks like a poor strategy now will turn out to be the best later. Same true for the economic bailouts, some countries went harder than others, and it's not yet clear which will work better.
There are some anomalies that's difficult to explain (Sweden, for example). Sure, we can retrofit some model, and imagine we have it all figured out, but could you have predicted it correctly?
5 years from now when we look at the death certificates from nations with reliable death certificate records, we might have a better idea.
[0] https://www.latimes.com/world-nation/story/2020-09-21/sweden...
This would be the dumbest idea right now. I hope government agencies worldwide can resist the attack from media.
[Don't get me wrong, fuck banks, evil hedge funds, and speculative landlords, but they are barely going to be hit by something like this.]