tag:blogger.com,1999:blog-582368152716771238.post4169564522957223980..comments2024-03-28T11:50:52.581-05:00Comments on The Grumpy Economist: Implementing Federal lendingJohn H. Cochranehttp://www.blogger.com/profile/04842601651429471525noreply@blogger.comBlogger10125tag:blogger.com,1999:blog-582368152716771238.post-84393673627591424992020-03-23T14:16:41.505-05:002020-03-23T14:16:41.505-05:00I’m not sure that these sorts of financing schemes...I’m not sure that these sorts of financing schemes will be of that much interest to the businesses suffering the downturn. The pandemic is leading to a huge reduction in wealth. Equity owners are going to take a big part of the hit. (That sucks, but that’s what equity is all about.) These ad hoc financing schemes give another way to take the loss but I’m not sure how many equity owners will prefer to do it this way. <br /><br />A couple of examples. <br /><br />First, imagine a neighborhood bar that has to shut down (if you’re of a certain age to remember, think about Cheers). This might seem like the just the kind of place that needs financing. They have lots of organizational specific capital—everybody knows your name—and the owners and employees don’t have much of a financial cushion. If I’m the owner, though, I’m not at all interested in taking on more debt. Instead, I’m going to encourage my employees to take care of themselves and collect as much unemployment as they can. If the business comes back, they’ll come back (organizational specific capital raises their income too.) I’m not paying rent and my landlord will threaten to evict me, but that’s an empty threat. He doesn’t have any alternatives right now and once normality resumes, I’m the best tenant for this location. (This does suggest that the banks lending to the landlords may need help but that’s not what this is about.)<br /><br />Now think about a business that’s about as different as we can imagine, airlines. If I’m running a big airline, I’m going try to make an absolutely credible commitment not to borrow. If I do that, there’s an excellent chance that the Feds will cave in and just give us cash. If that doesn’t happen, I’ll have to go through bankruptcy. But airlines are good at bankruptcy. When American went under in 2011, the shareholders ended up with an equity claim in the reconstituted AA that was quite valuable. As compared with holding on to shares in a company that has taken on massive debt, the thought of holding shares in whatever emerges from bankruptcy seems very attractive. <br /><br />One thing that will change these calculations, of course, is the promise of no questions asked forbearance. If these “loans” are just ways of shoveling out cash, then they’ll get snapped up. We all like free money.<br />mike davishttps://www.blogger.com/profile/10989810128194836571noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-71624311910731774432020-03-20T13:26:01.725-05:002020-03-20T13:26:01.725-05:00The UK will allow businesses to defer payment of t...The UK will allow businesses to defer payment of the value-added tax collected by the business until March 2021. Finance minister Mr. Rishi Sunak estimated that up to 30 billion UK pounds will be deferred.<br /><br />Reuters reports here: https://www.reuters.com/article/us-health-coronavirus-britain-tax/uk-to-allow-firms-to-defer-30-billion-of-tax-payments-idUSKBN2172Z3?il=0<br />Old Eagle Eyehttps://www.blogger.com/profile/05270080708077871311noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-16338779257549122932020-03-19T21:06:02.586-05:002020-03-19T21:06:02.586-05:00KISS.
Declare a payroll tax holiday, and radicall...KISS.<br /><br />Declare a payroll tax holiday, and radically reduce withholding schedules on income taxes. <br /><br />Let people keep the money they earned, instead of confiscating it.<br /><br />Finance the tax cuts through helicopter drops, that is have the Fed print up money and send it over to the Treasury.<br /><br />I can't say creating more debt is the solution, in fact it strikes me as administering poison to a sick patient. <br /><br />Benjamin Colehttps://www.blogger.com/profile/14001038338873263877noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-66747968481347456752020-03-19T20:28:37.685-05:002020-03-19T20:28:37.685-05:00John: misspelled "Lowy" as "Lowry&q...John: misspelled "Lowy" as "Lowry"Hugh Cassidyhttps://www.blogger.com/profile/01918741777284978516noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-38606158701333920402020-03-19T17:28:03.231-05:002020-03-19T17:28:03.231-05:00There are really only two possibilities admissible...There are really only two possibilities admissible: (1) capital loss from a business is converted into a transferrable credit that can be sold for cash to an investor who seeks to offset a current capital gain; and (2) income tax deferral for up to n months without penalty or interest charges. A third option is possible, namely, the monetization of a current operating loss that is transferable to another business that has a current operating profit which it would offset in exchange for a cash payment from the profitable business to the unprofitable business. The exchanges would be permissible for a limited time, say, the current tax year 2020 or the following tax year, i.e., 2021. These alternatives would not require the IRS to alter or modify its modus operandi. <br /><br />In the case of a swap of a taxable capital or operating loss for cash, the counterparty establishes the discount rate ('market rate') without intermediation by the IRS. In the case of deferral of an income tax liability, a zero penalty, zero interest rate policy would be an administrative action by the federal government (in conjunction with Congress). The alternatives can be implemented separately or together.<br /><br />No loans, no credit-worthiness determination, no significant disruption in IRS operating procedure. The time delay in implementing the policies would be limited to the time required to effect publication in the Federal Register.Old Eagle Eyehttps://www.blogger.com/profile/05270080708077871311noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-86786047777395611102020-03-19T15:55:48.575-05:002020-03-19T15:55:48.575-05:00The government is not capable of sensibly deciding...The government is not capable of sensibly deciding to which businesses to lend. Instead, the government should put money into the hands of potential private lenders, and let *them* decide to whom to lend. These potential private lenders are the present holders of Treasury securities: the government should buy back lots of these securities, thus putting money into private hands. This money will be newly created, by the Fed. In other words, the Fed should engage in (massive) quantitative easing.Philohttps://www.blogger.com/profile/02814125172453918700noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-87083554696983935412020-03-19T14:09:41.413-05:002020-03-19T14:09:41.413-05:00I prefer standard bankruptcy procedures.
Busines...I prefer standard bankruptcy procedures. <br /><br />Businesses that can't survive go bust. Shareholders and bond holders take a hit or are wiped out. Then (assuming a business looks like a good long term bet) those with cash to spare (Warren Buffet, Apple, Bill Gates, etc etc) pick up the business at a bargain basement price, and two or three years down the road, when the Corona virus crisis is over, they make a killing. <br /><br />Long live free markets and capitalism!Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-14879883871356837992020-03-19T12:22:54.540-05:002020-03-19T12:22:54.540-05:00"so long as the business’s history suggests t..."so long as the business’s history suggests that it will have the capacity to repay, given enough time"<br /><br />This one of those "charity for rich people only" policies. People that will be able to repay don't need a government loan. They should be able to get one privately.Fish Goldsteinhttps://www.blogger.com/profile/13864053986442147618noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-47986029375132142532020-03-19T12:21:36.596-05:002020-03-19T12:21:36.596-05:00Consumers are always more important than suppliers...Consumers are always more important than suppliers, because the only reason for suppliers to supply is for consumers to consume.<br /><br />The IRS should not loan businesses at all, but focus on loaning consumers. If consumers have money, the business will not suffer. If the business is suffering because people don't want the business' products, than the IRS should not bother helping. <br /><br />Another reason not to lend businesses is because the US is already providing bankruptcy protection that would enable the business to fold to avoid paying taxes. Individuals do not have that luxury, meaning that there's less risk in loaning individuals than businesses. <br /><br />The loan should not be tethered to a national crisis. An individual in crisis is in crisis independent of whatever his neighbor is going through or not. Instead, simply charge an interest rate that would be high enough so that someone with net equity would pay it off and someone in crisis would pay it off. <br /><br />A repayment period is not necessary, as the interest rate would enable each person to decide when is best to pay off the loan. <br /><br />The mechanism to make sure they pay employees is laughably inefficient. If the government wants to help employees it should loan the employees, not their boss. In times of massive unemployment, employees are actually not the people you need to help anyway. Rather than helping business to help employees help their families, just help poor individuals directly. Fish Goldsteinhttps://www.blogger.com/profile/13864053986442147618noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-65553036749116200722020-03-19T12:02:14.267-05:002020-03-19T12:02:14.267-05:00Nice post brotherNice post brotherAJhttps://www.blogger.com/profile/17120209080984170119noreply@blogger.com