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Corona--what's next

 
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mac



Joined: 07 Mar 1999
Posts: 14352
Location: Berkeley, California

PostPosted: Sat Apr 18, 2020 10:53 am    Post subject: Corona--what's next Reply with quote

Very interesting article on the fiscal implications of the Pandemic.

https://www.newyorker.com/magazine/2020/04/20/the-price-of-the-coronavirus-pandemic

I realized fairly early that this involves heavy pain and probably long term changes for businesses that involve gatherings of people. Travel, hotels, restaurants, entertainment, and perhaps museums may never come all the way back. This article brings out a detail that I had not thought of, and I'm interested in Boggs' take.

Those of us who watched Republicans wage partisan warfare on the Obama TARP and stimulus and Dodd-Frank were dimly aware that Republicans had taken off many of the reforms that limited the ability of the financial sector to gamble. But the implications at this moment are pretty stark, and explain some of the right's panicky efforts to restart the economy and ignore the death toll. PBS reports that corporate debt has risen dramatically, to near $10 trillion. https://www.newyorker.com/magazine/2020/04/20/the-price-of-the-coronavirus-pandemic

This is a 78% increase since the 2008 meltdown, and has been fueled by tax cuts, cheap money and quantitative easing. I had expected that there would be a wave of haircuts in the real estate market, and suspected that a substantial deflation would occur. I had some hopes that the deflation in the hotel industry would provide an opportunity to make some progress against housing the homeless in a way that might save public costs. But the threat is, I believe, much larger. Here are two paragraphs from the article about the amount of debt, and the increase by some as they saw the pandemic coming.

Quote:
This brutal shock is attacking a body that was already vulnerable. In the event of a global depression, a postmortem might identify covid-19 as the cause of death, but, as with so many of the virus’s victims, the economy had a preëxisting condition—debt, instead of pulmonary disease. Corporate debt, high-yield debt, distressed debt, student debt, consumer debt, mortgage debt, sovereign debt. “It’s as if the virus is almost beside the point,” a trader I know told me. “This was all set up to happen.

The trader was one of those guys who had been muttering about a financial collapse for a decade. The 2008 bailout, with the politically motivated and, at best, capricious sorting of winners and losers, rankled, as did the ongoing collusion among the big banks, the Federal Reserve, and politicians of both parties. He’d heard that the “smart money,” like the giant asset-management firms Blackstone and the Carlyle Group, was now telling companies to draw down their bank lines, and borrow as much as they could, in case the lenders went out of business or found ways to say no. Sure enough, by March’s end, corporations had reportedly tapped a record two hundred and eight billion dollars from their revolving-credit lines—a “revolver frenzy,” as the financial blog Zero Hedge put it, in publishing a list of the companies “that managed to get their money in time.” Corporate America had hit up the pawnshop, en masse. In a world where we talk, suddenly, of trillions, two hundred billion may not seem like a lot, but it is: in 2007, the subprime-mortgage lender Countrywide Financial, in drawing down “just” $11.5 billion, helped bring the system to its knees.


Personal debt has tripled since 2009, but remains small compared to corporate debt. According to Lending Tree, "Outstanding personal loan debt is $156 billion, as of Q3 2019."

It seems to me like this is a very big deal. It reveals that the economic recovery that began under Obama and continued under Trump was, to at least some degree, illusory and built a bubble based on Federal borrowing. The US debt was about $10 trillion in 2008, and $22.7 trillion in 2019 before this hit and before the last wave of borrowing. If the only way to ease the depth of the recession that we are now in is to buy some of the bad debt that we can see is out there, we are in for a rough ride.

I also despair about the decline of intellect in the Republican Party. Democrats will want to make sure that Federal funds go to their constituents, not just to banks as those who made bad, and secured bad loans. But they won't always realize the necessity of saving the fundamental infrastructure of the financial system, even if it means the bailout of the industry. Republicans--like those tapped by Obama in 2008--used to realize the futility of trying to save dinosaurs, and had the fiscal acumen and the work habits to be able to tell the difference. The party of Trump has hollowed the GOP of moderates with fiscal skills.

This is going to be really bad.
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mac



Joined: 07 Mar 1999
Posts: 14352
Location: Berkeley, California

PostPosted: Sat Apr 18, 2020 1:26 pm    Post subject: Reply with quote

Gale winds are coming. From today's New York Times: "Almost a third of renters didn’t pay their rent bill for April, not because they were suddenly financially irresponsible, but because they didn’t have the money. They lived paycheck to paycheck."
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mat-ty



Joined: 07 Jul 2007
Posts: 7604

PostPosted: Sun Apr 19, 2020 7:17 am    Post subject: Reply with quote

mac wrote:
Gale winds are coming. From today's New York Times: "Almost a third of renters didn’t pay their rent bill for April, not because they were suddenly financially irresponsible, but because they didn’t have the money. They lived paycheck to paycheck."


Checks are on the way for those without direct deposit....Landlords cannot evict.. go back to bed old fool..
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vientomas



Joined: 25 Apr 2000
Posts: 1434

PostPosted: Sun Apr 19, 2020 8:07 am    Post subject: Reply with quote

mat-ty wrote:
mac wrote:
Gale winds are coming. From today's New York Times: "Almost a third of renters didn’t pay their rent bill for April, not because they were suddenly financially irresponsible, but because they didn’t have the money. They lived paycheck to paycheck."


Checks are on the way for those without direct deposit....Landlords cannot evict.. go back to bed old fool..


As usual, it's not as simple as the simple minded like to think:

In an effort to help renters amid the coronavirus pandemic and skyrocketing unemployment, the March 27 CARES Act banned eviction filings for all federally backed rental units nationwide, more than a quarter of the total.

Housing advocates around the country are struggling even to identify which buildings fall under the eviction ban, which lasts until July 25. The CARES Act lays out several categories, including buildings with federally backed mortgages and others that receive certain tax credits or participate in voucher programs. That covers more than 25% of all rentals in the country, according to estimates by the Urban Institute, or at least 12.3 million units. There is no single tool or data source that tells renters, advocates or landlords if their building is covered by the ban. That makes it difficult for tenants to know if their eviction case was filed illegally or not.

Because there is no legislation relieving tenants from rent payments during the pandemic, renters who are currently protected from eviction will still be responsible for paying any back-rent when the federal and local bans are lifted.

https://www.propublica.org/article/despite-federal-ban-landlords-are-still-moving-to-evict-people-during-the-pandemic

So a little less than 3/4's of the rentals are not protected. Renters will be liable for 4 months of back rent when the eviction ban ends. Ya think people living pay check, who are not getting a pay check, have 4 months worth of rent saved? If they did, they would not be in fear of eviction. This is a "kick the can down the road" measure. It only delays the inevitable.

In addition, many landlords use the rental payments to pay the underlying mortgage on the rental property. No rental income, no mortgage payment, lender declares a default and foreclosure commences. Not ideal on the landlord side either.

A one time payment of $1200 bucks ain't gonna cover a few months of rent, food, utilities, car payments and insurance. I don't think China Maddy ever had to make it financially on his own. Have you always been under Mamma's wing?
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vientomas



Joined: 25 Apr 2000
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PostPosted: Sun Apr 19, 2020 12:23 pm    Post subject: Reply with quote

Neiman Marcus Group is preparing to seek bankruptcy protection as soon as this week, becoming the first major U.S. department store operator to succumb to the economic fallout from the coronavirus outbreak, people familiar with the matter said.

https://www.reuters.com/article/us-neimanmarcus-bankruptcy-exclusive/exclusive-neiman-marcus-to-file-for-bankruptcy-as-soon-as-this-week-sources-idUSKBN2210CW?utm_source=reddit.com
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boggsman1



Joined: 24 Jun 2002
Posts: 7955
Location: at a computer

PostPosted: Sun Apr 19, 2020 12:56 pm    Post subject: Reply with quote

Mac... it’s the perfect storm .. Before we entered the pandemic , we had record levels of debt : household, corporate , and GOVT’s..Now, we will ADD 6-8TR of Government debt to the system , at the same time , we are idling the economy , so millions of Americans will be permanently impaired, unable to pay taxes and service the new debt .. I do think many companies will declare bk , and that removes a lot of the corporate debt levels , but we more than make up for it with the new GOVT debt .. The other problem is that the “so called best economy ever” was running at 2% WITH 1TR of borrowed money annually .. So, it’s seems like the US is incapable of growth without debt .. And and now that will be tested like never before ..
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mac



Joined: 07 Mar 1999
Posts: 14352
Location: Berkeley, California

PostPosted: Sun Apr 19, 2020 1:10 pm    Post subject: Reply with quote

boggsman1 wrote:
Mac... it’s the perfect storm .. Before we entered the pandemic , we had record levels of debt : household, corporate , and GOVT’s..Now, we will ADD 6-8TR of Government debt to the system , at the same time , we are idling the economy , so millions of Americans will be permanently impaired, unable to pay taxes and service the new debt .. I do think many companies will declare bk , and that removes a lot of the corporate debt levels , but we more than make up for it with the new GOVT debt .. The other problem is that the “so called best economy ever” was running at 2% WITH 1TR of borrowed money annually .. So, it’s seems like the US is incapable of growth without debt .. And and now that will be tested like never before ..


Boggs—I see a pretty severe contraction in the value of commercial real estate. Hotel space won’t be back for months, and may never be back to the same levels. Amazon has hoovered up a huge part of what remained of retail. So they can’t pay the same level of rent—if any. As people get used to Zoom, they’ll see it as a way to cut operational costs, so business travel will go down. I used to work for the entity that runs Oakland Airport, and a neighbor works for SFO. Their revenue dropped like a stone, and in some places you’re going to see governments defaulting on bonds. And that $11 trillion in new corporate debt?

It is no wonder that Trump is panicking—but even a re-started economy will be much weaker until after the new year—and the death toll is still rising.
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vientomas



Joined: 25 Apr 2000
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PostPosted: Sun Apr 19, 2020 4:02 pm    Post subject: Reply with quote

Hey! Didn't you hear? Maddy said the $1200 checks will be a cure all. Rolling Eyes
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mat-ty



Joined: 07 Jul 2007
Posts: 7604

PostPosted: Sun Apr 19, 2020 9:46 pm    Post subject: Reply with quote

vientomas wrote:
Hey! Didn't you hear? Maddy said the $1200 checks will be a cure all. Rolling Eyes


I don't think so asshole...
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boggsman1



Joined: 24 Jun 2002
Posts: 7955
Location: at a computer

PostPosted: Sun Apr 19, 2020 10:33 pm    Post subject: Reply with quote

WTI $16 tonight.. wow ..
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