Comment by candybar | Hacker News Reader

Comment by candybar | Hacker News Reader

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This doesn't make any sense - the Fed isn't going to provide loans to everyone, individual and business access to these loans is still gated by their own creditworthiness. And if you can make credit that easy, why do you have to do this at all? Why can't we just lend everyone money and have them pay all existing obligations? Why do you have to turn everyone who's involved in simple transactions into long-term creditors, when they aren't in the business of doing that?

And you can't actually lengthen payments for everything - some businesses and people with important resources will simply demand an up-front payment. Which will worsen the crunch for those that are stuck in the middle - some businesses will have to pay upfront, but get paid 3 months later. And no, banks won't want to lend to these businesses and if they can't determine whether you're one of those businesses or not, they will tighten credit on most businesses. Not to do so puts their own creditworthiness at risk.

This is all assuming you have perfect execution too - in reality, there will literally be millions of lawsuits since no one will be able to actually define what you're saying precisely enough to make the implied alterations to existing contracts unambiguous. It's also important to understand that most payments aren't interest payments - some of these cover actual costs.

Edit: consider what every company in the world will do in response to do this - they will review every contract they have to see if there's an angle that will help them optimize for this situation, and what kinds of addendum that they can force on others would put them in a more advantageous situation. No one will just sit and work according the spirit of the new rule, any ambiguities and angles will be exploited and lots of businesses and people will go end up on the wrong end of this.

Banks can get loans for free, and pass that onto credit-worthy businesses. Less credit-worthy businesses can get loans through the SBA through the stimulus. The government's existing programs (assuming the stimulus passes) will breach the extra 90 day gap for most.

And to flip it around, if 50% of small businesses go under, banks will be left holding a lot of bad debt. Banks will go under. Landlords won't have renters, and will be left holding mortgages. Without action, the whole system collapses.

You're assuming the economy is humming along right now. It isn't. Large parts are shut down. Some parts aren't. Those frictions are causing massive structural collapse as we debate.

Also: In most cases, up-front payment is fine while everything else is shut down. I understand the importance of credit. But the alternative is worse. If this continues for 18 months, virtually all mortgages, private and commercial, will be under water. Virtually all renters will be evicted, or rents will have gone down many-fold. Etc.

> Banks can get loans for free, and pass that onto credit-worthy businesses.

Why would they? And who's creditworthy in your world? Are banks going to be able untangle every single contract you have to see how this affects you? Especially in a world where every single customer and every single supplier is going to look at renegotiating contracts with you? The general notion of creditworthiness implies a relatively static world - changing everything is going to make everyone questionable from a credit perspective.

> Less credit-worthy businesses can get loans through the SBA through the stimulus. The government's existing programs (assuming the stimulus passes) will breach the extra 90 day gap for most.

Then why do we need this at all? Why can't we just have the affected businesses borrow from the government? Instead of A not paying B and B borrowing from the government to cover for not being paid, why not just have A borrow from the government so that we don't have to modify every single contract in the world in a highly unpredictable manner and freezing the entire economy?

> You're assuming the economy is humming along right now. It isn't. Large parts are shut down. Some parts aren't.

Most parts aren't shut down. No one is predicting a GDP decline of over 50% or an unemployment rate above 50%. Some parts are shut down, others are doing okay.

> Those frictions are causing massive structural collapse as we debate.

And this proposal literally is the massive structural collapse - it's the equivalent of eradicating COVID-19 by killing everyone.

> Also: In most cases, up-front payment is fine while everything else is shut down. I understand the importance of credit. But the alternative is worse. If this continues for 18 months, virtually all mortgages, private and commercial, will be under water. Virtually all renters will be evicted, or rents will have gone down many-fold. Etc.

Everything isn't shut down and again your business is toast if you're forced to make up-front payments while you're not getting paid. This is silly considering that there's a perfectly reasonable alternative of bailing out from the bottom up.

And no, this isn't continuing for 18 months, that's completely absurd. The economy will simply have to go on if an extended shutdown fails to work and the economic pains reach a certain threshold. Also, it's not honest to compare the impact of a shutdown without your proposal for 18 months with the impact of removing credit from the system for a couple of months. The economy as we know it is completely done if you freeze credit for 18 months.

> And to flip it around, if 50% of small businesses go under, banks will be left holding a lot of bad debt. Banks will go under. Landlords won't have renters, and will be left holding mortgages. Without action, the whole system collapses.

A lot of businesses are going to go under no matter what and this isn't directly preventable. I don't think exposure to "small businesses" is large enough to cause a systematic failure and in any case, delaying payments doesn't solve the problem, if the small businesses themselves are insolvent. What systematically delaying payments does in this case is that you're turning everyone else into a bank. In that world, a lot more entities are left holding questionable debt and you significantly increase the systematic risk this poses, as no one will be able to trust anyone.

What you want to protect are the ordinary people, not businesses and this can be done through direct payments. Business owners are on average wealthier than others - it makes no sense to try to turn the entire system upside down to help them. Keep in mind, under your proposal, most people will lose their income, since income for most people is a payment that I suppose can now be deferred.

You make a whole slew of unsubstantiated statements.

1) Businesses going under is preventable. If a lot of businesses go under, so will banks when those businesses default on debts.

2) Direct payments would need to be astronomical to protect ordinary people for this duration.

3) Loans from the government directly to people and businesses might work if we had the apparatus for it. The critical thing, though, would be to freeze rents and interest if we did that. It'd be a much more complex scheme to implement. If I have a 10 years left on my mortgage, I could get a 10 year loan from the government for the principal, while the bank would lose out on 3 months' interest.

> 1) Businesses going under is preventable. If a lot of businesses go under, so will banks when those businesses default on debts.

And more businesses will go under with your system. Most businesses that are losing most of their revenue can and have planned for losing revenue for a few months. Businesses can't realistically plan for the kinds of changes you're proposing because in a world where the government can modify by fiat every single contract in the whole world, nothing can realistically be planned. It's a total, forced default. And the specific scheme you're proposing turns every business into a bank - any time anyone owes a payment, you become a lender. This magnifies the effect of all insolvencies - now every business is tangled in a web of credit. It literally is the worst of both worlds - you introduce a shock the same way a large default would and ensure that no one could trust anyone, while also actually adding to the systematic risk by entangling every business in the system of credit. At least mass bankruptcies lead to deleveraging.

This is even if you assume that some sort of super AI can magically modify every contract in the world in such a way to best follow the spirit of what you want and have every party somehow agree with this. In reality, contracts are complicated beasts and you can't just modify one aspect of every contract in the world and expect things to be fine. Contracts are going to have all sorts of contingencies that are going to be highly ambiguous in a world where the government steps in and says certain obligations can be deferred. Again, people not being able to meet their obligations is absolutely nothing new in this world and the system is already designed to deal with this.

> 2) Direct payments would need to be astronomical to protect ordinary people for this duration.

No it doesn't. Keep in mind, it doesn't have to protect everyone from everything. $2000 a month for everyone for 2 months is $4000 * 300,000,000 or roughly 1.2 trillion dollars. This isn't much in the grand scheme of things and you're proposing an intervention of substantially larger magnitude. You can also effectively structure this as a loan for most of the people who don't need it by adding a deferred progressive tax on top of it.

> 3) Loans from the government directly to people and businesses might work if we had the apparatus for it. The critical thing, though, would be to freeze rents and interest if we did that. It'd be a much more complex scheme to implement. If I have a 10 years left on my mortgage, I could get a 10 year loan from the government for the principal, while the bank would lose out on 3 months' interest.

This doesn't make any sense - you're the one who proposed that businesses that are screwed by your scheme could survive by borrowing from the government. Why would that work in your scheme but not here? I don't understand the bit about your mortgage - why would you need to borrow (and why would anyone lend you) more than the payments you need to make for the next couple of months? Any sort of emergency government funding would be a credit line akin to extending payments, not a long fixed-term loan.

Again, I don't see any kind of realistic proposal here - it feels like a word game to come up with a vaguely workable-sounding (to people who don't understand how the economy works) plan that helps specific classes of people at the expense of everyone else.

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