Tuesday, March 24, 2020

Depression: pandemic bankruptcies

Dear Professor Kaufman,

Yes.
We are already in a depression.
Much is already shut down.
University towns become ghost towns.
Airplanes parked in the desert for long term storage,
commercial air service grinding to a halt.
No restaurants, hotels, cruises, malls, retail, shopping,..
No traffic.
Closed borders, beaches, forests,...
The only goods and services left running is grocery stores, pharmacies, TV, and some government services, and what can be done online.

Corporations and private companies that lack income will not be able to repay loans.
They are often deep in debt.
So the banks will have no income and also go bankrupt.

Soon the drop in sales tax revenue and income tax revenue will clobber governments.
They will not be able to make payroll.
Fire teachers, professors, police, firemen?
Who will buy their bonds?
Without money, they shut down.
Federal bailout?

Trump is right - the cure for the virus may be worse than the disease.
People need to work to support themselves and their families.
May reopen the economy soon and see if the death rate goes up or down.

Looks like the democrat big cities New York, San Francisco, Seattle, LA, New Orleans…
are ganging up and screaming bloody murder.
Trying to defeat Trump in the election by making the economy look bad.

Seems Mueller, Russian collusion, Ukraine, Impeachment could not stop Trump.
So last ditch effort to stop Trump is Pandemic.
Stop the economy, stop Trump.
May not work.
Declare pandemic over,
get back to work,
boom the stock market again.

It will take time to recover from this depression though.
China supply chain is disrupted.
USA disrupted.
It may take years to put it back together again.

Probably should quit importing so much from China, especially drugs and essentials.

Why did Obamacare fail to produce more doctors, nurses, face masks, ventilators, respirators, ICUs, hospital beds, etc?
Everybody has been warning of pandemics, the coming plague, etc. for decades.
Obama allowed drug ads on TV, but not enough medical care essentials,…
Can this mess be fixed?
May take decades if ever.
Permanent depression?
social collapse?
Pot smokers doomed?

==========

Joe:

This is headed for not a recession, but a depression.

Just this morning, Nancy Pelosi announced refusal to pass the bailout Bill in the House.

This means corporations and small businesses are going to fail,
especially Real Estate.

Inability to pay back loans,
which kicks back to the banks not getting paid,
which leads to bank capital assets in doubt.

This is exactly what happened in 1931.

Only this time it is happening in weeks, not months.

The Democrats in the House are playing with fire if they fail to support corporate financing'

Watch the banks that are on the brink of failure.

Much will be made of what happens the next couple of weeks.

Rich

Dear Professor Kaufman,

I hope you are weathering this crisis in the comfort of your own home.
I am speechless.
I predicted a pandemic
why I suddenly moved far out in the country to a Kansas Farm, self contained, 5 years ago.

This crisis is more of a debt problem than a medical problem.
USA deep in debt,
people and business highly leverage.
Sudden drop in cash flow means they cant pay interest.
Zero cash flow in many instances.
Essentially bankrupt.

Hopefully they can stop the virus and immediately re-open businesses, back to normal.
V shaped recovery?
No recovery without big government financial help?

Long Article:

https://medium.com/@tombarrackjr/preventing-covid-19-from-infecting-the-commercial-mortgage-market-e7444701745e

Excerpt:

Real estate billionaire Tom Barrack said the U.S. commercial-mortgage market is on the brink of collapse

and predicted a "domino effect" of catastrophic economic consequences if banks and government don't take prompt action to keep borrowers from defaulting.

Barrack, chairman and chief executive officer of Colony Capital Inc.,
warns in a white paper of a chain reaction of margin calls,
mass foreclosures,
evictions and,
potentially, bank failures
due to the coronavirus pandemic and consequent shutdown of much of the U.S. economy.

"Loan repayment demands are likely to escalate on a systemic level,
triggering a domino effect of borrower defaults that will swiftly and severely impact the broad range of stakeholders in the entire real estate market,
including property and home owners,
landlords,
developers,
hotel operators
and their respective tenants and employees,"

Barrack said the impact could dwarf that of the Great Depression.

Rescue Plan

Specifically, his paper highlights the fragility of mortgage real estate investment trusts, or REITs,
and credit funds
and the lenders that provide them with liquidity via repurchase financing.

He argues for a rescue plan coordinated by banks and supported by government that includes the following:

$500 billion of taxpayer funds to provide liquidity to the financial system,
including for loans and repurchase contract

Temporary suspensions of both mark-to-market accounting and certain loan-modification rules

Delaying until 2024 a new accounting rule governing the recognition of credit losses

Leeway for banks to provide loan forbearance without triggering bank-capital rule violations

Barrack, a longtime friend of President Donald Trump, has much at stake in the outcome.
Most of Colony's investments are in or connected to real estate.
The Los Angeles-based firm's year-end financial report lists
$3.54 billion of assets in hospitality real estate and
$725 million of debt and equity investments at Colony Credit Real Estate Inc.,
its publicly traded commercial mortgage REIT.

America has endured a shutdown of our GDP, and an attendant unstoppable chain of financial calamities.

There is no doubt that in order to ensure safety and conservatism during our health crisis we have to prepare and perhaps overshoot for the worst;

however, the unintended consequence of responding to the pandemic is a pandemic of mistrust in our financial system.

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