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You don't remove credit. You delay payments by 60 days. And you don't have a command economy. Net 30 terms become Net 90 for a while. That's not a world-shatte

by wegs 7y ago

You don't remove credit. You delay payments by 60 days. And you don't have a command economy. Net 30 terms become Net 90 for a while. That's not a world-shattering explosion. Everyone who buys something has to pay -- they just have the option to pay a little bit later. Everyone who borrows something gets it free for a short while. And there are two pieces that really make this work: 1. Much of that is offset by the current ~0% interest from the fed. Ultimately, if the 60 day gap kills you, then you chains (ultimately landing with banks) can borrow money with effectively zero interest. 2) Relationships matter. I don't think businesses will do douchebaggy things: Most want to keep employees, customers, and partners.

candybar 7y ago
Credit is something entities are willing to extend because they expect to get paid. Once you break this expectation, no one's going to lend. People and businesses have to borrow, explicitly or implicitly on an ongoing basis. Credit makes the world go around. No one is going to lend if the government makes it possible not to pay and still keep the other side of the transactions. This completely breaks the economy. And policy decisions cannot be made instantly. The moment something like this is close to being implemented, this will freeze the credit system entirely. And there goes the economy. We got a global financial crisis last time due to a small number of actors becoming less creditworthy and it being unclear whether they could pay their obligations. That slight change in expectations threatened to freeze the entire economy. To do this on purpose for every entity such that no one is creditworthy? That's insanity.
- wegs 7y ago
  Don't dramatize. You do get paid. You (potentially) get paid a few months later, and in the meantime, the Fed provides loans at effectively 0% interest. Who would you rather have: a pile of debtors in your portfolio who have a 50/50 shot of going under in the next few weeks (where a lot of Americans and small businesses are today)? Or a pile of debtors who will pay you with 95% odds in 3 months, and in the meantime, a no-interest loan from the government to provide short-term liquidity until they do pay you?
  - candybar 7y ago
    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.
    - wegs 7y ago
      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.

by wegs 7y ago

candybar 7y ago

Credit is something entities are willing to extend because they expect to get paid. Once you break this expectation, no one's going to lend. People and businesses have to borrow, explicitly or implicitly on an ongoing basis. Credit makes the world go around. No one is going to lend if the government makes it possible not to pay and still keep the other side of the transactions. This completely breaks the economy. And policy decisions cannot be made instantly. The moment something like this is close to being implemented, this will freeze the credit system entirely. And there goes the economy. We got a global financial crisis last time due to a small number of actors becoming less creditworthy and it being unclear whether they could pay their obligations. That slight change in expectations threatened to freeze the entire economy. To do this on purpose for every entity such that no one is creditworthy? That's insanity.

wegs 7y ago
Don't dramatize. You do get paid. You (potentially) get paid a few months later, and in the meantime, the Fed provides loans at effectively 0% interest. Who would you rather have: a pile of debtors in your portfolio who have a 50/50 shot of going under in the next few weeks (where a lot of Americans and small businesses are today)? Or a pile of debtors who will pay you with 95% odds in 3 months, and in the meantime, a no-interest loan from the government to provide short-term liquidity until they do pay you?
- candybar 7y ago
  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.
  - wegs 7y ago
    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.