3 ms·

My wife has also been seeing an increase in strategic defaults. These are cases where the company could easily make its loan payments, could in fact pay off th

My wife has also been seeing an increase in strategic defaults. These are cases where the company could easily make its loan payments, could in fact pay off the loan entirely with the cash it has in the bank - but chooses not to. The court systems are overloaded and oftentimes closed right now, the lawyers all have to work over Zoom, so what's the lender gonna do? The company views it as more important to hold cash in the bank right now than to service existing loan obligations that its creditors can't enforce anyway. The entrepreneur in me is saying that the biggest start-up opportunity in America right now is a government. We're on the verge of a cascading failure in the legal and political system, and few people realize how much of civilization rests on having a functioning legal system.

Spivak 7y ago
Naive/uninformed question, is this something that shouldn't be allowed? Do business loan contracts not have provisions/penalties in the case of missed payments that apply outside of a court? Why shouldn't the business take the penalty if cash on hand is more valuable to them? The courts aren't going to be tied up forever, your borrowers have the money to meet their obligations, and presumably they'll eventually make payments. Outside of the pain of having to ride out the storm is there any real risk? Like it doesn't sound super weird to me that a family will "strategically default" on their mortgage despite technically literally having the cash to pay it because they're scared of not being able to buy food in a month.
- sandworm101 7y ago
  >> in the case of missed payments that apply outside of a court? When someone owes you money you have two choices: The courts, or rounding up some people with guns and taking the money yourself. It is either the courts or anarchy. Businesses know this. When they don't pay their debts they know the options for creditors are very limited. Getting money out of a business that really doesn't want to pay takes many trips to the courthouse. Eventually you end up foreclosing on some asset, a process that takes many months. Banks don't just hand over their client's cash because a court says they own money. Banks require court orders naming specific accounts. A business trying to avoid creditors can easily move money around faster than the creditor can get court orders.
  - londons_explore 7y ago
    But, if we consider this discussion to be purely businesses which have enough cash on hand to pay, I'd guess: If the loan contract says "for each missed or late payment, a fee of 25% applies", then the lender can chase it up at their leisure, and overall will likely come out ahead. I suspect the issue is some loans didn't have the "25% fee" written into the contract, and in that case, a court will likely only assign costs plus a nominal interest. If the court queue is years long, then effectively they can pay a few years late, and the costs can't be all that much if no court appearance has happened.
    - nostrademons 7y ago
      The loans in question actually did have very strict collateral clauses - basically if the borrower defaults the lender can take possession of assets that basically put the borrower out of business. There are three possible explanations for why I think the businesses in question are doing this: 1.) The lenders in question are philanthropic organizations, and would take a PR hit if there's a protacted court battle that puts the borrower out of businesses. They may be betting that the lenders won't enforce their contracts (turning out to be a poor bet in retrospect, but many businesses see philanthropic capital as dumb money). 2.) The court systems are closed. It's going to be many months, possibly years, before they can actually take possession of the capital. 3.) The business may not believe that they'll be in business in the long term. If by not paying back a loan, you end up out of business in a year, but by paying it back you end up out of business in 3 months, you actually do have a fiduciary duty to not pay it back.
- kortilla 7y ago
  > Naive/uninformed question, is this something that shouldn't be allowed? Do business loan contracts not have provisions/penalties in the case of missed payments that apply outside of a court? Who do you think enforces contracts?
  - Spivak 7y ago
    Right right I get you. I just mean unless you believe that your borrower intends to not pay their loan forever do you need to jump to the courts?
cydonian_monk 7y ago
Your second paragraph about start-up governments makes me wonder how the court system of the "Republic of Texas" quasi-government [0] (not to be confused with the actual state government) is doing these days. While I doubt they have the resources, the goodwill, or the political capital to replace or supersede the actual Texas state government should the US Federal system collapse, they do fit your description of a start-up government. 0: http://thetexasrepublic.com http://thetexasrepublic.com
- Gravityloss 6y ago
  There are lots of countries which only gained independence relatively recently. I assume there are still people around who started issuing Estonian passports from an underground government in the eighties when the country was still officially part of Soviet Union. The country's latest innovation has been e-residency which anyone can apply for. It has been done and it has been a roaring success.
schoolornot 7y ago
Businesses that participate in this behavior should be forced to sell all or parts of themselves. And I would argue the same should be done for ANY company that needs to borrow money from the government.
Nasrudith 7y ago
Unfortunately governments tend to be mutually excluding and one hell of a moat. The "best" that could be done is bypassing it. Theoretically a banking, contract, and billing system could be unified to prevent those sorts of shenanigans but in practice it is far more likely to be used for more shenanigans instead.
cmurf 7y ago
You're in a catch-22. For an entrepreneurial start-up government (which by the way sounds indistinguishable from aristocracy) to happen per any rules you're even remotely used to, you have to have a civil and trustworthy government. Such a government has enough power that it's not going to cede power to any other government. Any start-up government that poses a real threat to a current government, is by definition a movement of sedition that's attempting an overthrow. There is no possible way to avoid violence with your idea. The only chance of a non-violent revolution is to use the amendment process of the existing systems, even if that is a completely new constitution (state by state and federal). If the ideas you have are so weak and unpersuasive that you can't convince 3/4's of the country, you definitely have opted for violent revolution.

Spivak 7y ago

Naive/uninformed question, is this something that shouldn't be allowed? Do business loan contracts not have provisions/penalties in the case of missed payments that apply outside of a court? Why shouldn't the business take the penalty if cash on hand is more valuable to them? The courts aren't going to be tied up forever, your borrowers have the money to meet their obligations, and presumably they'll eventually make payments. Outside of the pain of having to ride out the storm is there any real risk? Like it doesn't sound super weird to me that a family will "strategically default" on their mortgage despite technically literally having the cash to pay it because they're scared of not being able to buy food in a month.

sandworm101 7y ago
>> in the case of missed payments that apply outside of a court? When someone owes you money you have two choices: The courts, or rounding up some people with guns and taking the money yourself. It is either the courts or anarchy. Businesses know this. When they don't pay their debts they know the options for creditors are very limited. Getting money out of a business that really doesn't want to pay takes many trips to the courthouse. Eventually you end up foreclosing on some asset, a process that takes many months. Banks don't just hand over their client's cash because a court says they own money. Banks require court orders naming specific accounts. A business trying to avoid creditors can easily move money around faster than the creditor can get court orders.
- londons_explore 7y ago
  But, if we consider this discussion to be purely businesses which have enough cash on hand to pay, I'd guess: If the loan contract says "for each missed or late payment, a fee of 25% applies", then the lender can chase it up at their leisure, and overall will likely come out ahead. I suspect the issue is some loans didn't have the "25% fee" written into the contract, and in that case, a court will likely only assign costs plus a nominal interest. If the court queue is years long, then effectively they can pay a few years late, and the costs can't be all that much if no court appearance has happened.
  - nostrademons 7y ago
    The loans in question actually did have very strict collateral clauses - basically if the borrower defaults the lender can take possession of assets that basically put the borrower out of business. There are three possible explanations for why I think the businesses in question are doing this: 1.) The lenders in question are philanthropic organizations, and would take a PR hit if there's a protacted court battle that puts the borrower out of businesses. They may be betting that the lenders won't enforce their contracts (turning out to be a poor bet in retrospect, but many businesses see philanthropic capital as dumb money). 2.) The court systems are closed. It's going to be many months, possibly years, before they can actually take possession of the capital. 3.) The business may not believe that they'll be in business in the long term. If by not paying back a loan, you end up out of business in a year, but by paying it back you end up out of business in 3 months, you actually do have a fiduciary duty to not pay it back.
kortilla 7y ago
> Naive/uninformed question, is this something that shouldn't be allowed? Do business loan contracts not have provisions/penalties in the case of missed payments that apply outside of a court? Who do you think enforces contracts?
- Spivak 7y ago
  Right right I get you. I just mean unless you believe that your borrower intends to not pay their loan forever do you need to jump to the courts?

cydonian_monk 7y ago

Your second paragraph about start-up governments makes me wonder how the court system of the "Republic of Texas" quasi-government [0] (not to be confused with the actual state government) is doing these days. While I doubt they have the resources, the goodwill, or the political capital to replace or supersede the actual Texas state government should the US Federal system collapse, they do fit your description of a start-up government. 0: http://thetexasrepublic.com http://thetexasrepublic.com

Gravityloss 6y ago
There are lots of countries which only gained independence relatively recently. I assume there are still people around who started issuing Estonian passports from an underground government in the eighties when the country was still officially part of Soviet Union. The country's latest innovation has been e-residency which anyone can apply for. It has been done and it has been a roaring success.

schoolornot 7y ago

Businesses that participate in this behavior should be forced to sell all or parts of themselves. And I would argue the same should be done for ANY company that needs to borrow money from the government.

Nasrudith 7y ago

Unfortunately governments tend to be mutually excluding and one hell of a moat. The "best" that could be done is bypassing it. Theoretically a banking, contract, and billing system could be unified to prevent those sorts of shenanigans but in practice it is far more likely to be used for more shenanigans instead.

cmurf 7y ago

You're in a catch-22. For an entrepreneurial start-up government (which by the way sounds indistinguishable from aristocracy) to happen per any rules you're even remotely used to, you have to have a civil and trustworthy government. Such a government has enough power that it's not going to cede power to any other government. Any start-up government that poses a real threat to a current government, is by definition a movement of sedition that's attempting an overthrow. There is no possible way to avoid violence with your idea. The only chance of a non-violent revolution is to use the amendment process of the existing systems, even if that is a completely new constitution (state by state and federal). If the ideas you have are so weak and unpersuasive that you can't convince 3/4's of the country, you definitely have opted for violent revolution.