5 ms·

Ask HN: $1m+ Forgiven PPP Loan

4 points by silexia 5y ago

Several businessmen I know have had PPP loans that are forgiven, including one who got a payout over $1 million. Not one of their businesses actually lost money, so this just ended up being extra profit. Outside of restaurants and entertainment, it seems that the PPP loans were just a massive payout to the rich. How can we prevent such wasteful government handouts in the future? How can I avoid being demotivated as an entrepreneur when I see guys getting million dollar government payouts when I have to hunt and scrap to get deals in private enterprise? Is this just the end of capitalism?

PaulHoule 5y ago
(1) Something remarkable about the stimulus program in general is that there was very little means-testing. My family got stimulus check despite the Coronavirus having positive effects on our finances as opposed to negative effects (Quit spending money on certain things, my job wasn't affected, my wife teaches people to ride horses which is a great socially distanced activity.) On one hand we know means-testing denies benefits to many people who deserve them because they cannot or will not do the paperwork. One might make the case that if I get a stimulus check and spend it that demand will help people who would otherwise be unemployed. However, extra money kicking around might feed the shortages-and-inflation phenomenon... I have been looking for ways to spend money on my photography hobby but whenever I find a printer I want or a lens I want it is out of stock. (2) The "public private partnership" approach which is typified by Obamacare and PPP erodes the legitimacy of the government even when it is effective policy. One could say it is the role of banks to make loans to make a profit, not to make loans to bail out the economy. If the government wants to bail people out they should do it directly.
- uberman 5y ago
  I can't say with any kind of authority but my best guess is that private banks were involved in PPP as most going concerns already had a loan/float relationship with them. Not that they don't have one with the IRS but I think no one wanted to task the IRS (and give them billions in additional funding) to build the infrastructure that banks already had to manage loans. PPP seems slightly different than single payer healthcare as the government is already a huge player in the space.
  - PaulHoule 5y ago
    You're right that PPP took advantage of capabilities the banks already had and also, in terms of tail risk, the capability the government has for managing bank failures. Even if it is good policy, it erodes legitimacy because people see public ends leading to private profits. If you watch TV while working out at the gym, for instance, you see that 90%+ of the ads in certain dayparts are not for things you can buy with your own money but things you can buy with government benefits, a windfall you can get if you are hit by a car, etc. I'm certain that even people who qualify for those government benefits have their fantasies fed that other people (e.g. blacks) spend their lives just chiseling from the government and it drives them to vote Republican and ultimately be susceptible to crap like QAnon. I know a lot of people who are involved in road construction in Upstate NY and all of them are deeply cynical about the way the work is funded. People see the boondoggles in infrastructure construction and they think "I just want to protect my checkbook." (Usually the effect of corporate lobbying is a big part of this story. Medicare Advantage and Obamacare both were created by industry. PPP is a counterexample because legislators came up with it in a hurry and it wasn't something banks asked for.)
uberman 5y ago
PPP was not just about restaurants and entertainment. It was about putting financial pressure on businesses to retain employees. You could not get the loan forgiven if you fired anyone. At the time, there was massive uncertainty and the program was meant to shore up both business and consumer confidence. This objective was good for businesses. Did everyone actually need it? Certainly not, but was already enough chaos and bureaucracy around getting the aid flowing that any additional tests would have been just more gum in the works. Additionally, there was political pressure from the Republicans to forbid any kind of accounting for the aid. Government stimulus/welfare/aid is nothing new and PPP is certainly not the end of capitalism. That is just my view of it though and I would be happy to know more about others'
tboyd47 5y ago
Rather, it should be an encouragement to start your own corp. COVID relief funds were given even to 1-person consultancies. You don't need to be rich.
relaunched 5y ago
These programs were designed to get money to people quickly, not to get it right / minimize fraud. This is an unintended, but very real consequence of doing something big, necessary and fast.
- ffwacom 5y ago
  >necessary Doubt. This sort of thing is what bitcoin was made to prevent.
  - relaunched 5y ago
    Agree to disagree. PPP was meant to keep business afloat and people employed, in a nearly unprecedented situation - when it seemed likely that a major disruption was afoot. Bitcoin is a sort of mathematical exercise coupled with an almost philosophical question, "What would happen if we had a currency that was de-coupled from government and free of direct influence from geo-political power?"
gt565k 5y ago
Ughhh the loans were meant to be forgiven if used for payroll and to help the business keep people employed. It was a stop gap measure to prevent further layoffs. My company hired employees with the PPP loan and had to submit a lot of paperwork to get the loans forgiven. As long as the loans were used for payroll, they can be forgiven. We had to get our employee count back up to pre covid layoffs and show proof of hours worked, еtc.

4 points by silexia 5y ago

PaulHoule 5y ago

(1) Something remarkable about the stimulus program in general is that there was very little means-testing. My family got stimulus check despite the Coronavirus having positive effects on our finances as opposed to negative effects (Quit spending money on certain things, my job wasn't affected, my wife teaches people to ride horses which is a great socially distanced activity.) On one hand we know means-testing denies benefits to many people who deserve them because they cannot or will not do the paperwork. One might make the case that if I get a stimulus check and spend it that demand will help people who would otherwise be unemployed. However, extra money kicking around might feed the shortages-and-inflation phenomenon... I have been looking for ways to spend money on my photography hobby but whenever I find a printer I want or a lens I want it is out of stock. (2) The "public private partnership" approach which is typified by Obamacare and PPP erodes the legitimacy of the government even when it is effective policy. One could say it is the role of banks to make loans to make a profit, not to make loans to bail out the economy. If the government wants to bail people out they should do it directly.

uberman 5y ago
I can't say with any kind of authority but my best guess is that private banks were involved in PPP as most going concerns already had a loan/float relationship with them. Not that they don't have one with the IRS but I think no one wanted to task the IRS (and give them billions in additional funding) to build the infrastructure that banks already had to manage loans. PPP seems slightly different than single payer healthcare as the government is already a huge player in the space.
- PaulHoule 5y ago
  You're right that PPP took advantage of capabilities the banks already had and also, in terms of tail risk, the capability the government has for managing bank failures. Even if it is good policy, it erodes legitimacy because people see public ends leading to private profits. If you watch TV while working out at the gym, for instance, you see that 90%+ of the ads in certain dayparts are not for things you can buy with your own money but things you can buy with government benefits, a windfall you can get if you are hit by a car, etc. I'm certain that even people who qualify for those government benefits have their fantasies fed that other people (e.g. blacks) spend their lives just chiseling from the government and it drives them to vote Republican and ultimately be susceptible to crap like QAnon. I know a lot of people who are involved in road construction in Upstate NY and all of them are deeply cynical about the way the work is funded. People see the boondoggles in infrastructure construction and they think "I just want to protect my checkbook." (Usually the effect of corporate lobbying is a big part of this story. Medicare Advantage and Obamacare both were created by industry. PPP is a counterexample because legislators came up with it in a hurry and it wasn't something banks asked for.)

uberman 5y ago

PPP was not just about restaurants and entertainment. It was about putting financial pressure on businesses to retain employees. You could not get the loan forgiven if you fired anyone. At the time, there was massive uncertainty and the program was meant to shore up both business and consumer confidence. This objective was good for businesses. Did everyone actually need it? Certainly not, but was already enough chaos and bureaucracy around getting the aid flowing that any additional tests would have been just more gum in the works. Additionally, there was political pressure from the Republicans to forbid any kind of accounting for the aid. Government stimulus/welfare/aid is nothing new and PPP is certainly not the end of capitalism. That is just my view of it though and I would be happy to know more about others'

tboyd47 5y ago

Rather, it should be an encouragement to start your own corp. COVID relief funds were given even to 1-person consultancies. You don't need to be rich.

relaunched 5y ago

These programs were designed to get money to people quickly, not to get it right / minimize fraud. This is an unintended, but very real consequence of doing something big, necessary and fast.

ffwacom 5y ago
>necessary Doubt. This sort of thing is what bitcoin was made to prevent.
- relaunched 5y ago
  Agree to disagree. PPP was meant to keep business afloat and people employed, in a nearly unprecedented situation - when it seemed likely that a major disruption was afoot. Bitcoin is a sort of mathematical exercise coupled with an almost philosophical question, "What would happen if we had a currency that was de-coupled from government and free of direct influence from geo-political power?"

gt565k 5y ago

Ughhh the loans were meant to be forgiven if used for payroll and to help the business keep people employed. It was a stop gap measure to prevent further layoffs. My company hired employees with the PPP loan and had to submit a lot of paperwork to get the loans forgiven. As long as the loans were used for payroll, they can be forgiven. We had to get our employee count back up to pre covid layoffs and show proof of hours worked, еtc.