Monday, April 6, 2020

Saving your local economy 4-6-20

This post is based on some key assumptions: 
  • You want to save and preserve small and local businesses in your community or town.
  • You don’t want a local economy that consists almost entirely of chain restaurants and big box stores with a central business district full of empty storefronts.
  • You value the diversity, creativity, idiosyncratic character, and friendliness that thriving small business owners bring to your community or town. 

Whenever there are enough links that I think might assist people in organizing responses from their local county and municipal governments, I will post them. It probably will not be every day. 

In a phoned-in interview on CNBC, Wilfred Frost urgently reported that Bank of America has received 177,000 applications for some $32.6 billion in emergency liquidity, but so far, only 100 of these loans have been disbursed.
The bank hopes to get most of the stack processed by mid-week, but it's unclear what they're basing these hopes on. 
Unsanitized: Why Banks Don’t Want to Help Small Businesses [David Dayen,  The Prospect, April 3, 2020]
So why the reticence from the banking sector? I think liability is a red herring; are they really afraid of the heavy regulatory hand of Steve Mnuchin (or any law enforcer involved in the financial crisis)? It looks to me like they don’t want to do the work. Every expectation is for an absolute crush of applications. Thirty million small businesses could be on the line here. The compliance requirements are minimal but banks always whine about the expense of that; that’s why BofA is restricting to already-vetted customers. And the guidelines, which have been “changing by the minute,” could change again. So why bother with the hassle? The money’s good, but it’s marginal, and the big banks think in billions, not millions…. 
...I’ve talked to dozens of small business owners who are confused by this program and also desperate to participate. There’s not going to be enough money—Congress gave $350 billion—to begin with. If lenders are slow to open the spigot, a lot of these businesses will go down. They don’t have any cash reserves. There’s a lot of concern. Maybe SBA should have found someone more willing to act quickly.
Germany Announces "Limitless" Aid Program For Small Business: SBA Are You Listening? [Zerohedge, 4-6-20]
...Angela Merkel’s government announced a new "limitless" aid program for small- and medium-sized companies (note: not a bailout of Germany's mega corporations) as part of an effort to support Europe’s largest economy in the coronavirus pandemic.
Merkel's government will provide guarantees of as much as 100%, German Finance Minister Olaf Scholz announced at a joint press conference with Economy Minister Peter Altmaier Monday, Bloomberg reports, adding that loans of up to 800,000 euros ($862,000) that will pay out very quickly will be available. 
The existing program only provides for an 80% to 90% loan guarantee and banks have been reluctant to take on new risk as the economy falters. Private lenders have thus pressed the government to expand the existing program by guaranteeing 100% of the loans, which it now appears to be doing.
Over the past week it has come into focus for policymakers just how much strain state and local government budgets are under. They have to make emergency healthcare expenditures among other emergency expenditures, expand unemployment insurance with very low levels of reserves in unemployment insurance funds and do this while tax revenues fall off a cliff since incomes and sales have collapsed. The CARES act provides $340 billion all together with 80% or so going to financing  Coronavirus-related expenditures. 150 billion of which is direct aid to state and local governments. Given the scale of the crisis, this is far from adequate…. 
….as we briefly discussed last Friday, the Federal Reserve is authorized to purchase short maturity state and local government debt directly from state and local governments. The problem is that local governments don’t like to issue short maturity debt, and what happens when the Fed stops providing support? 
An easy solution to this is to issue debt with little interest rate uncertainty- small denomination tax receivable IOUs. Since people can pay their taxes, fines, fees and utility bills with them (note, make sure to require investor-owned utilities to make them receivable) there is always a demand for them that there isn’t for conventional municipal debt. If I can save 1% on my tax bill by buying these IOUs off your hands, that’s worth it to me….  
All sorts of local monetary experiments were extremely widespread during the Great Depression, as this 1948 dissertation’s map shows:


….At the risk of making it seem like central bank swap lines are the solution to every problem, a swap line for local and state governments is the perfect tool using the Federal Reserve’s existing legal authority and can facilitate supporting these local currencies. It immediately puts a stop to spending cuts and ensures they can focus on focusing on the task at hand- coordinating resources to fight the public health crisis.
The Orange County Arts Commission [an agency of the county government] has created an Orange County Arts Support Fund and has provided initial seed funding from money that was allocated towards upcoming, and now canceled events. Artists and arts industry workers [such as musicians] who have been impacted by COVID-19 can apply here for funding. The application deadline is Friday, April 10 at midnight. The application for nonprofit arts/culture organizations is coming soon.
For the sake of speed, Congress chose to build on an old program run by the Small Business Administration that guarantees loans made by private banks. (Why would banks make loans the government will probably just wipe away? Because they’re getting paid commissions to do the underwriting.) This may be a faster way to get money out the door than creating a new lending program from scratch, since most small businesses already have some kind of banking relationship. But it’s still not entirely clear how quickly the effort will scale, and if it takes too much time, many restaurants and shops risk failing while they wait for help; according to the JPMorgan Chase Institute, only half of small businesses have enough cash to survive for 27 days without new revenue.

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