The call back to Trading Places was cool, (and it was a trope Murphy used in a few of his comedies) but fuck Randy and Mortay.
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Oh yeah, whenever I’m broke the bank just makes credit available to me. Because that’s a thing that happens for us peasants.
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It’s like the fuckwagon doesn’t know that prerequisite #1 for a loan is stable income.
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Congress already passed and trump signed a bill promising back pay to furloughed workers. So unless they change that when they pass an appropriations bill (extremely unlikely) actual government employees will get back pay whether they were forced to work during the shutdown or not. Contractors will depend on the nature of the contract, but many of them will not receive any back pay. Lost income to service providers: taxis, restaurants, and so on will of course not be compensated.
So in principle he is sort of right. If banks operated to help people, there is no reason they shouldn’t be willing to give low interest loans to federal employees based on their promised back pay. But they don’t and the won’t.
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It strikes me that they couldn’t do it. I mean, beyond not being able to cope (which could be pretty humorous), they also couldn’t ever fully isolate themselves from their privilege. So there would be a quick limit to how far you could take it - they’d ultimately never really be living a normal life; they could screw things up, totally, and they’d still be safe (immediately blow their budget, but never have to worry about the long-term - or even short-term - consequences). So it’d be this weird hybrid of someone still living their privileged life, but also having to deal with some mundane issues, too.
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I’ll probably be hated for saying that, but she is actually right if she said (emphasis added):
“The banks and the credit unions should be making credit available to them,” he said, noting that the government would give federal employees back pay. “There really is not a good excuse why there really should be a liquidity crisis.”
Some explanations: I am not talking about payday lenders. These are predatory banks, prohibited in most developed countries but the USA, and which operate under the presumption that the borrower will not pay back.
I am talking about regular banks, which business is to lend money under minimal risk and which normally operate slightly over discount rate. If I were to run a bank, I would recognize a civil servant who is extremely likely to pay paid back in a month or two as an opportunity. An anual rate of, say, 4% per year would seem reasonable. For somebody paid 2000$ a month, lending for 2 months would come around 20$ in interests, a relatively small amount. The bank would still make a good profit.
So indeed, that what should happen in a free market, because the situation is little more than a liquidity crisis. Now, if it does not happen, for example because that very rich person called Wilbur Ross does not recognize the situation as an investment opportunity himself, we should ask us why it does not happen.
And that is a question to which I can only find frightening answers.
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Here’s a NYTimes article which runs through some of the options.
https://www.nytimes.com/2019/01/24/business/wilbur-ross-shutdown.html
TLDR - there are various organisations offering loans at various terms - some are interest free, some are charging staggering interest.
Many people aren’t happy at the idea of taking out a loan, no matter what the interest rate or how lenient the terms.
I think that’s what Mr Ross doesn’t get - the idea that people wouldn’t do what he considers to be the ‘rational’ thing.
Even if the civil servant in question is not convinced that they will be paid in a month or two?
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Right. I was in Washington DC as a tourist during one of [much shorter] previous shutdowns. The vast majority of cheap places to eat were closed - like the food court at L’enfant Plaza. And those people will not be getting their back-pay later.
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Cyprus has a surprising number of fur shops for a Mediterranean country. And Russian tourists taking every opportunity to frazzle themselves in an unforgiving sun.
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It is the banker’s job to estimate the probability of being paid back, not the borrower’s.
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I think the bankers would have other considerations in mind, however.
The median Federal employee income is around $76000; let’s call that $4000/month take-home pay. So an average Federal employee would need a loan of about $4000/month to weather the shutdown. And an average Federal employee is a good risk for this, since the pay is guaranteed, when it comes. Looking at the rates currently offered by my credit union for secured loans (auto, home, etc), an interest rate of about 4% seems like it’s reasonable for a short-term loan.
But…
As a banker, it would be easy for me to make a $4000 loan at 4% to a single Federal employee. Making a loan of $4000/month, with no payback for an undetermined time at 4% is riskier. While the downside risk is small, it’s still there. For one thing, the interest starts to accumulate (ignoring compounding). It’s $13 in interest the first month, $26 the second, $39 the third, etc.
Making a loan of $4000/month, with no payback for an undetermined time at 4% to 250 Federal employees is $1M/month of cash flowing out of the bank. That starts to add up to real money. It’s also money the bank can’t loan out to local businesses or individuals who can start making payments immediately.
Yes, eventually the shutdown will end, but the bank has to factor in the chance that they will end before then.
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The idea that people wouldn’t consider borrowing money before going to a food bank is just insane. Going to a food bank has a huge stigma attached to it, most working people would feel ashamed to do so. Of course Wilbur Ross has apparently stolen millions from colleagues. He probably doesn’t understand the idea of being ashamed to take something.
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There are two things I see here:
First, while there is a stigma with going to a food bank, there is also a stigma with having to borrow money for day-to-day expenses, especially when you don’t know when you’ll be able to pay it back because you are (effectively) unemployed. The stigma of going to a food bank is minimized by knowing that you aren’t the only one effected, as well.
Second, many are probably burning through their savings and maxing out their credit cards before going to a food or money bank for assistance. Of course, maxing your credit cards with no income is a great way to blow out your credit, making it harder to get a loan, which again drives them to a food bank.
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Fair enough. I just think it’s crazy that someone would think that people go to food banks… for fun? or because they haven’t thought of other options? But I tend to agree with your second assessment, most of the people using food banks probably already have credit card debt that would make it hard to get a loan (or that the would assume would make it hard to get a loan).
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It’s probably moot in either case.
Person A: Goes to food bank first; then drives by the bank where they are told that a charitable no-interest “Grocery Money Loan” simply doesn’t exist.
Person B: Drives by the bank first, only to find out that “Grocery Money Loan” doesn’t exist; goes to food bank second…
Wilbur Ross’s world must be a funny happy place.
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Also related, some workers that are still collecting partial income, where they are partially funded and only working on those activities or hours, are getting negative paychecks because of this.
For these workers, the vision, dental, and medical employee contribution is larger than the partially funded paycheck.
So: Good news, you’re not completely furloughed you can work a partial work week and collect a partial paycheck. But, we’ll still have to take a full benefits contribution. Yout get to pay for the privilege of working part time.
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Even if that were to happen. That’s just saying the workers should subsidize the government. Even a low interest loan, is still interest.
Things like food inspectors and other critical jobs that involve travel are already providing interest free loans to the government because of the shutdown. A food inspector that travels incurs millage or hotel, meals, and other travel related expenses. Because of the shutdown, none of those expense reports from before the shutdown are being processed. Plus, new expenses are being racked up now too.
If someone’s expenses aren’t paid in time and rank up credit card interest, none of that is getting repaid later.
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True. That’s their job.
But I would argue that, unless the person doing the borrowing is Wilbur Ross or one of his ilk, if the borrower isn’t considering their future ability to be able to pay the loan back, they could end up in a really bad place. Especially if we are heading at breakneck speed toward a recession or a depression.
I wouldn’t trust the banks in this unstable situation either, since even the “established” banks won’t balk at seizing the assets that secured a loan when it comes due or slips into default.
Add to that, who know how much debt any individual worker was already in before all this shit hit the fan?
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Actually I don’t think the stigma on food banks is really that bad unless you were making a heavy pretense with your life already or unless you would already be immune to needing one due to ample savings. I mean the stigma itself… it’s usually just a front for racism, and everyone who’s going to the food bank thinks they’re not like the others. I’ve worked around a lot of food banks and had grandparents who got food from one regularly. There’s a stigma but only for the proud, and I think people are more motivated by fear than pride. There’s fear with a loan. All of us who lived through the grinding reality of predatory loans, all of us who watched friends, family, the sheer number and depth of how badly banks have fucked the average person over probably weighs on the conscience. Risk aversion for material threat or loss usually overtakes shame so long as the person appreciates the risk. You’re at greater risk from a loan than you are from being shamed by a neighbor for going to a food bank.
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Thank you for your post. You are right that a single banker cannot finance the whole of the government, but there are several bankers around. I still believe that, as a cash-flow solution for one or two months, it could be worked out and that is what Wilbur Ross has in mind, apparently.
Your last sentence: the bank ends before the shutdown, however, is one of the answers I described as “frightening”. Indeed, if the shutdown carries on for longer, it becomes more than a limited cash-flow problem. How long can the shutdown run before the whole economy collapses?
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