Effect of economic crisis on America’s small businesses [slides] • Hacker News Board

Re: Effect of economic crisis on America’s small businesses [slides]

#161

Post by ccktlmazeltov » Sat, Mar 21, 2020, 3:08 AM UTC

testfoobar wrote: post #38

The virus is terrible. But our solution could turn into an economic catastrophe. It simply isn't possible to shut down the economy and then pay people, businesses to sit idle for an undetermined amount of time. The solution is aggressive, continuous testing so that people can feel safe going back out. 1. Make hundreds and millions of the rapid tests available. 2. Deploy them to every business, every institution. 3. T…

Considering that people generally go to work even when they're sick in the US, and that people are scared to go to the doctor because of the hidden cost, I don't think your solution is valid.

On the other hand, we cannot pause the economy for too long. The damages are already done but what is going to happen if we wait too much?

I cannot imagine the level of stress the people working at the government must be under now... Whatever solution they come up with could be the collapse of the US as we know of now.

Re: Effect of economic crisis on America’s small businesses [slides]

#162

Post by solidasparagus » Sat, Mar 21, 2020, 3:09 AM UTC

sbashyal wrote: post #100

jdminhbg wrote: post #50

Earlier quoted context omitted.

It really doesn't matter. If 20% of the economy is zeroed out because it's not safe under current conditions, the stock market will crash. Nothing you could have done beforehand, and no hobby-horse you've ridden for no matter how long, can fix that.

I disagree that nothing one could have done beforehand could fix that. The argument is not that there would not be a decline in share prices at all but the magnitude of it. You need to have enough saved to survive 6 months w/o income is preached a lot in personal finance and somehow this is not practiced for businesses.It is understandable that cash-strapped startups can't afford to do this but the companies buying b…

Massive publicly traded companies are not the companies that are collapsing. It's mostly small business that aren't publicly traded let alone doing buybacks.

Re: Effect of economic crisis on America’s small businesses [slides]

#163

Post by [deleted] » Sat, Mar 21, 2020, 3:09 AM UTC

booleandilemma wrote: post #6

lettergram wrote: post #2

One thing that really horrified me was how quickly people threw away the economy. Unfortunately, this virus is highly contagious (to the point that the vast majority of countries won’t contain it) and fairly lethal. We don’t actually know how lethal, but it appears 1%-3%, but without widespread testing we wouldn’t know. At the moment, we just reduced our GDP by 30%-50% in regions under quarantine. Think about that fo…

New Yorker here. From what I see through my window, my fellow New Yorkers still don’t “get it”. I see clusters of people hanging out and families going for leisurely walks. If this keeps up the number of infections - and deaths - will only increase. Last week my brother suggested instead of working from home I work from a Starbucks. I feel like people don’t understand how serious this is and it’s really bothering me.

[deleted]

Re: Effect of economic crisis on America’s small businesses [slides]

#164

Post by hpcjoe » Sat, Mar 21, 2020, 3:10 AM UTC

codingslave wrote: post #7

The stock market is largely collapsing because: 1.) Hedge funds levered up their capital 5 - 15x to make more money, then got caught with their pants down. So they all panic sold at once, crashing the market. 2.) CEOs of large corporations used cash to buy back their stock, inflating the stock price, and depleting their cash reserves. So now those same companies are on the brink of collapse, causing the credit market…

I agree, CEOs that bought back stock should not have the option of a bailout. That was a self-enrichment strategy built upon cheap debt, and now it is time to pay the bill.

Generally speaking, Boeing and others should not be bailed out. Capital should flow to the small businesses to keep their doors open, their people employed.

I'd also argue strongly against bailing out companies that shifted their work overseas. There needs to be a price to their actions. This is a just price IMO.

Re: Effect of economic crisis on America’s small businesses [slides]

#165

Post by kingaillas » Sat, Mar 21, 2020, 3:10 AM UTC

TheSpiceIsLife wrote: post #65

codingslave wrote: post #7

The stock market is largely collapsing because: 1.) Hedge funds levered up their capital 5 - 15x to make more money, then got caught with their pants down. So they all panic sold at once, crashing the market. 2.) CEOs of large corporations used cash to buy back their stock, inflating the stock price, and depleting their cash reserves. So now those same companies are on the brink of collapse, causing the credit market…

Why should anyone be punished for failing to plan for a black swan event? Black swan events are unpredictable and outside of what is normally expected.

I'm not even that old and this is the 3rd black swan event in the last 2 decades: terrorist attacks of 9/11/2001, financial meltdown in 2008-2009, and this 2020 global pandemic.

There were also 3 other localized outbreaks (SARS in 2003, Swine Flu in 2009, MERS in 2012) so that to me sounds like we were 3 viral mutations away from this being the 4th global pandemic in 20 years.

If we're structuring business and our economies such that they fall over or require ~1 trillion dollars for bailouts, every 4-7 years on average, then something is vastly, massively, completely, extremely wrong with our approach.

I don't care how many economics nobel prizes are racked up by theorists; or about efficient market theory and blah blah blah. These systems are failing in the real world and that's the only existence proof needed.

Running a just-in-time razor-thin-margins all-profits-reinvested-no-savings business is great in theory but apparently the wind blowing from the wrong direction destroys it all. It has the feeling of the economics/finance version of a physicist assuming a spherical car in a perfect vacuum with a point source of gravity when designing a system that has to survive actual usage.

Re: Effect of economic crisis on America’s small businesses [slides]

#166

Post by scep12 » Sat, Mar 21, 2020, 3:10 AM UTC

Anon1096 wrote: post #141

sbashyal wrote: post #100

Earlier quoted context omitted.

I disagree that nothing one could have done beforehand could fix that. The argument is not that there would not be a decline in share prices at all but the magnitude of it. You need to have enough saved to survive 6 months w/o income is preached a lot in personal finance and somehow this is not practiced for businesses.It is understandable that cash-strapped startups can't afford to do this but the companies buying b…

This is an article about small businesses, which make up the backbone of the economy. It makes 0 financial sense to save up 6 months of savings for any company, big or small. This is literally a once-a-century event.

Doesn't mean it will be a century until the next one. There are other reasons to require business to have emergency funds... Weather comes to mind

Re: Effect of economic crisis on America’s small businesses [slides]

#167

Post by digitaltrees » Sat, Mar 21, 2020, 3:11 AM UTC

preommr wrote: post #51

codingslave wrote: post #7

The stock market is largely collapsing because: 1.) Hedge funds levered up their capital 5 - 15x to make more money, then got caught with their pants down. So they all panic sold at once, crashing the market. 2.) CEOs of large corporations used cash to buy back their stock, inflating the stock price, and depleting their cash reserves. So now those same companies are on the brink of collapse, causing the credit market…

I really think we should stop conflating bad economic decisions with the current pandemic. Yes, maybe stock buybacks are bad. But even if they were banned, these companies wouldn't just have piles of cash reserves sitting around. To remain competitive, they would've had it invested in resources like additional personnel that would've gotten the axe either way when the belt has to be tightened. There needs to be bette…

They would unquestionably have more cash on hand though. That matters. There is also a lot of research showing that management does buy backs at exactly the wrong time. How wasteful is it in retrospect that companies did buy backs over the last two years at the peak of the market. Now they might have to sell stock to raise money at the bottom (assuming we find it soon). Mean while warren buffet was sitting on cash and building his reserves. Watch him swoop in now and just pick up businesses for pennies on the dollar.

Re: Effect of economic crisis on America’s small businesses [slides]

#168

Post by AnthonyMouse » Sat, Mar 21, 2020, 3:11 AM UTC

codingslave wrote: post #7

The stock market is largely collapsing because: 1.) Hedge funds levered up their capital 5 - 15x to make more money, then got caught with their pants down. So they all panic sold at once, crashing the market. 2.) CEOs of large corporations used cash to buy back their stock, inflating the stock price, and depleting their cash reserves. So now those same companies are on the brink of collapse, causing the credit market…

All of the things you're saying are the direct result of the market incentives created by low interest rates. Companies borrowed money and used it to buy their own shares for the same reason everybody was borrowing money to buy shares with it -- it's what people do when it's cheap to borrow money.

If your competitors are all borrowing money at low interest, you do the same or you're not competitive.

The problem is we lowered interest rates in response to the housing crisis and then left them there. Because doing so inflated (really reinflated) such a ginormous credit bubble that it would take more than an entire market cycle for real economic growth to catch up to it, and (absent printing money) you can only raise interest rates to the extent that borrowing demand from real economic growth exceeds the reduction in credit caused by the higher interest rates, or you cause deflation and an economic downturn.

This is also why the rate of inflation has been below historic norms since the housing crisis -- reduced to that level just by raising rates the tiny bit that they did. And now even that's gone and interest rates are at zero.

This is what the fallout of long-term low interest rates looks like. The only way out of it within our lifetimes would be mass defaults (which would cause a depression) or enough inflation to devalue the outstanding debts.

Considering that we're also now facing deflationary forces from these quarantines, maybe it's time to start printing some money. Certainly countering the deflation by encouraging even more borrowing would just be trying to dig our way out of a hole.

Re: Effect of economic crisis on America’s small businesses [slides]

#169

Post by ip26 » Sat, Mar 21, 2020, 3:11 AM UTC

ccktlmazeltov wrote: post #121

Here are the issues from my paper napkin analysis: * large businesses not being able to pay for maintenance of tools. * small businesses not being able to pay employees, rent, services, etc. * people not being able to pay for rent and food. What are possible solutions for a long-term lockdown? * for large businesses: bail out. * for small businesses: rent should be free. * for people: rent should be free, food should…

I am not sure you're going to successfully nationalize all commercial property, but temporarily freezing interest on debt & suspending payments is interesting to ponder. For example, most mortgages are held by the Fed, so they have the ability to do that. Similarly for t-bills. I'm sure a real economist can tell me why it wouldn't work, of course. But in general, rent must be collected because debt must be paid, so if debt were frozen then rents actually could be deferred.

Re: Effect of economic crisis on America’s small businesses [slides]

#170

Post by donw » Sat, Mar 21, 2020, 3:12 AM UTC

zaroth wrote: post #94

donw wrote: post #68

Earlier quoted context omitted.

> The solution is aggressive, continuous testing so that people can feel safe going back out. I disagree, and strongly. This would be a knee-jerk, hyberbolic, and woefully ineffective over-response. Typical for the times. The only thing this might achieve is creating an even greater climate of fear and loathing. There will be false positives. And false negatives. There are with every medical test. Back-of-the-envelop…

> ...we would needlessly quarantine 12.5 million people, and fail to quarantine an equal number of infected carriers. Well, the failure the quarantine would be the false negative rate times the infection prevalence. A significantly smaller number than the false quarantine rate, until the whole gadonkun no longer matters.

Very true. Mine was a quick back-of-the-envelope calculation based on a highly charitable scenario.