Banana Disruptions & The Toilet Paper Supply Chain

Felix, Anna, and Emily discuss the issue of small business loans in the stimulus bill, why the toilet paper shortage might not be overhyped, and Trump’s oil tweet which is quite possibly the most market-moving tweet ever.

What Everyone’s Getting Wrong About the Toilet Paper Shortage,” by Will Oremus in Medium

Trump’s Labor Department Takes A Hacksaw To Coronavirus Paid Sick Leave” by Emily Peck in the Huffington Post.

In the Slate Plus segment: The ad market during the COVID-19 pandemic.

Audio Length: 00:46:02

S2: Oh, and welcome to the banana disruptions edition of Slate Money, your guide to the business and Finance News of the Week.

S3: I’m Felix Salmon of axios. Emily Parker is here from Huff Post. Hello. And The SHYMANSKY is here from Breakingviews. Hello. We have been disrupted. What we tried to do our little disrupting thing by doing a Kovil special 15 minute show on Wednesdays. But we’ve been disrupted by the ad market, so no more Cauvin shows on Wednesdays. We’re going to talk a little bit about why that is in Slate. Plus, we are going to talk about disruption to supply chains, not just in bananas, but also much more importantly in toilet paper. That’s coming up on this show. We are going to talk about the oil market and Trump tweets. But I think we are going to start with the massive stimulus bill and the small business money that is not going out to small businesses nearly as efficiently as people had hoped that it would. All of that coming up on Slate Money.

S4: So let’s start with what is for me, the centerpiece of the two trillion dollar stimulus package, which is the three hundred and fifty billion dollars that is going to small businesses, much if not most of which is going to end up going straight to those small businesses in the form of loan forgiveness that your small business, you apply for a loan, you can get two and a half months of payroll and rent and utilities. And then as long as you keep those staff members on payroll, you can get that loan forgiven. So this is not a Fed liquidity thing. This isn’t a low interest loan thing. This is basically a grant dressed up as a loan. And it’s super important for keeping millions of small businesses in business. And Emily, how’s that going?

S5: Yes, not going great, Felix. Not going great. It was supposed to start Friday, but by Thursday, banks were going public with their complaints, saying they haven’t gotten enough guidance to know how to actually do this.

S6: They don’t understand who qualifies, what kind of paperwork they have to do. I think banks are saying basically that they’re not ready. And it seems like there’s a lot of confusion. Meanwhile, there’s a lot of pent up demand. Banks are saying, you know, thousands of businesses are going to want loans. It’s pretty crazy. So it’s just another mess. The government, you know, tried to do something quickly. Impasses, multitrillion dollar stimulus. But getting this urgent relief out is proving to be. And I want to say a disaster because it’s still early and we know things take time to kind of smooth out, but it’s kind of proving to be a mess so far.

S4: So one of my friends was like, I’m going to get on the Web site at 12:01 a.m. on Friday morning on late Thursday night and just get my application in super quickly because she assumed that it was all going to be done on a first come first serve basis. We don’t know that, but it looks like that might well be true. In the end, all of the major banks suddenly JP Morgan Chase and Citibank said they hadn’t got the information they needed to be able to implement it. There seems to be a handful of community banks who were up and running on Friday morning, but no one really knows who they are. Bank of America has a. Place where you can apply for loans. But this is super interesting, actually. If you are a small business with an account of Bank of America, that’s not enough. You know, you need to have borrowed money from Bank of America. So you need to have a small business loan from them or a credit card from them or some kind of line of credit or something like that. If you do all of your banking with Bank of America, but your credit card is from American Express, say, then they won’t give you the loan. And so then the question is, who do you go to for your loan? No one knows.

S7: And I think this is it just kind of speaks to the problem of this entire program, which is that fundamentally the government wants to give out grants, but it can’t say it’s giving out grants. So it pretends it’s giving out loans that are then going to put through private banks. But private banks are in the business of giving out grants. Banks underwrite loans. And so you now have a situation with your bank. You’re like, well, what am I supposed to do? Am I supposed to just I can’t just give out money to anyone? And then if a bunch of these these loans go bad and the people lay people off, then will I be forgiven?

S4: I don’t know if you or will tell me if your if your underwriting was good. And this is the thing which the banks are really worried about. All of these loans are backed by the government. So if the loan defaults, if it’s not forgiven and that small business goes into default, you should get your money back from Treasury because that’s a government guarantee. Maybe the problem is that the guarantee doesn’t arrive for some unknown amount of time, possibly days, possibly weeks after you give out the loan. So there’s that interregnum, as it were, like if if you if a business applies for loan, you give them the loan. And then the government, for whatever reason, doesn’t give you the guarantee, you’re then on the hook for that loan. And if the loan defaults, you you lose money on top of that. If you do get the guarantee, you still have that loan on your balance sheet. Right. And you don’t particularly want that loan on your balance sheet. And so you would love to be able to sell that loan to someone. But because the loan only has an interest rate of 1 percent, no one’s going to pay you 100 cents on the dollar for that loan. And so you’re going to lose money if you try and move that loan off your balance sheet.

S7: Yeah, exactly. And at the same time, we want banks to be giving forbearance to a lot of the clients that already have that they’ve given loans to, but that those are then loans that are still on their balance sheet and then they’re bringing these other loans onto their balance sheet. Banks have limited balance sheet, especially if you’re talking about smaller banks. That would probably be the best position to deal with small businesses because they would actually know the small businesses because they’re in their communities. They’re going to have a very hard time doing this. And I think that’s why you also have a lot of smaller community banks who aren’t taking part in this because the organization was just so mismanaged. No one knows what’s going on. And I understand what the Treasury wants to do in terms of getting this stuff out quickly. But this isn’t a simple process, even if they want it to be.

S5: Can I ask you something I don’t understand? Why wouldn’t the government just directly hand out money to people to keep their payrolls going?

S4: So that’s a good question and there is a decent answer for that. Basically, if in order to apply for the loan, you fill out a very simple form is just one page really saying this is how much I spend on payroll is so much I spend on rent. This is how much I spend on utilities. Multiply all of that by two and a half months and this is how much I want in the loan.

S8: Your bank.

S4: Knows whether those numbers are basically true because you have that bank account and use that bank account to make payroll and rent and utilities. The government doesn’t know that. So if you were applying directly to the government for the money, the government would have no way of being able to underwrite the loan at all, of being able to tell whether the numbers you putting down for rent and payroll and utilities were remotely in the same ballpark as reality. Where’s your bank? Should be able to just take one look at that and go, Yeah, that’s right. And here’s the money. In principle, they should be able to do that. In practice, it’s a lot harder. And a lot of banks, as Anna says, not really set up to be able to do this at scale. I know that in Hawaii, for just as one example, there are a lot of small businesses and there are no major banks in Hawaii and none of the major banks has has a bank branch in Hawaii and let the Hawaiian lawmakers is seriously worried that literally no Hawaiian banks are gonna be ready to disburse these loans before the 350 billion dollars is used up by people on the mainland.

S9: Doesn’t the government know rough information about businesses from tax file, from taxes?

S7: Yeah, I still don’t understand. I’m sorry.

S4: One of the one of the problems is that from what I’ve been hearing, Treasury and SBA are kind of bickering with each other on this. They’re not talking with a unanimous voice. But just to be clear. Treasury and SBA are two organizations who are deeply involved in trying to get this whole program out the door. If you wanted to implement what you were talking about, about the government knowing information about payrolls and rent and utilities, and so then you would need to include a third agency, which is the IRS. And God help you if you try and get the IRS involved, that would just be a true nightmare.

S5: But it’s it’s really embarrassing. I mean, do you sorry to keep asking open ended questions, but some of these European countries that are paying people to stay employed, how did they do it? Could we learn anything longer-term from them?

S4: Yeah, the Denmark, New Zealand and places like that are doing it right. And I think what you see in those countries, especially in countries with prime ministers rather than presidents, you know, parliamentary systems, is that you have a much more centralized government apparatus that can do this kind of thing. And New Zealand, basically. Small businesses just woke up with a few thousand dollars in their bank account that wasn’t near the previous day. They didn’t even need to apply for it. But I have no I just cannot imagine how that would even be possible in the United States.

S7: It’s also a matter of like principle in this and it to a certain extent of why the US government is doing it this way and not another way. I think the US government really wanted to. There probably is a much simpler way for them to do it. But part of it is for whatever reason, the you know, the United States kind of just tends to want to work through the private system. And while I often think that is the right thing to do, I think in this instance it is in fact not the right thing to do, because I do think it is just actually like on the one hand, arguing it myself here. I like on the one hand I can understand working through the banks because they already have, you know, a lot of these procedures in place in terms of they make loans. But on the other hand, again, these aren’t actually loans.

S10: So, I mean, they they they aren’t actually loans because you only get it forgiven if you manage to keep 90 percent of your stuff on payroll. And a lot of businesses are not going to be able to do that. But then the other thing is that just the banks away, the bank accounts are right. If you want to pay into a bank account, you need to go through the banks somehow. And and that super deep sort of relationship between the government and individual businesses, bank accounts is something which is much closer in a country like New Zealand than it is in America to a certain extent.

S7: But I honestly think it’s less about logistics and it’s more about how governments understand the relationship between the public and private sector.

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