WHY ARE WE BAILING OUT A BUNCH OF LOSERS?By David G Hanger, EA, MBA
July 25, 2020
But when one stops and thinks about it a little longer the question becomes why should we be bailing out any of these losers? I realize it is not their fault they are losers; both the business environment and the general environment have at least for the time being wrecked the whole industry. They did not do it; it was done to them. But how is that any different from all the people who have been put in unemployment lines? They did not do it; it was done to them. So let’s see. How is this going to work locally? The biggest losers get the biggest money? The landlords get bailed out on their $20,000 a month rent charges because there is no one to pay their over the top rent, so our local government gratuitously pays them instead? Next we propose to pay how much to Taiwan, China, Florida, Arizona, and Timbuktu for inventory ordered and delivered that cannot be moved? How is giving money to Taiwan or Timbuktu helping anything in Ketchikan? What about free enterprise? All you reactionary rednecks don’t want the government involved in anything you do. You are free and independent even to the point of killing your neighbors with Covid19 because of your absolute obsession with “freedom of expression.” Free enterprise should be free enterprise, which means if you are a loser, you go bankrupt. That principle is even in the games you give your children. But one gets the impression we are going to bankrupt and impoverish all the little people, the grunts and the employees, while in the meantime enriching to the point of engorgement the biggest losers. That is certainly flipping free enterprise on its end. So how exactly does that work, whose ass do you have to kiss to be the first in line? Business risk is apparently something suddenly government is supposed to always insure you against, so long as you are a big enough loser. The right wing no longer has any bearings, let alone scruples or integrity. Since when is it the appropriate thing in this country to bail out people who make bad business decisions? Just because you don’t know how to manage an inventory, thus find it necessary to order everything up front, does not mean the rest of us should be on the hook for $300,000 that you owe to vendors. What none of you are really capable of comprehending is the magnitude or the duration of this event, let alone the uncertainty of it. For perspective let’s start with this simple reality: From beginning to end the Spanish Flu lasted for two-and-a-half years. It is how many months since March? You operate basically on the wavelength of the sophist on TV who pretends to be smart and witty with his nonsensical palaver about how if you plan out a problem over three months that in fact lasts nine months, woe indeed is you; but if you plan out a problem for nine months that only lasts three months, by comparison we are in the “tall cotton.” But that indeed is where your problem begins and basically ends because your thinking is completely short-term and ignorant. You want this problem to go away soon, so you expect it to go away soon; but wishing it away is not going to make it happen. Here are a few other basic facts with which you need to contend: 99 out of 123 cruise ships had coronavirus outbreaks, and while all of these ships have been anchored and not carrying passengers for months, nine of these are still quarantined with active cases aboard. Holland-America is now selling its ships for cash. How many remains to be seen. Norwegian Cruise Lines has used its ships to underwrite its last gasp round of stay-afloat loans, and will be bankrupt within a matter of months. The banks are in great peril. They replaced all that substandard mortgage paper that led up to 2008 with a whole bunch of substandard corporate paper, most of which is off the books (and Wells Fargo is a very big player here), so right around the corner is a prospective meltdown. When the unemployment benefits and the other small gratuities given to the lower classes end here in the next week, unless continued the markets will begin to tumble. The markets have been playing with monopoly money since March; the numbers sustained on the markets are completely artificial, the result of printing trillions of dollars of worthless paper so the kiddies can continue playing a while longer. I do not advise trusting Moderna. Trump’s vaccine czar is clearly more motivated toward enhancing his stock values than in producing a working vaccine. This group of self-promoters so far has stuck needles in eight arms, then announced to the world incredible progress which jacked up the stock market by a thousand points and made our vaccine czar $3 mlllion bonus in one day. Here recently once again another stock value push as they announce incredible progress. We will see, but I do not trust loudmouths whose primary purpose seems to be grubbing for dollars on the stock market. The history of vaccines reinforces my position. The shortest time ever to bring a vaccine to market is four years, and that is just to the pre-production stage. They still had to produce the vaccine in quantity and then distribute it. Working in our favor is the fact that the factories already exist to produce a vaccine that does not yet exist. The bet on the come on this one is big, and the effort worldwide is prodigious. But that is no guarantee that those factories do not gather dust for yet some time before being activated. We are still in the first wave of this damned thing; more than 75,000 new cases yesterday; 220,000 dead projected by mid-October; and they are expecting a second wave!!! How does a 2021 cruise ship season fit into that schedule? I think the probability of a cruise ship season of any consequence in 2021 is less than 10%. I realize the yearning to get free, but I think there will still be an incredible number of stumbling blocks in the way. Moreover short-term planning for a long-term problem is a sure guarantee of disaster. There is a serious question how much of a town is going to exist after all this clears. Being led by a bunch of privates and corporals of industry is not reassuring. I think the best move that can be made is for all of these businesses to file immediate bankruptcies, preferably reorganization, but liquidation if necessary. Where the vendor is willing to take back the inventory I have no problem with a few tax dollars paying the freight. Otherwise, too bad. Tough titty said the kitty. What is the point of the government and our tax dollars financing people in high style who are going to go broke anyway? Why a short-term band-aid when a long-term fix is needed? What is the point in buying these people a month, six months, or a year if there is not going to be much, if any, business for the next three or four years? Sooner or later they will go bankrupt anyway, which is a classic example of throwing good money after bad. If an individual business owner can sustain the business for a year or two with his own cash reserves, a possibility in a few instances, such an individual will thereafter be able to liberally use the net operating losses incurred during this period to offset both past and future income taxes to a significant degree. A bankruptcy otherwise, for those who lack such reserves (most folks, in fact) will prevent to a significant degree benefitting from such losses because the losses are forgiven. That is the essential difference, a prudent, legalistic, and technical difference, which I consider in many ways, therefore, a far more rational approach. A bankruptcy because of incompetence, drug use, or lassitude is shameful, and deserves stigma. You do not want to be that person. A bankruptcy because the world blows up in your face is no shame at all on your part. It is generally a practical necessity. To one extent or another we are all going to have to start over when this is done. In this case why squander our money on that which cannot be saved? In most instances these businesses are already toast, and the losses just need to be written off now, not subsidized. There is no shame here. You are not married to these businesses; you just think you are. Let the businesses go. To hell with paying off Timbuktu. It is very simple for us as accountants to get new employer ID numbers in a day or two. You can dust off the old corporate papers, change the name at the top to “Tourist Center II,” have your lawyer do a quick review, and we are up and running again that fast. Bad news is bad news. Shovel the crap out of the way and move on. That is how you deal with calamities like this. Support the people, not the businesses. We still have the facilities; they are not taking anything away from us. Paying for all this crap inventory is foolish. Make other arrangements. Nor be concerned about your individual credit ratings. This is a disaster. Survival is the issue, not your damned credit rating. Nothing that happens now, with the possible exception of stupidity, will be held against you later. The fact that you survive this and are ready to go then is all that is going to matter to your credit rating. Subsidizing people is much less costly than subsidizing businesses. To the extent this money is allocated toward businesses only, save it for later when it will have some real effect. Please understand that while right now my firm has experienced at worst marginal effects, if that, financially from this coronavirus crap, I will be recording this year’s history in 2021 at which point we anticipate at least a 50% decline in business as a result. It does not cost much to put zeroes on a sheet of paper. Many of the corporations for whom I manage accounts are tourist-related, and they ain’t just taking it in the shorts. They are losing badly, and $25,000 of write-up here will be less than $5,000 of write-up next year. My firm, a 45-year old firm, cannot survive those numbers. What you will lose then is 65 years of experience dealing with local accounts, the standards maintained respective those accounts having resulted in five audits and tax court cases since 1989, all of which Uncle Sam lost. But just using our case as an example of a small business in this town that supports one or two people or so, and has been around for a long time. In our case if we lose 50% of our business, a bone of $15,000 to $25,000 for a year or so would keep us operating indefinitely while feeding the kids along the way. There would be no frills in such a subsidy; still taking it in the shorts financially overall; but we could get through. Whatever you do, throwing good money after bad does not make any sense at all. And rewarding those who take the highest and the dumbest risks with big payouts, in relation to your own right wing beliefs, is a fundamental form of graft and corruption. The stench of cronyism is already strong. David G Hanger, EA, MBA
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Received July 21, 2020 - Published July 25, 2020 Related Viewpoint:
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