The RLC backed by the government is in a better position to wait out the economic recovery and collect at the best time and have an organized collection program
We are fortunate that President Donald Trump is a businessman who knows how to bounce back from difficulties. However, the United States really is already in a depression. We don’t yet have technical indicators stretching over several quarters. Yet: “Total nonfarm payroll employment fell by 20.5 million in April, and the unemployment rate rose to 14.7 percent, the U.S. Bureau of Labor Statistics” reported on May 8.
We can fix this. But it will take swift and decisive action. We’ve seen it in movies: The giant airplane is in a power dive heading down into the side of a mountain. The hero manages to restart the engines and turns the nose up just in time to clear the mountainside and head back upward.
This is a proposal based on my years as a debt-collection attorney in Virginia
President Trump could create a Receivables Liquidity Corporation. (You heard that name and idea here first.) After the Savings & Loan crisis, the government created a private corporation backed by the U.S. Treasury, called the Resolution Trust Corp. The RTC took over failing banksand slowly liquidated their assets at opportune times. During the 2008 mortgage crisis bailouts, allegedly the U.S. Treasury turned a profit eventually. The government sold the stock it acquired in the bail outs at a time of panic (low prices) and then sold them after the economy had grown healthy (high stock prices).
This is a proposal based on my years as a debt-collection attorney in Virginia. This could work for Canada, the European Union, now independent England, even the Bahamas or almost any country – not just the United States. It can even work combining several nations together. However, it does require a nation with sufficient financial credit to carry debts for a long time until the ideal time to collect on them. And it requires a mindset to think outside the box with a more business-oriented public private partnership.
The engine has seized up. When we try to start the engine again, it is going to be bad. If everyone pulls back and values plummet just because people are frightened, the damage will be far greater than if the new RLC takes payment much later, after things have rebounded.
As soon as the economy re-opens, it will end the freeze on evictions of renters behind on their rent and foreclosures on mortgages. Within two months of re-opening, many of those 20.5 million unemployed could be homeless. Those unemployed won’t be able to suddenly repay 2 to 4 months of overdue rent or mortgage payments.
President Trump hoped early on that there would be pent-up demand and the economy would snap back. But he acknowledged back then that the longer the economy stays closed the harder it would get. Now, there may be a lot of desire to buy. But will people have the money to spend?
Consider the situation for many small businesses: As a solo attorney, I am a small business. Before the pandemic, clients typically had no money to pay me. Now, no one is paying them. They have on-going expenses for food and what rent they can cover, with no income in most cases. The people who should be paying them have no money because they are not getting paid. So I’m not getting paid for past work or hired for new work. So my vendors aren’t getting paid. Etc. A negative cascade.
The stimulus checks in the United States were small and late. For many businesses, the $10,000 small business advance loan never arrived. And the Paycheck Protection Program Loan—for the very small businesses who can get one—is only 2 ½ months of a business’ payroll after cutting any salaries above $100,000. The size of the economy is enormous.
However, those programs do not have to be repaid. The only way that the U.S. Government can afford to spend a lot more is if the money is repaid—eventually.
How? The time horizon for small business is short. They can’t survive for long without getting paid by clients. By contrast, the Treasury can carry those invoices for years until the economy has rebounded and the debtor can afford to pay.
So let’s say a landlord is owed 4 months’ rent for a business or a residence. Once the economy restarts, and the ban on evictions is over, he’s got to collect that unpaid rent from people who don’t have any money after 4 months of house arrest. Or businesses have shipped products that they haven’t been paid for. Or utility companies have overdue utilities for 3 to 5 months. What are they going to do? If they try to collect, they will leave businesses in the dark without electricity or homes without water. How is the economy going to rebound like that?
Instead, the landlord or utility company sells the invoice to the Receivables Liquidity Corporation and gets paid in full. Hopefully, the invoice eventually gets paid to the RLC with interest when the economy has recovered. The debtor must agree to:
- waive rights to discharge that particular debt in any bankruptcy,
- provide the owner’s personal guarantee for a business,
- waive the statute of limitations,
- consent to deduction from tax refunds,
- certify that they do not dispute the debt or to what extent, and
- add interest if the invoice did not provide for it.
In return the debtor gets a grace period of one year or more before having to start repaying the invoice(s) (with a possible hardship extension if circumstances warrant on application). The debtor would get an installment plan to pay back over time. If the debtor does not agree they are subject to immediate collection action. So they have motivation to agree to the terms. If they cooperate, they get a breather of at least a year before they have to pay.
The RLC backed by the government is in a better position to wait out the economic recovery and collect at the best time and have an organized collection program. While some invoices will not get paid, hopefully enough will be paid with interest and collection fees – eventually—to come close to breaking even.
One small problem: Who would run this program? Wink. Call me….