So, once again, time for Dechert’s acclaimed (at least by us) Annual Golden Turkey Awards. It is rather a difficult time for comedy; we are in the throes of a completely unfunny pandemic. Sitting down to finalize this year’s list gave me some sympathy for our late-night talk show hosts who are very publicly pining over the end of the Trump administration and trying to find humor in the anticipated Biden administration, where the watchword is “dull is cool.” But perhaps looking for inanity and making gentle fun of it might even be more important in tough times than good. So, with that in mind, we went digging for gems in 2020. Nothing seems quite so risible as in past years, but here’s the best of a bad lot:
- The A for Effort Award goes to – the Paycheck Protection Program. Remember March? Citizens were unmasked, New York City was a post-apocalyptic movie set and the federal government was flailing around, finding ways to support what appeared to be a free-falling economy. Lot of ideas, both good and bad, were embraced and programs were hastily put together to actualize these ideas. Out of that first stimulus package arose the Paycheck Protection Program, aimed at helping businesses out of the COVID rut. In theory, the program offered business the opportunity to take out interest free forgivable loans to pay their employees… for a while. A short pandemic would have been most convenient for policy makers, but that’s not what we got. Congress in their back-thumping largesse just forgot to think much about how the program would actually work. Well, it didn’t work very well, did it? And now, what a mess we have. It didn’t get taken up at the extent that people thought it would; small businesses, the ones in most desperate need, couldn’t work through the thicket of regulatory uncertainty about how to borrow and now the government has apparently lost track of some (much?) of the money. Maybe the latter is the best news of all. Keep the rest of it.
- The Real Estate Sector Chopped Liver Award goes to – the Congress and the White House. While we’re talking government largesse, what happened to the real estate industry? Were we standing behind the door when the government was handing out goodies to one and all? Did we do something to offend the powers? It almost seems like our glorious elected representatives went out of their way to avoid helping commercial real estate. We are a big part of the economy. Remember us? Very late in the game, a small rump of concerned congressmen proposed some help for our industry through governmental investment in preferred equity in commercial real estate. Hey, it had its flaws, but beggars can’t be choosers, right? But any help at this point, while appreciated, is the equivalent of just swinging for the fences. I don’t see the cavalry showing up here any time soon. Again, what did we do wrong?
- The End is Coming Award (Maybe) goes to – the New York Fed and the acolytes of SOFR. The LIBOR transition continued to trudge along this year even though it (understandably) has not been top-of-mind. The official sector keeps checking items off of their to-do list without solving any of the bigger picture problems presented by LIBOR’s inevitable end. We have a recommended static spread adjustment but no credit component and no solution for dealing with market movements during the life of our formerly LIBOR instruments. We have the ISDA protocol and updated fallbacks for some cash products but not for others (and for which no further updates are coming). We have fallbacks but not enough non-LIBOR origination to work out the bugs. We still don’t know what to do with tough legacy other than to relay on vague promises from the official sector to stay tuned while the so-called legislative fixes start to worm their way through the New York legislature and Congress. We don’t have a term rate yet and, in its absence, various groups are fragmenting around which version of SOFR they should use. Compounded SOFR? In advance or in arrears? Daily Simple SOFR? Simple Average SOFR? SOFR straight up with a twist of lime? Something entirely different like Ameribor? And all of this plodding non-progress while LIBOR’s forecasted end draws ever nearer. We hate to be gloomy, but this is not going well.
- The Zero Sum Game Award goes to – the CDC and Sundry Governors. This award goes to our glorious elected officials who, as often in a crisis, see a problem and in a ready-fire-aim sort of way… act decisively. In this case, they provided a rent holiday and eviction protection to renters and a number of state governors tossed in mortgage forbearance for good measure. Then, way too busy patting themselves on the back, they ignored the fact that this type of governmental intrusion creates as many problems as it solved. “Pardon me, chaps, but you can’t actually provide housing without any income, don’t you know?” The Centers for Disease Control and Prevention implemented a temporary moratorium prohibiting landlords with the right to pursue eviction from evicting certain tenants who were affected by the COVID-19 pandemic, thus making rent payments optional during this time, while putting in place no protections for the landlords who are still required to pay operating expenses and their mortgages. Also remember, the government didn’t wipe out rent payments, but just deferred them. Recognizing how little savings most Americans families have, allowing deferral is a financial equivalent of an attractive nuisance. If people repurposed the money available for rent payments to other things, what are they going to do when it is all due in one fell swoop later? What’s going to happen? While no one wants Americans suffering from the effects of the pandemic to be put out on the street, these orders seem to miss a basic economic principal that one person’s expenditure is another person’s income. In some ways we may find this made the problem worse since rent payments and mortgage payments are accumulating and will amount to unpayable obligations of many renters and homeowners. In the meantime, we have seen and will continue to see cascading defaults in the commercial real estate space and, we’ll make this point again later, the commercial real estate space is important to our economy.
- The There’s Nothing Better than a Stimulus Bill Award goes to – All of our Political Class. Apparently, it doesn’t matter what party you are in, Republicans and Democrats have all put aside their differences of late and have largely been gung-ho on running the proverbial money printing presses. Most academic economists cheered this on in the early days of the pandemic, although there are a handful of contrary voices these days. I hope the modern economic theorists are right and there are no consequences to endless deficits, because we’re going to find out soon enough.
- The Kronkite Award goes to – NO ONE! We always knew we were entitled to our own opinions, but our own facts? Unfortunately, we are unable to award this accolade for excellence, accuracy and impartiality in news reporting to anyone this year. Through good times and bad including a presidential assassination, the moon landing, the Vietnam War and a minor complication called Watergate, people could turn on the network news and listen to the “most trusted man in America” to find out what was actually going on. Today we have to watch 4 or 5 different “news” sources and identify and distill their respective spins to try to triangulate something resembling facts. Conducting business in this complicated world is hard enough when information is accurate, and facts are facts. How is this cacophony of fake news, opinion masquerading as impartiality and feelings masquerading as facts doing anything to formulate a plan for the way forward? The Kronkite award has been collecting dust for far too long and there’s no evidence that that’s going to change any time soon. “And that’s the way it is.”
- The Bad Facts Make Bad Law Award goes to – our Pandemic. COVID-19 is clearly breeding legal decisions having more to do with the emotional appeal of the plaintiff than that silly old rule of law. There have already been some pretty weird decisions around enforcing loan documents, leases and the like and it’s bound to get worse. This is just the beginning. The trouble with this sort of jurisprudence is that while the decision of the moment might be a feel-good thing, the negative consequences of impairing the rule of law go on and on and on.
- The Stop Moving the Goal Posts Award goes to – our Legislators. Apparently our gloriously elected leaders and the apparatchik that are the denizens of the regulatory elite, have decided that this pandemic and the attendant massive disruption of the economies around the world is a fantastic opportunity to regulate, re-regulate, deregulate and regulate again. I saw a news story that suggested that in California, 870 new laws were passed in 2020. While I haven’t taken the time to look, I’m guessing that many of those will cost the citizens of California money. In the middle of dealing with a massive medical crisis, do we really need a surfeit of new law to pay attention to?
- The Beany and CECL 2.0 Award goes to – the FASB. A year ago we were getting ready for the imitation of the Current Expected Credit Loss regime from FASB. One of the greatest dumb ideas in academic accounting, CECL would require the lender to book a loss at the time it made a loan based on a dubious forward-looking analysis including the examination of sheep entrails to see whether losses in the future might be incurred. While a handful of our largest lending institutions were ready to roll it out this year, most lenders were baffled, and rightly so, at to what this required and how to do it. Blessedly, FASB, in a moment of lucidity, has pushed the effective dates of these statues to 2023. That gives us a few more years to try to make this silly idea go away entirely.
- Fun with Rent Control. If there ever was a sillier response to a pandemic than an effort to control rents, I’ve yet to see it. But, on the theory that no crisis should go unused, many legislatures around the country at both the state and local level have this year proposed, and in some cases passed, some form of rent control. There’s almost a perfect consensus among economists of both the left and the right that rent control’s primary impact is to reduce the supply of rental housing over time. Even when these rules are deemed temporary, they’re not. There’s nothing as permanent in the life of a government as a temporary rule. Thankfully, at least in the case of California, the citizenry rebelled against this bit of social engineering and refused to adopt statewide rent control. A little bit of light in an otherwise difficult place to do business today.
I think this year has made me lose my sense of humor. Happy holidays.
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