To limit the economic fallout from the coronavirus pandemic, governments and businesses are trying to allow maximum scope for borrowers of all kinds to make payments. In effect, while commerce has been put on hold, the country is trying to pause financial time.
The problem is that people have been warned to stay in their homes and not to congregate in public places, like bars, restaurants, or even their places of work. Many of those businesses have been shuttered. Meanwhile, financial payments, such as credit card and mortgage payments, as well as business debt, continue to come due. Millions of households and businesses that enjoyed robust economic health a month ago now face the threat of bankruptcy.
Larry Summers, a former treasury secretary in the Obama administration, recently described the predicament on Bloomberg TV by saying that “… economic time has been stopped, but financial time has not been stopped.”
Officials, politicians, business executives, and experts have tried to think creatively about how to protect people without deep savings, for whom the passage of financial time represents a major threat — for instance, a family living paycheck-to-paycheck that could, in a matter of weeks or months without work and with incoming mortgage bills, face eviction.
Hoping to avoid this dilemma, Scott Ellison, founder of the consulting firm Neptune, pitched an idea that would “temporarily” stop time. He proposed that “everything that happens in time (e.g., mortgage due dates, payrolls, travel bookings, stock market trading, contractor gigs, concerts, sporting events) will be paused … and will continue as planned once time is resumed,” after the spread of the virus has been controlled.
No policymakers have embraced that extreme proposal, but a variety have sought by other means to reach the same goal.
For example, the mortgage giants Fannie Mae and Freddie Mac, at the direction of Federal Housing Finance Agency Director Mark Calabria, a President Trump appointee, have ordered home lenders to pause mortgage payments for up to 12 months for certain people who’ve lost income because of the pandemic.
The idea is to immediately buy time for people suddenly brought to the brink of financial ruin. “You’re not going to have to send 20 pieces of paper at the front of this,” Calabria said. “We want to do it quickly.”
Similarly, Trump last week paused the interest accruing on student loan debt. Meanwhile, the anti-coronavirus bill the Senate approved last week paused federal student loan payments for three months.
The federal government has also postponed the April 15 tax filing deadline to July 15, which means that tax payments are postponed for three months. Several states have also delayed their tax deadline, thereby pausing when payments are due.
The massive economic relief bill that members of both parties are working toward would go much further in terms of suspending time for borrowers.
House Democrats released legislation Monday night that includes suspending payments for small business loans, car loans, certain rents, and mortgages.
Measures that broad are not likely to clear the GOP-led Senate. But the Senate Republican version of the legislation would send checks directly to households, a provision meant to give flexibility to families suddenly facing recurring bills without incoming funds. It also would extend hundreds of billions of dollars worth of low-cost loans to businesses, including loans that would convert to grants for small businesses that maintained payroll. That measure is meant to buy time for small businesses to weather the economic storm without having to lay off workers. The logic is that the economy will be in far better shape if companies can wait out the downturn without having to separate productive, knowledgeable workers.
Private enterprises have also paused payments.
Bank of America announced Thursday that customers impacted by the virus can postpone auto loans, mortgage payments, and credit card payments. Small businesses with outstanding loans to the bank can also hit pause on making those payments.
Goldman Sachs last week announced that Apple credit card holders can skip certain payments if they have been affected by the virus.
Several finance arms of automakers have paused car payments. The list includes Ford Credit, GM Financial, Hyundai Capital, Toyota Financial Services, Lexus Financial Services, and Nissan Motor Acceptance Corporation.
