Where Are the Borrowers? – New York Times

pandemic credit problem

The job of a banker can be summed up as an old joke: 3-6-3 rule: Collect the deposit at 3 percent, lend at 6 percent, and be on the golf course at 3 p.m. They also offer loans at the lowest rates but have little demand from borrowers. What do they do with money instead? Overindulgence in bonds The Times’ Matt Phillips reports.

(And as for golf? Tee times it’s been harder to get lately, so this may be the only part of the joke that still has some truth.)

U.S. banks purchased a record $150 billion in Treasury bonds last quarter. they are greatly expanding their assets according to the new loans they have written. While the economy is growing, as they are now, banks usually have no problem finding borrowers: These loans give banks higher returns than investing their money in low-yield government bonds. But as demand for credit remains sluggish, lenders are reluctantly buying bonds that are guaranteed to deliver parsimonious returns.

Bond buying spree explains some of the latest quirks in the markets:

• Why are bond yields so low? A drop in yield often signals slower growth going forward, which seems to contradict what is happening now. stock market set another record yesterday. This has led some to conclude the bond market is broken. But as long as banks have few better alternatives, buying bonds will push prices up and bring down yields, which may explain why yields seem unbalanced with the rest of the economy.

• Have government incentives had an impact? The sluggish demand for loans partly reflects the success of the stimulus that averted more widespread destruction. During the pandemic, the government gave individuals $570 billion in advanced unemployment benefits, along with $830 billion in stimulus checks. This has allowed many people to pay off debt or at least not take out new loans. The $800 billion Paycheck Protection Program artificially bolstered small business loans during the worst of the pandemic.

Credit trends also raise questions about the economic recovery. Low interest rates did not stop lending while the economy was strong before the pandemic. Uncertainty over the impact of the fast-spreading Delta variant of the coronavirus, which is affecting supply chains, labor supply and more, may over time become a major reason why people and businesses appear reluctant to borrow despite conditions normally conducive to borrowing. In this way.

In its latest reading of its recovery tracker in the US economy, Oxford Economics said that progress has stalled at around 96 percent of pre-pandemic levels and that “gains will be more difficult to make as we outpace peak growth.” Five of the six components in the weekly activity index fell along with financial conditions – reflected by stock market gains and low interest rates – the only component sending a different signal than the others.

HERE’S WHAT’S GOING ON

Goldman Sachs will require a coronavirus vaccine for anyone entering its US offices. Bank Set a deadline by September 7, saying that anyone who wasn’t hit by then yesterday should be working from home. (The duty also applies to outside visitors to their offices.) several universitiesThe State of Ohio, including the State of Louisiana and the University of Minnesota, announced vaccine mandates for students, faculty, and staff, citing this week that the FDA had fully approved the Pfizer-BioNTech vaccine.

Congress narrowly passed a $3.5 trillion budget plan. Progressive and moderate Democrats overcome their differences to frame a bill (through the united Republican opposition) that would pave the way for a massive expansion of the social safety net and climate programs. As part of the compromise, the House leadership has committed to vote on the $1 trillion bipartisan infrastructure package by September 27.

Afghanistan is facing a major economic shock. Former chief of the country’s central bank warns Opinion article for the Financial Times An imminent financial and humanitarian crisis after the Taliban takeover. NS World Bank stopped payments After a similar move by the IMF last week, $800 million in aid has been committed to Afghanistan this year.

Supply chain issues pose problems for the food industry. Labor shortages at some of the largest food distributors in the US to cause problems for stores with delivery delays, empty shelves and higher prices for essential items. In the UK, truck driver shortages in some lines of business McDonald’s running out of milkshakes and chicken on the chain Nando’s It’s short of one important item: chicken.

Kathy Hochul says the money stays with her. Hochul in his first one-on-one interview since becoming governor of New York told The Times He said he would adopt a less top-down style than his predecessor, Andrew Cuomo. (“This is consultation with locals, and then I’m off,” he said.) When asked if he would use his influence in the rezoning process to help elect more Democrats to the House, he replied directly: “Yes. I am also the leader of the New York State Democratic Party. I embrace it.”

Warby Parker looks at the public market

Trendy eyewear brand Warby Parker filed for direct listing On the NYSE, the filing comes as a number of other online retail brands, including disappointing bankers, Allbirds, and Fabletics, who have been chasing the much-anticipated IPO for years, prepare for their launch as tech companies and consumer names are in high demand. Warby was last valued at around $3 billion in the private market.

Warby Parker is growing fast and losing money. In the first half of this year, it reported $270 million in revenue, up more than 50 percent from the same period last year, impacted by store closures during the pandemic. Halftime loss fell from $10 million last year to $7 million. Warby said it now generates about half of its sales online and half at its 145 stores. It plans to open more across the country.

More time on Zoom is good for business. While revealing the state of the glasses market, Warby underlined the effect of increased screen time on eye health. “The increased use of smartphones, tablets, computers and other devices has significantly contributed to the growing needs of vision correction and steady new customer growth in the eyewear market,” the company said.

Registers as a public benefit company, A designation given to companies that consider a wide range of stakeholders as part of their corporate mission. (In Warby’s summary of risks for investors, the company warned that “our task of balancing various interests could result in actions that do not maximize shareholder value.”) Although some companies that go public with such designations stumble, like EtsyIncreasing interest in ESG investment, more and more popular.

“If you really want to make the markets safer rather than puffing up and looking at or on Wall Street, talk to small investors about what they want to see and how they want to communicate.”

— Billionaire investor Mark Cuban targets SEC chairman Gary Gensler, from twitter. Cuban’s tweet was a response to a general Warning from Gensler He said his agency, which has unsuccessfully sued Cuban in the past, will go after people using loopholes and legal fraud that violates the spirit of securities laws.

Democracy and deal reviews

Antitrust experts are split on what competition policy can (and should) achieve. Supporters of the status quo view monopoly through a consumer welfare lens that focuses on price effects. Those pushing for change, including the Biden administration, argue that corporate concentration is causing many social harms that cannot be measured by prices alone. One of the bad effects is the erosion of democracy, according to a new report.

“Institutional concentration and anti-democratic political influence go hand in hand” Wrote Reed Showalter, a fellow at the American Project for Economic Freedoms, a progressive nonprofit. He told DealBook that he spent two years examining data on three powerful industries that spend big on lobbying — internet companies, pharmaceutical manufacturers, and oil and gas firms — and discovered that spending for political influence increases as markets become less competitive. “The more market power a company gets, the more it lobbies,” he wrote.

Monopolies have time and money to spend on influence. Showalter said a “temporary result” of his research is that “monopolies seek to gain political power, whereas competitive businesses focus on competition.” It’s data-driven evidence that “competition is hugely important,” Showalter said, arguing that antitrust officials may consider the impact of potential monopolists on representative democracy when reviewing deals.

Some important names are included in the report. Showalter’s report begins with an interesting thank you. Tim Wu, a former Columbia law professor who is now a technology and competition policy adviser at the White House. Moreover, she works in the law firm founded by Showalter. Jonathan KanterPresident Biden recently nominated him to head the Justice Department’s antitrust division. Showalter said Kanter did not discuss the report with him and that his job as a friend was separate from his day job. But more generally, he acknowledged that the broad approach to antitrust advocated by his report dominated the halls of power.

SPEED-READING

Opportunities

• Private equity giant TPG has hired Goldman Sachs and JPMorgan Chase to secure its IPO as it continues with a long-awaited listing. (WSJ)

• TikTok is adding in-app shopping for the first time in a pilot partnership with e-commerce platform Shopify. (NYT)

• Apollo is raising money to invest in SPACs. (Reuters)

• Sweetgreen is acquiring Spyce, a robotics-focused food tech firm, with the claim that automated kitchen technology will help the salad chain grow. (insider)

• “A WeWork SPAC Showed Promising. Then it became Delta.” (Bloomberg Opinion)

Policy

• Pandemic-related inflation and labor shortages are putting the Fed’s new policy framework to a very clear test. (NYT)

• Emmy organizers have stripped Andrew Cuomo of an honorary award he gave to the now former governor for his Covid briefings last year. (Variation)

• Johnson & Johnson will share new data with the FDA, which the company says shows boosting a one-shot coronavirus vaccine produces a strong immune response. (NYT)

best of the rest

• Meet Matthew Mendelsohn, 36, who was appointed head of Yale’s $31 billion endowment. (FT)

• Businesses listing their vaccine policies on Yelp face negative “review bombings.” (WSJ)

• Former head of sustainable investment at BlackRock on why ESG is a “dangerous placebo that harms the public good”. (Middle)

• Nearly half of 18-34-year-olds who receive government incentive money have invested some of it in stocks, funds or crypto. (CNBC)

• Cotton tote bags are not as eco-friendly as they seem. (NYT)

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