Note: The following is a general discussion on the specified topic or issue and may not be relied on as legal advice in any specific case or matter you encounter. You should review any applicable case, or matter with counsel experienced in this area of law and should not generally rely on the discussion in this Alert.
Date: June 4, 2020
To: All Scheer Law Group Clients and Affiliates
From: Spencer Scheer
Subject: SLG Client Alert: Nothing is for Free. The Bill will be coming due. AB 2501 Provides an Example.
I am frankly amazed at the recent run up in the stock market. It is as if nothing happened over the last three months and back to business as usual.
Unfortunately, the result will not likely be this way because of the “debt tsunami” that will hit the world’s economic shores over the next 6-8 months.
Every dime the government spends has to be repaid. It can be repaid in one of three ways: Higher taxes; Issuance of debt and repayment of interest; or by monetizing the debt. While all three are in play, number 3 (monetizing) is the primary weapon being used.
Adding fuel to the fire is the massive accumulation of additional debt now occurring via mortgage/landlord forbearance and other debt moratoriums, and pending legislation for much more.
AB 2501 (https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201920200AB2501) now pending in the California legislature is a great example. It is a time bomb in the making. If passed in its current form it could allow mandatory debt forbearance for up to 24 months after the current COVID-19 state of emergency is declared over. Lenders would be required to advance for taxes and insurance during the forbearance period. Think about it: What if 20% of your borrowers request this and don’t pay? What if half of them file bankruptcy after the forbearance period. Maybe assets will continue to inflate indefinitely so there will be incentive to pay. I would not bet on it.
The confluence of government debt issuance, fed backstop of government (and now private debt) and the growing mountain of additional debt via moratoriums is very troubling. If AB 2501 passes in current form, along with numerous other proposed state and federal moratoriums, it will effectively “kick the can” on billions in more debt that will likely never get repaid.
Businesses are also facing severe pressure and appear to be on the brink of a wave of landlord/lender defaults. Perhaps the Fed will pay Starbucks rent (See Washington Post article re next wave of business defaults at: https://lnkd.in/gYnymgY ). Perhaps we will all get more checks to keep the social disruption down. However one thing is clear: The bill will come due and we all will pay, likely with the total devaluation of the dollar and everyone’s savings and assets along with it. It’s not too late for fiscal responsibility, but it is getting close.
If you want to voice your opposition to AB 2501, now is the time. The following is a link to a trade group letter to the legislature: http://mba-pc.informz.net/mba-pc/data/images/AB%202501%20(Limon)%20Mortgage%20Servicers%20Opposition.pdf
Please call or email if you want to discuss.