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Wilbur Ross, a billionaire and the current Commerce Secretary, doesn't understand why federal workers who don't get paid can't get a loan from a bank.

"Wilbur Ross 'Doesn't Understand' Why Furloughed Workers Need Food Banks | Hallie Jackson | MSNBC" (Watch on YouTube)

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From:

juan_gandhi

Right... I'm having hard time trying to understand how come, having worked for years, they did not save money for a month or two; owning a house, they don't have a financial cushion like, e.g., HELOC; etc. Getting used to the fact that people live recklessly and rely on external entities to care of them is hard, hard.

From:

It's a culture of overconsumption - a lot of people (about 50% of the population) doesn't know how to save. From this perspective, immigrants are in better shape than US-born–and-raised residents.

From:

I mean, 80% is more like that.

But, actually, if this is unfair to anyone, it is unfair to US government employees. Many government employees earn little, but they have a guaranteed job, medical insurance and pension. They have paid for this security through their nominal wage being reduced. Effectively, they have saved: why should they save even more? Remember: this is the first time in history that US government has failed to get through for more than one paycheck. Based on historical record they had no reason to suspect this might happen.

From:

I agree. In this culture we should expect that a lot of government workers would run out money after missing a paycheck or two, especially, after Christmas.Ross; comments just show how out of touch he is with the situation.

From:

It is more than culture. It is incentives they, actually, face. As of two years ago doing anything else would have been simply stupid.

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Of course, if a person doesn't have any aspirations beyond day-to-day survival the incentives would be limited to day–to–day survival.

From:

And if a person has no incentives beyond avoiding the risk of facing a once-in-a-hundred-years shock, the incentives will be limited to saving for that particular occurance.

But I am not sure I would take the savings behavior of certain Chinese immigrants in the US as something I would necessarily want to imitate in my life. Would you?

From:

People don't have retirement savings either, although they know they are going to face this shock eventually. It's just something they prefer not to think about.

I read a paper recently that said Americans tend to blow their budgets and gain weight, while eating out. Do you think they are going to eat out less frequently or buy an exercise tracking device? A certain Chinese immigrant would chose the former and I would want to imitated that kind of rational behavior in my life.

From:

If anything, in the US it is more expensive not to gain weight than to gain it. Bread and sweets do not cost much.

I am overweight and would never be seen near an exercise tracking device. I rationally choose this. And, BTW, I doubt it increases my lifetime chances of suffering from a severe medical crisis that would exhaust my savings. True, I might suffer such crisis earlier - well, that, if anything, helps my retirement planning, as there would be less (in expectation) to plan for. But everybody, eventually, dies and nobody has, yet, died from perfect health (I will disregard, if you do not mind, the possibility of rapture). The fact that most people prefer not to think about it does not make it any less true.

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Maybe the weight thing is more about signaling than actual heath. I've never been to Latin America, but in the US when you go to college campuses you can see a big difference in student demeanor between elite and second-tier universities. On elite campuses students seem to show off their fitness level. Clothing and cars used to be the signaling mechanism, but now it's not cool, especially, among liberals, so people find other ways to signal class status (which is an improvement, I must say).

From:

Sure, my students are half the girth of an average guy on the street (though, at least partially, it would be a racial difference). I choose not to signal anything that way - I like my pastries and hate vegetables. And I have never cared about being cool - not even when I was a teenager.

And I have no doubt about health impact (I am a son of a doctor). I know, I will likely die earlier than if I ate salads. All I am saying is that it does not change my probability (and expense) of, actually, dying.

Edited Date: 2019-01-25 02:01 am (UTC)

From:

I'm lucky because I don't have a strong preference for pastry and love my vegetables, esp. in the form of salsa :) In any case, nowadays, living too long could be a problem too. As a result, people tend to focus on quality vs quantity (longevity) of life. Demographic trends coupled with budget deficits are going to be a major economic factor down the road.

Does Mexico have a Social Security system like the US or people rely on their own savings/pensions in retirement?

From:

I understand about the quality. But one should include not merely the high-quality years, but also the low quality period thereafter. I would give up a few years of good-quality life not to then go slowly and torturously. I do not want to suffer.

Mexico has a complicated mixture. Those outside of the formal sector, really, have had no pension at all (though in recent years very small old-age pension has been introduced and is being expanded by the new government, but even that it is on the order of 100 USD/month after the age of 70). As for those employed in formal sector, there is a combination of various social security schemes: one for public-sector employees, another for formal private sector, with different systems for those who started working before and after 1997. For those, like me, in private sector, who started working in Mexico after 1997, it is an individual account - I can choose with which of the private funds to invest my mandatory contributions. If I am lucky and there is not much inflation and no confiscatory reform within the next 20 years, I will, probably, have about 1000 USD/month from that when I retire, or a bit less. However, I would not count on that. But my (private) university has another (defined benefit) pension plan in addition - alas, if I leave before I turn 60, I get nothing, but I would be modestly ok if I stay till then.

The good thing is, I am far older than the largest generation in this country. Labor should remain cheap well into my senile years. Hopefully, even a modest income would be enough to hire help.

From:

Low-quality years are the scariest and most people have no good answer for that, except suicide, hopefully, assisted.

On a brighter note, the size of the new generation and inflation seem to be major factors in Mexico. We have a somewhat opposite situation in the US: competition for caregivers (2040) and low inflation in the foreseeable future. Importing labor from Mexico would make a lot of economic sense, but there's a lot of political pubshback against this solution. Maybe people will be come more pragmatic when we start approaching Medicare/Medicaid bankruptcy. Or maybe we all learn Spanish and move somewhere in Puerto Vallarta :)

Speaking of Puerto Vallarta, what I know as salsa is a recipe a local taught me few years ago when I visited. He said, salsa is like Mexican flag: red tomatoes, white onions, and green cilantro. Most of the time I add various peppers and avocado, but that's pretty much it. I guess, guacamole is a "mole", although I've never ventured to make it.

From:

Actually, guacamole is definitely a salsa and not a mole :) No nuts/seeds, no chocolate, you do not make it into a powder/paste to disolve in a consome before using. Fresh vegetables - that is a salsa.

Yeah, assuming we are still stable down here, retiring in Mexico is a possibility. But you would not be able to buy a house in PV - too close to the sea, constitutionally reserved for us Mexicans. You could, of course, create a trust and make yourself its beneficiary. Or else, you could go to one of the inland gringotepecs (say, Ajijic or San Miguel Allende). If you do so, you would not even have to learn Spanish.

From:

Here we should hope and pray for stability and prosperity in Mexico because if the situation worsens no wall is going to stop the young generation from seeking a better life in the US. Frankly, I don't follow events in Latin America that much. Brazil used to be a bright spot, both politically and economically; then, everything deteriorated and they got a new authoritarian president. Who knows. I'm not even sure the term Latin America is even relevant any more, except that most of people there speak some kind of Spanish :) The entire region is in perpetual funk: sometimes better, sometimes worse.

From:

I wouldn't say that the region is in perpetual funk. If anything, there has been a tremendous progress over the years. But this is not the best moment (where is it?). Both Brazil and Mexico have just elected illiberal presidents: it is not likely to be pretty in either, and these are the two largest countries. And, alas, you guys are not helping: having Trump in power in the US reduces the opportunity cost of being stupid down here. And, alas, it seems some of our politicians are taking that as an invitation.

And a word of caution: all Latin American countries are very different.

From:

As for the other thing... One of my grandfathers would say: "мое плохое сердце не даст мне страдать". And he was right: he died fairly early (at 74), he had been a sick man for years before that, but he was never helpless. My other granfather lived to be 91... He had a very strong heart, it would not let him go. He had been in perfect health, not even using an elevator in his building till he was 84, and somehow compensating for a couple years after that, but I would give a lot not to have his last few years. He did not deserve to go like that - it was cruel.

From:

I don't know about Mexico, but in the US heart diseases and even cancer are in broad retreat. Heredity is a factor, but prevention and lifestyle changes are much stronger components of the overall longevity picture. Based on your socio-economic status situation, I wouldn't count on a quick death from a heart attack :)

My grandfather lived until 91, with his last five years dragging out quite miserably for him and his children. If I had an option, I would commit to a hard stop at 80, as long as it does not bring moral hardship to my family. But it's easy to say now...

Btw, did you see "Truman"? https://www.imdb.com/title/tt3754940/ One of the few movies that try to deal with the problem honestly and compassionately.

From:

"Salsa" merely means "sauce" in Spanish. I, kind of, conjecture which salsa you have in mind, but one should be more specific :)

Confusingly, there is also something called (in Mexican Spanish) "mole". In English it would also be called "sauce", though no Mexican would ever call a mole a salsa. I much prefer moles. Alas, these tend to be chocolate-based (though quite spicy).

From:

Sorry for typos, BTW.

From: (Anonymous)

Well, imagine that you had an income of 35,000 dollars a year (pretty common among the low-level employees of agencies such as TSA) and a near iron-clad guarantee against being fired, plus a decent insurance and a pension. Would you save, and, if yes, what for? Their precautionary behavior was taking such a job: it pays a bit less under normal circumstances, but is, pretty much, the safest job you could get in the US (other than a tenured professorship). If anything, ex ante, their behavior was much more risk-averse than yours, and showed above-average level of foresight. True, they had a trust in the US government, which was fairly well-justified on historic grounds (this is the first time even in a shutdown that more than one paycheck is missed). This trust, BTW, has allowed that government to pay its employees less (and, consequently, tax you less). And, actually, if not for some residual trust, these guys would not be showing up for work now (meaning that next time you would want to fly to Europe you would, possibly, need to drive to Tijuana to take the plane).

As for "relying on somebody else" - we all do. Do you have right now in your house sufficient cash and food to survive for 2 months? Are you relying on the bank to give you your money when you need it? If that is the case, you are relying, effectively, on a guarantee from that same government that has failed to pay those guys. If that government goes just a bit more nuts than it has done already, there may be a run on the bank, and, then, who knows.... If I were you, I would consider stocking up.

From:

I agree with most of you points, except that people just don't have a habit of saving money for an emergency, e.g. getting sick. It's just a part of the culture. I know a number of people who live from paycheck to paycheck without a budget or a savings plan. They rely on credit cards to shift debts.

From:

I am afraid, there is no amount you could save on a 50,000 dollar sallary in the US that will be enough if you fall seriously and truly sick to the point of losing both the job and insurance - unless, of course, you are not planning to be treated and are only planning on feeding and clothing yourself for a few months until you die. In fact, you might be better off if you could become indigent as fast as possible. Taking a federal government job seems like a good solution to this particular problem.

From:

Well, that's how most of them think. Unfortunately, you can't have a savings conversation without a budget, even for a %50k/year salary. There are plenty of Chinese US residents who manage to save for their children education on that income.

From:

True. But, then, these people, arguably, live very peculiar lives. I mean, there are many Latino immigrants in the US who work three jobs at minimal wage and manage to send substantial money to their families back home. They also sleep 6 hours a day four men to a room. You also might call it "culture", but I do not like to overuse such words.

The key thing is, would those people whom you are marking as "overconsuming and lacking in foresight" be happier in expectation had they changed their behavior and saved for their children´s college by refusing themselves daily pleasures of life. I, for one, strongly doubt that.

From:

Actually, it would be interesting to see whether the workers' behavior is going to change because of the current shutdown. We already know that at TSA absenteeism is up to 10% now. Maybe these people are already working other jobs intend to rebalance their employment portfolio, so to speak.

From:

I believe this has already been documented. Of course, they are already working other jobs - though, at this point, it is more to deal with current liquidity.

More generally, it would be interesting to see if in the future US government would have to pay more to hire (to compensate for the increased perceived risk). That would be the best evidence of changed worker behavior.

From:

Well, imagine that you had an income of 35,000 dollars a year (pretty common among the low-level employees of agencies such as TSA) and a near iron-clad guarantee against being fired, plus a decent insurance and a pension. Would you save, and, if yes, what for? Their precautionary behavior was taking such a job: it pays a bit less under normal circumstances, but is, pretty much, the safest job you could get in the US (other than a tenured professorship). If anything, ex ante, their behavior was much more risk-averse than yours, and showed above-average level of foresight. True, they had a trust in the US government, which was fairly well-justified on historic grounds (this is the first time even in a shutdown that more than one paycheck is missed). This trust, BTW, has allowed that government to pay its employees less (and, consequently, tax you less). And, actually, if not for some residual trust, these guys would not be showing up for work now (meaning that next time you would want to fly to Europe you would, possibly, need to drive to Tijuana to take the plane).

As for "relying on somebody else" - we all do. Do you have right now in your house sufficient cash and food to survive for 2 months? Are you relying on the bank to give you your money when you need it? If that is the case, you are relying, effectively, on a guarantee from that same government that has failed to pay those guys. If that government goes just a bit more nuts than it has done already, there may be a run on the bank, and, then, who knows.... If I were you, I would consider stocking up.

From:

juan_gandhi

Well, probably... but regarding our paranoia, yes, we are kind of prepared to various things. Back in the USSR I was prepared to the following:
- no water
- no electricity
- no heating in winter
- food being hard to get

All of this is kind of easier here. Yes, my grandmother was saving, my mother was saving, I was saving. I am more prone to risk, but well, being a male, it's natural.

But again, I have my experience. These people have their experience, and it's very different. And immigrants are better survivors.

Edited Date: 2019-01-24 11:12 pm (UTC)

From: (Anonymous)

Well, I do have, probably, enough food in my pantry for the family to live for a month, but I am low on paper cash - wouldn't survive even a week with my cards/accounts cut off. And I would not have enough drinking water (may be, 30 liters, plus some mineral water, but would not get us through even a week). At least, heating is not a problem here :) I am not even talking about a possibility of an earthquake, in which all that pantry is left in rubble. And I live in the city where there was a gas shortage just last week (I actually went out an bought some canned food). I have considered taking out more cash (should do it, really) - but I have been robbed so many times in my life, I am scared to have much.

(Successful) immigrants are better survivors for the threats they personally have faced and only for those (I am stressing the word successful, as you are, certainly, dealing not so much with training than with selection bias - the worse survivors do not get to tell stories about their migration). In any case, the fact is, suppose tomorrow your president announces that he is planning to "renegotiate" the treasuries (something he mentioned in the past, but nobody took him seriously) and the banking system/trade consequently lock up. Would your precautions be sufficient? For how long?

From:

Well, I do have, probably, enough food in my pantry for the family to live for a month, but I am low on paper cash - wouldn't survive even a week with my cards/accounts cut off. And I would not have enough drinking water (may be, 30 liters, plus some mineral water, but would not get us through even a week). At least, heating is not a problem here :) I am not even talking about a possibility of an earthquake, in which all that pantry is left in rubble. And I live in the city where there was a gas shortage just last week (I actually went out an bought some canned food). I have considered taking out more cash (should do it, really) - but I have been robbed so many times in my life, I am scared to have much.

(Successful) immigrants are better survivors for the threats they personally have faced and only for those (I am stressing the word successful, as you are, certainly, dealing not so much with training as with selection bias - the worse survivors do not get to tell stories about their migration). In any case, the fact is, suppose tomorrow your president announces that he is planning to "renegotiate" the treasuries (something he mentioned in the past, but nobody took him seriously) and the banking system/trade consequently lock up. Would your precautions be sufficient? For how long?

From:

And, BTW, though, of course, your mother and grandmother may have been saving all their lives, if anything, their experience should have taught them that savings are not a smart strategy. How many times during the 20th century did people in Russia loose all their savings?

A relative of mine, who survived a ghetto during the German occupation, had a perfect solution: postage stamps. Money, gold - that all goes in the first search. A few old envelopes would only interest a philatelist (the rest would think these to be mere personal heirlooms, of no real value to anybody else). It is unlikely that the guy searching you is a philatelist, but it is quite likely that there will be a philatelist reasonably nearby with access to an extra bread ration (or, may be, even to a coat without a yellow star).

Hopefully, I will start you on a new adventure in stamp collecting!

Edited Date: 2019-01-25 12:30 am (UTC)

From:

juan_gandhi

Thanks for the hint... I collect petrified wood, it looks even dumber (and heavier).

From:

My relative in question did, in fact, spend most of the post-war period collecting stamps. He sold his collection when Latvia (where he lived) joined the EU.

Well, I do not even, really, collect. I satisfy my hunter-gatherer instincts by hoarding used books (mostly history and art). I pretend, these have pure use value for me (I am no bibliophile - I just like books). And it is, indeed pretty damn heavy.

From:

lm644

With $35-45K annual gross, the question is not whether you would save anything - it’s whether you could. The cost of living in major metropolitan areas is such that with mandatory retirement savings (not accessible in emergencies) and medical insurance deductions, you can barely cover your basic expenses. Saving is a luxury for most people of modest incomes.

From:

Let's say I'm a government worker affected by the shutdown, and I go to a bank to apply for a loan, like mortgage or credit card. The application asks if I'm employed. I am, nobody fired me yet. It also asks about my annual income. That's not affected by the shutdown either. The bank does not care if I'm being paid today, just that I'm being paid.

So he's technically correct, even though on surface he might appear insensitive.

From:

I'm sorry, but you are talking nonsense because the bank will not give a mortgage loan for everyday expenses. Most likely, your hypothetical worker already has a credit card with an overdue payment. A new one would require a credit card and employer verification. The employer would not provide the verification because it's closed.

From:

Banks do not do employment verification for credit cards, only for mortgages. Credit cards acquisition is based on a combination FICO score and internal acquisition score (which is using credit bureau data and application data).

Even for mortgages, employment verification is often done throug databases like Talx, not by calling employers. Income verification is done by pulling last year's tax returns from the IRS.

Most likely my hypothetical worker does not have a credit card with an overdue payment. You can fact check me by looking up credit card delinquency rates, banks report that to ABA.

From:

have you checked delinquency rate stats lately?

From:

You saw 50%?

From:

What 50%?

From:

50%+ delinquency rate, to justify the "most likely" claim.

I see 2.74% instead.

From:

Check the date on your reference.

Here's a better source. Marginal delinquencies tend to go up in Q1 and they've been already trending up lately.

https://fred.stlouisfed.org/series/DRCCLOBS

From:

It's for "Banks Not Among the 100 Largest in Size", and even that is still 5.85%, so nowhere close to 50%+. Major banks see lower delinquency rates.

This also includes delinquencies up to 180 days past due. Normally no transactions are authorized beyond 60 DPD, so only maybe a third of that is relevant to our discussion. The other two thirds have been rolling through the delinquency buckets towards the default way before government shutdown started.

Also this number includes all credit card customers, employed and unemployed. Unemployment is the most powerful predictor of credit risk, hence delinquency rate among employed government workers should be lower than average.

From:

I'm sorry, but I can't explain how to think on the margin in this format.

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