Monday, May 11, 2020

The SBA and PROsopagnosia

Inability to recognize familiar faces.
From Greek prosopon (face, mask), from pros- (near) + opon (face), from ops (eye) + agnosia (ignorance).

Prosopagnosia is also known as face blindness.  People suffering from it cannot recognize familiar faces, even their own. A book on this and related topics is neurologist Oliver Sacks's "The Man Who Mistook His Wife for a Hat.”
Prosopagnosiacs' motto: We don't take people at face value.


Selective prosopagnosia may proliferate among borrowers and their lenders over the profligate Paycheck Protection Program (PPP).

Initial profligacy is now prompting subsequent probity with many borrowers wondering what they got into.   The barrage of interim final rule notifications from SBA totaled 10 at last count along with 43 Frequently Asked Questions.

FAQ 43 indicates that SBA is extending the repayment date for a safe harbor to May 14, 2020 for a possible mis-certification on the Borrower Application Form.

The most recent interim final rule that came out on May 10th indicates that SBA will still provide the safe harbor until May 14th.

This most recent interim final rule also extends the lender 1502 reporting date for PPP loans to May 22, 2020.  PPP loans will have a specific 1502 report for lenders.

Lost in the fine print is the borrower certification that loan proceeds will be used ONLY to retain workers and maintain payroll or make mortgage interest payments, lease payments, and utility payments, as specified under the Paycheck Protection Program Rule; if the funds are knowingly used for unauthorized purposes, the federal government could hold him legally liable, such as for charges of fraud.

Does that mean if a borrower used a portion of the proceeds for a past due invoice on a payable or inventory purchase, that’s unauthorized and fraudulent in the eyes of the SBA?

The Office of the Inspector General in their Flash Report 20-14 released last Friday has determined that  “tens of thousands of borrowers” who participated in the first round of funding will not be eligible for loan forgiveness.

Other alternatives still include the SBA 7(a) loan for borrowers that were viable prior to the COVID-19 disaster declaration.   In addition, the state of California has a disaster relief loan guarantee program that provides lenders up to a 95% guaranty.


SBA 504 Loan Debenture Rate for May

For 20 year debentures, the debenture rate is only 1.37% but note rate is 1.39% and the effective yield is 2.68%.
For 25 year debentures, the debenture rate is only 1.50% but note rate is 1.52% and the effective yield is 2.761%.

The coronavirus pandemic destroyed 20.5 million U.S. jobs in April, and  GDP, the official scorecard for economic growth, shrank at a 4.8% annualized pace in the first quarter.

Watch out for the “annualization” of data, which ordinarily serves a useful purpose when analyzing numbers. Annualizing a monthly or quarterly number tells you what the real annual change would be if it changed at that monthly or quarterly pace all year long.

The formula for calculating an annual rate from quarterly numbers involves dividing the current quarter’s GDP by the previous quarter’s, taking the result to the fourth power and subtracting by one.   Got that?

You can approximate the result pretty well by multiplying the quarterly percentage change by four.

But that is not precisely right.  If you were to increase by 5 percent for four quarters in a row, the annualized number would be 21.6 percent, not 20 percent.

Suppose that the shutdown causes output to be 15 percent lower in the second quarter than in the first.  In annualized terms- that would mean that GDP fell at an astounding 47.8 percent rate.

But that does not mean that nearly half the economy has vanished.

So far on just a pure quarter to quarter change the decline was 0.89%.  Real GDP is 1.2% below the pre-recession peak.

Keep your eyes and ears open for Friday’s report on Industrial Production and Capacity Utilization from the Federal Reserve.

Here is what capacity utilization has been doing and this week’s interesting little table of data:

2007- 81.5
2008- 79.9
2009- 66.9
2010- 74.8
2011- 76.7
2012- 79.0
2013- 77.8
2014- 78.8
2015- 76.5
2016- 75.4
2017- 76.2
2018- 78.5
2019- 77
2020- 72.7

What does all this mean?

I don’t know.

Capacity utilization for the industrial sector decreased 4.3 percentage points to 72.7 percent in March as many factories were forced to suspend operations late in the month.  The drop that will be reported on Friday will reflect a full month of interruption to some factories.

On Wednesday, the government will sell $22 billion in 30-year bonds.  So far the Treasury Department has had little problem selling the deluge of debt. For an auction of $17 billion in 30-year bonds in early April, the Treasury saw twice as much in bids as it had debt to sell. At the other end of the yield curve, $60 billion in three-month bills sold last week attracted three times as much in bids.

The Fed is easing the burden somewhat, having bought roughly $1.3 trillion of Treasuries since mid-March.

Prognostication right now with procellous proditmania proliferating can be profligate.


Prosopagnosia probably is proliferating right now with the promulgation on Procrustean mask wearing.   Or in my case, the growing of a quarantine beard.

Any proroguing on masks is not prospicient and should prompt some inner probity.

It is also nothing new.   During the Influenza pandemic 100 years ago San Francisco required that people wear masks anytime out in public.   People complained and even an Anti-Mask League was formed.

The word quarantine comes from quarantena, meaning "forty days", designating the period that all ships were required to be isolated before passengers and crew could go ashore during the Black Death plague epidemic in 14th Century Italy.

History has a way of repeating itself.  You might want add to your reading list The Great Influenza by John M. Barry.