STEVE GOLDSTEIN: The latest national economic numbers were released today, and they are terrible. The second quarter numbers indicate a gross domestic product drop of about 9%, the worst quarter ever — even worse than what happened during the Great Recession. On the bright side, nearly everyone watching for those figures expected the dramatic downturn, and some presumed they would be worse. On the side of reality, though, is the fact the COVID-19 pandemic has crushed many aspects of the U.S. economy. And members of Congress are still negotiating what should be the next step after the CARES Act. Republicans are favoring a $1 trillion package, while Democrats are supporting something closer to $3 trillion. With me to put this in some perspective is Elliott Pollack, CEO of Elliott D. Pollack and Company in Scottsdale. Elliott, the economic numbers were expected to be bad. Does that affect in any way congressional incentive to come to an agreement?
ELLIOTT POLLACK: The bottom line is that Congress realizes they must have continuing flows of money, otherwise on the other end of this, the economy is going to be in dire straits. As it is, my expectation is that 25% to 35% of all small businesses won't reopen, and that a lot of businesses will be in bankruptcy — a lot of medium and large sized businesses will be in bankruptcy. It might be to reorganize because they, they can't pay their debts. Some of them simply, though, will be out of business, especially those in retail or some large restaurant chains. So the bottom line is that money has to continue to flow. It's just a question of the degree and the amount of pork that, that, that, that each, each party is trying to get in there. That CARES Act had really amazingly little pork. They've got to get money flowing, and they've got, they've got to get money flowing not only to individuals to keep demand alive to the other end of this, but they've got to get money flowing to businesses because you can't have a situation where your supply chain is totally broken because you can't get the goods and services to individuals because there's no retail outlets or there's no wholesale outlets. So it's a mess. The other end is going to be, it's not going to be a U or V, it's going to be more like a Nike swoosh where you get a fast recovery quickly, then you kind of hit a ceiling because a lot of businesses simply aren't reopening. And it's going to take a while for the market to adjust to that.
GOLDSTEIN: Where's the balancing point of extending unemployment benefits, and then at the same time making it so small businesses can somehow have a better chance of surviving? Is all of that possible in a package?
POLLACK: You can try. Will it work entirely? No. But, well, can, can you get money to individuals? Yes, you can. You have a lot more information about what's going to fall through the cracks. And by the way, we're still in the third inning of this thing. There's two things you should be doing. One, getting money to people who are out of work related to COVID and, and get them enough money to survive. The second thing they have to do is you have people in there who, in Congress, who don't understand how businesses work. And so they're saying that they said at first that, what was the number? Sixty, 75% of the money had to go for salaries. Well, if you're a business, that you're a small business or an independent contractor, your largest, your largest dollar outlay could be for rent or insurance or something like that. And so you have to allow business to spend the money where it's going to spend to keep it afloat. And so Congress has eased that restriction a little this time around, but it's it's still not where it needs to be, nor is enough money getting to the small businesses. My guess is that this really hurt bars and restaurants and, and other entities that closed, especially small entities that closed, then reopened and closed again. I would imagine a lot of small business managers throwing up their hands at this point and said, "We can't go on like this." Does this really get them enough money to to continue? Not really.
GOLDSTEIN: Does Congress have to pass something big and does it have to be as close to something as the CARES Act as possible, even if that's not politically viable, in order for it to have any real impact on, on folks whether it's small businesses or people who are at work right now?
POLLACK: It has to get money to individuals, but enough money to essentially make up for 75, 80% of what their paycheck would have been. I'm sorry, what their total salary would have been. In fact, the 75% to 80% will cover what their take home pay would have been. You need to do that and you need to do something so at the other end of this, small businesses are still alive. That's the, most, most small businesses don't have — are not very well funded. They're a little better than hand-to-mouth, but they certainly aren't designed to last through what we're going, with what we're going through now. So that has to be fixed. You have to do something about evictions. Some people are in desperate situations and those people have to be helped. Again, they're in a circumstance not of their making. Basically about 6% of homeowners are in some type of forbearance program. That's going to be easy to fix. That money will be added to the rear end of their mortgage and they'll go about their business. But for those people who are late on rents or signed a forbearance agreement with their car or their credit card, those people are going to have some difficulty and they're letting debt accumulate. And that's going to be one of the ugly things at the end of this, how that's dealt with.
GOLDSTEIN: What makes the difference here, Elliott? Is there, is it leadership? Is it vision? Is it nonpartisanship? Is it luck?
POLLACK: Well, nonpartisanship would be nice. Yeah. Essentially, if, if, if both parties dropped only the garbage that they threw in and dealt with the two major points here; you've got to have people continue to be funded for money they otherwise would have made if they were allowed to work. But not so much that they are incented not to work. And you've got to have some way to keep especially small businesses alive during this. And at the other end, you've got to have some way to prevent major bankruptcies from just, just making a mess of the economy. You want things to be as normalized as possible at the other end of this. That's the goal.
GOLDSTEIN: That is Elliott Pollack. He is the CEO of Elliott D. Pollack and Company, economic and real estate consulting firm based in Scottsdale. Always appreciate your insights. Thanks, and stay well.
POLLACK: Thank you. You too. Take care.
