Category Archives: Economy

It’s All Greek

Greece Parthenon When Greece joined the EU back in 2001 it was economically speaking the weak sister of the regional organization, and life didn’t get better for the Greeks after the Recession of 2007-08 – it got significantly worse.

Background

“Greece has a capitalist economy with a public sector accounting for about 40% of GDP and with per capita GDP about two-thirds that of the leading euro-zone economies. Tourism provides 18% of GDP. Immigrants make up nearly one-fifth of the work force, mainly in agricultural and unskilled jobs. Greece is a major beneficiary of EU aid, equal to about 3.3% of annual GDP. The Greek economy averaged growth of about 4% per year between 2003 and 2007, but the economy went into recession in 2009 as a result of the world financial crisis, tightening credit conditions, and Athens’ failure to address a growing budget deficit” [theo]

Here we go again – back to the perpetual phrase in DB’s assessment of things financial — “one man’s debt is another man’s asset.”  And, Greece has plenty of debt.  By way of contrast, the United States’ public sector accounts for only about 23.1% of our  GDP.  [World Bank] Several factors made the Greek level of indebtedness problematic:

  • Greek levels of public employment appear to have been artificially high.  In a stronger economy this might not have been a serious difficulty, for example the UK’s public sector is about 42.1% of its GDP, but Greece did not have a “strong economy.”
  • The extent of Greek indebtedness was masked by dealing with Goldman Sachs, which created a “financial instrument” allowing the Greek government to push its health care costs far into the distant future, roughly analogous to a family taking out a second mortgage to pay off credit card debt.  [NYT]
  • Previous private investment assistance included disguising loans as “currency trades” which further obfuscated actual levels of indebtedness. [NYT]
  • The solution to the financial anxiety of 2010 was alleviated by having the European Central Bank, IMF, et. al. consolidate Greek debt. This, it appears, got the private investment firms off the hook but shifted the problem to the international banking institutions.

Fiscal Hyperthermia

What gives Wall Street the jitters is exposure, otherwise known as risk, especially when that risk threatens to go into default.  Investors, private and sovereign, have gone to elaborate lengths to reduce their risk (exposure) to defaults.  Ever more esoteric financial instruments (paper products) have been created – and continue to be created – to spread the risk as far and wide as possible.  When the risk is widespread so is the “exposure.”

(1) While interest rates are low investors can borrow to invest in these risk-spreading products, betting that their investment returns will cover their costs. (2)  Or, while interest rates are low the higher yielding Greek paper looks very attractive for short term investors.  When terms like “default” get tossed around the  bankers get anxious, and when they get anxious we’re told they are fearful of global “exposure” to Greek default.  Translated down to an oversimplification: Bankers are afraid that they won’t get the return on the investments they made in Greek paper. Lower returns = lower revenue; lower revenues = lower profits.

Risky Behavior

There is no such thing as zero risk. That’s why bonds pay interest.  The higher the yield, the greater the risk – assuming that higher rates of interest are the price of getting someone’s investment, anyone or any thing’s investment.  Until and unless bankers find it more profitable to be honest with themselves and others about the levels of risk, we’ll keep seeing these manufactured crises in financial institutions.  However, as the creative products for hedging their bets become ever more elaborate and opaque, the banks are essentially papering over their “exposure.

Meanwhile, the Greeks have asked for a last minute “2 year” agreement to restructure debt, extend terms, and make policy changes.

“There are big questions over whether the eurozone would consider Greece’s request. While European officials have said that a new aid program would be possible, it would require Mr. Tsipras to accept the policy overhauls and budget cuts he has so far rejected. Many officials also don’t trust Mr. Tsipras and his government to implement these measures.” [NakedCap]

And all of this to avoid “haircuts.”

Buzz Cuts

“A haircut, in the financial industry, is a percentage discount that’s applied informally to the market value of a stock or the face value of a bond in an attempt to account for the risk of loss that the investment poses.” [FinDict]

If the players in the Greek debt game willing to take a “hair cut,” we could get these headlines into the archives in short order.  Obviously, they are not.

The problem may be that the Greek debt is simply not recoverable in the foreseeable future?  Now, we circle back to “exposure.”

“The merest hint of bank collapses sends fear through financial markets. Then there is the prospect of contagion, that other European nations could follow Greece and fall foul of repayment commitments.” [abcnetAus]

In a world connected by hazy, mistrusting, and expensive financial deals, the fear of contagion is very real for the investment bankers.  Who’s next? The Portuguese? The Spanish? The Italians?

The impasse over Athens is taking on the appearance of an argument over how everyone can win and nobody loses.  The Greeks, billionaires included, need to pay their taxes, and probably more taxes than they’ve been wont to pay previously.  Some government services may need to be scaled back, but unrestrained austerity would only serve to further reduce their GNP. For their part, the bankers may need a quick to the barbershop.

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Filed under Economy, financial regulation

Cost Benefit Analysis Scramble

Cost Benefit Analysis

One of the dark clouds on the week that was in the U.S. Supreme Court was the decision in Michigan v. the Environmental Protection Agency, one portion of which reads:

“Our reasoning so far establishes that it was unreasonable for EPA to read §7412(n)(1)(A) to mean that cost is irrelevant to the initial decision to regulate power plants. The Agency must consider cost—including, most importantly, cost of compliance—before deciding whether regulation is appropriate and necessary,…”

Important Distinctions

First, let’s differentiate between a CBA (a cost benefit analysis) and a Cost Effectiveness Analysis (CEA).   There are two important functions of a CBA: (1) To determine if an investment or a decision is justifiable or feasible. (2) To provide a way to compare and contrast alternative projects or proposals. Additionally, “In CBA, benefits and costs are expressed in monetary terms, and are adjusted for the time value of money, so that all flows of benefits and flows of project costs over time (which tend to occur at different points in time) are expressed on a common basis in terms of their “net present value.”

The most common use of the CEA is found in the health sector.  In a CEA  the outcome is expressed as a ratio.  The denominator is the quantified gain, while the numerator is the cost associated with the gains.  For example, we know that sterilized surgical theaters yield quantifiable positive results for patients, therefore the costs associated with sterilization far outweigh the costs of sanitizing the facilities.

Another analysis which gets folded into the mixture is the analysis of the Social Return on Investment, or abbreviated SROI.  There are four elements considered: Inputs (investments), Outputs (products), Outcomes (benefits), and Impact (difference between the policy or practice change and what would have happened if nothing had been done.) [Investopedia]

There are other formats for analysis:  Cost/utility analysis; Risk/benefit analysis; and the Economic impact/analysis.  The definitions and descriptions of these forms are readily available from online sources.

The problem is that the CBA isn’t a static form of analysis.  Just as each problem in both the public and private sector has unique factors, the CBA may take on some elements from other formats – the CEA, the SROI, and the others.  Often the term “CBA” is used with great precision, i.e. it returns a study yielding a net present value.  There are other examples illustrating how the term CBA in common parlance and news reporting is an admixture of individual studies speaking to the CEA ratios, or the SROI elements.

As in so many other unfortunate instances, the cost/benefit analysis has come to mean what the partisan advocates want it to mean. One of the pitfalls involved in being a good consumer of news and political rhetoric is that the listener is required to sort out precisely what analysis is being described or advocated. The most common source of confusion comes when a CBA is conflated with an Economic Impact Study:

“One industry’s outputs are inputs to other industries, and vice versa. Input-output analysis measures all of the linkages and flows within the matrix (the economy). Based on these linkages and flows, the cumulative effect of any given stimulus (or change) can be derived. This is how multipliers are calculated.” [Decision Analyst Ser]

A public sector example might be that of a decision to build a public broadband access system.  This would trigger spending for infrastructure necessities for the system, which in turn increases employee and contractor income, causing (in sequence) more disposable spending for the local (or national) economy.  If we study the “linkages and flows” as the the project impacts the community we can calculate the cumulative “economic impact.”

So, when politicians speak to the necessity of doing cost/benefit analyses on government regulation it’s important to pin them down on precisely what form of analysis they are advocating, and how the form of the analysis can influence the reported results.

Good news Bad news

The bad news from the Michigan v. EPA  decision is that the EPA is required to perform a cost benefit analysis on emission regulations promoted by the EPA.  The slightly better news is that the decision doesn’t do what corporate radicals want – dismantle the EPA. Nor does the decision declare that the EPA may not issue rules on carbon or other pollutant emissions, granted that it does constitute another shackle on the Agency’s attempt to clear the air.

One way to support the efforts of the EPA to enforce the provisions of the Clean Air and Clean Water Acts might be be advocate for more, not less, study – studies which incorporate the CEA elements (health benefits included) and SROI quadrants which incorporate social benefits.

The argument that government regulations should hinge upon the notion that private sector operations should agree that the regulations are “not too expensive,” is a narrow, corporatist, perspective, and one which would all but insure no regulation of exploiters and polluters.  A better approach is to take into consideration the cumulative economic impact of regulations and the social returns we can make on our national investments.

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Filed under ecology, Economy

Cluck, Cluck, AB 394 comes home to roost?

Chickens Roosting

A quick review:  Nine Republican members* of the Nevada Assembly introduced AB 394 in the last session, the bill would create a process for breaking up the Clark County School District into smaller, separate, districts because – “…Reconfiguring the structure of the Clark County School District into local school precincts will offer an educational system that is responsive to the needs and concerns of the residents of that school district;..”   (*Gardner, Fiore, Jones, Silberkraus, Hickey, Dickman, O’Neill, Seaman, and Trowbridge)

The bill passed in the Assembly on a 35-5 vote, and the Senate on a 13 to 7 vote, with one excused.  It was signed into law by Governor Sandoval on June 11, 2015.

The Numbers Game

For a party, the members of  which take umbrage at any suggestion they aren’t the party of fiscal responsibility, fiduciary trust, and conservative financial values, AB 394 demonstrates a level of financial naïveté that could easily be categorized as sophomoric. 

There is a inkling in AB 394, during its preliminary discussion of rural district consolidation in which there’s a hint that the Assembled Wisdom understood the principle of Economies of Scale.  However, the venerated Assemblage turned right around in the same bill and pretended these didn’t exist for the one district in the state actually large enough to benefit from those economies of scale.  For the uninitiated, here are some of the babes pitched out with the bath water in the interest of creating “responsive” little districts:

(1) The larger the operation (business) the more individual employees are able to specialize in various tasks creating technical expertise which in turn creates greater efficiency.  For example, a larger school district might be able to finance a specific office that focuses on testing and the administration of examinations.  In a smaller district these tasks might be assigned to a ‘curriculum director’ whose office is also responsible for the development of course content, the in-service training of teachers in that content, and the mapping of the curricular content throughout the district.  In the business domain, larger firms can separate tasks in the offices or on the shop floors that allows specialists to develop proficiencies in technical or production tasks.  

(2) Bulk purchasing.  Think of the difference in pricing between supermarket chain stores and the local corner bodega.  Volume, plus reduction in packaging and transportation costs, mean lower per unit expenses. There are approximately 24,286 first graders in the Clark County School District.  There are approximately 4,869 first graders  in the Washoe County School District.  [CCSD and Washoe SD]  Which has the better capacity to buy in bulk?  Which can negotiate for more discounts?

(3) Spreading overhead expenses.   Republicans, often supportive of mergers and acquisitions, note that the mergers of private sector firms allow for the rationalization of operation centers. or to put in more simply – it’s better (more efficient) to have one main office than two.   Again, the schizoid nature of AB 394 says that the rationalization of overhead expenses is fine for the rural districts, but CCSD is “just too big?”  By this logic, Goldman Sachs, Chevron, and JP Morgan Chase would have been broken up long ago.

(4) Let’s get to one economies of scale factors that’s extremely important for a large metropolitan population, the concept of Risk Bearing Capacity.  Again, the larger the enterprise the higher its risk bearing capacity.  The most common example of this factor is in the pharmaceutical industry wherein large corporate firms are able to finance (borrow for) research because profit lines in popular products provide investors with the assurance that the debts incurred can be paid off at the agreed interest rate.  Now, take a look at the Debt Service reported in the CCSD financials:

CCSD debt service

What we’re looking at above are all the bonds issued by the Clark County School District on which the district is paying off principal and interest.  Nor it is too difficult in a rapidly expanding population to have to issue bonds for school construction or renovation.  Schools aren’t  cheap to build and equip.  Constructing an elementary school for about 600 youngsters, at $190 per square foot will cost about $14,800,000.  A middle school for just over 900 students costs $215.14 per square foot, with a total cost of approximately $30,000,000.  High schools are even more expensive.  The total cost: $54,900,000 (1600 students) [NCEFAt this point one of the largest AB 394 egg layers  comes back to her nest.

“Moody’s Investors Services hasn’t downgraded the Clark County School District’s construction bond rating — yet.

But the credit rating firm late Monday issued a report warning a bill Nevada Gov. Brian Sandoval recently signed that could lead to the breakup of the nation’s fifth-largest public school system “poses uncertainty” and “a credit negative” to the district’s ability to repay debt.”  [LVRJ]

Investors who buy bonds (lend public & private institutions money) want their money back + interest.  The greater the risk the higher the interest rate on the bonds.   The ratings agencies, no saints themselves as we witnessed during the financial sector collapse of 2007-2008, are in the business of telling investors how much risk is involved – the lower the rating the higher the risk, therefore the higher the interest rate demanded for the loan.

The Clark County School District currently has an A1 rating from Moody’s.  The outlook was “stable” as of February 17, 2015.   What has “de-stabilized” this projection is – AB 394 – which creates “uncertainty.” Without spending the usual $150 Moody’s charges for smaller reports, let’s guess the nature of that “uncertainty.”   The Clark County School District’s report on its financials assures bond holders:

“Maintenance of the current property tax rate will be sufficient through fiscal 2015 to retire the existing bonded debt since the District issued previous bonds based upon the factors of growth in assessed valuation in addition to increases in student population. The Capital Improvement Program provided authority to issue general obligation bonds until June 2008 and will be repaid from a fixed tax rate of 55.34 cents per $100 of net taxable property. [CCSD pdf

Translation: The Clark County School District – as it is currently functioning – has the financial capacity to retire (pay off) existing debt, and the ability to repay Capital Improvement bonds from its property tax base. A property tax base of the present 8,012 square miles comprising Clark County, which according to the Nevada Department of Taxation has a final assessed value (property) of $69,258,468,466.  A number large enough to assure investors in CCSD bonds that they’ll get their money plus interest, since the ad valorem revenue is calculated at $495,059,633 for the county.   We can use the old reliable Red Book to determine what the Clark County School district can expect from its share of the property tax revenue: $819,903, 015 from a total 2014-15 assessed valuation of $62,904,942,089.

By now it should be getting obvious why Moody’s is getting nervous.  Under the terms of AB 394, there must be a plan in place to chop up the school district by the 2018-2019 school year.  Thus, we’d have an advisory committee and a technical advisory committee contracting with a consultant for the grand purpose of carving up the district – but how?

If the notion is to create “neighborhood schools” then would we amalgamate current high school attendance zones? [map]  However, a quick look at the obvious north/south or east/west divisions compared to the assessed valuations of the areas involved quickly demonstrates that not all school districts would be “created equally.”

Perhaps the “Performance Zones” could be used as a basis?  Where do we put the rural schools, from Moapa Valley to Laughlin?  Again, how does the dissolution of the district help any of these financially?  

Unfortunately for those who would be new map makers, Clark County, like so many other major metropolitan areas is comprised of various zones – residential, industrial, and commercial.  As long as the financial foundation of a school district is based on property taxation, then we have to live with the fact that while upscale residential property comes with high tax bills, there isn’t all that much of it.    A district carved out of a major commercial zone with a rather smaller number of residential properties in that zone might have resources in abundance compared to an area of high residential properties – and therefore higher numbers of students, but a lower total assessed valuation.  Geography can often be a real pain in the derrière and in this instance it’s going to be.

At the risk of petulantly pounding the dais – there appear to be only 12 members of the Assembled Wisdom in the last session who understood the gravity of separating school districts within a diversified metropolitan area, one with an overall assessed valuation currently capable of keeping investors optimistic about bonding capacity and bond retirement.  The remaining 48 – not so much – maybe one more round of Econ. 101 is in order?

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Filed under Economy, education, Nevada economy, nevada education, Nevada legislature, Nevada politics, nevada taxation, Politics, Rural Nevada, Sandoval

Polls, Pols, and Timing

Ballot box 2

There are 517 days until the next general election. 517.  That is almost 17 months.  Or, to illustrate it another way, an infant born today will be walking at the time the election comes around, and the little darling will be feeding itself (sort of, if you count spaghetti “worm wrestling” as a form of feeding).  By 18 months the toddler will have about a 20 word vocabulary, to apply along with an assortment of noises, some of which will be comprehensible.  Our toddling little newbie will also be a master of mimicry – which is fine if we’re talking about wiping a table with a sponge, not so fine if it’s an antique hardwood table.  In other words – it’s a LONG time before the next presidential/general election.  There are some things we can do as “consumers” of election and political news which can help make the 2016 experience more positive.

#1. Insist on the development of ISSUES.  For example, what is the best way to promote the growth of the American economy.  This is a long established issue, but remember, we want the development of this issue, not merely a collection of sound bites and dog whistles, and in a rational world this is the appropriate time for the parties to prepare the general outlines of their specific proposals.  Contrary to the common media offering of “What will Candidate X’s statement on job creation mean for blue collar voters?” think about what economic philosophy is the Candidate espousing?  Once the philosophy is clarified then individual proposals can be evaluated on the basis of how they will affect crucial elements of our economy and not merely for select electoral groups.  Consider the source.

Unfortunately, those who get air time, and the attention of punditry, are those who are dramatic, flashy, confrontational — or “newsworthy.”  Is that dramatic, flashy, confrontational candidate really the standard bearer for the party?  If not, then all that’s been accomplished from the issue development side of the ledger is the addition of much bombast and hot air.  This, like the tantrum of a not-quite-two year old, can be safely dealt with by taking a few deep breaths and staying calm.

#2. Insist on transparency.  In an era of “dark money” we need to know if the candidate is being manipulated by large donors of the Super Pac variety. Again, this far out from the general election, it’s still ‘finance’ time for the candidates.   And, in terms of finance, do I want to cast my vote for an individual who is receiving massive amounts of money from sources which are unidentified? Perhaps, it’s more important at this point in time to know to whom candidates (especially presidential aspirants) are speaking than exactly what they say.

Let’s assume at this early date that the candidates will say what they perceive the audience wants to hear – because the candidates are not necessarily there to propose profound ideas – but to collect money.  Buzz words beget buzz and buzz opens billfolds.

#3. Ignore polling. Of all my gripes with modern cable news, the persistence of polling and the reports of polling, heads the list.  17 months out from a general election the only thing we learn from polling is the level of a candidate’s name recognition.   Recognition is a long long way from establishing a ‘brand’ and even further from creating ‘identification’ on the part of the voting public.  I am about to decide that the level of poll reporting done by a media outlet is an indication of its general lack of resources and talent. The more polling reports the greater the paucity of resources and the less imaginative and intelligent the management.

And, herein I’ll give Secretary Clinton some props.

One of the more interesting bits of whining from the D.C. media came from Politico’s publication of Glenn Thrush’s ear-splitting screed about how Secretary Clinton ‘hates the press.’   There is a time for more media access, but 17 months out from a presidential election  isn’t it.  This, for politicians behaving like adults, is the time for dealing with finances and issue development.

Politico also seemed distressed that when Secretary Clinton recently visited Iowa she focused on “preaching to the choir,” in “controlled environments.”  Of course she met with “activists.” Who else does one meet with to set up the ‘ground game’ and seek donations?  Could we also say that when three Republican governors met with mega-donor Sheldon Adelson in late March, the candidates were “preaching to the choir in a controlled environment?”  Of course they were – it’s what candidates do at this stage of the game.

Speaking of issues – the only time we’ll see the entire project launched in a single moment is in a shipyard. Otherwise, we’ll see proposals rolled out one at a time; especially when there’s an advantage to be gained by putting the opposition on the defensive.  On Thursday, June 4, Secretary Clinton released her proposals concerning the expansion of voting rights.  Republicans, who’ve been hard pressed to find significant examples of voter fraud, were caught without a clear response:

“The result is a dynamic in which Republicans are outraged by an ambitious Clinton proposal, for reasons they have not yet identified. Christie thinks voter fraud is a massive problem in New Jersey, which isn’t true, and under the circumstances, isn’t entirely relevant. Perry thinks the status quo in Texas is already great, which would come as news to the 600,000 people the Republican governor helped disenfranchise. Kasich is worried about being “divisive,” as if expanded voting access is somehow inherently acrimonious.” [Benen]

Governor Scott Walker opined that the proposal was out of the mainstream and defied logic – although he couldn’t explain why or how. [Benen]  When issue positions are carefully crafted, and selectively timed, the result is usually good, i.e. the opponents are on the defensive, and “when you’re explaining, you’re losing.”

Thus far the Clinton Campaign has done a good job of staying on target, not rushing the timing, and not clamoring for any more attention from the press than is necessary to get selected messages out while concentrating on the issue development and financial aspects of the campaign.  (Don’t worry, I’ll have kind things to say about Senator Bernie Sanders later, but I think he’s running a very different model of campaigning.)

In the mean time, as those toddlers start walking and feeding themselves, the Beltway Media may want to take some time to review the structure and timing of politicians and campaigns, and not become too enamored of explaining and analyzing their own somewhat worthless polling.

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Filed under Economy, media, Nevada politics, Politics

TLC got Duggared?

Deuteronomy

I’m wondering why anyone was particularly surprised by the revelation that one of the male members of the Clan Duggar molested his sisters and a babysitter.  Information about the Quiverfull Cult has been easily available since at least 2009, and as Newsweek described it the cult is a ready-made environment for the abuse of women and female children.

“At the heart of this reality-show depiction of “extreme motherhood” is a growing conservative Christian emphasis on the importance of women submitting to their husbands and fathers, an antifeminist backlash that holds that gender equality is contrary to God’s law and that women’s highest calling is as wives and “prolific” mothers.” [Newsweek]

What follows is a loose network of extreme fundamentalists who value the creation of sons (daughters are just the potential mothers thereof), offer much militaristic palaver, and espouse the ultimate political message: If we can’t defeat our opponents now, then we can simply overwhelm them with our progeny later.  In this milieu family planning and gender equity must be eradicated to prevent the further “destruction” of society.  The desired result is a patriarchy in which godly women are submissive wives and mothers.  In short, it’s back to the Bronze Age.

Network “Difficulties”

TLC, which has devolved from an educational cable channel into a sideshow, decided airing a program about an extremely large family would attract viewers – an audience perhaps analogous to those who show up to view train wrecks – and it did, garnering some $25 million in ad revenue, a tidy profit since the network is paying the family approximately $40,000 per episode. [EW]  What happens to the show, (1) it continues; (2) it changes focus to a new family, or (3) it’s dropped may, well depend on whether TLC can find sponsors after Walgreen’s, Payless, General Mills, and Ace Hardware headed for the exits.

I’d feel some compassion for the network, but … first, this is what can happen when the felt need to provide content which appeals to the lowest common denominator overcomes the discussion about providing quality content.  The Network was “deeply saddened” to have to yank its re-runs in the wake of the Duggar Scandal, perhaps because it was drawing about 1 million viewers per nightly episode. [THR]  Just for a little perspective,  Game 1 of the NBA finals grabbed  14.37 million viewers. [TVBN]  Perhaps TLC should have learned a short lesson when A&E dropped the prime character in Duck Dynasty after his egregious commentary, after the Food Network had similar problems with Paula Deen, and especially after the network itself got entangled in the Honey Boo Boo fest; a lesson that when you are dealing with extremists don’t be surprised when they behave that way.

Secondly, the network might have known it was treading in dangerous terrain when some of the other prime characters in the Patriarchal Posse were also exposed  experiencing moral meltdowns.

In November 2013 the leader of Vision Forum Ministries confessed to an illicit affair, and the organization closed up shop. This was the anti-contraceptive advocacy group which gave Michelle Duggar that “mother of the year award.”  VFM wasn’t the only part of the Patriarchal Posse experiencing problems – we should add the conservative Institute in Basic Life Principles to the roster.

The IBLP, from whom the Duggars sought guidance, was “shocked” when leader Bill Gothard found himself facing allegations of “sexual abuse from dozens of women associated with his organization.” [Wire] All this might lead a person to wonder: Didn’t anyone learn anything from the sad saga of Jim and Tammy Fay Baker?

A network shouldn’t have to wait for a summation like the following before getting a clue that some programming might not be appropriate for prime time viewing;

“The “pitch” of Biblical patriarchy, as epitomized by Michelle Duggar, is that women will be coddled and worshipped in exchange for giving up their ambitions and the autonomy to practice an extreme form of female submission. The unpleasant truth is that a culture that teaches that women are put on Earth for no other purpose but to serve men is not going to breed respect for women. Instead, these incidents show a world where men believe they can do whatever they want to women without repercussions. Is it any surprise that a subculture that promises absolute control over women will attract men who want to dominate and hurt women? Don’t believe the TLC hype. Biblical patriarchy is a sour, dangerous world for women, and luckily, that reality is finally being outed.” [TDB]

A commercial enterprise

CNN once explored what components tended to create a television program with lasting popularity.  Its review indicated the following: “Culture watchers say a constellation of factors make a TV program last: great writers, producers and actors; a good concept; room to grow with a strong ensemble cast offering multiple story lines; a desirable time slot; audience comfort; loyal network support; and the public’s fickle taste — the wild card.” 

This is all well and good, but doesn’t address one of the primary considerations in television  – the cost.  Not-Quite-Reality Shows are relatively cheap to produce, ranging from $100,000 to $500,000 per episode.  In comparison, at its peak ER was costing approximately $13 million per episode,  Friends cost about $10 million per program, and Deadwood cost about $4.5 million per episode. [Marketplace]  In short, hiring quality writers, producers, and developing an ensemble cast presenting multiple story lines isn’t anything close to cheap.  And, the bottom line is still the bottom line:

“TLC was even rebranded with “Life Unscripted” as its slogan in the mid-’90s, “Live and Learn” in the mid-2000s and “Life Surprises” in the late-2000s. Since undergoing this rebranding, the channel has shaken its poor ratings and has become one of the primary sources for reality shows. Undoubtedly, the success of shows like “Jon & Kate Plus 8″ contributed to the recent surge in market price for TLC’s parent company, Discovery, in 2008-2009.” [Investopedia]

This is the point at which “audience comfort” clashes with “corporate earnings.”  The television audience wants to feel positively about the characters – real, cartoon, ‘reality,’ or actors – in their homes. Portrayals on the screen should be enough ‘like us’ to be sympathetic (or an obvious villain) but not so much ‘like us’ that they are as un-dramatic as our quotidian existences.  We still require the old standard elements — focus, tension, timing, rhythm, contrast, mood, space, language, sound, symbolism, conflict, climax, and resolution, in order to label a show as one of genuine quality.  This can get expensive.

When there is a plethora of small networks clamoring for our attention there may also be a temptation to broadcast the most contrasting, most dramatic, and most conflicted – i.e. most titillating  fare.  The marketplace enters the formula when the cost of production, the expense of broadcasting, and the willingness of advertisers to purchase air time are all taken into consideration.  We should also attend to the financial elements like syndication, after-run DVD sales, and other revenue factors.  However, we will still ultimately receive what the advertisers are willing to pay for.

When, for example, advertisers are unwilling to associate their brand with “a sour, dangerous world for women” then shows such as the Duggar’s will be terminated.

In the mean time, does Josh Duggar owe someone many shekels?

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Filed under conservatism, Economy, media, Women's Issues, Womens' Rights

Sinking the Vasa: A Message for Global Corporations

Vasa 1

The construction of the Vasa took almost two and a half years; her hull built of more than 1,000 oak trees.  She carried 64 bronze cannon, and was to sail with masts over 50 meters high. She was the pride of the Swedish Fleet.  King King Gustav II Adolph was certain she would not only be a tangible reminder of Swedish military power, but a message to other 17th century monarchs of the potential futility of assaulting the Swedish navy.   There may be some modern comparisons, albeit somewhat tenuous, to King Gustav II Adolph and his plans.

79 year old Joseph Sepp Blatter recently won the FIFA election and will head the organization for another four years.  He has crafted a corporate alliance to insure his power, and maintained his control in a manner reminiscent of a feudalism which predates King Gustav II Adolph.   This, in the face of criminal charges against some of his top lieutenants. This, in the face of serious threats to create a new Thirty Years War and break the hold of FIFA on world soccer competition. [DailyMail]

Blatter’s reaction to the possible constriction of his power? He’s a victim, however:

“Between 2010 and 2013, half of FIFA’s 24-strong executive committee was accused of some form of corruption, five were forced to resign, and one was banned for life. In 1999, Blatter reassured the world about his soon-to-be-disgraced cabinet: “I can’t speak about everyone’s sense of morality but, for the 24 members of a committee I have the honor to direct, I can say they have all taken a sort of ethical oath.” [Slate]

By his lights his latest troubles are the result of American and British sour grapes.   There’s another contemporary example of a global mogul who cries “victim” when confronted.

In 2013 JP Morgan tried to spin the tale that it was a “victim” of government interference with the financial markets and therefore could not be held liable for the egregious mortgage/financial results of its actions during the Financial Collapse of 2007-2008.  It was a nice try, but the arguments weren’t constructed of anything so solid as the oaks which went into the construction of the Vasa hull. [Dealbook]   The whining continued into 2015.

CEO Jamie Dimon complained in January 2015 that “banks were under assault!”  A person might think Dimon considered himself analogous to the 1626 Polish-Lithuanian Commonwealth fighting off King Gustav II Adolph to secure the city of Danzig (Gdansk)?  However, there’s more and it brings on another whine. “It’s those lazy investors!” [C&L]

“You might think that the chairman and CEO of a major bank that had just pleaded guilty to a federal felony charge and has paid out more than $20 billion in legal settlements in recent years would show a little humility.  But then you wouldn’t be reckoning with Jamie Dimon, the head of JPMorgan Chase. At an investment conference in New York this week, Dimon lashed out at institutional investors who voted against his pay package and his dual role as the firm’s chairman and chief executive, and otherwise rejected management’s wishes on shareholder resolutions at the annual meeting May 19.” [LATimes]

Dimon’s craft was one of the survivors of the 2007-2008 debacle, Dick Fuld’s Lehman Brothers operation was one of the first casualties, but wait! it wasn’t their fault.  They ignored the 12-1 debt ratio, coming in closer to something like 40-1.  All it took was faulty economic modeling, excessive real estate exposure, over reliance on ratings, and an utter failure to manage their repos. [Bloomberg] One more we find one of the titans of industry and finance whinging as though they aren’t responsible for the systems they set in place.  No more so than King Gustav II Adolph could be blamed for the wreck of the Vasa?

When the King heard the Danes were constructing a ship with two gun decks, he changed the orders and specified the Vasa was to be similarly constructed.  That the original specifications were for a single enclosed gun deck was not taken into serious consideration.  One useless stadium here, another there – no matter.  One purchase of a highly questionable financial enterprise here, another there, no matter? One disregard of the 12-1 rule, so what could go wrong?

Indeed, what could go wrong when keel modifications were not taken into consideration, when no one at the time really knew how to calculate a ship’s stability, stiffness, and sailing characteristics?  Did anyone know the “value” of a hybrid financial product based on the price of a batch of derivatives in 2005?

There was a “lurch test” conducted on the Vasa before her launch, and the instability and ballast problems were noted.  The test consisted of having 30 men run from side to side amidship, and after three of these runs the ship was “rocking so violently it was feared it would heel over.” [FacUPedu pdf] How many more FIFA executives need to be indicted before that organization heels over?

All these ships, physical, financial, and entertaining,  were supposed to sail effortlessly in calm waters of their own choosing.

Vasa 2

The Vasa began her maiden voyage from the Skeppsgarden Shipyard on August 10, 1628; all 1210 tonnes of her, with her 38 ft. beam, her 16 ft. draft, and her 172 ft. height.  Yes, she was indeed top heavy, the ‘lurch test had illustrated that to all who witnessed it.  Hundreds, if not thousands came to see the flagship of the fleet take her first voyage.  The spectacle was not what was intended.

After she sailed about 1300 meters a light wind gust caused her to heel over on her side, the gun ports were open (to allow a salutary salvo to be fired) and water poured in.  The beautifully decorated, heavily armed, ship sank only 390 ft. from shore in waters about 32 ft. deep.

From both historic and modern inquests we know why she sank – there were “Ten Lessons Learned.”

There were excessive schedule pressures.  The scheduling pressures were exacerbated by changing needs, and operational characteristics were modified during the construction process.  There was a lack of technical specifications, compounded by a lack of a documented project plan.  Is any of this beginning to sound familiar?

There was excessive innovation, for example, no one in Sweden at the time had ever constructed a ship with two enclosed gun decks.  Worse still, there were secondary innovations added to accommodate the initial innovations, even though no one knew the implications of the initial ones.  And, there was the inevitable “requirement creep,” during the 2 1/2 years of construction;  we’d recognize this as “mission creep.”

There were no contemporary scientific methods for “calculating the center of gravity, the stiffness, and the resulting stability relationships of the Vasa.” We’d also recognize the creation of “financial products” the value of which couldn’t be determined at the outset being used as the “ballast” for subsequent iterations and innovations.  And, then there were two more items on the fail-list which we are obviously still dealing with today.

They ignored the obvious. The stability test was a failure – but that quite evidently didn’t deter the launch.  The second item is “possible mendacity,” or, “the results of the stability test were known to some but were not communicated to others.”  [FacUPedu pdf]

Imagine: a modern corporate leader.  A modern global corporate leader so anxious to “win,” to prosper, that in the interest of innovation caution is blown to the winds?  Imagine: a modern corporate leader who is so determined to “succeed” that the lack of specificity, the dearth of calculations, and the inappropriateness of methodology is dismissed? And, imagine a global corporate leader who either ignores or is never informed by the sycophantic warning signs that all is not well?  And so the beautiful Vasa sank.  She is now a museum piece.

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The Wreck of the Penn Central: Conservatives want to replicate another financial debacle?

Rail logos Two days ago Fox News was happily promoting the privatization of Amtrak. [C&L]

“Gasparino went on to promote privatization. He said that the northeast corridor, between Washington and Boston, is a “very profitable service” and “there is no rationale why that service cannot be privatized. …If you put private management in there, it would probably be even more profitable and they could pay for even more upgrades.” “I’m not saying privatize the whole thing, at least not at first,” Gasparino said. But he insisted that privatization would make for “a Jet Blue of rail traffic.”

I admit to having “senior moments,” but I haven’t forgotten the fact that the reason Amtrak was created in 1971 was because of the FAILURE of private corporations to run the railroads.

A Bit of History

Once upon a time there was the Penn Central Transportation Company.

“The Penn Central merger was consummated on February 1, 1968, between the Pennsylvania Railroad and the New York Central Railroad. At the end of 1968, the New York New Haven & Hartford Railroad was merged into PC by order of the Interstate Commerce Commission.

Financial problems plagued the PC during its first couple years. Even though the merger had been planned for 10 years (on and off) before its inception, many problems faced the combined companies, such as incompatible computer systems and signaling systems.

Penn Central also invested in other companies, such as real estate, pipelines, and other ventures. The idea was to create a conglomerate corporation, with the railroad as one part of it. This diversification program, even 20 years later, is a point of debate over the fall of the PC, as some people say funds that were invested in other companies could have been used to run the railroad.” [PCRRHS]

Take a measure of mergers/acquisitions, add “diversification,” and … the world watched as the newly formed company created “dismal numbers.”  Enter the investment bankers. There were warnings.  One warning came before the big merger, in which it was noted that Penn Central had more than $1 billion in debt which would mature by 1982. When Penn Central finally went into bankruptcy it’s long term indebtedness, including obligations due in one year was an eye-popping $2.6 billion. $1 billion was due in five years; $228 million fell due in 1970; $156 million was due in 1971; $172 million came due in 1972; $270 million due in 1973, with another $160 million due in 1974. [Wreck of PCentral]

How this happened should sound eerily familiar:

“…economist Henry Kaufman says of this period in the late 1960s, “I watched with growing alarm as sources of corporate borrowers – in an effort to circumvent regulatory lending constraints – piled into the commercial market as issuers. The trend continued, and culminated in the collapse of the Penn Central Railroad.” [BuyHold]

And collapse it did, into the largest bankruptcy the nation had experienced up to that point, but not before:

“Penn Central’s subsidiaries were stripped of their treasuries in order to prop up PC’s own earnings. For example, New York Central Transport, a trucking subsidiary, had profits of only $4.2 million and yet paid $14.5 million in dividends to the parent. Despite this kind of maneuvering, the dividend on Penn Central common was slashed from $2.40 to $1.80 in 1969. Chairman Saunders vowed to hike it back up, soon. [It was later learned, however, that insiders at PC were unloading their company stock and bonds while all of this was going on.” [BuyHold]

We had a batch of corporate borrowers trying to get around regulations on lending, combined with a company fiddling the books trying to prop up its earnings reports, and taking on massive amounts of debt.  What could possibly go wrong?   The answer, of course, was “everything.”  June 21, 1970 the company declared bankruptcy.  What of the passengers?

“October, 1970, in an attempt to revive passenger rail service, congress passed the Rail Passenger Service Act. That Act created Amtrak, a private company which, on May 1, 1971 began managing a nation-wide rail system dedicated to passenger service.” [Amtrak]

Where was Wall Street?  Again, Wall Street didn’t appear to be all that helpful, except perhaps to themselves.  Goldman Sachs won “the opportunity” to underwrite Penn Central’s commercial paper in 1968.  We can almost guess what happened next:

“For large fees, Goldman sold the paper to its clients, including big companies such as American Express and Disney, and smaller ones such as Welch’s Foods, the grape-juice maker, and Younkers, a Des Moines retailer. Welch’s and Younkers, particularly, counted on the fact that Goldman told them that the Penn Central paper was safe and could be easily redeemed. Welch’s invested $1 million — some of it payroll cash — and Younkers invested $500,000, both at Goldman’s recommendation.” [TribLive]

After the Penn Central’s bankruptcy filing the SEC conducted an investigation.  This, too, is a bit too common for comfort:

After Penn Central filed for bankruptcy, an SEC investigation discovered that Goldman continued to sell the railroad’s debt to its clients at 100 cents on the dollar — even though, by the end of 1969, the firm knew that Penn Central’s finances were deteriorating rapidly.Not only was Goldman privy to Penn Central’s internal numbers, it also heard repeatedly from the railroad’s executives that it was rapidly running out of cash. [TribLive]

By February 1970 Goldman had about $10 million in Penn Central commercial paper on its books.  On February 5, 1970 Goldman Sachs demanded that the railroad buy back that $10 million inventory at 100 cents on the dollar even though it obviously wasn’t worth that much at that point. Goldman Sachs didn’t tell any of its clients about the offer, nor did it tell the customers that it had already taken care of its own interests before theirs.  Plus ca change, plus c’est la meme chose? [see also: WaPo 2102]

It doesn’t take too much imagination to see how (1) a boom in commercial paper – indebtedness; combined with (2) underlying debts incurred in operations, mergers, and acquisitions; abetted by (3) investors seeking ways around regulations; and (4) investment banking more interested in self preservation than best business practices combined to create a blockbuster bankruptcy. 

But yet, we have the Cato Institute, the bastion of conservative economic imagination pontificating:

“Budgetarily, Amtrak has become a runaway train, consuming huge subsidies and providing little or no return. Four decades of subsidies to passenger trains that are many times greater than subsidies to airlines and highways have failed to significantly alter American travel habits. Simple justice to Amtrak’s competitors as well as to taxpayers demands an end to those subsidies. The only real solution for Amtrak is privatization.”

The conservatives are missing several points.  The point may not be to “alter” travel habits – but to maintain services which people were already using for their commute to work, especially in the Northeast Corridor.  The rationale for the act included stabilizing services for passengers, the general public, and shippers. [RRA]

Going to Court

Amtrak is a private corporation, albeit one with some very special features.   If we want to get technical about  it, the official name is the National Railroad Passenger Corporation.  In fact, the point was driven home in a legal case two years ago in which the private nature of the NRP Corporation was pivotal:

“A three-judge panel of the U.S. Court of Appeals in Washington today said Congress had improperly delegated to Amtrak, a private corporation, the power to draft performance standards that affected companies whose tracks the passenger carrier uses. Amtrak trains have legal priority over freight.

“Though the federal government’s involvement in Amtrak is considerable, Congress has both designated it a private corporation and instructed that it be managed so as to maximize profit,” U.S. Circuit Judge Janice Rogers Brown said in the ruling.” [Skift]

The case got the attention of the U.S. Supreme Court. [FRAdvisor] Enter the “fish or fowl” phase.  Roger’s decision was “vacated and remanded” on a 9-0 decision.  Could Amtrak “metrics and standards” be set aside because the Congress unconstitutionally delegated power to a private corporation? And the Court said:

“No. Justice Anthony M. Kennedy delivered the opinion for the majority. The Court held that, for purposes of determining the validity of the metrics and standards, Amtrak is a governmental entity. The members of Amtrak’s Board of Directors are appointed by the President and confirmed by the Senate, and Amtrak is required by statute to pursue broad public objectives. Because of Amtrak’s significant ties to the government, Amtrak is not a private enterprise, and therefore, treating Amtrak as a governmental entity is consistent with the constitutional separation of powers.” [Oyez]

Therefore, what the Cato Institute and its allies are arguing is that the decision in DOT vs. Association of American Railroads (49 USC 24301) should be overturned and the railways should exist without any “regulations” imposed by Amtrak which would be applicable to freight haulers.   Extrapolating the Cato’s position to absurdity, under their reasoning we could revert to the wonderful old days of differing track gauges. 

Riding the Thin Rail

However, perhaps the most crucial point the conservatives are missing isn’t about the legislative and legal nature of the National Railroad Passenger Corporation, but why this entity was established in the first place.  Although a person might think we’d have learned something from the financial debacle of 2007-2008, the calls to privatize Amtrak have a remarkably familiar ring.

In a financial atmosphere in which commercial debt is treated as fodder for the creation of derivative financial products, and trading is barely regulated in the face of financialist opposition, and mergers and acquisitions generate incentives for corporate mismanagement, and there isn’t an old school investment bank left on the American landscape because of the casino mentality of Wall Street during the Housing Bubble, are we truly going to believe that privatization is the panacea for all that ails the passenger rail system in the United States?

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Filed under Economy, financial regulation, Infrastructure, public transportation