Donnerstag, Dezember 23, 2010

The Face of Corruption...

This is typical: in a largely Democratic state, more than $500,000 is being spent on a new film studio near Santa Fe, the first use of a $10mn package to help local industries. In addition, $3.6mn is being spent to improve the local infrastructure.

Doesn't sound so bad, does it? A film studio for New Mexico, what's so bad about that?


Father and son Lance Hool and Jason Hool — longtime friends of Gov. Bill Richardson — are the principal shareholders in Santa Fe Studios. State Democratic Party chair Javier Gonzalez is also a partner in the venture.

Further, after initial approval, the agreement has been changed multiple times, with the local government paying for more and more of the project:

The most recent version of the deal includes the following commitments of public resources:

  • Santa Fe County will administer the $10 million economic- development grant on the project.
  • Santa Fe County will provide $3.6 million worth of infrastructure improvements to the project, including dedicating as many as 25 acre-feet of water for the studio.
  • Los Alamos National Bank will loan the project developers at least $6.5 million, which Santa Fe County will guarantee by placing $6.5 million worth of "cash reserves" in a "lock box" account at the bank.

According to the motion filed Wednesday, if there is a default of the terms of the Project Participation Agreement, Santa Fe County will also be obligated to reimburse the state for any of the grant money spent on the project.

So, from a modest spending proposal, Santa Fe county is now administering the project and, most importantly, is guaranteeing the project, removing any and all risk for anyone investing...and those investing just happen to be longtime friends of the Governor and the State Democratic Party Chair.

This is the face of corruption today: instead of taking on risk in a commercial undertaking, your friendly local government takes that on instead, but only if you are the right people.

At least some is trying to fight this:

But Wednesday's filing claims the new agreement still violates laws meant to prevent the government from donating public resources to private developers or from lending or pledging its credit to aid "any person, association or public or private corporation."

The motion alleges that:
  • Neither Santa Fe Studios nor its holding company, La Luz Holdings, qualifies for public assistance under Local Economic Development Act rules.
  • Santa Fe County changed the terms of its own ordinance governing the use of county gross-receipts tax revenue to allow the use without posing the question to voters as is required by law.
  • Only 16.5 of the 65 acres purchased by Santa Fe Studios and La Luz Holdings for the studio project will be used to build the studios that are named as the focus of the $10 million grant, while the remainder will be a private real-estate development.
See how all of a sudden there's something additional, something simply not mentioned? Only a small portion of acquired land will be used for the studio, the rest is a private real-estate development.

Corruption, in the eyes of the corrupted, is simply a way of doing business. It costs the taxpayers massive amounts of money, but because there isn't one single person "hurt", a blind eye is turned and those with connections make out like bandits. In a town facing real problems with oversupply of housing, foreclosures and bankruptcies, someone is using his leverage with the local government to build more housing.

But hey, what's the rule of law to these friends of the Governor and the State Democratic Party Chair?

At least someone is trying to stop this: it may well get nowhere, because all of those involved are either corrupt or complicit: oddly enough, no one involved could be reached for comment, or declined to comment because they weren't aware of what is going on.

Now that's convenient.

And kudos to the Santa Fe New Mexican: they are doing their job, reporting on what is obviously a sweetheart deal for political friends.

Dienstag, Dezember 21, 2010

Ironic Is The Least I Can Say... this.

Ye gods.

What is ironic is that the Democrats, the party that claims to represent the workers in the US, the friend of the little guy, the party so dead set against big business, is ... yep, lobbying for changes that big business desperately want.

Net neutrality is nothing less than an attempt by internet providers to rout internet traffic to maximize their profitability. Ignore all other arguments: at the end of the day, that is all that there is to this. This is commercial interests wanting to maximize their profitability, minimize their costs, and try to make monopoly profits.

The only way they can do this is to change the laws, changing the fundamental nature of the internet, allowing them to fiddle with packets and their routing. Don't pay enough? Then you get dropped into the big bucket of "well, your packet will get there someday"; pay enough, and your access is like it is now.

And that is supposed to be a consumer benefit?


What the Democrats also don't realize is that if you allow discrimination based on price, you can also discriminate against content and source. Which opens the internet to significantly more censorship than has been the case. But what do you expect from the party that desperately fought the Civil Rights Act.

A lot of money was invested in what are now called darknets, parts of the internet that are usually not very accessible because the companies that control them have largely turned them off. They are the fiber-optic networks that were installed during the Dot-Net bubble, when companies threw billions at infrastructure.

Now they are kept deliberately off the system in order to create artificial constraints on data flow in order to bring them back on only when the companies involved can charge monopoly prices for access.

The building of these networks is a classic bubble malinvestment, an investment that turned out to be completely useless. Now the companies involved want to turn that around and recover their invested billions. Right now, there is no cash flow, no revenues from these nets, and the investments, if they haven't been completely written off, are like lead weights on the balance sheets, reducing profitability.

Here's an idea: how about simply opening the nets up and start earning a revenue stream from them. The companies that blew billions on these nets need to feel the pain of making poor investment decisions rather than forcing consumers to pay for them (since pricing without discrimination doesn't let them raise prices due to competition: ain't capitalism grand for consumers as well?)

Sigh. Knowing the Democrats, this will probably go through, only to be repealed. But the only victories the Democrats are capable of, it seems, are Pyrrhic victories. Isn't it ironic...

Dienstag, Dezember 14, 2010

Ha! Of course...

...trying to force folks to buy a commercial product whether they want it or not is not constitutional.

Duh. Been the problem from the start.

Eric Cantor has the right idea:let's put a stake through the heart of ObamaCare and repeal it in its entirety, end the nightmare that Pelosi wrought.

What a catastrophe she has been for this country. What a catastrophe both she and Obama have been for the Democrats. At this point, any decent conservative, especially a woman, could beat Obama hands-down based on his fiscal track record alone, and he would richly deserve the defeat.

The only good thing that has come out of this is the slowly dawning comprehension that if you want to redistribute people's money, you gotta let them earn it first, and that at some point folks are going to say "hell no". Only idiots think otherwise.

Then again, that's who was elected in 2008.

Donnerstag, Dezember 02, 2010

It Takes A Government...

There's a lot going on: outright fraud in securitization, with companies claiming that they didn't need to actually follow the letter of the law, since no one was paying attention; bond markets behaving in ways never seen before; failing economies that are too big to fail; banks so heavily leveraged that there can be no creative destruction ala Schumpeter (desperately needed, but being blocked by those with too much to lose) and at least two major bubbles that no one wants to see burst.

The last shall be first: two bubbles. Gold and China, and they are inter-related. The Chinese who can are buying up gold like never before - hence the gold bubble -  and for very, very good reason. China itself is a bubble.

Don't believe me?

Consider this:: as I've said time and time again, a cardinal, deadly sin of economics is the misallocation of capital.

Great portions of the Chinese economy are currently working without price information. See this here by Megan McArdle:

When you're in China, it's easy to get caught up in the constant extolling of the benefits of (modified) central planning,  After all, the Shanghai-Hangzhou train, which I rode, is awesome, and it's certainly true that the market probably wouldn't have provided it.  The Chinese argue that the new high speed rail network is critical not merely to move the population around, but to free up the existing railbed for more freight traffic.

On the other hand, there are great dangers to being able to point at an infrastructure problem like this and say: "Make it so."  We interviewed someone at the rail ministry, and initially I was going to ask him the normal financial questions you ask someone planning a major capital expansion in the United States: capital costs, cost-effectiveness, and so forth.  The answers are more often than not the fever dreams of the most optimistic consultant they could find, but at least there is some tether to reality: the head of the agency doesn't actually want to be fired because his budget overruns just ate the money allocated for children's health care.

In China, I was stumped as to how you'd even ask that question. These projects don't have to go to the market for loans; the government directs the state-owned banks to lend to them, at interest rates decided by the state.  There's no opportunity cost to the money, since it's not like the rail ministry would otherwise be building a chain of noodle shops.  And the ridership projections are vetted by the same people who want to build 16,000 km of high-speed rail.

Prices are really useful.  But in whole large sectors of the Chinese economy, particularly the  banking sector, the government sets those prices.  This means huge information loss, and the concomitant possibility that there is a vast misallocation of resources.

Understand, please, that China is not a market economy: it remains a controlled economy, one where prices continue to be made meaningless. It is first and foremost a government-owned economy with some privatization (but don't you dare think about behaving in ways that The Party doesn't like!) and a mercantilist attitude that exploits the openness of foreign markets to destroy competition and assimilate technologies in order for The Party to survive. It is, of course, not entirely that simple, but this remains the core of the Chinese political economy. They, The Party (which, of course, in its current incarnation is nothing but a collection of apparatchniks and thugs), is riding a wave of economic expansion and growth, one that almost literally has to grow at 8% a year in order to cover all the mistakes, errors and incompetence of The Party in order to keep peasants coming to the cities and entering the industrial workforce under conditions that should outrage, but don't because they are kept carefully hidden.

Further (same source):

To get a really catastrophic misallocation of resources, it seems to take a government; corporations can only screw things up on an artisinal scale.  For that matter, it's worth noting that our government has spent the last seven decades trying to keep the price of housing low, and that much of that intervention, such as the creation of mortgage securitization, ultimately significantly contributed to the crisis.

It's worth remembering that at the time they were built, all those useless houses looked like prosperity.  So too, massive mispricing in China may look pretty sweet--unless a hiccup suddenly leaves the government with a hell of an expensive white elephant.  Or lots of them. As anyone who has contemplated purchasing a luxury car will know, just because something is really awesome, doesn't mean it's a good idea, economically speaking.  Buying without knowing the price is dangerous no matter where you are.

This is what is facing us now: far too many True Believers in the Chinese economy, convinced that it will continue to expand at 8%+, coupled with the Chinese themselves, buying gold like it is going out of style.

If prices were accurate, you wouldn't have that: the uncertainties of missing prices (or, more exactly, the intuitive knowledge that capital is being misallocated right and left, largely because the Chinese government cannot bear to have someone point out that the Emperor has no clothes.

It really does take a government for really catastrophic misallocation of resources: this is happening in China today. We don't know if China can afford a HS rail network (not only for the reasons that Megan put forward in that link) as we don't know what it will cost and whether that will be an investment that really will pay back.

Especially when you consider that the Chinese are aiming at a vast expansion of inner-China flights, which is in direct competition to HS rain. In other wards, the left hand doesn't know what the right hand has done, is doing, and plans to do.

When China falls, it will fall very, very hard. Communist countries always do when The Party tries to hold onto power far too long. This is going to be a major catastrophe, an epic fail. It really does take a government to do that.