I interviewed David Walker, star of I.O.U.S.A., the new docu-drama on America's debt crisis, along with director Patrick Creadon and executive producer Addison Wiggin, at the premier party last week. Walker is the U.S. comptroller general who went on a tirade over this country's impending commitments and its inability to meet them on their current course. He led the "Fiscal Wake Up Tour" from state to state to try to draw attention to the issue, and the I.O.U.S.A. film crew followed along for the film's core narrative.

The film debuted at Sundance earlier this year and got screened multiple times last weekend at the Maryland Film Festival at the Charles. Here is my column on the movie and Andrew Yarrow's new book on the same theme, Forgive Us Our Debts.

Walker recently became CEO of the Peter G. Peterson Foundation in New York, where he intends to continue his work. Part of the Peterson agenda is Phase II of the Fiscal Wake Up Tour. For the next few months the Tour will focus on what Walker calls "Purple States" -- swing states, neither Red nor Blue, in the upcoming election. That's where the most political traction can be had.

The Peterson Foundation is "trying to engage young people in particular," Walker said, because they're the ones with the most at stake. They'll have to pay the bill with higher taxes and other, subtler costs for the nation's trillions in debt and future liabilities. "We're looking to try to get [I.O.U.S.A.] into high schools and colleges and, eventually, on YouTube. The key is, How can we maximize the visibility of this film?"

They're thinking about producing another film -- "what would things look like in 2040?" if the debt bomb isn't defused. The foundation wants to focus on financial literacy, making grants etc. to organizations that promote it. But mainly the group wants to push support for fiscal sanity at a grassroots level and turn it into change in Washington.

Movie trivia: The crew wanted to use Steppenwolf's "Born to Be Wild," as soundtrack for the Wake Up Tour, but it was too expensive. So they used a lesser-known version.
They've tweaked the film since it appeared at Sundance and seem to be still doing so. Walker, an accountant by training, is especially keen on presenting viewers with certain statistics, which the Hollywood folks may have mixed emotions about. "We've got to include that graphic of the debt to GDP ratio since the 1700s," Walker told Creadon. "It's in there! It's in there!" the director said.

Posted by Jay Hancock at 4:21 PM | Permalink | Comments (0)
                    

The most-read article from the Web site of Area Development magazine. Inside tips on how companies can play states off one another to cut their taxes and win taxpayer grants. It's a perennial outrage that violates promises of equal treatment under the law. Company A pays "X" taxes, but company B in the same industry negotiates a lower rate. And no, it's not "pro-business" to allow this. When one taxpayer pays less, its business competitors have to pay more and compete with it for workers to boot.

If you want to cut taxes, cut them for everybody or nobody.

HOW TO PLAY THE INCENTIVES GAME

Many state and local governments are eager to negotiate incentives with companies that might revitalize the area’s economy....

Negotiation is an art, and the negotiation of incentives should not be taken lightly. States can be quite competitive with each other in the race to recruit major employers, and the ability to negotiate effectively with the different players is essential.

In one recent case, five states were vying to land a major manufacturing facility. The initial incentive offers ranged from $7 million to about $30 million. By the time negotiations had concluded, the final package had climbed to approximately $80 million.

It’s important to know which resources the various contenders bring to the table. For example, some states can tap the 1998 multistate tobacco settlement as a source for discretionary incentives. While much of the nearly $250 billion that states will receive from tobacco companies over the first 25 years has been earmarked for public-health expenditures, a substantial amount remains available for other purposes — including economic development....

The competition among jurisdictions for corporate expansion and relocation is intense. Savvy companies that know how to play the incentives game can gain a valuable strategic advantage.

And it's all done beyond the knowledge of the taxpayers footing the bill:

Maintain confidentiality. To maintain negotiating leverage, companies should refrain from making any public announcement of plans for expansion or relocation until the incentives package has been finalized and comprehensive due diligence has been performed.

Posted by Jay Hancock at 1:54 PM | Permalink | Comments (0)
                    

This week we take a close look at what look very much like bubbles in the US energy sector and in raw materials in Europe. In real terms, oil prices are nudging their all-time highs, which date back to the end of 1979 and the Islamic revolution in Iran. Brief though it was, that peak was enough to trigger severe recessions in 1980 and 1982...

Unquestionably, there is a bubble in oil company profits, although masked by what look like low PERs. EPS have risen 8.7 times over since 1994, and this is another record. The sector’s share prices have risen ‘only’ 512% over the same period, but are extremely vulnerable to a change in the economic situation. No satisfactory solution to the energy crisis has yet been found, with most initiatives aimed at boosting supply remaining marginal relative to real requirements. This means that the only way out is a serious slowdown in consumption arising in a context of recession. All the oil shocks of the past ended in this way....

Technically speaking, the energy sector could outperform further in the months ahead, but the correction could be brutal, as is the case with cyclicals. We recommend neutrality on the sector, and sales in line with bad news on the economy.

Posted by Jay Hancock at 12:03 PM | Permalink | Comments (0)
                    

A new law requires Maryland health insurers to cover dependent college graduates up to age 25. The idea behind yet another “mandate” for Maryland insurers was to build a bridge for young adults moving from university to the work force.

But the law doesn’t apply to most Maryland families. It doesn’t cover small group policies. So if you work for a company with fewer than 50 employees, there is no requirement to insure dependents until they are 25. Likewise for insurance offered to federal employees, says Karen Barrow, spokeswoman for the Maryland Insurance Administration. Likewise for people working for big, out-of-state corporations that bought coverage in their home states.

And self-insured employers don’t have to cover college grads, either. Almost 1.7 million Marylanders were covered under self-insured plans last year, according to the insurance administration. Only 1.2 million people were covered by plans in which insurers bore the risk – the state’s definition of an insurance company.

Don’t necessarily be reassured if your card bears the name of CareFirst or some other well-known insurer. A huge part of CareFirst’s business is administering claims for self-insured employers.

Nothing prohibits self-insured or small employers from increasing coverage to age 25, but most probably haven’t. (State employees will be able to choose such a benefit, Barrow said.) You need to ask your company’s human resources department.

“The Class of 2008 can search for that first job without worrying that a car accident, unplanned pregnancy or sudden illness will bury them in medical debt instead of job offers,” Del. Heather R. Mizeur told The Sun.

Well, a few of them, anyway.

Posted by Jay Hancock at 10:40 AM | Permalink | Comments (0)
                    

Today's column.

Sure, fill out a living will because it might let you and your loved ones avoid heartache and agony at the end of your life. But here's another reason: It'll potentially save your heirs and society tens of thousands of dollars.

Especially in Maryland, which is one of the most expensive places in the country to become terminally ill, according to newly published research.

Only 34 percent of Marylanders have living wills, says Dan Morhaim, a physician and Baltimore County delegate. He and Johns Hopkins public health professor Keshia Pollack just did a survey that he says will be the first study of its kind when they publish.

That means two out of three Maryland adults haven't issued legally binding medical instructions in case they can't make decisions.

Two out of three patients risk being kept alive by well-meaning doctors and family when, in fact, their lives are over.

And two out of three risk triggering enormous financial costs that deliver only miserable dividends.

Read the whole thing here. Read the Maryland attorney general's information sheet about living wills here. Fill out a wallet card telling medical professionals you have a living will here. Get Maryland's advance directive form (the legal name for a living will) here.

Posted by Jay Hancock at 10:18 AM | Permalink | Comments (0)
                    

A boomer objects to my "Boomers Planting a Debt Bomb" column.

Let's see...if the fathers of the Boomers had not fought in WWII or the Korean War, you probably wouldn't have this "problem". And if the "Boomers" hadn't fought in Vietnam, we would have been as complacent as the "young people", who have no idea what the word "protest"means. It's really sad that someone would write this crap knowing that the "Boomers" are also the ones who have worked and paid for any forward motion in this country. So go change your diaper and blow you snotty nose, you lazy, spoiled brat! OH..and get a REAL job, for God's sake.

Posted by Jay Hancock at 9:10 AM | Permalink | Comments (0)
                    

Here is another reason electricity re-regulation is coming to Maryland. Sempra Energy was one of the few electricity-generation companies to have planned a plant in Maryland, which badly needs the juice. Sempra's Catoctin Power project would have supplied new megawatts to central Maryland, where BGE and other utilities now import lots of power at expensive rates from out of state.

Not any more. In news first reported by Power Market Today, Sempra is pulling the plug on the plant for now because federal regulators rejected a pricing scheme Sempra says was necessary to make the generator profitable. Here is Sempra CEO Donald Felsinger on a conference call with Wall Street analysts last week.

JOHN KIANI: Can we assume that at least at this point you're not going to build [Catoctin] and PJM since FERC did not pass the cone increase?

DON FELSINGER: I think it's safe to say from our perspective that the economics that currently exist don't warrant us making an entry at this point in time.

And:

PAUL PATTERSON: I apologize if you've already gone over this. The Catoctin Power Plant, with the new cone and heat rate situation at PJM, any additional thoughts on that.

DON FELSINGER: I did answer this earlier. That is, as the new cone was published and as the process at PJM and submitting their new cone to the FERC didn't get approved for procedural reasons, we've decided not to enter the market based upon capacity prices. Now, that does not mean that we're not out shopping with utilities for a contract. But currently the economics in that region don't support us going forward with a new build without a contract or a higher cone.

"CONE" stands for cost of new entry, a pricing protocol on PJM Interconnection, the wholesale grid for the Mid-Atlantic region. Sempra and other generators wanted to crank up the Cone, which would have increased their profits. Everybody else fought the higher Cone. A few weeks ago FERC rejected it, and now Sempra is (at least temporarily) taking away its marbles. Look for Sempra to sign a contract with BGE or somebody else in which utility ratepayers will underwrite at least part of the cost of construction.

Posted by Jay Hancock at 11:04 AM | Permalink | Comments (2)
                    

Stamp prices go to 42 cents Monday. Here is something I did not know about stamps and the Post Office, from a PR pitch from the Lexington Institute and their economist, Charles Guy:

Thanks to reform legislation passed in 2006, USPS must keep future rate increases within the official rate of inflation. The legislation also requires the Postal Service to provide $50 billion to fund its pension obligations over the next decade.

"With stamp prices tied to the Consumer Price Index, the Postal Service can't just raise prices to meet its pension-funding requirements. That leaves it only two ways to cover costs: lowering the amount spent on labor or introducing new products that will increase revenue," explained Guy.

Monday's rate hike represents the fifth price increase since 2001. Stamp prices have gone up nearly 24 percent during that time.

Obviously pension costs aren't the only pressure the USPS is facing. Its transportation costs are rising much faster than the consumer price index, thanks to $3.70 gas.

Posted by Jay Hancock at 9:59 AM | Permalink | Comments (0)
                    

Oil hit $123 a barrel today. Gold fell to $869 an ounce. Since the Bear Stearns crisis on the Ides of March, oil has risen by about 12 percent. Gold has fallen by about 12 percent. Somewhat strange. On March 15, as the financial system collapsed, shorting gold and going long oil would not have been my first investment move.

Posted by Jay Hancock at 6:14 PM | Permalink | Comments (0)
                    

From the Financial Times:

Monthly data since January indicate that economic activity and GDP have been declining since the start of this year.

Private sector payroll employment peaked last November and has fallen five months in a row, shedding more than 300,000 jobs. Industrial production was lower in March than in December and January. Real personal income net of taxes and transfers is also lower than in January. Real retail sales have fallen since the start of the year. Private housing starts are down 13 per cent in just the two months since January and 36 per cent from a year ago.

Posted by Jay Hancock at 4:46 PM | Permalink | Comments (0)
                    

Government deficits and foreign laborers have always been political problems. Here is how the King of Naples addressed them 191 years ago, according to the Jan. 25, 1817, edition of The Scotsman newspaper of Edinburgh, which I stumbled across (don't ask) on the Web. 

Posted by Jay Hancock at 1:00 PM | Permalink | Comments (0)
                    

From AP:

Worker productivity rose by a better-than-expected amount in the first three months of the year while labor cost pressures eased.

The Labor Department reported Wednesday that productivity, the amount of output per hour of work, increased at an annual rate of 2.2 percent in the first quarter. That was slightly higher than the 1.5 percent increase which had been expected.

In a sign that inflation could be easing, labor cost pressures slowed a bit. Unit labor costs rose at an annual rate of 2.2 percent, down from a 2.8 percent rise in the final three months of last year.

While rising wages and benefits are good for employees, those increases can lead to higher inflation if businesses are forced forced to boost the cost of their products to cover the higher payroll costs.

However, if productivity is increasing it allows businesses to finance higher wages out of the increased output.

Posted by Jay Hancock at 12:29 PM | Permalink | Comments (1)
                    

Former Congresswoman Barbara Kennelly, now head of the National Committee to Preserve Social Security and Medicare, has this to say in a letter to the editor about last week's column on this country's dire fiscal course.

If columnist Jay Hancock really wants to have an honest discussion about our nation's current fiscal mess, let's start with the facts ("Boomers planting a debt bomb," April 30).

American workers and taxpayers who are between 44 and 62 years old (the baby boomers) didn't create our current budget crisis; the Bush administration and its allies in Congress did that.

President Bush inherited a budget surplus and a Social Security trust fund built up in preparation for baby boomers' retirements.

Now, after billions in tax cuts for the wealthy, an underfunded war in Iraq and six years of a Republican-led Congress following the president's "borrow and spend" lead, we face a record national debt and budget deficit.

Americans of all ages should be outraged at this squandering of our fiscal resources.

However, rather than put the blame where it truly belongs, Mr. Hancock rehashed the administration's generational divide-and-conquer strategy.

This divisive "greedy geezer" myth is just that - a myth. American workers, most of them baby boomers, have contributed $2 trillion to the Social Security trust fund in the past two decades, leading to a $190 billion surplus.

Without these baby boomer contributions, our debt picture would be even worse.

So don't blame the boomers or Social Security for the fiscal damage done by this administration.

Notice how she lays it out in binary partisan terms. The implicit message is: "Either we keep things the way they are or we let the Bush administration privatize everything," which is nonsense. The answer is to keep existing programs but scale them back so they don't bankrupt our grandchildren. Of course the war is an expensive outrage. But if Bush had never invaded Iraq we would still face the same difficult choices about Medicare. (Social Security is easily fixable. Notice she doesn't even mention Medicare.)

This sentence is just silly: "Without these baby boomer contributions, our debt picture would be even worse." Without the baby boomer liabilities, our debt picture would be beautiful.

Posted by Jay Hancock at 11:37 AM | Permalink | Comments (4)
                    

Today's column. Read the whole thing here.

Legg Mason CEO Mark R. Fetting is "gratified to see some daylight on the horizon." There is "some performance improvement" in Legg's mutual funds, he told analysts on yesterday's conference call. "The fundamentals are encouraging."

But just in case, Legg is raising $1 billion in emergency capital. Another $1 billion - on top of the $1.25 billion it raised by selling convertible debt to buyout giant KKR in January.

Watch what Fetting does, not what he says. It's nice that he thinks markets may be recovering from the subprime mortgage disaster.

Other financial bosses are saying the same thing. But the rainy-day cash about to land in Legg's treasury says he knows there's significant risk he is wrong.

Posted by Jay Hancock at 10:49 AM | Permalink | Comments (0)
                    

Posted by Jay Hancock at 11:33 AM | Permalink | Comments (2)
                    

This morning Legg Mason reported a quarter-billion-dollar loss for the latest quarter and said it will seek $1 billion in equity and debt capital to prop up its balance sheet. It makes clear that more capital to prop up its money-market funds may be needed, saying use of the proceeds "may include support of liquidity funds managed by its subsidiaries."

I've never seen such a vehicle as what Legg is selling. The $1 billion buys an obligation -- not an option -- to buy common shares as well as Legg Mason debt. Raising the money via an equity contract presumably keeps Legg from diluting existing shareholders for now. The stock is down $3 this morning.

Baltimore, Maryland — May 6, 2008 — Legg Mason, Inc. (NYSE: LM) today announced that it plans to offer and sell 20 million equity units, each with a stated amount of $50 for an aggregate stated amount of $1 billion. Legg Mason plans to grant the underwriters for the equity units offering an option to purchase during the 13-day period beginning on, and including, the initial issuance date of the equity units up to 3 million additional equity units, or an additional aggregate stated amount of $150 million, solely to cover over-allotments. The equity units will initially consist of a contract to purchase Legg Mason common stock and a 1/20, or 5.0%, undivided beneficial ownership interest in a $1,000 principal amount senior note due June 30, 2021. Under the purchase contract, holders are required to purchase Legg Mason common stock no later than on June 30, 2011. The net proceeds from the equity units offering will be used for general corporate purposes, which may include support of liquidity funds managed by its subsidiaries, financing acquisitions and repayment of outstanding debt.

Posted by Jay Hancock at 9:54 AM | Permalink | Comments (0)
                    

Until now you could count on BGE's kilowatt-hour rates dipping at the end of the hot-weather season. Peak-use kilowatts are usually the most expensive, and there's no peak like a 100-degree day in August. For this reason generators and utilities such as Baltimore Gas & Electric always charged more for summertime juice. Last year, when September turned to October, the price of BGE electricity dropped by almost 0.9 cent per kilowatt hour -- $9 a month for a typical bill.

Not this year. BGE just posted its rates for the 12 months beginning in June. The summertime generation and transmission price (beginning June 1) will be 11.8 cents. (11.4 cents for generation and 0.4 cents for transmission.) But the non-summer rate beginning Oct. 1 will be almost exactly the same. The reason: BGE bought its summertime juice back when energy costs were lower. It bought the non-summer juice when costs were rising, including a big bundle last month. But at this point BGE's standard non-summer rate is still less than what independent kilowatt vendors are charging.

Posted by Jay Hancock at 6:06 PM | Permalink | Comments (0)
                    

Thoughtful libertarian Bryan Caplan, who has just published an acclaimed book on why voters make such dumb choices, has stepped into the breach to defend Hillary R. Clinton's widely derided proposal for a gas-tax holiday to give U.S. consumers a break. It's a great idea, Caplan says, because 1) It won't help consumers much, but it'll give them the illusion that politicians are doing "something." 2) It'll keep politicians from doing something even dumber. 3) It'll raise oil-company profits even higher, which might give them incentive to go discover more oil.

File in the category of damning with (very) faint praise. Sez Caplan:

With arguments like these, I doubt that I'll be getting any phone calls from Hillary's team. Her proposal is defensible; it's just not defensible using arguments that the American people wants to hear.

Posted by Jay Hancock at 12:02 PM | Permalink | Comments (0)
                    

Excellent essay (an excerpt from his new book, The Post-American World) by Fareed Zakaria in Newsweek. The whole thing is worth reading, but here are the highlights:

The post-American world is naturally an unsettling prospect for Americans, but it should not be. This will not be a world defined by the decline of America but rather the rise of everyone else. It is the result of a series of positive trends that have been progressing over the last 20 years, trends that have created an international climate of unprecedented peace and prosperity...

More broadly, this is America's great—and potentially insurmountable—strength. It remains the most open, flexible society in the world, able to absorb other people, cultures, ideas, goods, and services. The country thrives on the hunger and energy of poor immigrants. Faced with the new technologies of foreign companies, or growing markets overseas, it adapts and adjusts. When you compare this dynamism with the closed and hierarchical nations that were once superpowers, you sense that the United States is different and may not fall into the trap of becoming rich, and fat, and lazy...

Americans—particularly the American government—have not really understood the rise of the rest. This is one of the most thrilling stories in history. Billions of people are escaping from abject poverty. The world will be enriched and ennobled as they become consumers, producers, inventors, thinkers, dreamers, and doers. This is all happening because of American ideas and actions. For 60 years, the United States has pushed countries to open their markets, free up their politics, and embrace trade and technology. American diplomats, businessmen, and intellectuals have urged people in distant lands to be unafraid of change, to join the advanced world, to learn the secrets of our success. Yet just as they are beginning to do so, we are losing faith in such ideas. We have become suspicious of trade, openness, immigration, and investment because now it's not Americans going abroad but foreigners coming to America. Just as the world is opening up, we are closing down.

Generations from now, when historians write about these times, they might note that by the turn of the 21st century, the United States had succeeded in its great, historical mission—globalizing the world. We don't want them to write that along the way, we forgot to globalize ourselves.

Posted by Jay Hancock at 11:40 AM | Permalink | Comments (0)