Expect cronyism and undying loyalty from people they appoint to high government positions, that is. Bob Dole's scathing email to Scott McClellan reads, in part:

"In my nearly 36 years of public service I've known of a few like you," Dole writes, recounting his years representing Kansas in the House and Senate. "No doubt you will 'clean up' as the liberal anti-Bush press will promote your belated concerns with wild enthusiasm. When the money starts rolling in you should donate it to a worthy cause, something like, 'Biting The Hand That Fed Me.'

This is reminiscent of something Democrat Leon Panetta told the New York Times last month regarding once loyal Clintonites who switched their support from Hillary to Obama.

“These are people that the Clintons gave an opportunity to serve,” said Mr. Panetta, speaking generally. “They helped give them the titles they now have, and made them a lot of money. I think the Clintons probably feel they are owed something.”

Megan McArdle makes exactly the right retort. She is responding to the Dole email, but the thoughts are bipartisan.

As an American taxpayer I'd like to think that I am the hand that fed Mr. McClellan, along with my fellow citizens. He owed loyalty to the United States of America, our constitution, laws duly enacted by our legislature and our citizenry. It may be that Mr. McClellan betrayed some of those loyalties, but the mere fact of criticizing the president after having left the administration isn't "biting the hand that fed" him.

Posted by Jay Hancock at 5:59 PM | Permalink | Comments (3)
        

No surprise that discounters such as Wal-Mart and Costco are booking higher sales. The stuff they sell — food and gas — is getting much more expensive, which swells the top line of the income statement.

What’s impressive is that they’re also increasing the bottom line, although how long that can continue is an open question. A weak economy is driving more shoppers to seek low prices, which has helped increase discounters’ sales growth beyond the inflation rate and compensated for their higher costs.

Two weeks ago, Wal-Mart reported a 7 percent profit increase in the first three months of the year to go along with a 10 percent increase in sales. Last week, Costco beat Wall Street’s estimates by booking a 32 percent increase in first-quarter profit and a 13 percent sales increase. Revenue from food, which makes up 60 percent of Costco’s sales, and gasoline, which makes up 10 percent, was robust, the company said. But sales of discretionary items such as jewelry and electronics were weak.

Rising wholesale and manufacturing prices threaten profits for all retailers, and discounters are no exception. This year through April, so-called “producer” prices have been rising at about three times the rate of retail prices. Last week, Dow Chemical, whose products are used in all kinds of consumer goods, said it would raise prices by as much as 20 percent.

That kind of surge will hurt consumers and retailers alike. Even with heavy store traffic, there is a limit to how much discounters can match expensive wholesale costs with higher prices of their own.

Posted by Jay Hancock at 10:16 AM | Permalink | Comments (0)
        

The bond market, which has inexplicably been absent from the inflation discussion, is starting to weigh in. Bond investors are supposed to push up long-term interest rates when inflation threatens, because inflation threatens the real return from their coupons. (If you earn 5 percent on a bond and inflation is 6 percent, you just lost 1 percent of your buying power.) But bond yields have been weirdly low this spring even as inflation makes its strongest bid since the 1980s. Now that's starting to change.

The yield on the 10-year Treasury is back up over 4 percent. Perhaps bond jocks were responding to yesterday's news that Dow Chemical would raise prices by as much as 20 percent. For years inflation doves have been reassured by the "core" inflation rate, which measures inflation everywhere except for food and energy prices. The core rate has been relatively tame. Memo to inflation doves: Chemical prices are part of the core. Get ready for an uptick.

Posted by Jay Hancock at 9:56 AM | Permalink | Comments (0)
        

Who ya gonna believe? The ethanol lobby?

Corn demand for ethanol has no noticeable impact on retail food prices. A central theme in the “food versus fuel” myth is the false assertion that moderately higher corn prices, spurred by ethanol demand, are leading to higher retail food prices for consumers.

Or Amartya Sen, winner of the Nobel Prize for economics?

Agricultural crops like corn and soybeans can be used for making ethanol for motor fuel. So the stomachs of the hungry must also compete with fuel tanks.

Misdirected government policy plays a part here, too. In 2005, the United States Congress began to require widespread use of ethanol in motor fuels. This law combined with a subsidy for this use has created a flourishing corn market in the United States, but has also diverted agricultural resources from food to fuel. This makes it even harder for the hungry stomachs to compete.

Ethanol use does little to prevent global warming and environmental deterioration, and clear-headed policy reforms could be urgently carried out, if American politics would permit it. Ethanol use could be curtailed, rather than being subsidized and enforced.

Posted by Jay Hancock at 11:10 AM | Permalink | Comments (0)
        

The conversion of Societe Generale's Jerome Kerviel into a Nick Leesonesque celebrity is well along. Even as SocGen's shareholders booed Chairman Daniel Bouton at today's annual meeting and called the banking company "a casino," Kerviel posed for pictures in a nice suit and tie at a separate location. Reuters story here.

Reuters Photo: Former Societe Generale junior trader Jerome Kerviel walks in the streets of the Paris suburb of Neuilly during an exclusive photo session May 27, 2008 on the same day as shareholders angrily quiz the French bank's management at their annual general meeting over $7.7 billion of losses which the bank blames on unauthorized stock markets bets by Kerviel.

Posted by Jay Hancock at 3:57 PM | Permalink | Comments (0)
        

Here's Michael O'Hanlon and Alice Rivlin, in yesterday's Washington Post:

For all of their impressive qualities, this year's presidential candidates are woefully short on fiscal prudence. And the next president will face two daunting budget problems. The winner will inherit a large deficit resulting from a weak economy, an expensive war and the persistent political inclination to spend more and tax less. The bigger challenge? Promises made to the growing population of retirees as health-care spending continues to soar.

The GOP, once the party of fiscal and social conservatism, has lost the budgetary high ground. During George W. Bush's presidency, Republicans have cut taxes massively, launched a war without paying for it, added costly drug benefits to the Medicare program, exercised little restraint on domestic spending during the six years they controlled Congress, and allowed deficit-restraining budget rules to lapse. Fiscally prudent Republicans should worry that their standard-bearer is calling for about $300 billion a year in new tax reductions and increased military spending with few credible ways of paying the bill.

Meanwhile, Democrats, who complained that Bush asked us only to go shopping after the attacks of Sept. 11, 2001, should worry that their leaders are more intent on proposing huge initiatives in health care and energy -- while preserving Bush's tax cuts for all but the wealthiest -- than in heeding John F. Kennedy's call to sacrifice for the common good.

Posted by Jay Hancock at 10:59 AM | Permalink | Comments (0)
        

Hedge fund manager/blogger Barry Ritholtz, reporting live from eastern Long Island:

Got last minute dinner reservations Saturday night at one of our favorite restaurants, no problems. At 8 pm, there was no wait -- indeed, there were 3 or 4 empty tables after we were seated. Last year, there would have been a 20-30 minute line at that hour on Memorial day weekend.

On the way to the beach, I count 14 homes for sale -- same amount as last year. A lot of For Rent signs out also.

We go to dinner at one of our favorite lobster restaurants -- on the early side, so as to not get home too late. We finished after 7 -- the place was still empty.

Posted by Jay Hancock at 10:45 AM | Permalink | Comments (2)
        

I love these conditional apologies from people who have made public gaffes and insults. A genuine apology -- an expression of regret and an implicit request for forgiveness -- should be unconditional. It should be an acknowledgment that a wrong has been committed -- no ifs ands or buts. But here's Hillary, who defended the fact that she's still in the race by saying, "We all remember Bobby Kennedy was assassinated in June in California." She responded to the uproar by saying:

“And I regret that if my referencing that moment of trauma for our entire nation and in particular the Kennedy family was in any way offensive.”

Note the "if." One way to interpret this is that she's saying: Hey, I'm fine with what I said. But if you have a problem with it, OK, my bad. I don't really regret the remark. I regret that you're offended.

It WAS offensive, Mrs. Clinton. Just apologize without the fine print. Here's a (very partial) collection:

Janet Jackson after partially disrobing during the Super Bowl:"I am sorry if anyone was offended by the wardrobe malfunction during the halftime performance at the Super Bowl."

Bill O'Reilly, after putting "Michelle Obama" and "lynching" in the same sentence:"I'm sorry if my statement offended anybody. That, of course, was not the intention."

Hillary Clinton after her husband compared Barack Obama's candidacy to Jesse Jackson's losing bid for the presidency: "You know I am sorry if anyone was offended. It was certainly not meant in any way to be offensive."

Trent Lott, after seeming to wax nostalgic for the days of segregation: “I apologize to anyone who was offended by my statement."

Posted by Jay Hancock at 11:08 AM | Permalink | Comments (21)
        

The Sacramento Bee reports that the governor hopes California's legitimization of gay marriage will boost the economy.

"You know, I'm wishing everyone good luck with their marriages and I hope that California's economy is booming because everyone is going to come here and get married," said Schwarzenegger, prompting laughs and applause, according to a recording.

The San Francisco Convention and Visitors Bureau anticipates a tourism boom in the city this summer, said spokeswoman Angela Jackson. The bureau's Web site promotes a gay travel section and now explains that same-sex couples are "officially allowed to marry in the state of California."

Posted by Jay Hancock at 2:47 PM | Permalink | Comments (6)
        

The Financial Times Alphaville blog is reporting that European drinks giant InBev is working on a $46 billion takeover offer for Anheuser Busch, the St. Louis-based maker of Budweiser. It's a huge deal, and at a time of strained credit markets you have to wonder where the dough would come from. But with a combination of European capital (Credit markets on the continent aren't as hinky as those in the so-called Anglo-Saxon economies. One of the financiers would be Spain's Santander, Alphaville says) and a business that's about as far from finance and debt obligations as you can get, maybe it could be done.

Anheuser shares rose $3.50 this morning to $56, far short of the $65 price in the story, which bespeaks lots of skepticism.

Here's Alphaville:

A direct approach to approach to Anheuser chief executive August Busch IV is being planned, although expecting a cool reception, the InBev team are preparing to send a follow up letter to the American group’s entire board, mapping out terms that are expected to be pitched at $65 a share. If Anheuser refuse to commence friendly talks, InBev is considering a public appeal direct to the target’s shareholders.

On Friday, sources indicated that while extensive work had been carried out on the transaction, InBev was “not about to push the button.”

Putting the two companies, however, together would create a business capitalised at close to $100bn and would constitute the most ambitious piece of corporate consolidation since the onset of the credit crisis last summer. Anheuser and InBev together would be almost equally balanced between developed and emerging market operations across the globe, pumping out around 350m hectolitres of beer and other beverages annually. Annual revenues would be around $20bn, producing earnings of close to $6bn at the ebitda level.

Posted by Jay Hancock at 12:20 PM | Permalink | Comments (1)
        

Today's column:

Last year's embarrassing leak of spy-budget details gave insight into just how lucrative the business of federal contracting has become since the 2001 terrorist attacks and the 2003 start of the Iraq war.

At a Colorado conference sponsored by the Defense Intelligence Agency, a PowerPoint slide revealed that 70 percent of intelligence dollars go not to government employees or agencies, but to private companies such as SAIC and Booz Allen Hamilton.

On her blog, The Spy Who Billed Me, journalist and novelist R.J. Hillhouse used conference information to figure that the U.S. intelligence budget is $60 billion - almost a fourth higher than people thought.

The question now for Maryland and other regions swimming in the money is: How long can it continue? The apparent answer from the politically connected Carlyle Group: a while.

Washington-based Carlyle is buying a majority stake in Booz Allen's government contracting arm, which does secret work for the National Security Agency at Fort Meade and has been called "the shadow intelligence community," for $2.5 billion.

"We like it and think budgets will continue to grow," Peter Clare, head of Carlyle's aerospace and defense business, says of the kind of high-tech intelligence and security work that Booz does. "We'd like to invest further in this area."

Read the whole thing Here. Read Washington Post biz columnist Steve Pearstein's take on the Carlyle/Booz deal Here.

Posted by Jay Hancock at 10:16 AM | Permalink | Comments (1)
        

Here's one way to cut your electricity bill and help the planet: Fire your dryer. Running a clothes dryer four hours a week costs $2 or $3 and draws juice from polluting electricity plants. Drying wash on an outdoor line costs nothing. Unfortunately, some believe clotheslines are visual pollution -- a status hangup from the days when outdoor laundry was thought to tarnish one as downscale. There must be something wrong with you if you can't afford a dryer.

Many communities restrict or ban clotheslines. In the Columbia village of Wilde Lake, you can use only umbrella or retractable lines. Your application must include "a sketch of the clothesline showing sytle, color, materials and operational techniques," a "plat plan showing the intended location of the clothesline" and "a sketch of the fence or other enclosure that will screen the clothesline from view." The operational technique at my house is this: We hang clothes on a rope until they aren't wet.

Fortunately there's a growing backlash. The New Hampshire-based Project Laundry List militantly promotes the "right to dry" and has proclaimed April 19 "National Hanging Out Day." At the National Association of Attorneys General conference on energy earlier this month, Idaho Attorney General Lawrence Wasden exhorted his peers to fight clothesline repression. "We are blind to some of the simplest solutions," Wasden said, according to the Associated Press. "Clotheslines are not pretty enough for our notion of the American dream." Apparently he wants officials to go easy on unlicensed clothesline perps.

Maryland Attorney General Doug Gansler was at the conference, in Coeur D'Alene. He's pro-clothesline, says spokeswoman Raquel Guillory. "Of course we support naturally spring-fresh laundry," she said. But it doesn't sound like he's about to interfere with Columbia's laundry covenants. "You have to respect the restrictions of private community associations," she said.

No you don't. The time for civil laundry disobedience is now. Let 1,000 brassieres and socks bloom and flap in the backyard breeze.

Posted by Jay Hancock at 9:56 AM | Permalink | Comments (3)
        

Not all those mortgage cash-outs were spent on SUVs and trips to Vegas. California Congresswoman Laura Richardson mortgaged herself to the eyebrows to pay back campaign debts incurred to win a seat from Long Beach. But then the Democrat defaulted on the loan. The lender: Washington Mutual, of course! From Capitol Weekly:

Richardson declined to comment for this story. But tax records at the Sacramento County assessor's office show that in January 2007, Richardson took out a mortgage for the entire sale price of the house -- $535,000. The mortgage amount was equal to the sale price of the home, meaning she was able to buy the house without a down payment, even though the housing market was beginning to turn.

A March 19, 2008 notice of trustee's sale indicates that the unpaid balance of Richardson's loan, which is held by Washington Mutual, is more than $578,000 –$40,000 more than the original mortgage.

Like many homes that have gone through foreclosure, Richardson's new residence quickly became an eyesore. With Richardson gone, upkeep on the home lapsed, and neighbors began to get angry.

While Richardson walked away from her bank loan, she has begun to pay herself back for the money she personally invested in her initial race. Records show that Richardson spent $587,000 out of her Congressional campaign committee since declaring her Congressional candidacy through March of this year. Of those expenditures, Richardson has spent $18,000 of that money to begin repaying herself for the money Richardson loaned to her campaign.

Posted by Jay Hancock at 10:10 AM | Permalink | Comments (5)
        

Check out Scott Reckard's story in today's Los Angeles Times. A homeowner behind on his mortgage payments emails Countrywide Financial, which has been plastered by bad housing loans, asking for a reprieve.

My number one goal is to keep my home that I have lived in for sixteen years, remodeled with my own sweat equity and I would really appreciate the opportunity to do that.

He gets this email back from Countrywide CEO Angelo Mozilo:

This is unbelievable. Most of these letters now have the same wording. Obviously they are being counseled by some other person or by the Internet. Disgusting.

Mozilo apparently found the request in his inbox along with many other similar ones and tried to forward it to somebody inside Countrywide with his comments. Instead he hit the "Reply" button.

Posted by Jay Hancock at 3:29 PM | Permalink | Comments (1)
        

Former Labor Secretary Robert Reich drops a little aside in a blog post on campaign styles that gives a revealing, behind-the-scenes glimpse of what passes for political discourse these days. We know the producers of the Sunday talk shows and "reality" shows generally are lurking in the background, egging on the actors and often distorting what's happening. Rarely do we get to find out about it, however. Reality-show contestants sign contracts not to spill the beans, and talk-show guests also are silent because they know they won't be invited back if they squeal. Here's Reich:

I was on television recently, debating a conservative. It's something I do fairly often. During a commercial break, the producer spoke into my earpiece. "A bit more energy," he said.

"What do you mean?" I answered, slightly hurt. I thought I'd been doing a fairly good job scoring points.

"Rip into him. Only three minutes in the next segment and we want to make the most of it."...

I asked the producer who was talking into my earpiece why I had to rip into my opponent. "We see viewership minute by minute," he said, hurriedly (the commercial break was about over). "When you really go after each other, we get a spike."

It's the spike I'm worried about. I chose not to rip into my opponent but, then again, I'm not running for president.

This is the larger point to be made about right-wing blowbag Kevin James' embarrassing appearance on Hardball last week. Sure he made a total fool of himself because he was indignantly against "appeasement" but didn't know who Neville Chamberlain was or how appeasement got such a bad rap. But, hey, who cares? Hardball's Chris Matthews "ripped into him." Matthews and James "got a huge spike." Isn't that what matters most? The hell with substance! We want to be entertained. Making himself a global joke was probably a great career move for James.

Posted by Jay Hancock at 12:21 PM | Permalink | Comments (3)
        

Holy cow. That is all.

Posted by Jay Hancock at 11:40 AM | Permalink | Comments (1)
        

Since Mike Miller and the Maryland General Assembly deregulated electricity in 1999, BGE and other utilities must buy electricity on the wholesale grid. Once utilities made their own power, marked it up for a modest profit and sold it to consumers. Now electricity depends on a so-called "market" that actually is replete with market failures.

Why is this so? Electricity isn't like products that trade in other markets. You can't bottle it, so there are no inventories. This makes price manipulation easier. At the same time there are huge barriers to entry, so incumbent producers have quasi-monopoly power. This makes price manipulation even easier.

I didn't have room for this in today's column, but let's review some of the problems we know about just from the last year and a half. The cockroach theory certainly applies here -- there are a lot more that you don't know about than the ones you can see.

-- May 2008. The Federal Energy Regulatory Commission reveals that Edision Mission spent three years evading questions and delivering misleading information about suspicious selling practices that look similar to price manipulation schemes employed by Enron and others. The practices took place in PJM, the grid that serves Maryland and a dozen other states. FERC fines Edison $7 million for lack of candor but doesn't say whether the behavior under investigation was proper or improper.

-- April 2008. Maryland's Public Service Commission decides that the wholesale auction that led to a 70 percent price increase for BGE households was proper. But the investigation is largely confidential, and the final report is riddled with blackouts.

-- December 2007. Hedge fund affiliate Power Edge LLC loses an estimated $80 million on aggressive electricity bets on the PJM system that didn't pan out. Under PJM rules, the losses are not absorbed by Power Edge's parent. Tower Research Capital. They must be paid by BGE and other PJM members.

-- September 2007. Texas regulators recommend fining TXU Corp. $171 million for alleged price manipulation of wholesale electricity. The matter is still pending, and TXU has refused to turn over some documents to the Texas Public Utility Commission.

-- April 2007. Joseph Bowring, market watchdog for PJM, publicly accusses his PJM bosses of silencing him when he tried to speak out about market irregularities and outsize profits by generation companies, including those in Maryland. The accusation leads to a turnover in top PJM leadership, a measure of independence for Bowring and a FERC investigation that found some profits made by Maryland generators were neither "just" nor "reasonable." FERC, however, declined to reclaim the excess profits for consumers.

-- March 2007. An investigation commissioned by Illinois Attorney General Lisa Madigan finds "disturbing evidence of price manipulation" in that state's wholesale electricity markets. The finding leads to a billion-dollar settlement with Illinois electricity producers.

-- Early 2007: Consultant Edward Bodmer tells Congress in a sworn statement that deregulation has allowed BGE parent Constellation Energy and four other PJM generators to make "supra-competitive" profits - more than they would in a truly competitive market or a regulated market.

-- From the Tacoma News Tribune: Since 2005, FERC has "conducted 64 investigations that have resulted in 13 settlements involving the payment of $40 million in civil fines" for price manipulation in electricity and natural gas. FERC "also pursued two enforcement actions that resulted in the payment of nearly $460 million in fines." Given the high profits of price manipulation, though, the fines are merely a cost of doing business.

Posted by Jay Hancock at 10:50 AM | Permalink | Comments (4)
Categories: BGE/electricity
        

More disturbing news about the wholesale electricity markets, which in the wake of deregulation set prices for BGE and other Maryland utilities. One thing that got edited out of the column for space is important: Yes, sky-high prices for coal, natural gas and other fuels play a big part in driving up the cost of electricity. These items fuel the generation plants and are probably the biggest cost factor in producing a kilowatt. But thanks to flaws in the wholesale electricity markets, power sellers are reaping huge profits ON TOP of the high fuel costs. It's a double whammy for consumers. High fuel costs don't explain everything.

The column:

Call me cynical, but it sure seems like Edison Mission Marketing & Trading had something to hide.

After regulators began investigating the Boston-based electricity seller in 2005, Edison Mission misled them with "protracted" evasions, wasted "extensive" amounts of their time and committed "severe" violations of its duty to tell the truth, the Federal Energy Regulatory Commission said two days ago.

Serious stuff, and you might think FERC is finally policing the wild and woolly electricity bazaar. But here's the problem: The agency has said nothing about the troubling Edison Mission behavior it set out to investigate, which independent consultants say looks similar to price-manipulation schemes employed by Enron and others.

La di dah. More problems on the "PJM" wholesale electrical grid, which sets sky-high prices for BGE and other utilities, thanks to deregulation. Another wimpy gesture by FERC. And Exhibit No. 3,458 showing that the electricity "market" that was supposed to deliver competitive prices doesn't fit that description and hasn't fulfilled that promise.

Read the whole thing here.

Posted by Jay Hancock at 7:45 AM | Permalink | Comments (0)
Categories: BGE/electricity
        

From GasBuddy, via Barry Ritholtz: Here is a county-by-county map of gas prices. The "hot" colors (red) are high prices; the "cool" colors (green) are lower. But not by much! At a neutral brown, Maryland is in the $3.79 to $3.85 range. That's what passes for a moderate price these days. Delaware is yellow (cheaper than Maryland). What's going on there? Lower gas tax?

Posted by Jay Hancock at 11:21 AM | Permalink | Comments (0)
        

No surprise about this story. Buffett has long diverged from the libertarian-Republican philosophy of his congressman father. Buffett fils opposes abandoning the inheritance tax, favored the expensing of stock options and often tilts against the positions of his fellow plutocrats. These days he might have been a liberal, Eisenhower-Rockefeller Republican. But there aren't many of them left.

Posted by Jay Hancock at 6:28 PM | Permalink | Comments (2)
        

In doing research on the planned liquefied natural gas terminal for Sparrows Point and Dundalk, I was planning to contact Sharon Beazley, who as coordinator of the LNG Opposition Team was one of the highest-profile opponents of the terminal. However, the team's lawyer told me last week that she had died. Sympathies to her friends and family. Here is the beginning of the obit from today's edition of The Sun.

Sharon Faye Beazley, a community activist from Dundalk who spearheaded opposition to a proposed liquefied natural gas terminal at Sparrows Point, died of lung cancer Thursday at Stella Maris Hospice in Timonium. The Churchville resident was 57.

A business owner and former Bethlehem Steel employee, Mrs. Beazley worked tirelessly in the community for decades, most recently leading the charge against the LNG pipeline. She headed an active opposition group and co-chaired a legislative task force created to study the issue.

"My mother always said, 'People who are crazy enough to think they can change the world usually do,'" said Lachelle Beazley-Scarlato, Mrs. Beazley's daughter. "And she did."

Posted by Jay Hancock at 1:43 PM | Permalink | Comments (0)
        

Vinny DeMarco is head of the Maryland Citizens' Health Initiative. Here is his letter to the editor in yesterday's paper responding to my blog pointing out that a new law requiring health coverage to age 25 for dependents doesn't apply to most Maryland families.

Although Jay Hancock's column "New health mandate less than mandatory" (May 11) correctly points out some of the limits of Maryland's new law expanding health coverage for young adults, he greatly understates the law's potential.

As of Jan. 1, Maryland became one of only a handful of states to allow young people up to age 25, whether they are in college or not, to stay on their parents' health care insurance if they remain dependents.

There is no doubt that tens of thousands of the more than 100,000 previously uninsured Marylanders between the ages of 18 and 25 will benefit from the new Maryland law.

It is true, as Mr. Hancock points out, that Maryland does not have the authority to apply this new law to federal employees or to large companies regulated by federal insurance rules, and that the Maryland Health Care Commission will determine whether the law will apply to small businesses in our state.

I urge Mr. Hancock to join us in working to convince the federal government and the Health Care Commission to also move the age limit for dependent coverage to 25.

Vincent DeMarco

Baltimore

Posted by Jay Hancock at 12:37 PM | Permalink | Comments (2)
        

More from my interview with David Walker, the former comptroller general who is now head of the Peter G. Peterson Foundation and star of I.O.U.S.A., a documentary film on the country's terrible debt problem. Washington's decline into $9 trillion in debt and the subprime mortgage crisis are remarkably alike, he says. To wit:

1) There is a disconnect between lenders and borrowers. By dealing through brokers and other intermediaries, Wall Street didn't have a full idea of how just likely subprime borrowers were to almost immediately default on their loans. This was the classical "principal-agent" problem in which the middlemen profited at the expense of the parties they were supposed to represent.

Congress -- the agent for the American people -- is doing its job about as well as the shadiest liar-loan, subprime mortgage broker. Congressmen reap great political capital from spending the next generation's money, and they don't get hit with a either political or financial cost. Generations Y and Z -- the people who will owe all this money when the rest of us are dead -- are lending money for Congress's deficits. But nobody is representing them at the table.

2) Lack of transparency. Even Wall Street wizards had trouble figuring out myriad tranches of mortgage securities, which contributed to their problems. Likewise, Washington fudges its accounts by ignoring trillions in future liabilities in its financial statements -- behavior that would be illegal if done by a private corporation. There is $44 trillion in off-balance sheet federal obligations, Walker says.

3) Despite numerous warnings in both cases, nobody does anything until a crisis forces action. This makes the problem ten times worse than if it had been nipped in the bud. With the national debt problem, "if we wait until we HAVE to act, tens of millions of people will be affected in ways they have never been affected in in their lives," Walker said. Just like the mortgage mess.

Posted by Jay Hancock at 9:59 AM | Permalink | Comments (4)
        

Jeff Tarleton of Reisterstown, whose father retired from Domino Sugar in 1982, says this about today's column. More below the jump.

Dear Mr. Hancock:

While I enjoy your articles, I thought today’s column was too casually aggressive towards Domino Sugar, their local refinery especially, and their place in the sugar subsidy issue. I’m fairly sure that most people would have a difficult time differentiating between the refiner, Domino, and the raw can supplier, Fanjul. I think you probably unintentionally may fuel some local and unfair negativity towards Domino.

Domino Sugar, the refining company, has been at the short end of the subsidies for years. They have paid for over priced raw sugar for an extended period of time. As such, Tate & Lyle, their former owner, gave up on the US market and sold Domino in a fire sale just a few years ago. Closing was a real possibility. As you mentioned soda, the reality is that Domino lost their best customer (Coca-Cola) because of pricing. Do you think that was something that they considered positive in their business plan?

The Fanjul family is, as you say, profiting greatly from their role of growers. They smartly bought Domino realizing they needed a vertical expansion of their business, and more importantly realized that they needed a market for their subsidized products to be sold to.

But to suggest they are popping the corks over on Key Highway is highly misrepresentative. It was not all that long ago that Domino had refineries in Boston, Brooklyn, Phila, Balt, New Orleans, owned Spreckles on the west coast and was by far a dominant company. Decades of exhorbinant raw prices have taken their toll on this once fine company.

They have hung on by a thread in terms of providing good local jobs. I will not be surprised the day they sell that piece of land for development because the land is worth more than refining sugar (same thing they have done in Boston for example). While it is possible that the Fanjul's will share their prosperity with the refiner, I would doubt that they would do any more than they have to protect their market; in other words, I would not expect any expansion, building, job enrichment, etc.

While this letter may appear to be a PR spokesperson’s piece, I am not an employee of Domino. My father retired from them in 1982 and I have been a follower of the industry since, so I am somewhat more informed than other people are.

Thank you for reading this and perhaps you might do a follow-up that is a little fairer to the local entity.

Posted by Jay Hancock at 1:02 PM | Permalink | Comments (0)
        

I was unable to reach Brian O'Malley, president of Domino Sugar owner Domino Foods, earlier in the week for my column on the farm bill. He called me back just now. The highlights:

The farm bill "is pretty good for the Baltimore plant," he said. It helps U.S. growers, ensures a supply of raw material for the Domino Sugar mill on Baltimore's harbor and -- through a small increase in the loan rate paid to farmers -- increases input costs only moderately.

What is missed in criticism over the farm bill, he says, is the fact that U.S. sugar prices haven't risen that much while farmers' costs for fuel and fertilizer have skyrocketed.

"Nothing's being talked about [concerning] the plight of the farmer -- all his input costs are going up," O'Malley said. "I know what it takes to run a farm. This is not windfall profit by any stretch of the imagination."

The Baltimore mill, he said, as running back at full speed after the fire it had last year. It may have even more than the 400 employees it reported last year, he said, because after an explosion at a big mill in Savannah growers sent their cane instead to Baltimore, which increased volume.

Posted by Jay Hancock at 12:32 PM | Permalink | Comments (0)
        

Obama's statement, via Greg Mankiw:

"I applaud the Senate's passage today of the Farm Bill, which will provide America's hard-working farmers and ranchers with more support and more predictability."

"The bill places greater resources into renewable energy and conservation. And, during this time of rising food prices, the Farm Bill provides an additional $10 billion for critical nutrition programs. I am also pleased that the bill includes my proposal to help thousands of African-American farmers get their discrimination claims reviewed under the Pigford settlement."

"This bill is far from perfect. I believe in tighter payment limits and a ban on packer ownership of livestock. As president, I will continue to fight for the interests of America's family farmers and ranchers and ensure that assistance is geared towards those producers who truly need them, instead of large agribusinesses. But with so much at stake, we cannot make the perfect the enemy of the good."

"By opposing the bill, President Bush and John McCain are saying no to America's farmers and ranchers, no to energy independence, no to the environment, and no to millions of hungry people."

If the farm policy weren't driving food prices sky high, we wouldn't need "an additional $10 billion for critical nutrition programs." First American taxpayers funnel billions to agri-business so it can sell at anticompetitive prices; then taxpayers have to pay billions more so people can afford to eat.

Posted by Jay Hancock at 11:27 AM | Permalink | Comments (5)
Categories: Corporate welfare
        

Sugar farmer Gene Adolph, of Adolph Farms, Napoleonville, Louisiana, writes:

"Big Sugar" what nomenclature! For years "Big Sugar" is to blame? Come visit us in South Louisiana where sugar has grown here for over 200 years. It's the only commodity that can withstand hurricane weather here. Do you want to lose America's investment in sugar? Brazil runs their country on sugar. The price I get paid for my sugar has dropped or remained stable for decades. Fertilizer and fuel costs are rising exponentially...they have quadrupled within the past five years. "Big Sugar?" I don't live in a mansion (or even own a home) my kids go to public schools and our sugar industry is trying to survive as it is. Come visit South Louisiana...we will show you many small family farms you equate with "Big Sugar." Please come see for yourselves.

He was replying to this column:

THOSE CHAMPAGNE corks heard on the Inner Harbor yesterday may well have been popping at Domino Sugar, where the high prices and corporate welfare are sweeter than anything that gets loaded on the trucks.

Congress' veto-proof passage of the 2008 farm bill ensures that Domino's proprietor, the Fanjul family, and fat-cat farmers across the nation will keep wallowing in trade protections that disappeared decades ago for other industries.
But while the bill is good for Domino, its 400 Baltimore jobs and a few agri-corporations, it hurts everybody else.

If you're having trouble figuring out why the legislation makes people so upset, a good place to start is to understand how it lets Domino and other producers charge twice the global market price for sugar and makes sugar welfare even worse.

Read the whole column HERE.

Posted by Jay Hancock at 11:06 AM | Permalink | Comments (0)
        

The lede from this morning's story on April housing starts looks great:

Construction of new homes posted the biggest increase in more than two years in April, a rare spot of good news amid the worst downturn in housing in more than two decades.

Small problem, however: All the gain came from APARTMENT buildings, not single-family homes. Naturally the people getting kicked out of their homes need cheaper places to live. Now builders, responding to higher demand and rising rents, are providing. But this isn't exactly a sign of a hearty economy. One of the marks of the housing bubble was a gap between carrying costs for single-family homes -- the (fully indexed and adjusted) mortgage payment -- and the carrying cost for apartments --the rent. That gap has to shrink or disappear for the bubble to resolve. But the shrinkage doesn't just involve falling home prices and mortgage payments. It also involves rising rents, and this is one sign.

The strength in April came entirely from a huge increase in apartment construction, which can be extremely volatile from month to month. Apartment building, defined as two or more units, jumped by 36 percent to a seasonally adjusted annual rate of 340,000 units.

The larger single-family sector dropped by 1.7 percent to an annual rate of 692,000 units...

The National Association of Home Builders reported Thursday that its monthly survey of builder sentiment edged down in May to a reading of 19, just above the all-time low of 18 set in December. The survey had held steady at the low level of 20 from February through April.

David Seiders, the group's chief economist, said that conditions in the industry have continued to deteriorate.

Posted by Jay Hancock at 10:25 AM | Permalink | Comments (3)
        

Maryland’s nursing homes, usually among the best in the nation, had an off year in 2007, according to newly published information from the Government Accountability Office. State citations for inflicting residents with “actual harm” or putting them in “immediate jeopardy” were given to 17 percent of Maryland’s 234 nursing homes last year, up from only 8 percent in 2005 and 2006.

Maryland homes normally score better than those in most states. Connecticut, for example, routinely cites 40 percent or more of its nursing homes for actual harm or immediate jeopardy “deficiencies” each year. Last year 42 percent of Colorado’s nursing homes flunked.
States must inspect each home receiving Medicare or Medicaid payments at least once every 15 months. To ensure uniform standards from state to state, the Woodlawn-based Centers for Medicare & Medicaid Services (CMS) often checks behind the state inspectors.

If Maryland homes perform well, it doesn’t seem to be because inspectors are slacking off. Last year CMS double-checked 19 Maryland inspections and found only two in which monitors missed serious problems, GAO said. States with higher levels of unreported deficiencies included New Jersey, Illinois and Missouri.

Of course the best and most diligent monitors are patients’ loved ones. Visiting your elderly, institutionalized relative often won’t just put a smile on her face. It might keep her from getting hurt.

Posted by Jay Hancock at 6:47 PM | Permalink | Comments (6)
        

This is the Fed's balance sheet. This is the Fed's balance sheet on junk securities. It's hard to read, but the gist is that the gray area represents Treasury securities -- debt owed by the U.S. government, which has been the Fed's traditional asset. The non-gray stuff, which as you can see began to teem and fester in December, is risky, private-sector debt that the Fed took on in return for swapped Treasury securities to financial companies that needed propping up. Note the vertical scale -- we're measuring in terms of hundreds of billions of dollars. Sometimes it's easy for forget how extraordinary the last six months has been. This is a reminder. The chart is via Calculated Risk.

Posted by Jay Hancock at 12:20 PM | Permalink | Comments (0)
        

Wall Street loved today's April inflation report from the Bureau of Labor Statistics because it supposedly showed benign inflation. "Inflation pressures ease despite food price jump," was the AP headline.

But the raw data were anything but reassuring. Gas prices rose 5.6 percent in April -- a 92 percent annual rate! -- but in the BLS calculation prices actually "dropped" for the month because of seasonal adjustment. Ie. -- prices always climb as summer approaches, so let's not count that. Do you feel as though gas prices dropped last month? Barry Ritholtz and Big Picture don't.

The BLS reported that prices rose modestly in April, below consensus expectations.

The usually Bullish Michael T. Darda of MKM Partners was rather skeptical of the data:

From the CPI report, “In April, the index for petroleum-based energy fell 1.6%, offsetting a 2.5% increase in the index for energy services. The transportation index declined 0.7% in April, reflecting a 2.0% decrease in the index for gasoline.” And to top it off, the index of commodity prices rose just 0.1%.

Huh? Gasoline prices rose by about 10% in April. Virtually every index of commodity prices is near all-time highs (and up about 30% since the beginning of the year). I’m not sure what the BLS is smoking here, but it must be pretty strong stuff.

I have to agree.

Posted by Jay Hancock at 11:25 AM | Permalink | Comments (1)
        

BGE customers, take heart. Someone has even bigger electric bills. As the New York Times reports, about Juneau, Alaska: kilowatt use plunged by a third after prices quintupled. That's what I call demand response to price signals!

Electricity rates rocketed about 400 percent after an avalanche on April 16 destroyed several major transmission towers that delivered more than 80 percent of the city’s power from a hydroelectric dam about 40 miles south.

Until repairs are completed, possibly by late June, the city’s private electric utility will depend almost exclusively on diesel fuel. Hydropower is one of the cheapest and cleanest power sources, while diesel, at around $4 a gallon, is one of the most expensive and dirtiest.

With the first bills based on the increased rate scheduled to be sent out this week, fear is in the air. So is the laundry. Dryers eat up watts, and local stores ran out of clothespins because so many people started hanging their laundry outside. Never mind that it rains 220 days of the year and rarely gets truly warm here amid the fjords and forests of the Inside Passage.

The new rate is about 53 cents per kilowatt-hour, up from about 11 cents — around the national average — before the avalanche. The average residential bill before the avalanche was about $86 a month.

Posted by Jay Hancock at 10:34 PM | Permalink | Comments (4)
Categories: BGE/electricity
        

Today's headlines: Earthquake kills thousands in China, J-Lo's babies wear Prada

Hi Jay -

Are you interested in a story about the impact of celebrity baby style on the retail industry? The Wall Street Journal reported that the obsession with what celeb babies are wearing has entrepreneurs thriving on the business of children’s style.

Jenn Cattaui, owner of Manhattan’s Babesta boutique and cited in the Wall Street Journal article, can tell your viewers about the business of baby, including:

- The Hollywood “Green” craze, and why sales of big ticket crib décor and clothing items are already up this year
- The impact on sales when a celebrity kid is spotted in a specific item
- Why parents still value designer items for their children despite the receding economy

Below is a link to the story on WSJ.com, as well as an excerpt on Jenn. Please let me know if you would like to see a bio on Jenn or additional information on Babesta.

Posted by Jay Hancock at 11:30 AM | Permalink | Comments (0)
Categories: Stupid PR pitches
        

Here is the AP story on Ben Bernanke's speech this morning. The talk was mostly a history of the philosophy and practice of central-bank interventions in times of crisis. Here are the news highlights from the speech:

To date, our liquidity measures appear to have contributed to some improvement in financing markets. The existence of the PDCF seems to have bolstered confidence among primary dealers' counterparties (including the clearing banks, which provide the dealers with critical intra-day secured credit). In addition, conditions in the Treasury repo market, which became very strained around mid-March, have improved substantially. Liquidity is better in several other markets as well. For example, spreads on agency mortgage-backed securities have dropped in recent weeks after reaching very high levels in mid-March, as have spreads between conforming fixed-rate mortgage rates and Treasury rates. Spreads on jumbo mortgage loans have retraced a portion of their earlier large increases, but recent regulatory and legislative changes make it difficult to assess the impact of liquidity measures in that segment of the market. Corporate debt spreads have also declined somewhat from recent highs.

These are welcome signs, of course, but at this stage conditions in financial markets are still far from normal. A number of securitization markets remain moribund, risk spreads--although off their recent peaks--generally remain quite elevated, and pressures in short-term funding markets persist. Spreads of term dollar Libor over comparable-maturity overnight index swap rates have receded some from their recent peaks but remain abnormally high.4 Funding pressures have also been evident in the strong participation at recent TAF auctions even after the recent expansions in auction sizes, and, of late, depository institutions have borrowed significant amounts under the primary credit program for terms of up to 90 days.

Posted by Jay Hancock at 10:43 AM | Permalink | Comments (0)
        

From Bloomberg via Calculated Risk:

The bank expects losses to top 2.5 percent of its $118 billion in loans linked to home values, Liam McGee, president of the Charlotte, North Carolina-based company's consumer and small business division, said at a conference in New York sponsored by UBS AG. The bank previously projected a loss rate of between 2 percent and 2.5 percent.

Bank of America, the nation's largest credit-card issuer, is also seeing a ``recent sharp increase'' in spending on necessities by its credit-card customers. That has curbed retail, travel and entertainment purchases, McGee said.

Posted by Jay Hancock at 10:25 AM | Permalink | Comments (0)
        

Here's JPMorgan Chase's Jamie Dimon, speaking at a conference today:

JPMorgan Chase & Co.'s chief executive said Monday that while the crisis in the credit markets appears to be three-quarters over, he believes a U.S. recession is just beginning.

"Even if the capital markets crisis resolves, it does not mean that this country will not go into a bad recession," said CEO James Dimon, whose bank saw its first-quarter profit fall by half due to the recent collapse of the U.S. mortgage market. "The recession just started."

"We don't know if it's going to be mild or severe," he continued, speaking at a conference in New York hosted by Swiss bank UBS AG. "We're thinking there's a third of a chance that it's going to be pretty bad ... closer to the 1982 recession than the very mild recessions we had in 2001 and 1990."

Dear Mr. Dimon: If the recession gets as bad as the 1982 downturn, the problems in the credit markets will not turn out to have been three-quarters over.

Posted by Jay Hancock at 5:07 PM | Permalink | Comments (0)
        

This is the latest from Richard Posner, the distinguished federal appeals judge and noted (often described as conservative) economic thinker:

Why We Should Be Rooting for $200 per Barrel of Oil

Were the world price of oil to rise to a level close to $200, both demand and (with a lag) supply would respond. Oil trapped in sand and shale--a potentially very large supply--would become economical. In the longer run, very high oil prices will further stimulate the development of alternative fuels.

And:

I would like to see the price of oil rise to $200, despite the worldwide recession that would probably result, provided that it rises as a result of heavy taxes on oil or (better) carbon emissions. The taxes would jump start the development of clean fuels, and the financial impact on consumers could be buffered by returning a portion of the tax revenues in the form of income tax credits. That would not reduce the effect of the taxes on the demand for oil or the incentives to develop alternative fuels, because the marginal cost (the production and distribution cost plus the tax) of oil to consumers would not be affected.

Higher oil prices are necessary to check global warming, reduce traffic congestion, and reduce dependence on foreign oil, so much of which is produced by countries that are either unstable or hostile to the United States. Heavy taxes on oil would reduce not only the amount of oil we import but also the revenue per barrel of the oil exporting nations, so there would be a double negative effect on those countries' oil revenues: they would sell less oil and earn less per unit sold.

Posted by Jay Hancock at 4:27 PM | Permalink | Comments (1)
        

This is making the rounds today, via Tyler Cowen, It's a statement of support for John McCain's economic plan by a couple dozen economists known for championing free markets and low taxes. But they left some stuff out. Here is the intro:

We enthusiastically support John McCain's economic plan. It is a comprehensive, pro-growth, reform agenda. The reform focuses on the real economic problems Americans face today and will face in the future. And it builds on the core economic principles that have made America great.

His plan would control government spending by vetoing every bill with earmarks, implementing a constitutionally valid line-item veto, pausing non-military discretionary government spending programs for one year to stop their explosive growth and place accountability on federal government agencies.

His plan would keep taxes from rising, because higher tax rates are exactly the wrong policy to restore economic growth, especially at this time.

You can read the rest below. First, there is no mention of the Iraq war. Here is what the (conservative) Hoover Institution's David R. Henderson wrote a month ago when somebody asked him to sign the petition:

There’s nothing in there I disagree with. [I later found a few things but I agreed with the vast majority.] The problem is that it leaves out a huge part of his economic policy that will make it virtually impossible to achieve what’s in the statement. That huge part is his policy on war–with Iraq and maybe with Iran. War is very expensive and is part of an economic policy. So by signing the statement, I would be helping Senator McCain maintain the fiction that there’s no connection between war and economic policy. I’m unwilling to do that.

The other lacunae concern Medicare and Social Security. Oh, they're in there. But as an afterthought.

The above actions, as well as plans to address entitlement programs--especially Social Security, Medicare and other government health care programs... constitute a broad and powerful economic agenda.

This blog post, as well as my plans for a blockbuster investigative series a year or two from now that I haven't really thought about yet, will win me the Pulitzer prize and make me rich and famous.

The rest of the economists' statement:

His plan would reduce tax rates by cutting the tax that corporations pay to 25 percent in line with other countries, by completely phasing out the alternative minimum tax, b! y increasing the exemption for dependents, by permitting the first-year expensing of new equipment and technology, and by making permanent a reformed tax credit for R&D.

His plan would also create a new and much simpler tax system and give Americans a free choice of whether to pay taxes under that simple system or the current complex and burdensome income tax.

His plan would open new markets for American goods and services and thereby create additional jobs for Americans by supporting good free trade agreements such as the one with Colombia and working with leaders around the world to avoid isolationism and protectionism. His plan would also reform education, retraining, and other assistance programs so they better help those displaced by trade and other changes in the economy.

His plan addresses problems in the financial markets and housing markets by calling for increased transparency and accountabi! lity, by targeted assistance to deserving homeowners to refinance thei r mortgages, and by opposing so-called reform plans which would raise the costs of home-ownership in the future.

The above actions, as well as plans to address entitlement programs--especially Social Security, Medicare and other government health care programs--and his regulatory reforms--especially in the area of health care--constitute a broad and powerful economic agenda. Because of John McCain's experience working with the American people in all walks of life, with members of Congress on both sides of the aisle, and with leaders around the world, we are optimistic that these plans will become a reality and will create jobs and restore confidence and strong economic growth."

Gary Becker, James Buchanan, Robert Lucas, Robert Mundell, Vernon Smith, Michael Boskin, John Cogan, Steven Davis, Francis X. Diebold, Martin Eichenbaum, Martin Feldstein, Kevin Hassett, Douglas Holtz-Eakin, Glenn Hubbard, Anne Krueger, Deepak Lal, Burton Malkiel, Paul W. McCracken, Allan Meltzer, Tim Muris, June O'Neill, Michael E. Porter, Kenneth Rogoff, Richard Roll, Harvey Rosen, George Shultz, Beryl Sprinkel, John Taylor, and Arnold Zellner.

Posted by Jay Hancock at 12:34 PM | Permalink | Comments (1)
        

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)
Categories: Corporate welfare
        

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 (1)
        

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 (3)
Categories: BGE/electricity
        

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)
        

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)
Categories: BGE/electricity
        

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)
        

Wall Street increasingly expects that Bank of America will repudiate its agreement to buy Countrywide Financial, the disgraced and struggling mortgage company. Countrywide's balance sheet has continued to implode, and last week BOA told Countrywide's creditors not to count on getting paid back after the deal. Translation: BOA has buyer's remorse, just like so many home buyers. In fact, says a Friedman Billings analyst, Countrywide is in a negative equity situation and its owners may end up with only $2 a share. From Reuters:

Bank of America Corp (BAC.N: Quote, Profile, Research) is likely to renegotiate its deal to buy Countrywide Financial Corp (CFC.N: Quote, Profile, Research) down to the $0 to $2 level or completely walk away from it, said Friedman, Billings, Ramsey, which downgraded Countrywide to "underperform" from "market perform."

Countrywide's loan portfolio has deteriorated so rapidly that it currently has negative equity and the proposed takeover of the company will be a drag on Bank of America's earnings due to the elevated credit expenses at Countrywide, analyst Paul Miller wrote in a note to clients.

He cut his target on Countrywide's stock to $2 from $7.

Bank of America, which said in January it would buy Countrywide for $4 billion, said in a filing last week there was no assurance that any of the mortgage lender's outstanding debt would be redeemed, assumed or guaranteed.

"Bank of America announced that it might not guarantee Countrywide's debt, which is most likely the first step in renegotiating the entire deal," Miller said.

Countrywide is down 60 cents this morning to around $5.30.

Posted by Jay Hancock at 10:59 AM | Permalink | Comments (0)
        

From the blog of Robert Reich, an economist who was Bill Clinton's Labor Secretary.

Hillary Clinton Doesn't Listen to Economists

When asked this morning by ABC News' George Stephanopoulos if she could name a single economist who backs her call for a gas tax holiday this summer, HRC said "I'm not going to put my lot in with economists.”

I know several of the economists who have been advising Senator Clinton, so I phoned them right after I heard this. I reached two of them. One hadn’t heard her remark and said he couldn’t believe she’d say it. The other had heard it and shrugged it off as “politics as usual.”

That’s the problem: Politics as usual.

Posted by Jay Hancock at 10:33 AM | Permalink | Comments (0)
        

One reason consumer spending hasn't been so smokin lately. The second sentence is a typo. It should say, "Of the homeowners who refinanced, 56 percent cashed out some of the equity."

WASHINGTON (AP) — Falling home prices and tighter lending standards are preventing more homeowners from pulling money out of their homes, Freddie Mac said Friday. In the first three months of the year, 56 percent of homeowners refinanced their mortgages and “cashed out” at least 5 percent of their equity. That’s a four-year low, and down from the peak in mid-2006 of 88 percent, according to the McLean, Va.-based mortgage finance company. Homeowners’ inability to tap their home equity often affects their spending and investment decisions, which is why economists watch the rate so closely. From January through March, Freddie Mac said borrowers cashed out $29 billion in home equity, down more than 19 percent from $36 billion in the fourth quarter of 2007.

Posted by Jay Hancock at 5:03 PM | Permalink | Comments (0)
        

Check out this item in the L.A. Times. Admitted steroid abuser Jose Canseco stopped making payments on a $2.5 million mortgage after his house began losing value.

In comments to the TV show "Inside Edition," Canseco says, "It didn't make financial sense for me to keep paying a mortgage on a home that was basically owned by someone else."

Translation: I decided to breach my moral and legal obligation to repay money I borrowed because I stupidly paid too much for the house. And there's no such thing as debtor's prison anymore." Thanks to Calculated Risk for the link.

Posted by Jay Hancock at 11:33 AM | Permalink | Comments (6)
        

My email inbox has one offer. I have never heard of brokered stock margin loans. Usually the stock shop is more than happy to extend credit on favorable terms to get the trading commissions. Maybe the market turmoil has changed that and wealthy investors are looking for better terms.

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Posted by Jay Hancock at 9:27 AM | Permalink | Comments (0)
        

To be brief, no.

Jonathan Alter:

Clinton and McCain have learned a destructive lesson from the Bush era: as Bill Clinton said in 2002, it's better politically to be "strong and wrong" than thoughtful and right. The goal is to depict Barack Obama as an out-of-touch elitist. By any means necessary.

I could highlight a long debate among economists on suspending the gas tax, but there is no debate. Not one respectable economist—and not one environmentalist or foreign policy expert—supports the idea, unless they are official members of the Clinton or McCain campaigns (and even some of them privately oppose it). To relieve suffering at the pump, send another rebate check or provide tax credits or something else, but not this.

Steve Benen:

It’s one thing for a good presidential candidate to embrace a bad idea. It’s worse when the candidate knows it’s a bad idea. It’s worse still when the candidate attacks her rival for failing to embrace a bad idea. And it’s the worst when the candidate feels so strongly about the bad idea that she starts running television commercials about it.

And that, unfortunately, is exactly what we have in the case of Hillary Clinton and the “gas-tax holiday.” Her campaign unveiled a new TV ad yesterday in North Carolina and Indiana attacking Obama for not supporting a temporary suspension of the 18.4-cent federal gas tax.

Paul Krugman:

Why doesn’t cutting the gas tax this summer make sense? It’s Econ 101 tax incidence theory: if the supply of a good is more or less unresponsive to the price, the price to consumers will always rise until the quantity demanded falls to match the quantity supplied. Cut taxes, and all that happens is that the pretax price rises by the same amount. The McCain gas tax plan is a giveaway to oil companies, disguised as a gift to consumers.

The Clinton twist is that she proposes paying for the revenue loss with an excess profits tax on oil companies. In one pocket, out the other. So it’s pointless, not evil. But it is pointless, and disappointing.

John Riley:

McCain supports one bad idea that won't work. Obama supports a different bad idea that won't work. Clinton, proving her presidential mettle, supports deploying both bad ideas to not work as part of a package.

They're really all talking about nothing, except they want to be president.

Gerald Prante:

Clinton and McCain are supporting a temporary repeal of the federal gas tax (18.4 cents), which is bad tax policy for a variety of reasons. But Clinton is going a step further. She must have gone to the Sonny Perdue school of economics because she not only wants the gas tax repealed, but she is essentially supporting price controls by saying that she would force the price at the pump to fall by 18.4 cents, with the Federal Trade Commission coming after noncompliant station owners. Clinton is assuming that the price elasticity of demand for gasoline is perfectly inelastic. Yes, that's the same Clinton who says we need a cap-and-trade system (an implicit tax on energy consumption) to reduce consumption of energy.

Brad DeLong:

This is really embarrassing. Barack Obama needs to be the Democratic nominee.

Posted by Jay Hancock at 11:28 AM | Permalink | Comments (0)
        

It still seems weird when AP calls the White House for a quote on the latest economic indicators. This is true for any administration. White House flacks have no economic expertise, and it's all just spin and garbage anyway, especially in an election year. From today's AP story on poor consumer spending and jobless-claim stats.

The White House said the weekly jobless claims are a volatile marker of the economy's health.

"The bottom line is that they're higher than we'd like to see them," White House deputy press secretary Tony Fratto said. He added that a slight rise in the Gross Domestic Product for the first quarter was modestly encouraging news, and was in the range of what the administration had expected.

In other words, the unemployment claims don't mean anything. But they're too high. But they don't mean anything. And the first-quarter GDP growth was "within the range of what the administration had expected." What the heck does that mean?

If the White House has policy ideas about what to do, let's find out by all means. But merely quoting spokesmen about an administration's alleged concern doesn't seem to add much.

Posted by Jay Hancock at 10:18 AM | Permalink | Comments (1)