Posts tagged ‘Uncle Sam’

Ayn Rand, Illegal Immigrant

Interesting story via Reason

As a vehement anti-Bolshevist, she knew that she would die waiting in line if she applied for permission to permanently relocate to America, although that’s exactly what she intended to do. Temporary tourist visas were easier to land, but only for those who could prove they didn’t plan to settle here. So what did Rand do? She committed perjury. She convinced an American visa officer that she had a fiancé waiting for her in Russia whom she intended to marry after a six-month visit with her relatives in Chicago.

But Rand instead married an American citizen in 1929, gaining a path to citizenship. According to Mimi Gladstein’s biography, Rand timed her wedding before her visa, which she had gotten extended, finally expired.

However, others doubt that Uncle Sam would have handed a three-year extension to a Russian passport holder, raising suspicions that Rand might have been—gasp!—an illegal immigrant when she got married.

Ka-chunk Ka-chunk

That is the sound of the printing presses running 24/7.  Because that appears to be how we are funding all of Obama's spending right now (source)

When folks say they are not worried about the deficit, because folks still seem eager to buy our debt (as evidenced by the low interest rates) note that the general public has been a net seller of US debt the first 2 quarters of 2011.  In fact, the only buyer has been Uncle Sam himself, buying up the debt with newly minted cash (or electrons, really).

One other interesting issue, the Fed seems to have been soaking up the money supply in the early days of the recession, before the high-profile business and financial failures really got things moving downward.

Solyndra Bankruptcy Process

I thought this article from Zero Hedge was a pretty good window into the bankruptcy process for those of us unfamiliar with what goes on.  The most interesting point is that by allowing Argonaut to cut ahead of taxpayers as the senior creditor, the Obama Administration virtually ceded control of the bankruptcy process to Argonaut.  Argonaut has put up the debtor-in-possession financing as well, and the combination of these two positions gives it pretty tight control of the process going forward

The plan put forward is a four-week sale of the company. The logic behind this very rapid schedule is that Solyndra is still burning cash at the rate of $1mm a week. How long will the $4mm DIP financing last? Four weeks. The terms of the DIP makes it a sure thing that Solyndra is going to be sold ASAP. That sounds good. But not for the DOE.

The one-month period is a very short time frame. The likely result will be that no serious alternative buyer will appear. Should that happen, the senior creditor will get all of the assets of the company at the end of 30 days. That would be Argonaut. It's possible that Argonaut will end up owning a company that lists $850mm in assets for less than $100mm.

I am not sure taxpayers were ever going to get anything out of this mess -- the combination of a high-cost manufacturing plant with me-too technology in a commoditized business was never going to be wildly valuable -- but the Administrations decision to allow Argonaut to jump the seniority line has pretty much assured that whatever value that might be there will go to Argonaut and not the taxpayers.

Postscript:  Someone might argue that the decision in February to allow Argnaut the senior position was required to get them to put up the $75 million that was necessary at the time to keep operating.  I am positive this is true, given the condition of Solyndra finances at the time.  However, the right answer at the time was to shut the thing down then, while the US had seniority and before Argonaut cleaned out all the assets of value (as they did this summer, selling inventories and receivables to themselves).  The company had no real prospects of ever making money when it was first financed two years ago and certainly did not in February.  The $75 million in February was less financing and more a pre-emptive bid for the company's carcass in the inevitable bankruptcy, and it will likely play out exactly this way.

Update:  I have read that Argonaut may be interested in the $500 million of tax losses.  These are tricky to use, and only Argonaut of all potential buyers could reasonably make use of them.  These might be worth $150 million in avoided taxes, so the $75 million price might make sense.  If Argonaut pulls this off, it would mean that the decision to accept their $75 million in financing is even more costly to the taxpayers.  Not only did they miss out on whatever value might be in the company, but it also created the opportunity for $150 million in tax avoidance that comes right out of Uncle Sam's coffers.

When Investors Have Police Forces

I have argued many times that private investors, over the long haul, will make better investment choices than the government, in part because they have better incentives and information to guide their decision-making.  The straw-man argument against this is to point out anecdotes of failed private investments.  Heck, I can do that.  Pets.com famously blew through $300 million of private capital with a corporate strategy that never made much sense to people.

The Pets.com investors were chagrined, and probably learned a lesson from their mistake.  Certainly most of us thought the blame, if blame existed, for the debacle rested on the investors for pouring money into a bad proposition.  Certainly no one accused the management of fraud -- I am sure they were diligently, honestly trying to make the company a success, even if they were misguided as to where that success lay.

As it turned out, everyone, not just the Pets.com investors, learned from the mistake.  The failure was an important driver in an industry-wide rethink as to what a successful Internet business model might look like.  This benefit only came because people were willing to acknowledge not just that the Pets.com investment was flawed, but that it represented a systematic mistake that was being made vis a vis Internet startup investments.

Now, consider solar manufacturer Solyndra.  It failed this week, likely taking with it most of $535 million in taxpayer money that the Obama Administration was so eager to give them that it short-cutted its internal processes to fork over the cash more quickly.

Many of us on the outside would love to see the government rethink such investments in a systematic way, and reconsider if it is even possible for the government to make such investments, and in particular whether "green jobs" investments make any sense at all.

But the likelihood of that kind of introspection happening in the public world is about zero, and my bet is that Obama is going to propose more of the same tonight in his speech.

In fact, the Department of Energy (the source of the loan) and the FBI have today sent armed agents into Solyndra looking for evidence of fraud.   While Zero Hedge argues that fraud would be bad for Obama, in fact I think it would probably be the best possible outcome and one he is hoping for.  If he can say, "wow, you and I both got tricked here by some evil folks we are going to put in jail" it deflects attention from the fact that he put a half billion dollars of taxpayer money into a business plan that never made a lick of sense.

Another me-too solar manufacturer with a factory in California of all places was never going to compete in a global commodity market.  This company's plan was always to sell dollars for 50 cents and to make it up on volume.  I don't see how any investor thought this was going to work.  My guess is that the private investors didn't know much about solar and invested because it had a certain hip-ness to it, or less charitably, they knew it never made sense but hoped that Uncle Sam, once it was already in for a half billion, would keep more money flowing or perhaps agree to buy out their production at above market prices.

There may have indeed been fraud, but as in the case of Pets.com, it is perfectly possible no real internal fraud existed and they ran through a ton of money against a stupid business plan that should never have been funded.  Obama would greatly prefer to call it fraud rather than his own failure of judgement.  As an aside, Fannie and Freddie are pursuing exactly the same course in suing banks, arguing that they were defrauded by the banks in buying mortgages, a fairly laughable proposition in the great scheme of things when one considers Fannie and Freddie were at the forefront of the industry in driving down lending standards and promoting the expansion of the mortgage market.

Beating A Dead Horse

Apparently the Left is still trying to argue that the stimulus (the process of taking money out of private hands to have it spent by government officials instead) was really a super-fabulous idea and only failed because it was too small.  Here is Kevin Drum:

But another reason [the stimulus failed] is that at the same time the feds were spending more money, state governments were cutting back. The chart below from CBPP tells the story. They have data for all but six states, and on average for 2012, "those 44 states plan to spend 9.4 percent less than their states spent before the recession, adjusted for inflation." That's not just less than last year, it's less than 2008. That wiped out nearly the entire effect of the federal stimulus pacakge [sic].

I have a different take.  A number of states, because they don't own a printing press as does Uncle Sam, actually tried to deal with economic reality and cut their bloated spending, an effort that was largely wiped out by Obama's "stimulus" spending.

Government Rebates for Superbowl Tickets

Vermont Tiger raises a great point about the Volt:  (ht Maggies Farm)

The Volt comes with a manufacturer's suggested retail price of $40,280 and a rebate from Uncle Sam of $7500. GM only plans to make 10,000 Volts this year; and there aren't enough of them to go around. So, naturally, dealers are marking them up – some by much more than the retail amount. One Florida dealer is asking $65,590 (see Motor Trend for details). You might be able to get one on eBay for around $48,000 – after rebate that gets you right back to list price. Hmmm….

No car dealer or manufacturer would offer a rebate on a product that is in backorder status for the foreseeable future. But that's exactly what your government is doing. Even if you believe that there is a compelling reason for the government to want us all to shift to partially electric cars, it's clear that no incentive is required to sell all 10,000 cars available this year since people are buying them at markups which counteract the incentive. In this case the rebate dollars go to dealer margin. Note deficit cutting opportunity.

$75,000,000 down the drain to subsidize upper-middle-class people who want to make a statement about themselves.  Yet another public investment in the self-esteem of the wealthy and our rulers.  In ancient Rome they built coliseums.  In the middle ages they built cathedrals.   In communist countries they built giant statues of their leaders and tractor plants.  Today we subsidize quasi-electric cars and windmills.  None of it makes much sense as way to spend the average person's money, but it makes the elite feel really, really good about themselves.  One wonders what the cumulative historic bill has been for ego maintenance of our rulers.

Great Minds Think Alike

Coyote, November 10

But what is really happening here is that the dollar is being devalued.  This is one of the semantic quirks that make me laugh "” when Argentina or Zimbabwe do this, its called devaluation.  When a western nation does it, it is called quantitative easing.

Don Boudreaux today:

Fed Chairman Ben Bernanke, fresh from injecting hundreds of billions of new U.S. currency units into the economy "“ and from planning the injection of yet an additional 600 billion such units "“ criticizes the Chinese government for injecting hundreds of billions of new Chinese currency units into the economy ("Bernanke Takes Aim at China," Nov. 18).  Apparently, when Beijing increases the supply of Chinese currency it does so as part of what Prof. Bernanke ominously labels a "strategy of currency undervaluation," but when Uncle Sam does the same thing with U.S. currency units it's called "quantitative easing" and "a move in the right direction."

Being Slower and More Beauracratic Than GM Can't Be Good

One of the reasons GM entered bankrupcy was that its slow and ponderous beauracracy couldn't handle the pace of the modern marketplace.  But one thing even than beauracracy could do was produce dealer rebate checks in a timely manner.  When many of your dealers are running on only a thin cash flow margin, even GM knew it was important to get rebate checks to dealers quickly.

So it is a bad sign that the government, who wants to run the auto industry, the banking industry and soon the health care industry, can't seem to process checks in a timely manner:

Some New Mexico auto dealers have backed out of the cash-for-clunkers program and more may do so as the federal government takes its time providing cash reimbursements.

Dealers across the state are owed more than $3.6 million, according to a dealers' group which says that so far Uncle Sam has only written three checks totaling about $14,000....

Dealerships put up the cash for the rebates after being told by the Obama administration they would be paid back within 10 days of the sale.

And here:

Hundreds of auto dealers in the New York area have withdrawn from the government's Cash for Clunkers program, citing delays in getting reimbursed by the government, a dealership group said Wednesday.The Greater New York Automobile Dealers Association, which represents dealerships in the New York metro area, said about half its 425 members have left the program because they cannot afford to offer more rebates. They're also worried about getting repaid....

Schienberg said the group's dealers have been repaid for only about 2 percent of the clunkers deals they've made so far.

Many dealers have said they are worried they won't get repaid at all, while others have waited so long to get reimburse

The problems cited in other analyses are two that I see all the time in dealing with the government:

  1. Obsession with minute paperwork errors, and rejection of applications for the smallest errors.  For a variety of reasons, government clerks in this kind of program seldom have the knowledge, the incentives, or even the ability to parse between errors and omissions that matter and errors and omissions that are irrelevant.   In fact, if the same application comes back 5 times, that's just more job security.  I have discussed this a number of times, as state liquor license boards have rejected our applications repeatedly for ridiculously small, meaningless errors (here and here, for example)

    Here is my prediction:  You will soon see someone inside the government blaming the dealers, saying it is all because they are not following the 300-page process correctly or not filling out the forms correctly.

  2. Absolute unwillingness to write a check.  Some of you know that I am in the odd position of being a libertarian who does a lot of business with the government, a result of my effort to privatize the operation of public recreation.  I am in the position of sometimes paying the government money (I typically don't get paid to operate a facility, I operate it for profit and pay the government a rent or concession fee) and sometime in the position of getting paid.  The government always demands all of its money owed to it well in advance (think of withholding, where you pay the government your taxes months before the true April 15 deadline).  The government only pays in arrears, and sometimes well in arrears.  Last winter, my funding troubles (when my bank holding my line of credit went bust) were aggravated by the fact that the government took 15 months to pay us $175,000 they owed us, at the same time it demanded an additional $500,000 in advance rent payments on the next year.

By the way, since every post related to the government this month must be related to health care in some way, what they government is doing on cash for clunkers is highly related to the difference in overhead costs between Medicare and private insurance companies.

The cash for clunkers processing is taking a long time in part because the government is worried about fraud and wants to make sure every car it pays out on was really qualifying and destroyed properly.  This takes time and manpower and overhead.  But this is exactly what private medical insurance companies spend their overhead on -- making sure that claims are real and justified and are not padded.  Medicare has lower overhead costs, in part because of government accounting hides some overhead, but in part because Medicare does not do any due diligence before it cuts a check.  It gets a form, it sends out a check.  It does little checking to see if the claim is real.

Finally, Someone States the Obvious

The media and many politicians have an inventive system that drives them to take the most pessimistic possible interpretation of every economic event (the media to sell papers, politicians to panic us into giving them more control of the economy).   Chinese ownership of US debt securities is one such issue that everyone seems to be in a tizzy about.  Thanks to Don Boudreaux for finally stating the obvious:

In fact,
foreign-government
holdings of U.S. debt arguably make these governments "hostage to the
economic decisions being made in Washington."  The Fed, after all,
could monetize this debt, inflating away its value.  Or Uncle Sam could
repudiate this debt, or unilaterally change its terms in ways
unfavorable to holders.  Or you and your colleagues could implement
economically disastrous policies that drive up long-term interest rates
and, hence, drive down the value of outstanding treasuries.

Finally!  All you have to do to understand this is reverse the situation.  If the US government owned a hundred billion dollars of Venezuelan government bonds, would this really give us power over Hugo Chavez?  Or would it, more likely, given him more power over us, at least in terms of circumscribing our actions?

Feds also Channeling Enron

A while back I wrote that the State of Arizona was continuing to maintain, year in and year out, an expensive process demanding overtime and extra work just to avoid "giving back" a one-time budget gain they took several years ago.  It appears the feds are playing the same game:

The bureaucratic brainstorm was straightforward "”
simple-minded is, perhaps, a more appropriate description "” don't pay
doctors, hospitals and their army of auxiliaries tending to indisposed
old folks and the afflicted disabled for their labors in the last nine
days of the current fiscal year. Instead, send them a check for what
you owe them, sometime after the first of October, the start of the
government's fiscal '07. In essence, those doctors, hospitals et al.
are making an involuntary loan of nine days' pay without interest.

 

That way, point out the gleeful budgeteers and Medicare pooh-bahs,
all of whom presumably are glowing with health, Uncle Sam's Medicare
tab this fading fiscal year will be $5.2 billion less than it otherwise
would have been. Or at least would seem to be $5.2 billion less "” in
Washington, as we all know, appearance and reality are not invariably
the same phenomena.

My only objection to Drum's post is his implication that this is a uniquely Bush-White-House maneuver.  I get tired of partisans on both sides of the aisle that try to blame crap like this on the other party.  This kind of thing is inherent in politics and government.  The Arizona example, which is entirely parallel and perhaps even worse given the year-after-year costs, was an invention of a Democratic governor.

Back from Hawaii

Well, I am nursing some jet-lag but am working on a post for later this week on the alleged CIA secret overseas prisons.  This is one of those issues where my pragmatic frequent-flying persona is all over Jenifer Garner violating the crap out of terrorist civil rights to protect me, but my intellectual-libertarian persona knows better.  If you want a preview of where I am going with this, you can see this post on immigration, noting the argument that our individual rights pre-date, rather than flow from, the government, and therefore citizenship shouldn't matter in assessing what rights a person has vis-a-vis Uncle Sam.

I had the opportunity to look at some land while I was in Hawaii, thinking about maybe having a retirement home in the future, at least to escape the Phoenix summers.  My wife and I would like to be on a coast.  I don't like the Northeast, and neither of us like the Gulf coast or Northwest coast.  That leaves SoCal and Hawaii (if you limit it to the US).  What worries us is that though we expect some appreciation in our real earnings over the next decade, we fear that waterfront property in these areas may appreciate even faster, leading us to the conclusion that we may be able to afford a nicer piece of land now than when we retire.  We worry about bubble pricing but being willing to hold an asset for 20-30 years alleviates some of that problem.  The Big Island seems to be a better value than the other islands, but even there, its freaking expensive.  Sigh.  Maybe if it was a big enough lake, that would do?