Sink That Slow Boat to China

I don’t like to predict things because I can’t really see into the future, but last year in one of my posts I predicted in passing:

My guess is that the first bill in Congress to make wind farms illegal will come from Democratic sponsors in the name of conservation.

Well looks like I was half right. The first opposition to a big ($1.5B) wind farm in Texas is by a Democrat, Chuck Schumer, who was ironically also the topic of that same post. Chuck didn’t, however, poo-poo the power plant because of conservation. He doesn’t like the fact that the turbines are going to be made in China. Believe it or not, I agree.

Buying toasters, toys, TVs, and telephones made in China is bad enough, but contracting major industrial projects to Chinese products and labor shows us only that we have lost leadership in almost all  things critical to a successful country. The useless “stimulus” spending the Feds are undertaking should at least help us build back our own industries, our own capabilities, our own future, not those of China.

This last week a piece of the Oakland-San Francisco Bay Bridge broke and fell onto traffic. The piece was a fix to a broken eye-span, critical to keeping the bridge from falling into the bay. This span of the old bridge is being replaced with a brand new bridge span that is supposed to look spiffy. I listened on the radio to a civil engineering professor from U.C. Berkeley who has been studying the bridge in detail since the earthquake of 1989 that shook lose a non-critical but still lethal section of the bridge deck. He said that the current fix to the bridge is not safe, it is just a C-clamp to keep the the eye-span from further deterioration. It is a race now, will they get the new bridge done before the old one collapses? Will Caltrans fix the old bridge properly? What does this have to do with China?

Turns out most of the steel in the new bridge is made in, you guessed it, China. I guess they were the low bidder. I hope this new bridge is going to hold up better than the current one.  According to the professor, chinese steel is known for being defective, subject to cracking, and he said that they have already found a couple of cracks in critical decking before it made it out of the factory, some 12,000 miles from California.

The professor mentioned another interesting characteristic of the new bridge design: the bridge deck is a critical element keeping the entire bridge structure together (unlike all the other bridges where the bridge deck is held up by the bridge structure). While the structure is built to withstand a really big earthquake (assuming the steel infrastructure doesn’t crack), it is not built to withstand a simple bomb. One bomb causing one big hole in the new bridge deck and the whole thing will collapse. The old bridge doesn’t suffer that problem. Caltrans answer to why this flaw exists? Terrorism was not an issue when the bridge was designed.

I hope Caltrans hires some good engineers from California to fix the old bridge properly so that it can be used just in case the new one gets hit.

Iran and Lost

Listening to pundits talk about the turmoil in Iran one would think that the people there support a great reformer to bring Iran back into the world community. Pundits also talked about how the election of Obama would bring the U.S. back in line with world community. Neither is true. Obama’s policies are no different than Bush’s, and I suspect that Mousavi’s are no different than Amanutjob’s. So why all the protesting?

Because it is obvious that Amanutjob didn’t win the election, that he didn’t even count the votes, that he just claims that he won and that is good enough for Iran. The Soviet Union (now Russia), Cuba and now Venezuela have a much better approach to insuring election results, they only allow one candidate. The other possible candidates are put in jail or kicked out of the country or forced to publicly endorse the “real” candidate. One party systems are like single payer health care systems – you get what the the one party wants, whether you like it or not.

Iran’s mistake was in allowing people to believe that they had actually voted on election day. The rioting today is voter feedback – if you ask us to vote, then at least count the votes and before you pick the winner.

There is hope that out of this turmoil someone will stand up and demand not a new vote, but a new system that respects the vote, that elects the people who get the most votes, and that offers the people some choice in who governs them. Boris Yeltzin did that in Russia, standing on a tank pointed at the Kremlin until the Iron Curtain fell. We can all hope that Iran will find their guy, but I doubt it. It is more likely that the people will be beaten into submission and life will return to normal, only this time the ballots will contain only one name.

Saving California

The State of California has been struggling for a new budget for about 100 days now. Here are some suggestions that would help with the budget and also help all Californians:

1. Eliminate California reformulated gasoline (or California Reformulated Automobile Petrol). We pay more for gas in California because we use our own type of gas. In Nevada, for example, the price of gas is about 25 cents cheaper than anywhere just over the border. Reno is not the hub of the refining industry. Why is it cheaper? Because they use federal reformulated gas, and so do almost all other states. That extra 25 cents goes to the oil refiners because they have a smaller market for the their goods, that is, less competition. If California were to switch to the federal standard we could increase our gas tax by 25 cents and consumers wouldn’t pay the extra, the oil refiners would. How much money is that, at 16B gallons of gas consumed each year in this state, that’s $4B per year.

2. Start drilling for oil and gas off-shore. You can drill now by standing on-shore and drilling diagonally. Alaska makes so much money on the oil drilled in their state that each resident gets thousands of dollars a year. The potential income here for the state, I don’t know, but $5B to $10B would be a minimum.

3. Eliminate the California Air Resources Board and the California Environmental Protection Agency and the California Water Resources Board and the ….  you get the picture. These bureaucracies are autoimmune diseases to the body of California. They were all started with reasonable goals in mind, but after these goal were achieved the bureaucracies stayed and started to attack things that make our beautiful state healthy. They forced all the gas stations to dig up their tanks even though only a handful of leaks had been detected. This act single-handedly killed most Ma and Pa gas stations. They forced the use of MTBE in gasoline, a toxic poison that replaced lead in gasoline. Which is worse? MTBE is thousands of times worse – lead is a natural element that is found naturally in all dirt. MTBE is a synthesized chemical that doesn’t do anything for anyone. Now we are required to use ethanol to clean up the air. Ethanol has to be imported into the state in massive amounts, mostly by trucking. The same trucks that the California Air Resources Board wants to eliminate. What sense is that?

A month ago I got a call from a pollster commissioned by the California Air Resources Board asking what I knew about their “Winter Spare the Air” program. Their questions were almost insulting at times, suggesting that I was delinquent because I didn’t know the details of some program that a room full of idle clowns came up with. The program consists of a bunch of fireplace Nazis driving around the neighborhood fining people for try to keep warm in the currently politically incorrect fashion. I’m sure they cause more pollution trying to enforce this insane program than they could ever hope to eliminate. When the polling part was over I asked if I could provide some free form feedback. The pollster said yes so I let them have it. He was giggling as I suggested what they should do with their program and their entire occupation.

California has vast resources but the people that live in this state have been force fed the idea that those resources are not for them to use. Our forests are allowed to burn because that is “natural,” but we can’t log them, to thin them out so that maybe they wouldn’t burn because that would be admitting that business can improve the environment. Drilling for oil is now bad because it is too easy, we have to install expensive and useless solar panels instead. From the perspective of these bureaucrats WE THE PEOPLE are evil and victimizers and they are the defenders of the environment. I see it the other way around.

Getting rid of an autoimmune disease is difficult, but in this case we are much better off with a massive dose of chemotherapy and starting anew than we are letting this disease consume us all.

A Three Point Plan to Get Us Back on Track

Before we embark on another round of stimulating our economy by reducing taxes or printing more money and giving it away, we should get our economic system back on track. The instability in our system that manifested so dramatically a few months ago with the collapse of Bear Sterns has caused our banking system, our money system, to freeze with indecision, fright, and paralysis. The issue now seems to be somewhat understood: there are too many worthless or bankrupting assets in the hands of the institutions that control our money. The problem must be fixed before we can hope to stimulate the general economy into prosperity. If the problem is not fixed, no amount of stimulation will help.

I would like to propose a simple three point plan to get us back on track:

1. In the short term, the government should pay the mortgages for foreclosed properties to get them our of arrears. This might seem like welfare but I’m looking at it from another perspective. If we invest $1 into a bank it can only get $9 from the Federal Reserve Bank. That is 10:1 leverage. If we pay $10,000 to get a house out of foreclosure, then the whole original value of the house is available for the bank to borrow against. That is perhaps a 100:1 leverage, at least in the short term. 100:1 leverage means that we would have to put up $70B instead of $700B to get the same effect. What happens to the money we put in? We get equity in the properly in proportion to the owner of that property. So, for example, if the owner of a foreclosed property had $100K equity in that home, and we put in $10K, we would get 9.1% equity in the home.
2. Go to court and establish that so-called “default swap” derivative contracts, and other derivatives are illegal gambling and therefore unenforceable. This might set off a bunch of lawsuits and accusations of fraud, etc. but that might be good in the long term. Eliminating the cloud that a default swap might come due and kill a bank or insurance company (the “fuckle finger of fate”) would bring confidence in lending, a crucial step in restoring faith to our money system. I had proposed a more complex system for the long term that would allow gambling for financial institutions, but in the short term, let’s just get off the juice.
3. Since paying the mortgages of foreclosed properties would be prohibitively expensive in the long term, the government must set up a system to sell these properties (we all have an interest in these properties). If the real-estate market recovers, then this will result in good yield, but if that growth is slow, which it will be, then we need to find investors to take on the challenge. The easiest way to encourage new investment into real-estate (or any business) is to offer a tax incentive. Perhaps if the capital gains tax is eliminated for any gains in any foreclosed property, whether one lives in it or just uses it for investment, that would be incentive enough.

Eliminating the current credit crunch by using the most leveraging methods, eliminating gambling masquerading as securities, and providing tax incentives for long term investors that step up to help solve our current problems is the best solution to our money crisis. Relying on the government to invest $700B or more of our dollars and simultaneous attempt to stimulate the economy will add even more instability to the system, something that none of us need.

A Solution to the Financial Crisis

Let me preface this post by saying that I have no idea what I am talking about. That said, I think I understand the root cause of our current financial crisis and I would like to propose a solution, or a class of solutions, to the problem.

First, let me explain my view of the problem: gambling masquerading as investment. The financial universe has become two separate worlds, one that is used to finance economic activity and the other used to gamble large amounts of money on a global scale. The second world has become much larger than the first and has leaked into the first. When you have a huge pot of crap that drips onto a much smaller cup of soup, everyone ends up eating shit. That is what we have now. The ultimate solution to this problem requires separating the gambling from the investment and putting different lending standards on these two activities. For example, a bank should be able to loan money for investment purposes but not for gambling purposes.

Even separating what is investment from what is gambling can be difficult for some. For example, is a mortgage on a house to someone who will never be able to pay it back an investment or a gamble? I would call this mainly a really bad investment. Why? because you always have the underlying house which is a real property with real value. Now, if I insure a mortgage on a house to someone who will never be able to pay it back, that is a gamble because either I get my money back or I get nothing depending on what someone else does. Sounds like gambling to me. Does that make the entire insurance industry gambling? Maybe, but perhaps one could say that something like life insurance or car insurance or fire insurance isn’t a gamble because of the history of probabilities involved. Still, covering one gamble with another gamble is really just gambling. How about options trading? I would call that 100% gambling. I am not against gambling, but I wouldn’t loan money to someone to do it. Gamblers all have the same underlying drive, when things are hot they can’t quit. Eventually they get cold and lose it all and then some.

One general rule for differentiating between an investment and a gamble is that an investment will have an influence on the outcome of that investment, while a gamble will not. For example, if I were to invest $1B in Cisco, the odds that I will get a good return (because they can use the money to grow the company) are much better than if were to invest $1. On the other hand if I were to gamble a $1B on a coin toss the odds of winning are no better than 50/50, same as if I were to gamble $1. This is not the sole distinction between gambling and investment, but I think it is a start.

So here is my solution: all public companies should be reviewed by an accounting firm that assigns a new class of shares for that company. We can call that class the “I” class for investment. Everyone owning shares in a company would be able to trade so many regular shares for so many “I” shares depending on the “gambling index” for the company. A company that has no gambling assets would have 100% “I” shares. An investment house or other company that has 50% regular assets and 50% gambling assets would split its shares 50 I and 50 regular. The “I” shares would then trade on a separate basis. The margin requirements for the “I” shares would be higher than for the regular shares just to make sure that banks don’t get too much into gambling.

I don’t think that evaluating the risk of an investment is anything new to the financial world. That is what rating agencies like Moody’s do for a living. In fact much of the current mortgage problems have been caused by rating agencies assigning AAA ratings to complete crap. Before my scheme could work these companies would have to abandon their current rating schemes and adopt a new one based on the gambling index.

I realize that any real solution is probably 1000 times more complex than what I have proposed, but the principle is there. Let people gamble if they like, but let’s not let gambling leak into our economic system.

Reliving the 1970’s

I noticed at the beginning of this year how the times we are living today compare to the 1970’s. The “energy crisis,” the dependency on middle east oil, smaller cars, the war in Afghanistan (in the 1970’s Russia was in Afghanistan), the plan to get out of Vietnam (now Iraq), the Arab-Israeli wars, the total discrediting of a President, and finally the general economic funk. In the 1970’s the economy was in a state of “stagflation,” something that the economists of their day couldn’t explain. Today we have the “credit crisis,” again something that economists cannot explain.

The 1970’s ushered in Democratic President Jimmy Carter to save the day. There are a lot of similarities between Obama and Carter. Both have no experience and had to find a Washington old-timer as the V.P. to get credibility. Both were considered to be great intellects by their adoring fans. I remember a skit on SNL where Carter was taking questions on the phone from viewers and a guy who had O.D.’d on LSD called in and the SNL Carter talked him down. Carter’s knowledge was so vast! Carter ended his presidency a failure. He was clueless, and still is. He is good friends with the Saudi royal family. He told a story on Jay Leno about how the King of Saudi let him use his place in Aspen one winter and how Carter’s daughter was so impressed with the opulence of it. It was clear Carter was too.

The Carter campaign message was the same as the Obama campaign, a message of an honest guy coming to Washington to kick those horrible Republicans out of power. Carter offered a large number of programs to “fix” the economy, raise taxes on the evil rich, and bring fairness and competence to the federal government. Sound familiar? The story turned out to be that of a corrupt incompetent politician. Carter had only one success in his career, getting Anwar Sadat and Menachem Begin to negotiate peace between their two countries. Sadat got a bullet in his head for his efforts.

The Carter years were not a good time for this country, and we are still paying for it. The last year of the Carter administration made Iran what it is today, a menace to worldwide Democracies and perhaps a real threat to the existence of not only Israel, but all of us. Carter was clueless about how bad the Shah’s alternative would be. To contain fundamentalist Iran we propped up secular Iraq. Now we are in a war in Iraq to clean up the mess that Carter brought us, if we can.

But the biggest single burden that Carter put on us today is his killing of the nuclear power industry. Carter was so worried about a strong Soviet Union that he killed our domestic nuclear power. Does that make sense? It did to Carter. He felt is was better to negotiate with the Saudi’s for more foreign oil (and killing most domestic oil production at the same time) and negotiate with the Soviets to reduce nuclear proliferation. Negotiating with one’s enemies isn’t always the best approach.

For those who don’t know how Carter’s 1970’s ended, think 10% annual inflation and 9% unemployment. Listening to Obama today you would think that our 4% inflation and 6% unemployment are the world coming to an end. During the Carter years Obama was stoned (according to his own autobiography), he probably doesn’t remember any of it. Those who don’t remember history are doomed to relive it.

Press To McCain: Don’t Make Us Work!

When McCain picked Gov. Palin to be his running mate he made one mistake: he thought he was running against Sen. Obama, but in fact he is running against the press too. Gov. Palin is a complete unknown to those of us not living in Alaska, and she a complete unknown to the press. You would think that the press would welcome the opportunity to do their job and teach us about Gov. Palin. Instead they are making stuff up and challenging the whole process that chose Palin, claiming that she was not thoroughly vetted.

I have already seen CNN’s Wolf Blitzer show his ignorance by implying over and over that the Governor is a slut and a vengeful bitch. I have also seen Newsweek “Senior Editor” Jonathan Alter make up a story that nobody in the McCain camp went to Alaska to check out Palin. Last night I heard a Time magazine writer wonder out loud if McCain knew that Palin’s daughter was, God forbid, p-r-e-g-n-a-n-t, or that her husband had a DUI 20 years ago. If having a drunk relative or a teenage pregnancy in the family were a disqualifier, then the only qualified person running for office this year would be Ralph Nader.

Why is the press doing this sort of stuff? It might be because the press wasn’t involved in the decision making process. In fact, the press had no clue whatsoever. It might be because they are all in the tank for Obama and this looks like a good way to just generally attack McCain without showing policy bias. But I think the real reason is simpler: McCain is making the press do their job, and they don’t like it.

The press are a lazy bunch of parrots and trained dogs. Journalists feel that their job is not to inform the public but to inflame it. They grab onto one little thing and, like a rabid pitbulls, they flail it about until either it gets everyone’s attention or they drop dead, not caring if they hurt any innocent bystanders along the way. We see this with these long drama’s like Caylee something in Florida, or Anna Nicole, or O.J. The press has become a tabloid, and we know that sex and drugs are the main fodder of the tabloids.

McCain should have known that the press was going to fight, tooth and nail, against Gov. Palin and he should have prepared some material for them to consume. In the gap between now and Gov. Palin’s first national speech, the press will continue to fill their ignorance with their prejudice. We see the “liberal” press view Palin as a cheap political ploy, a female politician from po-dunk-ville. Paint her hair blue and you have Marge Simpson. They know everything about her even though they know nothing. She has never been on any of their chat shows, so she isn’t credible.

There is a lot of pressure on Palin to show that she can play with the big boys. Based on her record of kicking entrenched big boy’s butts out of office, I’m sure she can. But can she kiss the ass of the press? I’m not sure about that.

The Mother of All Blog Posts

I hear the expression “Mother of all …” a lot on the TV these days. Today, Geraldo referred to hurricane Gustav as the “Mother of all Hurricanes.” I guess people don’t get the joke, in this case Geraldo doesn’t (unless he knows something we don’t). The phrase “Mother of all …” originally came from the lips of Saddam Hussein during the first Gulf War in 1991. Let me review the war (at least what I can remember, I’m sure there is a “fair and balanced” view of the war on Wikipedia): the U.S. (called the coalition) started the war by bombing Iraqi military forces for one month to “soften them up”. Then the U.S. rolled armored tanks into Iraq and destroyed the entire Iraqi Army in about 3 days. Then the U.S. stopped. A few hours after the bombs started to fall on Iraq, Saddam broadcast a message declaring that “The Mother of all battles has begun.” The expression, therefore, means something thought be big and important that turns out to be nothing. Let’s hope Geraldo is right and Gustav turns into the Mother of all Hurricanes

National Enquirer Only Journalists Left

The National Enquirer has shown that mainstream journalism is indeed dead. When your local tabloid has a better editorial policy (i.e. not politically biased), a better staff of reporters, and is actual capable of publishing a story based on its own research, all things that the mainstream media CANNOT do, then tabloids have become news, and news has become tabloid. Watching the Edwards mistress story unfold shows that the news networks are STILL incapable of doing their own research, they are just re-reporting the Enquirer’s story.

My two favorite tidbits from the story so far: Edwards claim that he did not love her, he just fucked her; and the claim that his “supporter” that has shelled out two houses and $15K a month is doing it “because he really cares for people who are down on their luck.” Edwards and his cronies sound like a real nice bunch of guys.

It is obvious that Edwards has been deeply involved with his mistress for at least two years, maybe three. He is still sleeping with her (not that I care) and has been all through his campaign. The kid is obviously his. All of this is interesting but only shows that Edwards is a liar and a philanderer, nothing new for politicians.

What is new here is the unreported headline: “Presidential Candidate Edwards’s Mistress a Kook.” According to the REAL journalists on the story (the Enquirer), Edwards spends hours and hours with this woman even lately. Why? Maybe he is just spending it with his kid. Maybe he can last that long in bed. Or maybe he likes hanging around with kooks. That would be my guess. I hope Edwards wrote down every second of their conversations, because I would actually read that book (note: I don’t read). I now understand his campaign about two Americas: the normal rational America and the kooky America. I think we know which America Edwards lives in.

Warning: Cancer Warnings May Cause Cancer

Today there was another “X may cause cancer” scare. This time the culprit was cell phones, or more accurately the use of cell phones. There have been many attempts to find a correlation between cell phone use and cancer, especially brain cancer. The legal profession would love cell phones to be a cancer cause, can you imagine the lawsuit possibilities?

Let me start with a simple to read rebuttal to the cell phone cancer scare found here: LiveScience

All “X might cause cancer” stories end in the same way: better to be safe than sorry. Well, that’s not really correct. For example, in an effort to reduce the effect of radio waves on the brain people are using Bluetooth headsets. Well guess what, Bluetooth is also a radio, but now instead of being an inch from your head they are inside your head. On top of it, Bluetooth uses the same radio frequencies used by microwave ovens, known to actually cook food. Scientifically speaking, however, Bluetooth’s output power is about one-millionth the power level of a microwave oven.

When scared, people often move to eliminate the scary thing even if the alternative is completely unknown. People and governments will even replace a generally known but mild problem with an esoteric and completely unknown potential problem. A good example of that was the replacement of lead in gasoline with MTBE. Turns out MTBE is a lot worse than lead ever was.

We think we live in an age of enlightenment where Science trumps Sorcery, but we do not. Four hundred years ago people might have said that “evil spirits cause cancer”, today it is cell phones.