Archive for February 23rd, 2012

Daily Glimpse February 23, 2012

Daily Links From Glimpse From a Height

  • US Corporations Actually Do Pay Too Much
    It’s not just the statutory rate that’s too high, it’s also the effective rate. @JimPethokoukis
  • Vehicle Miles Up In December
    But Calculated Risk is more optimistic about the effect of high gas prices than I am.  Sudden increases don’t really leave time for gradual or even moderate increases in efficiency.
  • Businessmen Who Don’t Understand Economics
    ICS Chairman Polemis Calls For Shipbuilding Moratorium: In the current global climate of “massive uncertainty,” with rates in all key segments highly volatile and barely economic for operators, he called for restraint from owners and intervention from governments. The global container fleet is set to grow 8.3 percent, or 1.28 million 20-foot equivalent unit, this […]
  • Redefining the Kilogram
    It’s about time. Well, it’s really about mass, but it’ll be good to have weights and measures defined in terms of universal constants.
  • Richelieu, World Series of Poker Champion
    A review of Eminence: Cardinal Richelieu and the Rise of France: Richelieu’s statecraft involved as much dangerous risk taking as his domestic political career. In 1618, what would become known as the Thirty Years’ War broke out — Europe’s last great spasm of religious warfare, in which a furious conflict between a series of Protestant […]
  • Iran May Need To Dig Deeper
    The New Israeli Bunker Buster: February 21, 2012: Israel has developed a new 500 pound (227 kg) penetrator bomb, the MPR-500. The MPR-500 can smash through more than a meter (39 inches) of concrete, or four 200mm (8 inch) concrete barriers (floors or bunker walls) and then detonate. When the MPR-500 explodes, it releases 26,000 […]
  • Who Dat?
    Even as I write this, the Colorado House State, Veterans, and Military Affairs Committee is hearing testimony on Rep. Szabo’s bill to require a Photo ID for voting, HB12-1111.  While it will probably pass out of the committee, the Dems will continue straining gnats (last time it was a couple of dozen residents of a […]
  • KXL, Win-Win-Win
    From Walter Russell Mead: By forcing American refineries in the Gulf to import more expensive Brent crude rather than the cheaper West Texas Intermediate variety, the status quo is frittering away national wealth and GDP. I guess that makes that natural gas divorce even more expensive for the rest of us.  I wonder how many […]
  • Remember When ‘Progressives” Were Against Machine Politics?
    It’s been a while: Falk’s candidacy will be built around the issue of public-sector collective bargaining—not the 150,000 jobs Wisconsin lost in the past two years, or the state’s rapidly increasing health-care costs, or the deficits in the transportation fund, among many other challenges. … “Government by the political machine is without exception the rule […]
  • 50%, Oh So Close
    Nearly Half of All Americans Don’t Pay Income Taxes For what it’s worth, in Jewish law, even people who exist solely on charity have to give charity.
  • Public Colleges Charge Differently For Different Majors
    Via the Chronicle, public colleges across the country are charging different amounts for different majors: Some form of differential tuition, or tuition that varies by academic program, is charged at 143 public colleges, according to a new report from the Cornell Higher Education Research Institute. The proportion of colleges offering differential tuition is highest—41 percent—among […]
  • Taliban Will Not Renounce Al Qaeda
    Taliban will not renounce al Qaeda: “They [al Qaeda] are among the first groups and banners that pledged allegiance to the Emir of the Believers [Mullah Omar, the leader of the Afghan Taliban], and they operate in Afghanistan under the flag of the Islamic Emirate,” Wazir said. “They are an example of discipline and accuracy […]
  • First In War, First In Peace…

No Comments

Chronicles of Crony Capitalism

So far, the LightSquared story has mostly been written as one of the FCC favoring a politically-connected company at the expense of its competition, and that favoritism having resulted in nothing but waste.  See, for example, today’s Coffee and Markets podcast on the subject. Their related links (Documents: LightSquared shaping up as the FCC’s Solyndra and Documents show Obama’s FCC used regulatory muscle to destroy LightSquared’s competition) pretty much give the outline.  It’s a simple story, and one that fits in neatly with an overarching narrative, as they like to say, of political money buying regulatory help.

As usual, the story is more complicated than that.  And as usual, the full story makes things look even worse.

The Wall Street Journal ran a story discussing just how badly the FCC had tied itself up in knots over this.  First, they declared a looming bandwidth shortage, and then quickly auctioned off additional spectrum, spectrum that happened to lie near to that used for GPS.  This was done years ago, and Falcone and his people no doubt assumed that the FCC wouldn’t be selling spectrum that couldn’t be developed.  Having gotten the favor, they then were surprised when the FCC didn’t turn around and tell the GPS people that this was coming, and that they should shield their equipment – technically well within their capability.  Having failed to do that, they now have to argue that there’s no spectrum shortage, after all.

Even assuming that the FCC wasn’t out to clear the field for LightSquared, they failed badly in their regulatory duty here.  The FCC has complete control over this stuff.  They can decide how, where, and when spectrum gets exploited, and by whom.  Either there is or isn’t, was or wasn’t, a spectrum shortage that will imperil future growth.  Either the spectrum neighboring the GPS wavelengths is or isn’t usable.  Either the burden of preventing interference lies with LightSquared (or whoever buys this tainted real estate from them), or it lies with the GPS companies.

Either the FCC didn’t know how it was planning to resolve this issues, or didn’t care.  Or else, it knuckled under to a multi-million dollar lobbying campaign, in which case, what’s the point of claiming “independent” regulatory agencies are any good at all?  If the FCC was throwing around its weight to help LightSquared, all these regulatory conflicts become even worse, leading other investors to throw their money after an investment the FCC must have known was headed for an iceberg.

The other example comes from the Department of Transportation:

Transportation Secretary Ray LaHood announced a $54.6 million loan to Kansas City Southern Railway Company (KCSR) for the purchase of 30 new General Electric ES44AC locomotives. These diesel-electric locomotives, built in Erie, Pennsylvania, will help KCSR meet increasing economic demand, and are more energy-efficient and produce significantly less carbon emissions than the locomotives they are replacing.

That’s nice.  Railroads have had a very nice couple of years, and with the absence of KeystoneXL, are likely to have even more business, at least in the short term. Kansas Southern has a $7.8 billion market cap.  It’s already carrying $1.6 billion in debt.  Its quarterly depreciation expense is almost $50 million, or just about the size of the loan.  Its operating cash flow was $170 million last quarter, and it showed a net income of $300 million.  And it’s not as though GE is going to file for bankruptcy protection if it doesn’t get a $50 million order.

This from the same administration who reflexively defends a perfectly reasonable accounting change (see The Death of LIFO) by attacking oil companies, rather than by defending the change on its own merits.

The problem with both of these stories is that the finance is bound up inextricably with the politics.  Analysts work by examining the underlying economic return, and to the extent that there are regulatory issues, they ought at least to be predictable or bounded.  Companies getting regulatory benefits they can’t use, or subsidies they don’t need, don’t do anything to help create real wealth.

, ,

No Comments