Ron Amundson’s Political Blog

The Tax Foundation - Educating Taxpayers Since 1937

A most interesting data set…. http://www.taxfoundation.org/files/ftsbs-20060316.pdf

Federal Spending in each state per dollar of federal taxes in 2004. I then took the data and overlayed it on a map of the US, with red being states that had the highest federal funding per federal tax dollar and blue being the least, and green being states in the middle.

Federal Funding per dollar of federal taxes by state in 2004

Its not quite the federal funding flow graph I blogged about but it is interesting for sure. I still think it fascinating data to look at, especially in light of the legislators from states recieving the greatest amount of federal funds per taxes paid and the proposed auto bailout.

AIG Faces $10 Billion in Losses on Bad Bets - WSJ.com

I’m reminded of Ross Perot and the term “giant sucking sound” which in todays case is TARP. Considering the hoops the automakers are going to have to jump through, and the creation of a car czar, it makes me think we really need a TARP czar. Not a guy to hand out the money, but a bunch of guys to get into the day to day operations of each and every bank/ins co/whatever could be made to look like an bank that recieved TARP funds. Sweden nationalized their banking system during their recession, and it worked amazingly well… This throw money at the problem with no accountability otoh, is just putting more dirt in front of the giant bank vacuum cleaner.

As I expect the car czar to have no automotive nor marketing background, it would make sense to have a banking czar without a bean counter background. Granted this is sarcasm, otoh, seeing that Merkel (scientist without a lifelong politics background) is doing fairly well in Germany it may well be an outside set of eyes lacking specific arena experience may truely be the best way to go. It sure would serve to strike fear in the hearts of those who took on TARP funds, which no doubt would cause some serious short term blips stock market wise, but in the mid and long term might be better… certainly better than the brazeness of AIG and the loss of money left and right as it spirals into the AIG and others blackhole.

At a bear minimum, significant political pressure and public outrage needs to be exercised against those who recieved TARP funding. It was not supposed to work from the get go, evidence shows it is not working, and long term wise, more and more folks are seeing it to be counterproductive. In fairness though, it did work a bit, it prevented massive bank runs, and bought a few months time, and thus while a spendy lesson, did accomplish some good. Yet, we are not seeing banks and insurances companies winding down, breaking up into profitable parts, etc… just more of the same, albeit they are hoarding cash. It may well take another Lehman Bros type failure to force deleveraging and forward progress.

If indeed the EU makes the bold move of nullyfying the CDS market, while painful, it just might be the needed first major step on the way to recovery. It would force deleveraging and breakups of banks and insurance companies into profitable and non-profitable parts. And in fairness some parts of AIG are rumored to be doing pretty well. Its how the freemarket has worked for ages… we no longer have massive and too big to fail buggy whip manufacturers, we do have a number of small scale manufacturers who do happen to make buggy whips though. If an entity is too big to fail, they are too big to exist.

AFP: Laid-off workers furious as bank pulls Chicago plant’s credit.

Federal law mandates that workers get paid for unused vacation time and are either given 60 days notice of a mass layoff or paid for that time.

But company officials said they could not make those payments because the bank was “basically controlling all expenditures at this point… and was not allowing it,” said United Electrical union representative Leah Fried.

“There’s a whole other level of shamefulness given the bailout (of financial institutions) and that Bank of America didn’t extend credit as they were supposed to,” Fried told AFP.

This is a sad deal indeed, makes me almost wonder if BoA will add insult to injury by snagging the payroll taxes due as well. That could leave some poor employee on the hook for them personally. Of course its likely they will file bankruptcy, and a judge will force the hand of BoA anyhow, or at least hopefully that will be the case.

Sadly, this type of situation is likely to repeat many times over the upcoming months, as banks continue to play fast and loose with the TARP funds. Hopefully govt will take a Biblical approach, and clawback the TARP funds, followed by throwing execs in prison left and right, but I sort of doubt that will happen. Banks should have been allowed to fail, others would have stepped up to the plate once asset valuations were made known in bankruptcy, but alas, thats water over the dam at this time. Things will likely continue to spiral downhill, and the point of no return is fast approaching, or perhaps it has already passed, only time will tell.

The good thing is, folks are getting to see real valuations, and real trust. The days of Citi doing well, and Paulson saying things are working have long passed. In a little while, there will be so little trust in institutions, companies and employees will start utilizing historical practices, and TARP funds or not, the US will rebuild based upon a real economy, and real value commerce. Its whats truely needed for long term productivity and sustainability. The only question is how long it will take to get there.

Vote Yes Blog » Blog Archive » The Clean Water, Land and Legacy Amendment Enjoys Support Across the Board

I must admit, other than the TV ads, I had no idea what this was about so I did some digging. First I went to the above mentioned sites home page, yesformn.org. It was a little bit frustrating, due to the lack of details… lots of feel good stuff, but not so much details. Granted, they do have the text of the legislation, but it doesnt give me a good feel pro or con. Ie, it reads like a single issue agenda site. (then again thats the intent) So, I did a bit more googling, and found the site nosalestaxincrease.org. What I found was fascinating, they have a page entitle 10 reasons why you should vote no. The fascinating part, was the reasons to vote no, led me to the conclusion that a yes vote is the right way to go.

Reason #3   If passed, $300 million each year will be dedicated solely for the purposes of the arts and outdoors.  Although these things are important, the role of the state legislature is to decide where taxpayer dollars are spent each 2-year budget cycle.  We elect representatives to the legislature to prioritize spending.  This amendment would allow $300 million of taxpayer money to bypass the legislative process and force them to spend it on the arts and outdoors, even if that year there were higher-priority needs for other things, like roads and education.

Thats a pretty big reason as to why to vote for it… otherwise, other priorities will always come before the arts and the outdoors. This is a real chance to make a difference long term, and have it locked in stone.

Reason #5 If this tax increase passes, hundreds of non-profit organizations will lobby to get their hands on these government grants.  As opposed to government departments, non-profits do not have to report where and how they spend their money.  Once these non-profits receive government grants from the dedicated funding, taxpayers will never see where their money is spent.

Despite changing parties, I’m no fan of big govt… and if non-profits can run with this, so much the better. They do have a point as concerns accoutability though, but I think its a risk worth taking.

Reason #6 This will be a precedent-setting amendment if it passes.  Once our Constitution begins to dedicate money to specific spending projects, there will be no end in sight of coalitions and special interests enticed to seek constitutionally dedicated funding for their own pet projects.  Just in September, Speaker Anderson-Kelliher (D-Minneapolis) mentioned she can now start planning a constitutionally dedicated gas tax.  If this $11 billion ballot question passes, we can guarantee we’ll see many more and many higher tax increases on future ballots.

I like the idea of dedicated tax revenues being used for dedicated purposes. Sure, no one likes taxes, but by golly if gas taxes all went for roads, instead of being a till waiting to be raided for other pet projects, I’m all for it.

Reason #7 The tax increase on the ballot didn’t start out as a tax increase at all.  Initially the idea was a bill to dedicate a portion of the existing sales tax to environmental conservation programs only.  But that plan proved unpopular with liberal legislators who didn’t want to divert current sales tax revenue to rural environmental programs.  So instead they are asking voters to increase the state’s sales tax by an additional almost half a percent and direct billions of those dollars to arts and cultural heritage.

Sad but true… nimby is alive and well in all of politics. This takes nimby out of the equation, and billions of dollars to arts and cultural heritage, esp in a negative going economy may well keep many orgs afloat, that had they been left to fend for themselves might end up closing up shop. Its an investment for the futurue.

Reason #8 Just looking at the 200+ groups supporting this tax increase shows that this is nothing more than a slush fund for special interest groups.  Over half of the groups are arts and theater organizations.  The only reason they are supporting this and are willing to give large donations to the vote yes campaign is because they know they will receive free taxpayer dollars if it passes.  Don’t let them tell you this is for Minnesota’s outdoor heritage alone; billions of dollars will go to art and theater organizations.

Again, arts and theatre, generally the first ones hit in a downward looking economy, thus it makes sense to vote yes.

Many of the other reasons they present make for good points, but I think the upside well outweighs the negative issues. I doubt they expected their vote no site to rally folks to vote yes, but at least in my case, it locks in a yes vote. Likely a few others who want to see a greater emphasis on arts and theatre, to say nothing of the added environmental issues. I almost wish the vote for mn site had brought these issues to light…. then again, there are folks who are anti spending, esp tax money on the arts and theatre, so perhaps not. I will say this though, an employee well versed in the arts often times ends up being a better employee than those with tech skills only. Years back, I had a Cellist as an R-D technician… he didnt have engineering credentials, but he could give 90% of all the engineers out there a real run for their money. Another friend was a bassist and engineer, and his work on Darpanet way back when made a world of difference… I fully believe his years as a professional musician helped a great deal in his engineering career. Arts and theatre education makes a world of difference in a wide range of occupations… its just hard to put a dollar figure on it, and thus its a bear of a thing to sell. The legislators were very wise in tieing this into fishing, hunting, clean water etc. Its a very forward looking piece, and its likely to be a positive revenue generator for the state, albeit being a soft issue, nearly impossibe to attribute absolute causation.

U.S. Mulls Widening Bailout to Insurers - WSJ.com

Go figure… life insurance companies made bad investments, and now want in on the bailout too… but they also do not want to fess up to their precarious financial position, and thus want govt to socialize the whole industry so as not to give competitive advantage to well run firms.

Its pretty screwey, many folks are against socialized medicine, and yet we have big insurance firms that want to be socialized, at least in the less lucrative arena’s it seems.

About the only thing we can probably figure on, is that Joe sixpack and mainstreet are not going to get bailed out, and likely a vast portion of the F1000 will, either through overt socialization through the bailout program, or exceedingly favorable tax or other corporate welfare schemes. What on earth ever happened to antitrust laws such that no entity would ever be too big to fail.

Reviewing Minnergys SEC filings

This looks to be a deal not unlike the VC world of 10 years ago, ie throw money at anything with a dotcom. Granted, had this business been proposed some years back, I think they may well have been onto something big… but alas, at this point, the corn ethanol economy will die. Its not a matter of if, but a matter of when… and the when part, being mostly politically, but also tech driven, makes it pretty hard to put any decent projections in place. Then again, with the current state of investments, it might be ok for a 3-5 year deal, but a clear exit strategy to bow out fast would be an absolute must.

The end result, apart from the potential for environmental damage, major decreases in property values for the city of Eyota, and likely significant health concerns fot its citizens while the plant remains viable, is that some years down the road… it becomes an albatross, and considering the size, it could become a real bear of a remediation nightmare. (yep, years ago, I consulted at Rocky Flats, so well aware of remediation nightmares) I just would hate to see such occur in Southeast MN.

The list of SEC filings for Minnergy:

http://us1.institutionalriskanalytics.com/SEC/SEC_Listing.asp?b=&yr=all&qtr=all&cik=1366512

In 2006, perhaps it made some business sense, but today…. the business plan parallels many of the dotcom bomb business plans, albeit SarOx does require more disclosure of risk than back then.

Some interesting snippets.

We have little to no experience in the ethanol industry, which increases the risk of our inability to build and operate the ethanol plant.

Ouch!

None of our governors has expertise in the ethanol industry. See “GOVERNORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.” In addition, certain governors on our board are presently engaged in business and other activities which impose substantial demand on the time and attention of such governors.

Triple ouch!!!

Our governors and officers have other business and management responsibilities which may cause conflicts of interest in the allocation of their time and services to our project.

Warning…. usually an automatic no on the part of tech venture funding, albeit alternative energy is different.

We expect to be heavily dependent on rail as our primary mode of transporting our product to distribution terminals.

Understandable… but thats hazmat transfer of a substantial magnitude, plus with the CP/DME purchase, the emphasis will be on coal transport. Will there be capacity for ethanol at the proposed speeds and density they want to run?

Competition from the advancement of alternative fuels may lessen the demand for ethanol and negatively impact our profitability, which could reduce the value of your investment.

Alternative fuels, gasoline oxygenates and ethanol production methods are continually under development. Although currently in the experimental stage, future large-scale biobutanol production may increase competition for agricultural feedstocks or provide a competitive advantage to pipeline owners, Additionally, a number of automotive, industrial and power generation manufacturers are developing alternative clean power systems using fuel cells or clean burning gaseous fuels. Like ethanol, the emerging fuel cell industry offers a technological option to address increasing worldwide energy costs, the long-term availability of petroleum reserves and environmental concerns.

This could be a concern, although fuel cell, biobutanol, and hydrogen tech are likely quite a ways off from consumer commercializtion. Not a factor in the short term, but 10-20 years… could be a factor. The biggest threat may well be CNG or electric.

Corn-based ethanol may compete with cellulose-based ethanol in the future, which could make it more difficult for us to produce ethanol on a cost-effective basis….

The current trend in ethanol production research is to develop an efficient method of producing ethanol from cellulose-based biomass, such as agricultural waste, forest residue, municipal solid waste, and energy crops. This trend is driven by the fact that cellulose-based biomass is generally cheaper than corn….

Add in biomass is much greener, cheaper overall, and has greater consumer acceptance, and this is a huge threat.

If an efficient method of producing ethanol from cellulose-based biomass is developed, we may not be able to compete effectively. We do not believe it will be cost-effective to convert the ethanol plant we are proposing into a plant which will use cellulose-based biomass to produce ethanol. If we are unable to produce ethanol as cost-effectively as cellulose-based producers, our ability to generate revenue will be negatively impacted…

Huge warning!!!

Consumer resistance to the use of ethanol based on the belief that ethanol is expensive, adds to air pollution, harms engines, reduces fuel efficiency, takes more energy to produce than it contributes and leads to increased food prices which may affect the demand for ethanol and could affect our ability to market our product, reducing the value of your investment.
Media reports in the popular press indicate that some consumers believe that use of ethanol will have a negative impact on gasoline prices at the pump. Many also believe that ethanol adds to air pollution and harms car and truck engines. It is also widely reported that ethanol products such as E85 significantly reduce fuel economy and cause overall fuel costs to substantially increase. E85 fuel is a blend of 85% ethanol and 15% gasoline. Researchers have published studies reporting that the production of ethanol actually uses more fossil energy, such as oil and natural gas, than the amount of ethanol that is produced. In addition, recent high corn prices have added to consumer backlash against ethanol, as many consumers blame ethanol for high food prices.

Research overwhelmingly supports the bolded sections, albeit there are ethanol industry sponsored studies in the minority which dispute the greater scientific evidence.

Government incentives for ethanol production, including federal tax incentives, may be eliminated in the future, which could hinder our ability to operate at a profit and reduce the value of your investment in us.

A business dependent upon incentives is a scary one indeed, esp in 4th qtr 2008 - 2010 economy.

The ethanol industry and our business depend upon continuation of the federal ethanol supports discussed above. These incentives have supported a market for ethanol that might disappear without the incentives.

This would seem to be a deal killer,not so much in 2000, but after the 2008 energy bill and the general refocusing on cellulosic ethanol, it would seem that in a few short years, corn based ethanol will go the way of the buggy whip.

On April 11, 2008 we entered into a Negative Pledge Agreement and note for the sum of $2,040,000 in favor of Winona National Bank to purchase real estate owned by Gary, Linda and Dana Allen near Eyota. In June 2008 we replaced the Negative Pledge Agreement and note with a conventional mortgage and note with Winona National Bank. Pursuant to the renegotiated note, interest shall be payable on a monthly basis at a fixed rate of 4.1%. The entire balance of principal and interest accruing on the note will come due on October 6, 2009. Winona National Bank required personal guaranties in the amount of $1,950,000 for the issuance of the loan.

Hmmm…. too bad they didnt wait, it likely would be a lot cheaper in a few months, albeit 2 of the aforementioned individuals are members of the company. It must be some good land… $2.2 million for 175 acres plus buildings… where as another parcel is $1.45million for 145 acres, albeit the 145 acres is not a purchase, but an option. Either way, likely was a real good deal for those who sold the land. Real estate purchases before the ducks are in a row doesnt seem too prudent, but alas its water over the dam at this point.

A friend sent me the 10 men in a bar story to show how progressive taxes as well as increases are damaging to the economy. Being I strongly disagree with such a model, I rewrote it and sent it back.

Increasing taxes on the rich?? Here is a twist on that to think about.

• Suppose that every day, ten men go out for beer and the bill for
  all ten comes to $100. The ten men were a most diverse crowd, ranging from fast food employees to a wealthy banker.
• Each man paid $10 for his part of the beer tab.
• The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the govt threw them a curve.
• “Since we had to bail out Wall street, and 50 or so other big business’, plus tax revenues are dropping” they said, “we’re going to increase your taxes by 10%’”
• Since the wealthy banker had most of his income in offshore defferment and other tax avoidance products, the tax increase had only a miniscule effect on him. His discretionary income remained the same.
• The 3 factory managers were hit pretty hard, their taxes costs them an extra $1000, but they still had significant discretionary income, so they continued to come to the bar.
• The 4 factory assemblers were hit pretty hard too, their taxes cost them an extra $300, and thus, they had to cut back coming to the bar.
• The 2 folks working at a fast food joint cost them an extra $100, their employer had to cut back their hours, as fewer people were eating out, and the costs of everything else went up, thus they could no longer come to the bar at all.
• The bar owner had a significant loss, as 30% of his business evaporated, and his costs went through the ceiling and thus he had to close the bar.

All were very unhappy, even the banker, being his fav bar was closed, his investments were in the tank, and the GNP took a dive. The govt was not pleased, and had to reduce their expenses, resulting in less police protection, less road maintenance, and reduced educational oppurtunities.

Where as if the tax increases were progressive in nature:

• The investment banker got hit hard when some of his tax avoidance strategies evaporated. His discretionary income dropped some, but he could still go to the bar.
• The factory managers got hit hard too, their taxes costs them an extra $1000, but they still had significant discretionary income, so they continued to come to the bar.
• The 4 assemblers ended up having a $100 hit on their income, thus they ended up coming to the bar a bit less, but it was still doable.
• The fast food workers had no tax increase, although with prices going up, they had to watch their money a bit more, so they cut back a little.
• The bar owners costs went up a bit, but nearly 90% of his revenue remained. Thus he was able to stay open, although with the price increase folks had to cut back a bit on their bar tab for a bit.

Over time, efficiencies and productivity went up across the board, every one got a effective wage increase as more people had more money to spend due to progressive taxes. The wealthy banker did even better, as he had some of his money tied up in the bar and the fast food joint, and found he was making significantly more money overall, even though he paid more in taxes. just as the plant managers did. The factory workers and fast food joint guys had more money to spend, even though the prices went up a bit. All were happy, the GNP increased, as did gross tax revenue for the govt.

I was taking a look at the week in petroleum this evening, and its pretty amazing. I pulled a few of the graphs to see how supply and deman influenced prices, or not.

The greatest demand was in July-Aug 2007

Demand at the peak of US gasoline prices in 2008 was the same as in Jun and Oct 2007, yet prices were much lower at that time. The largest correlation seems not to be so much demand, as it is a dependence upon gasoline stocks. Of course… if one looks at the midwest and Rocky Mountain sitation, where gasoline stocks dont change a great deal, but the prices do, things dont add up very well.

Althought I dont have the graph here, its interesting to note the variation in oil days of supply. That too has some correlation, albeit it does not compute when one looks at a year to year basis.

Sure seems to me that speculation is the key factor in retail gasoline prices, much more so than supply and demand. Granted, if supply took a real header, it would affect the prices, just as if demand changed substantially.

FDIC: Institution Directory

Its interesting to take a look at ones banks financial situation… actually quite fascinating. Of course, the difficulty for those of us not in the banking realm is how to interpret the data. Certaining non-performing assets are a key factor, as well as the change in non-performing assets over time.

Lace Financial has a fairly decent page covering the explanations of various terms, as well as ratios to keep an eye on. Granted there is a bit of a learning curve, but hopefully a review of ones banks financials as well as some key ratios can grant a lot of peace of mind… or maybe not. At least with knowledge, one can make an informed decision as to what to do going forward.

So Tim Walz voted it down Monday, and we called over to his office to say thank you. Its not that something needs to be done, but the bill as written is so full of holes it would appear one could sink a battleship.

The bill is really complex… egads, I spent an hour reading it, and a full study could take days, if not a week or more. Granted I’m no politician… but needless to say, with such a short time frame, things will get missed. Perhaps that was by design. Interesting to note the authority to suspend FASB 127 was in the bill, and yet some congressman apparently missed it, or maybe they wanted it pulled by legislation, not sure.

Apart from that, it appears way too much lip service and not enough real solutions. In many ways, this bill seems to be a delay tactic… and if it wasnt so expensive, that would be fine. Solutions to years of problems are not solved in a week, and considering the money involed, rushing is not prudent. Yet, now that the stock market went through a bunch of gyrations… those who didnt understand the ramifications of passing, or not passing such a bill, are likely going to press the issue to get it passed. Ie, Ideologically the bill is very bad, but when folks get a 5-30% hit on their retirement, ideology often goes out the window. The worst part is, any serious judgements errors in this, of which I am certain there are, is likely to have a much worse effect on ones retirement savings, than no bill at all. Its just that the effects will be delayed.

There is the mainstreet aspect in the short term as well. Sun Country Airlines is having their employees take a 50% paycut deferral due to cash flow problems. Granted in their case, it was an issue with private equity, rather than an operating line of credit being pulled. Banks I am sure even if the economy was rolling would be leery to fund airline ops (the risk issues are outside their domain of expertise). Yet, the situation parallels the issue in mainstreet business, ie the need to meet payroll during cash flow problems to say nothing of expansion, or even increased production for the holidays, and thats apart from the huge delays accounts recievable are going to get hit with 4th qtr. 

If the banks pull in lines of credit… the same situation with Sun Country is going to ripple through the economy. WHen joesixpack gets asked to take 50 cents on the dollar in his paycheck… things are not going to be pretty. Yet, I sort of think thats inevitable, either by a cash flow issue in the short term, or via selective inflation/deflation over time. And yet the bill’s hope, is that by dumping a ton of cash now, credit will open up, rather than being used to bail out the shareholders… and unless something is explicitly written into the revised bill, I sort of think the shareholders are the ones who will walk away happy, and Joe still gets hosed.

I have serious doubts as to whether this bill will accomplish anyting for mainstreet, other than create a false sense of security for a few weeks, or maybe if we are lucky months, all the while killing off the much needed cash to fix things the right way down the road.

Ultimately though, folks are concerned with the short term… and the long term aspects of the need for real estate valuations to drop by 30%-60%, credit to become much less available, and the killing off of excessive leverage are far off. This weeks paycheck, and the loss of retirement savings ends up being the #1, rather than the much needed changes in order to cause the least amount of collateral damage to those who can least afford it. Imho, a few weeks or months of momentary hardship can prevent years of long lasting and hard to undo damge, and might even get us back on the fasttrack to growth and economic expansion.

So, going forward…. suspending mark to market is idiocy. We need greater transparency in accounting, not less, we need fewer games, not more. Granted there is a death spiral aspect to FASB 127, in that when markets tank, valuation goes away, where as 30 years down the road, the value may be much greater.  The key is where things are today, what is something worth, not a gamble on what it might be. Wishful thinking on future valuations all around got us into this mess… we dont need to foster further errant behavior along that line, or it will bite us back later. In addition, suspending FASB, pretty much guarantees during a bailout the taxpayer will pay way way too much, albeit to do so does drag things out, as the house of cards is held up a bit longer.

Mainstreet could be protected by govt insurance of existing business operating lines of credit… selling that would be like selling ocean front property in AZ, but alas, unless something is clearly written in, expect shareholders to reap the rewards, at the expense of Joesixpack and mainstreet getting hosed over. At a bear minimum, expansion of unemployment compensation rules are a must. Joe’s hours are likely to be cut, his pay to be cut, or he will loose his job, irrespective of the bill being passed. (short of the Swedish plan)

World wise… as much as I disagree with Paulson’s plan, as it perpetuates the shell game, a variant may be the only way to go politically in the short term. It likely will fail, and then we will have to consider the Swedish plan (which does have a track record of success, where as Paulson’s historially doesnt). Its a no win deal all around. 

Yet, I could be way off in right and left fields… this is a complex mess, and few if any have really looked and studied this enough all around to come up with a viable long term solution. Major economist’s disagree all around, international sentiment is all over the place, and no one has much for confidence in anything. Stepping back, clearly identifying the problems, and then coming up with solutions is really the key, but alas we are out of time. Its not going to be pleasant no matter what.