Archive for October 2009

I Warned About This Trick Earlier

When reading the original House health care bill, it struck me that the new taxes on employers and such began immediately, but benefits were phased in between 2012 and 2017.  Apparently, this same thing is being done in the Baucus Bill, and I have learned that this is specifically aimed at gaming the CBO numbers.  Since journalism majors were such in large part because they didn't want to do any math, this ploy will likely work with the media, who will print the CBO findings but will be uninterested or incapable of deconstructing the numbers games.  From the Gormogons via TJIC:

What the CBO does not highlight, however, is that Sen. Baucus cooked the books. Under the Baucus plan, revenue enhancement (taxes) goes into effect immediately. Coverage does not kick in for two and one-half years. So, to make the numbers work, Sen. Baucus has to collect ten years of revenue to cover seven and one-half years of cost.

'Puter thought the whole thing smelled a little fishy, so he gave Sleestak and abacus, a quill and some parchment and set him on the CBO math. Using the above numbers, Sleestak calculates that projected revenues will generate $910 billion over 10 years. Outflows will be $829 billion over 7.5 years. Based on Sleestak's math, that's an average yearly inflow of $91 billion and an average yearly outflow of $110.5 billion, or a average annual deficit of $19.5 billion each year the benefits are actually paid.

TJIC rightly asks how this kind of game is any different from the one played by Madoff.  The only difference is that folks had the right to say "no" to Madoff whereas we will not have this ability with Congress.

Our Government is Anti-Consumer

Forget all the BS political posturing about the consumer -- the fact is that in the vast majority of its actions, the government is anti-consumer.  How else can one explain Administration officials criticizing China for selling goods to the US below cost.  "We're sorry, consumers, that you have been burdened with product choices that have had their prices subsidized by the Chinese.   We're working hard to fix this and make sure prices go back up where they should be."

Licensing, trade law, anti-trust, even consumer products laws -- its all become protection of politically connected corporations against smaller and upstart rivals.  Just look at how Mattel, whose sloppy due diligence forced a number of toy recalls last year, became the big winner of the new "consumer" law these recalls spawned.

Google voice is one of the more exciting communication products I have seen in years.  I have a phone number for free, I can have that number ring multiple different numbers while retaining a single voice mail -- with a free transcription service.  Awesome.

So, of course, the FCC is probably going to kill it.  They will find some way to justify it on nominally consumer grounds, but they are really just doing AT&T a favor.  The argument is that Google voice blocks calls to certain high-access rural areas.  So what?  Heck, I use it mostly to receive calls but if I made calls, do I really want my phone bill to go up by four or five times just so I can call some phone numbers I am never going to call.

Walter Olson on the FTC vs. Bloggers

Olson has a series of posts on the new FTC rules.  They are here and here.

The scariest part for me is not just the rules, but the frank admission that they will be enforced unequally as the FTC says it will apply discretion as to who to prosecute for picayune violations and who they won't.  As I often say to folks, even if you trust this administration   (e.g. "your guys") to not abuse this power, what about the next administration (ie "the other guys")?

Olson has a priceless picture a medical blogger snapped at a recent trade show showing that there is reason to fear that rules aimed at ridiculously small conflicts of interest will be enforced even when they are dumb:


Anyone who has been involved in NCAA recruiting can tell you the absurd results that flow from defining even tiny freebies as violations.  For example, when I interview high school students for Princeton, I have to be careful not to buy them lunch or coffee on the off-chance they turn out to be athletes where such a purchase could trigger a recruiting violation.

Loser of the Week

Via Carlos Miller:

The suburban Chicago cop who was caught on video beating a 15-year-old student for refusing to tuck his shirt last May is being accused of raping a woman while holding a pillow over her face.He also killed his ex-wife's new husband last year by shooting him 24 times in front of their children while he was a cop for another suburban police department.

What does it take to actually bring a police officer to justice?  He shoots his ex-wife's new husband 24 times and no one presses charges just because he is a police officer?  I can't find any details on the weapon he was using but I can't believe that any weapon he was issued by his force had a magazine with a 24 shot capacity.   So the guy probably stopped and reloaded and then pumped some more bullets in the guy's corpse.

Mix Shift?

The graph is large, so you will have to click through to it, but basically it shows employment losses and wage changes by industry in the US from 2008 to 2009.  What confuses me is that all these industries show fairly large hourly wage gains, with gains the largest in certain sectors with the largest employment losses.

I come up with one of two explanations:

  • Labor laws, union contracts, and other structural barriers in the economy make it difficult to cut wages in a recession, which in turn probably makes unemployment worse
  • The average wage gains are due to mix shift - companies preferentially lay off newer and less skilled employees who make lower wages, shifting the average wage mix upwards.

Not sure which it is.  Probably a bit of both.

The End Game In Residstribution Politics

Evan Bayh pretty much gives away the game.  We rob from the unpopular and give to the popular.

You can sort of see this coming. The savings from the pharmaceutical companies and the insurance industry, you can kind of count on that because they're not very popular.

The hospitals are a different story.  People, you know, like their hospitals; they tend to trust their hospitals. The hospitals have pledged big savings. I can easily forecast at some point in the not-too-distant future the hospitals coming in and saying, "You know what, this isn't working exactly the way we expected. Please spare us from this," and them getting a good hearing in [Congress].

News So Absurd There Is Almost No Point In Commenting On It

I really thought the Norwegians couldn' t fall much further into absurdity when they gave Al Gore the Peace prize for producing a movie that turned out to be mostly wrong  (one may still argue for catastrophic anthropogenic global warming, but almost no one uses the specific evidence any more that Gore used in his movie).

But I underestimated the Norwegian's tolerance for absurdity.  You see, these guys really don't like George Bush.  Now, I am not a big fan of the man's presidency, but the Peace prize folks went further, using their prize to tweak Bush when they had the chance.  The best example was the 2002 prize for Jimmy Carter, who was awarded the prize mainly for undermining Bush's foreign policy approach to North Korea.

But it turns out that the Norwegians really really didn't like George Bush, for this year they have given the Nobel Peace Prize to Barack Obama, who's only discernible accomplishment is that he replaced the hated George Bush.

This is perhaps the worst possible thing that could happen to Obama at this moment.  Just when he was being pushed into the realization that maybe he couldn't accomplish things just by flashing his aura in front of detractors, along comes the Nobel Peace Prize to compliment him on the brightness of his aura.

A while back, I commented on the disparity of coverage between Norman Borlaug's death and Teddy Kennedy's, and observed what a mismatch the coverage was vs. the relative level of their accomplishments.  Obama's joining Borlaug as a Nobel Peace Prize recipient just highlights the same contrast between a man who saved hundreds of millions of lives in quiet obscurity and man whose main accomplishment is parlaying a rich speaking voice and looking good in a suit into worldwide fame.

Postscript: For those that don't know, the Nobel peace prize is not awarded by an international committee of some sort - it is chosen by a group of Norwegian politicians that are selected by the Norwegian parliament.  Imagine if our Congress was tasked with giving out such a prize what a hash they would make out of it.  I must say that about 50% of the time the Norwegians make a good (or at least reasonable) choice, which is probably better than Congress would do.

Update: Maybe it was a grammar mistake -- they thought "to the person who shall have done the most" in Nobel's charge was future tense.

Update #2: Along the same lines, this is funny:

In a stunning announcement, Millard Fillmore Senior High School chose Shawn Rabinowitz, an incoming junior, as next year's valedictorian. The award was made, the valedictorian committee announced from Norway of all places, on the basis of "Mr. Rabinowitz's intention to ace every course and graduate number one in class." In a prepared statement, young Shawn called the unprecedented award, "f"”ing awesome."

At the same time, and amazingly enough, the Pulitzer Prize for Literature went to Sarah Palin for her stated intention "to read a book someday." The former Alaska governor was described as "floored" by the award, announced in Stockholm by nude Swedes beating themselves with birch branches, and insisted that while she was very busy right now, someday she would make good on her vow to read a book. "You'll see," she said from her winter home in San Diego.

And again in a stunning coincidence, the Motion Picture Academy of Arts and Sciences announced the Oscar for best picture will be given this year to the Vince Vaughn vehicle "Guys Weekend to Burp," which is being story-boarded at the moment but looks very good indeed. Mr. Vaughn, speaking through his publicist, said was "touched and moved" by the award and would do everything in his power to see that the picture lives up to expectation and opens big sometime next March.

Update #3: I think, all kidding aside, Jonathan Adler has the right explanation for the Nobel Committee's logic.  They supported Obama's (stated) goals and philosophy in foreign policy and wanted to help him by increasing his prestige with this prize.  My gut feel is that the prize (which Obama has now accepted) will actually be a hindrance.  First, some will harbor resentment, as the prize to a President with no accomplishments is just another example of special treatment of the US and a de facto acknowledgment of American exceptionalism - the prize is saying in fact the America President matters a lot, which other leaders resent.   Second, the prize may circumscribe his room to maneuver.  Peace prize winners are not supposed to call in air strikes and send in troops (yeah, I remember Kissinger), but any package of international actions to curb rogue states will likely require both a carrot and a stick.

The State of Anti-Trust

A lot of folks believe that antitrust law is mainly used for consumer protection.  That may have once been true, but it certainly is not true today.  Antitrust laws are used today by one group of competitors to try to hamstring another competitor in their business, usually one that is kicking their collective butts.

Here is the latest example:

The Justice Department is investigating allegations that International Business Machines Corp. has monopolized the market for mainframe computers, broadening Washington's search for anti-competitive behavior in the technology industry.

The requests, a special kind of subpoena used in antitrust investigations, followed a complaint by [the Computer & Communications Industry Association"”a group with many IBM rivals among its members] to the Justice Department accusing IBM of harming businesses by abusing its dominance of the market for mainframes.

Narry a customer or consumer to be found.  So what is the complaint?

the CCIA alleges IBM began to tighten its grip on the market by not allowing its newest software to be used on competitors' machines.

Waaaaaaaa!  Develop your own freaking software.  The only reason these competitors have a product at all is due to another anti-trust settlement 50 years ago:

For decades, [IBM] operated under terms of a 1956 consent decree with the government that required it to license mainframe technology to competitors.

Roughly the equivalent of Coca-Cola being forced to license its formula to whoever wants it.

But I can prove this has nothing to do with consumers.  Take an earlier, similar case against IBM several years ago.

The lawsuits followed IBM's decision not to license its newest mainframe operating system, called z/OS, to customers of Platform Solutions Inc., a company that made cheaper mainframes that were compatible with IBM's.

In its complaint, Platform alleged that IBM was unlawfully "tying" its software to its mainframe hardware and requiring customers to purchase both.

Congratulations, this company was able to beat IBM on price when they bore no hardware development costs (IBM was forced to license its designs to them to copy) and obviously was a free rider on software as well.   But that is beside the point.  Here is the solution that settled the case:

That case was settled last year, after IBM purchased Platform and ended its business.

LOL.  I am pretty sure that if the anti-trust case had anything to do with customers, that increasing IBM's market share and shutting down a low cost competitor would not have been considered an appropriate fix to IBM's supposedly anti-competitive behavior.  Antitrust has devolved nearly entirely into a legal club to wack a competitor who is beating you in the marketplace.  In Europe, it has become a tool to wack foreign competitors to domestic companies without triggering trade retaliations (e.g. Microsoft, Honeywell).

Light Rail Killing Another Transit System

I have written frequently that light rail tends to kill transit systems (Randal O-Toole has been a Cassandra on this subject for years).  Rail is so expensive to build and operate, and so inflexible in its routes and service structure, that once constructed it sucks resources from other modes (especially buses).   This leads to the counter-intuitive conclusion that these huge investments actually in the long run end up reducing transit system coverage and service and reducing ridership.  In particular, the poor, who depend on public transit as their lifeline rather than as a publicly subsidized alternative to buying a Prius, tend to get hammered.  Their bus service is cut and the light rail seldom runs where either their work or their homes are located.  Light rail is in effect a shifting of transit focus from serving the poor to serving the middle class (who wouldn't be caught dead on a yucky old bus but who like trains).

Enter Phoenix.  For the capital cost of $75,000 per daily rider, and large operating losses, we built ourselves a light rail line in one of the most dispersed cities in the country.  In other words, we spent $1.4 billion to serve a single 20 mile corridor which represented a tiny fraction of the city's commutes.  I predicted a while back two outcomes:

1) Light rail fares skyrocket to cover their immense operating deficits and capital costs, giving the lie to politicians that sold these systems as helping working poor.

2) Bus service, the form of transit that serves most of the working poor ...  is cut back to help pay for rail.

So, here is what I woke up to on the front page of our newspaper:

Phoenix's bus system, the largest in the Valley, may see a $16 million budget cut next year to avoid a deficit in 2012, transit officials say.

Bus-system officials will discuss the issue with the Citizens Transit Commission today.

The looming deficit is more bad news for bus riders. Cost-cutting in December and July reduced the frequency of some Phoenix routes and eliminated early morning and late-night service. Also, bus fares went up in all metro Phoenix cities and for Metro light rail this year.

Of course, as with all government analyses, the problem is not enough taxes:

Phoenix is going through multiple rounds of belt-tightening because sales-tax revenue, a crucial part of Phoenix's $171 million transit operating budget, continues to drop because of the economic downturn.

Transit 2000, the 0.4 percent sales tax that voters approved in March 2000, is bringing in less than projected. The tax was expected to generate $21.4 million during the first two months of this fiscal year. It brought in $14.3 million, said Lauri Wingenroth, assistant public-transit director.

Here is what they say don't say in the article, but should:  Most of the 2000 sales tax increase was allocated to the capital costs of light rail construction.  Those can't be cut back, because they are already sunk.  That means that most of these taxes are dedicated to paying off light rail bonds for the next 30 years, and those expenses exist no matter what they do.  So with no way to cut back on light rail expenses, buses (which have more variable costs than rail) are cut.  All exactly as predicted.

PS- Hilariously, right next to this article which should have been labeled a light rail fail, is an article about the "tragedy" that Phoenix is not on the Obama light rail boondoggle map.  Everyone else gets to waste a ton of federal money, why don't we have the same right?  If you read the article, you will find that a lot of countries that are orders of magnitude more dense and have much shorter inter-city travel distances than in the US are way ahead of us.  Left out of the article is the much higher percentage of freight that moves by rail rather than road in the US.

Best Kept Secrets

Some of the best kept secrets in today's world are not in the CIA, but in climate.  For example, I am sure you saw all the news a couple of years ago that Arctic sea ice extent hit an "all-time" low (by all time they mean since 1979 when we had satellites watching the ice).  But, did you know that on the exact same day, the Antarctic sea ice hit extent an "all time" high?  No?

OK, try this.  When people talk about rising oceans, only land ice matters (since sea ice floats, like ice cubes in your drink, their melting has no effect on ocean levels).  I am sure you have heard that scientists think that Greenland ice caps, representing 10% of the world's land ice, have melted at record high rates over the last couple of years  (yet again, keeping in mind the observation period is only about 30 years).  Did you know, though, that during the exact same period, Antarctic land ice representing 89% of the world's land ice has melted at record low rates?  No?  But the studies are done by the same people who did the Greenland work that were published everywhere.

You see, the press really can keep a secret nowadays.

I Hate to Repeat Myself, But...

Remember this -- a climate bill will have impact on CO2 emissions in direct proportion to how much it raises fossil-fuel-related energy prices.  When supporters of the bill say things like "it won't raise prices very much" they are in effect declaring "this bill will not solve the intended problem."

Below is a map of some of the climate actions being proposed.  As portrayed here, the current cap-and-trade bill is perhaps the worst of all choices, realizing limited gains (as demonstrated by programs in Europe and their supporters own estimates) combined with high costs.  The program is expensive to administer and much of the higher costs to consumers end up as subsidies to large corporations and green pork.


The combination plan of a large carbon tax offset by payroll tax reductions was discussed here.

Couldn't We Just Close Government Based on this Doctrine?

The WSJ on new EPA CO2 rules under the Clean Air Act:

Usually it takes an act of Congress to change an act of Congress, but Team Obama isn't about to let democratic"”or even Democratic"”consent interfere with its carbon extortion racket. To avoid the political firestorm of regulating the neighborhood coffee shop, the EPA is justifying its invented rule on the basis of what it calls the "absurd results" doctrine. That's not a bad moniker for this whole exercise.

The EPA admits that it is "departing from the literal application of statutory provisions." But it says the courts will accept its revision because literal application will produce results that are "so illogical or contrary to sensible policy as to be beyond anything that Congress could reasonably have intended."

Well, well. Shouldn't the same "absurd results" theory pertain to shoehorning carbon into rules that were written in the 1970s and whose primary drafter"”Michigan Democrat John Dingell"”says were never intended to apply?

It is interesting to see the Obama administration using the exact same logic to limit the reach of the Clean Air Act vis a vis Co2 emissions as the Bush Administration did to say the Clean Air Act should have not applicability to CO2 emissions.

Yet one not-so-minor legal problem is that the Clean Air Act's statutory language states unequivocally that the EPA must regulate any "major source" that emits more than 250 tons of a pollutant annually, not 25,000. The EPA's Ms. Jackson made up the higher number out of whole cloth because the lower legal threshold"”which was intended to cover traditional pollutants, not ubiquitous carbon"”would sweep up farms, restaurants, hospitals, schools, churches and other businesses. Sources that would be required to install pricey "best available control technology" would increase to 41,000 per year, up from 300 today, while those subject to the EPA's construction permitting would jump to 6.1 million from 14,000.

So the Bush Administration argues that the Clean Air Act applies to 0% of CO2 sources and they are accused of breaking the law.  But the Obama Administration argues the Clean Air Act applies to 0.2% - 0.7% of sources and this is somehow a vastly superior legal argument?  The courts rejected 0.0% as non-compliant but they will accept 0.2%?

Our City's Finest at Work

Phoenix police pump six rounds into the back of an innocent Phoenix homeowner who was still on the phone with 911 calling for their help with an intruder.

The scary part is how absolutely natural and well-polished the police's actions are in initiating a cover-up.  They may be screw-ups in the use of force, but they seem well-practiced in protecting their own from accountability.  Only the lucky break of having the 911 call still in progress and being recorded in the room the police were planning the cover-up prevented it from working.  Without this evidence, one wonders if the victim (who lived, incredibly) would have found himself accused of some heinous crime to take scrutiny away from the police.  "Oh, what's this here -- looks like a bag of white powder..."

One priceless detail is that the officer said he fired without seeing any gun in part because he thought he saw a Hispanic guy.  Wow -- if he loses his job with the Phoenix police (doubtful) I am sure Sheriff Joe would be thrilled to hire him.

We see this all the time nowadays - police roll without a thought into cover-up mode, and only the accident of video or audio recording prevents the cover up from working.  One wonders how many times they get away with this game when there is no electronic scrutiny.  Which is, I suppose, why police have invented a non-existent law that it is illegal to record their actions in public.  I am all for lojacking all of them with permanent electronic recorders.  (via Radley Balko, who has a roundup of a lot of similarly scary stories).

Postscript: The innocent homeowner (Tony) survived despite this treatment by police of his bullet-riddled body:

Officers ... painfully dragged Tony by his injured leg, through the home and out to his backyard patio, where they left him bloodied and shot right in front of [his family]."

The Arambulas say the officers later dragged Anthony onto gravel, then put him on top of the hot hood of a squad car, and "drove the squad car down the street with Tony lying on top, writhing in pain."

Life of the Libertarian

From John Hasnas via Matt Welch:

Libertarians spend their lives accurately predicting the future effects of government policy. Their predictions are accurate because they are derived from Hayek's insights into the limitations of human knowledge, from the recognition that the people who comprise the government respond to incentives just like anyone else and are not magically transformed to selfless agents of the good merely by accepting government employment, from the awareness that for government to provide a benefit to some, it must first take it from others, and from the knowledge that politicians cannot repeal the laws of economics. For the same reason, their predictions are usually negative and utterly inconsistent with the utopian wishful-thinking that lies at the heart of virtually all contemporary political advocacy. And because no one likes to hear that he cannot have his cake and eat it too or be told that his good intentions cannot be translated into reality either by waving a magic wand or by passing legislation, these predictions are greeted not merely with disbelief, but with derision. [...]

If you'd like a taste of what it feels like to be a libertarian, try telling people that the incoming Obama Administration is advocating precisely those aspects of FDR's New Deal that prolonged the great depression for a decade; that propping up failed and failing ventures with government money in order to save jobs in the present merely shifts resources from relatively more to relatively less productive uses, impedes the corrective process, undermines the economic growth necessary for recovery, and increases unemployment in the long term; and that any "economic" stimulus package will inexorably be made to serve political rather than economic ends, and see what kind of reaction you get. And trust me, it won't feel any better five or ten years from now when everything you have just said has been proven true and Obama, like FDR, is nonetheless revered as the savior of the country.


At first, I thought the headline was a joke on government programs.  It read something like "NASA Spitzer telescope discovers ring around Saturn."  I mean, duh.

But it turns out they did find a big, really cool and nearly invisible ring around the larger Saturn system.  Via the Reference Frame

Saturn's Largest Ring

This artist's conception shows a nearly invisible ring around Saturn -- the largest of the giant planet's many rings. It was discovered by NASA's Spitzer Space Telescope.

The artist's conception simulates an infrared view of the giant ring. Saturn appears as just a small dot from outside the band of ice and dust. The bulk of the ring material starts about six million kilometers (3.7 million miles) away from the planet and extends outward roughly another 12 million kilometers (7.4 million miles). The ring's diameter is equivalent to roughly 300 Saturns lined up side to side.

This Is Not A Kickback, How?

Readers will know that I am not a fan of publicly-funded stadiums.  Had the mayors of the 40 largest cities in the US signed a no-public-funding pledge 30 years ago, and stuck to it, we would still have the same number of sports teams in roughly the same places, but without all the taxpayer subsidies.  It is rivalry among cities the creates a sort of prisoners dilemma problem and we end up with rampant public subsidies.

What I hadn't realized was the role of outright bribery and kickbacks in this process.  Apparently, it is routine that city and county officials take compensation, in terms of free personal access to luxury boxes, in return for approving these public stadiums

In late August, when the Mobile City Council and Mayor Sam Jones first toured the $2.5-million addition to Ladd-Peebles Stadium, including 11 new skyboxes, District 6 Councilwoman Connie Hudson said she was surprised to hear the city council would have a suite separate from the mayor's, which is located just between the 40- and 50-yard lines.

"It was announced to me on the day we toured," Hudson said. "We've always shared, like we do with the Baybears."

The 11 new skyboxes bring the total at city-owned Ladd-Peebles Stadium up to 14, as three were built in 1997 in part of the press box addition. In addition to the two skyboxes available to the city, the Mobile County Commission also has a suite, which brings the total of skyboxes for local government use to three, or 21 percent of the skyboxes in the 61-year-old stadium.

Speaking generally, and taking into consideration the differences between facilities in other cities, Bud Ratliff of the Mobile Bay Sports Authority says most stadiums have only two skyboxes reserved for city and county use, but doesn't see a problem with the current arrangement at Ladd-Peebles.

Chrysler Update

Apparently, Chrysler is toast.  Which is what a lot of us were saying before taxpayers put billions of dollars into it.  (ht:  Maggies Farm)

Rumors, credible rumors, are beginning to circulate in the car industry and the automotive press, that Chrysler may not make it another year primarily due to its falling sales and growing financial losses at partner Fiat....

The Congressional Oversight Panel has already said taxpayers will not see most of the $81 billion that they put into the American car industry. The $14.3 billion put into Chrysler is more and more likely to be lost completely. The biggest single loser if Chrysler cannot survive is the UAW which owns 55% of the company.

I struggle to cry much for the UAW with that last part.  They only own 55% because the President intervened to give what should have belonged to the secured credit holders over to the UAW in exchange for being so helpful in getting him elected.

In January 2009, Chrysler stood on the brink of insolvency.  Purporting to act under the Emergency Economic Stabilization Act, the Treasury extended Chrysler a $4 billion loan using funds from the Troubled Asset Relief Program (TARP).  Still in a bad financial situation, Chrysler initially proposed an out-of-court reorganization plan that would fully repay all of Chrysler's secured debt.  The Treasury rejected this proposal and instead insisted on a plan that would completely eradicate Chrysler's secured debt, hinging billions of dollars in additional TARP funding on Chrysler's acquiescence.

When Chrysler's first lien lenders refused to waive their secured rights without full payment, the Treasury devised a scheme by which Chrysler, instead of reorganizing under a chapter 11 plan, would sell its assets free of all secured interests to a shell company, the New Chrysler.  Chrysler was thus able to avoid the "absolute priority rule," which provides that a court should not approve a bankruptcy plan unless it is "fair and equitable" to all classes of creditors.

I had more here.

Update: A firsthand account from a hosed secured creditor (pdf)

Details of the bankruptcy were unprecedented. For the first time in American history and totally counter to all established laws of bankruptcy, secured creditors would receive less than nonsecured creditors....

Indiana's legal filings in the Chrysler, LLC bankruptcy sale made three essential points: First, the bankruptcy laws which have been in place protecting the rights of secured creditors cannot be arbitrarily overthrown by an act of the Executive. This is a violation of Article I, Section 8 of the U.S. Constitution in that Congress is solely assigned the role to determine uniform bankruptcy law. Neither the Courts nor the Executive can do this arbitrarily. Our funds suffered a "taking" in violation of the Fifth Amendment in that there was no "due process of law". There was, and is in all financial arrangements between debtor and creditor, a contractual relationship, which is here being rendered null and void. If allowed to stand, this violation of two party contracts undermines a basic and essential tenet of debt financing in the capital markets.

Second, money provided by the federal government to Chrysler is being provided illegally and clearly counter to the intent of Congress. When TARP was being debated then Secretary of the Treasury Henry Paulson testified the money was NOT for the auto companies. It was targeted to aid the ailing financial industry, i.e, those with "Troubled Assets" that needed a "Recovery Program." Evidence that the money was NOT intended to be an automotive bailout bill could not be more clearly illustrated than to review the failure of the separate automobile bailout bill presented in Congress in December 2008. If Congress had intended the TARP bill to cover the auto companies when it passed in October 2008, why were they even attempting to pass a separate automobile bailout bill just two months later? We believe both the Bush and Obama administration have acted illegally in this use of TARP funds.

Third, we argue that a sub rosa or "under-the-table-arrangement" between the Treasury and Chrysler prevented a fair valuation of the assets. In a legitimate auction sale, no potential bidder would be allowed to set the value of the assets being auctioned. But that is precisely what happened in this case as the Treasury was assigning values to creditors, determining which assets would be liquidated, what new parties, (i.e., Fiat SpA), would be brought into the deal, and how a new dealership network would be defined, etc. It was known from the outset that when the Chapter 11, Section 363 sale of the assets would occur, there would be only one bidder: the U.S. Treasury. Secured creditors could not have their rights protected or fairly valued in such an arrangement. Such an "insider-deal" reeks of impropriety.

Great Suggestion

Brad Warbiany has a great suggestion in response to new FTC rules requiring that

Under the revised Guides, advertisements that feature a consumer and convey his or her experience with a product or service as typical when that is not the case will be required to clearly disclose the results that consumers can generally expect. In contrast to the 1980 version of the Guides "“ which allowed advertisers to describe unusual results in a testimonial as long as they included a disclaimer such as "results not typical" "“ the revised Guides no longer contain this safe harbor.

Brad has suggested this disclosure is in order:

Barack Obama, Sept 12, 2008
And I can make a firm pledge: under my plan, no family making less than $250,000 will see their taxes increase* "“ not your income taxes, not your payroll taxes, not your capital gains taxes, not any of your taxes.

* Results not typical. Families making less than $250,000 can expect to see rises in cigarette taxes, increased energy costs through cap and trade and/or gasoline taxes, soda taxes, and mandates to buy costly insurance plans they can't afford. They can expect to pay all the taxes levied on "corporations", as well as the cost of new regulations, who will pass those on in the cost of goods. Families can expect taxation through the form of inflation, eating away at the buying power of their paychecks. Firm pledges have not taken Viagra and should not be expected to last more than 4 hours.

Update: From Ann Althouse, couldn't have said it better myself:

The most absurd part of it is the way the FTC is trying to make it okay by assuring us that they will be selective in deciding which writers on the internet to pursue. That is, they've deliberately made a grotesquely overbroad rule, enough to sweep so many of us into technical violations, but we're supposed to feel soothed by the knowledge that government agents will decide who among us gets fined. No, no, no. Overbreath itself is a problem. And so is selective enforcement.

Phoenix Climate Change Presentation Email Link

The email link in the earlier post was screwed up in a lot of feeds.  Here is the correct link.

Your Idea Sucks -- Here's Your Money

Having read this:

In his proposed budget for 2010, Chu wanted $480 million to start eight Energy Innovation Hubs, or "Bell Lablets," as he called them, to stimulate research in areas ranging from solar energy to new materials for the electric grid. Each would receive $35 million to get started, and $25 million more in each of the following 4 years.

Last week Congress poured semi-cold water on the idea....Its skepticism was no surprise, having been included this summer in reports accompanying the spending bills in the House of Representatives and Senate (House, Senate versions). In August, Science reporter Jeffrey Mervis described how Chu admitted to a mediocre job of selling the idea and overcoming congressional concerns that the concept was poorly thought out and not well-coordinated with other energy research at the Department of Energy. House appropriators were particularly unkind to the idea, noting:

A new set of centers with overlapping research goals risks adding confusion and redundancy to the existing fleet of research and development initiatives

So since everyone agreed it was a bad idea, they killed it right? Ha ha, cute idea, actually voting and spending money based on efficacy. In fact, they gave Chu quite a bit

Conferees to the Energy and Water spending bill approved funding for three of the centers, two in energy efficiency and renewable energy and one in nuclear energy.

If they really make no sense, how about "zero"

Michigan's Job Creation Plan

Michigan has  a huge problem with jobs and capital leaving the state for more favorable climates.  Which makes it incredible that the ruling Democrats in the state have this plan to improve things:

  • Hiking the minimum wage to $10 an hour for all workers.
  • Imposing a blanket moratorium on home foreclosures for 12 months.
  • Cutting utility rates 20% across the board.
  • Requiring all employers to provide health care to their employees.
  • Hiking, by $100 a week, and extending, for six months, unemployment benefits.

Wow, that should really bring companies running to the state to invest their capital.  This is always a powerfully attractive package:

  • Raise the price of unskilled labor and entry-level employees
  • Reduce protections for lenders investing capital in the state
  • Set the state up for power shortages
  • Increase the price of labor by $12,000 or more per year
  • Increase employment-related taxes  ( a sure outcome of raising unemplyment benefits)

God Forbid

NY Major Bloomberg:

We can't just say everybody can go everyplace and do anything they want.

To his final query, I do work in a building without security and I am fine, thank you.

More on Incentives

A lot of my education was just a cover story that looked good a number of years of partying with no job look good on my resume without any real improvement in my long-term skills.  But my time in business school thinking about incentives and later at McKinsey & Co. doing the same for various employee compensation approaches has served me well through my whole life.  It's not that Congress and the media are bad at thinking through inventives -- its that they don't even try.  They accept the motivations and desires of the person proposing a plan as suffiecient gaurantee that the plan will actually reach those results.

I got a lot of mail last week on my post on incentives.  One loyal reader left me this link at Develish Details, a blog analyzing health care reform proposals.  Incentives are a frequent topic on the blog:

While it's true that paying by procedure creates the incentive to perform more procedures, some of which may be unnecessary, an outcomes based payment system has its own drawbacks. It creates the incentive for doctors to choose to treat patients who are less sick over those who are more sick. Very sick patients require a lot of attention and time, but are less likely to have a bonus-worthy outcome.

On the other hand, less sick patients are easier to treat, are likely to have a better outcome, and will offer a better bonus opportunity for the doctor. Doctors' time is scarce, so they must put it to the best use possible to provide for their families "“ and in a pay-for-outcomes system that means choosing easier to treat patients who will generate the highest bonuses. No matter how much we narrow the arbitrary measure of "outcome", the incentive for the doctor in an outcome based system, where "outcome" is defined by a third party, will always be to select the least sick patients at the expense of the sickest patients most in need of care.

Because human beings are complex organisms, defining what constitutes a "good", bonus-worthy outcome is itself a daunting, if not an altogether impossible undertaking for the third party tasked with producing and evaluating those metrics. Medical outcomes depend on many variables, including, but not restricted to the overall health of the patient (not just the condition being treated) and the patient's compliance with the treatment - a factor over which the doctor has no control.

Subsidies Beget Subsidies

For years in Arizona we have been told by the state government that we need to subsidize science.  I have never really figured out why my life would be better if scientists lived in Arizona instead of California, but apparently when governors get together and compare their states' penis lengths, this is one of the key topics that come up.  Why we need to subsidize, for example, bio-science in Arizona to keep up with California but folks in Kansas don't need to subsidize, say, awesome golf resorts to keep up with Arizona has always escaped me.  I have always felt that if we just keep taxes low and wait long enough, California is going to blow up and we will collect a lot of the best and brightest with no extra effort.

Well, I am starting to understand why we needed to subsidize bio-science with our Arizona taxes.  We apparently need to do so to ... attract large grants for Federal tax money.  So by subsidizing this sector locally, we built it up enough to attract Federal subsidies.  Great.  Actually we probably did not build up the sector per se, we just built a quality private bureaucracy that had the skills and incentives to write lots of successful grant applications.  Apparently there is still work left to do, though, as other states have invested in even larger grant-magnets:

States with strong science bases such as California, Massachusetts and New York, each landed more than 1,000 grants.

Twenty states secured fewer grants than Arizona's haul of 101 awards.

Arizona scientists will study things such as predicting asthma in babies, prostate cancer and the behavioral responses of kissing bugs, which are blood-sucking insects linked to a blood-borne disease that afflicts 11 million to 13 million people in Mexico and Latin America.

Arizona scientists say the batch of stimulus dollars through the NIH is a welcome change from years of stagnant federal funding for scientific research.

"There was no increase in federal funding for cancer research for five years - that was devastating," said Dr. David Alberts, director of the Arizona Cancer Center in Tucson. "Now, I'm encouraged."

Wow - thus we see why government spending grows so much faster than inflation.  Flat spending = devastating.

If I were in academia, the study I would like to do is to try to assess the total value destroyed by state and local governments merely in trying to move businesses and facilities from one part of the country to another.

Great Moments in Protecting and Serving

Via Carlos Miller:

Police in California used their Taser on a legless man, then dragged him out of his apartment where they sat him on a curb handcuffed and naked from the waist down for several minutes as neighbors complained of brutality.Gregory Williams, 40, a double-amputee, ended up spending six days in jail on charges of domestic violence and resisting arrest before he was released with dropped charges.

It all began when Williams apparently was reluctant to let Child Protective Services in to search his house in response to an anonymous tip.  I don't know the laws in California, but CPS officials often have scary, broad powers that go beyond any reasonable definition of Fourth Amendment rights.

In this case, police get double abuse points for seizing the camera of a bystander video taping the event (something that is entirely legal but which police treat as illegal) and allegedly deleting the video of the police handling of Williams.