Recently in Business and Economics Category

It appears Frontier Communications has fallen further under the spell of Verizon's sales pitch, with the sale of Verizon's Oregon assets to Frontier being OK'd by Oregon's PUC.

But not everything is rosy. At least someone in one state is questioning the wisdom of the sale in light of the fate of other small rural-service telcos that bought what Verizon was selling.

The State Journal-Register newspaper in Springfield reports that [Administrative Law Judge] Lisa Tapia said in a 46-page report that allowing Frontier to purchase the Verizon lines in Illinois "will diminish Frontier's ability to perform its duties to provide adequate, reliable, efficient, safe and least-cost public utility service."

--snip--

Unfortunately for Frontier, they are caught up in the back wash of Verizon's other local exchange divestments. Both FairPoint and Hawaiian Telecom completed similar transactions, and are both now in bankruptcy.

Both FairPoint and Hawaiian Telecom paid far too much for the assets they bought.

In northern New England FairPoint bought an increasing share of a decreasing market, always a formula for disaster. Wireline customers have been shedding themselves of traditional landlines and using either cell phones or VoIP services from their local cable companies for some time, both of which have been competitively priced compared to FairPoint. FairPoint lost over 13% of their customers since they took over operations from Verizon. And because of FairPoint's financial difficulties, its promise to expand broadband service to at least 95% of its service area has fallen by the wayside.

The best thing Illinois could do for telephone customers is to run from the Verizon-Frontier deal. In the end the only one such a deal helps is Verizon. Everyone else will be screwed. Frontier doesn't have the financial wherewithal to handle such a deal and will end up in the same situation as FairPoint and Hawaiian Telecom - in bankruptcy. That helps no one...except the lawyers.

It appears Frontier Communications has fallen further under the spell of Verizon's sales pitch, with the sale of Verizon's Oregon assets to Frontier being OK'd by Oregon's PUC.

But not everything is rosy. At least someone in one state is questioning the wisdom of the sale in light of the fate of other small rural-service telcos that bought what Verizon was selling.

The State Journal-Register newspaper in Springfield reports that [Administrative Law Judge] Lisa Tapia said in a 46-page report that allowing Frontier to purchase the Verizon lines in Illinois "will diminish Frontier's ability to perform its duties to provide adequate, reliable, efficient, safe and least-cost public utility service."

--snip--

Unfortunately for Frontier, they are caught up in the back wash of Verizon's other local exchange divestments. Both FairPoint and Hawaiian Telecom completed similar transactions, and are both now in bankruptcy.

Both FairPoint and Hawaiian Telecom paid far too much for the assets they bought.

In northern New England FairPoint bought an increasing share of a decreasing market, always a formula for disaster. Wireline customers have been shedding themselves of traditional landlines and using either cell phones or VoIP services from their local cable companies for some time, both of which have been competitively priced compared to FairPoint. FairPoint lost over 13% of their customers since they took over operations from Verizon. And because of FairPoint's financial difficulties, its promise to expand broadband service to at least 95% of its service area has fallen by the wayside.

The best thing Illinois could do for telephone customers is to run from the Verizon-Frontier deal. In the end the only one such a deal helps is Verizon. Everyone else will be screwed. Frontier doesn't have the financial wherewithal to handle such a deal and will end up in the same situation as FairPoint and Hawaiian Telecom - in bankruptcy. That helps no one...except the lawyers.

The January unemployment numbers are out and at first look the fall in the 'official' unemployment rate - 9.7% - appears to be a signal that things may be getting better. But the fly in the ointment is the loss of an additional 20,000 jobs.

So how is it that even though more jobs have been lost, the unemployment rate has fallen? Businesses haven't been hiring, so it isn't that the unemployed have necessarily found new jobs (though 11,000 new jobs were reported). Could some of the reason for the fall in the jobless rate be because a number of unemployed have stopped looking for work that isn't there, dropping off the unemployment rolls? They are no longer counted but they're still unemployed. Others have taken part-time or temporary jobs outside their usual professions, further distorting the numbers.

Some tout the lower unemployment rate as proof the economy is improving, but there are others saying the numbers aren't reflecting the real job situation.

John Silvia, chief economist at Wells Fargo, said the drop in the unemployment rate wasn't a result of a shrinking labor force, which has held the rate down in previous months.

"It simply was, people found jobs," he said. The report is "consistent with continued improvement in the labor market."

But Paul Ashworth, an economist at Capital Economics, noted that the economy has been growing for six months, yet company payrolls are still shrinking.

"Based on what we've seen so far, we think it is fair to characterize this as another jobless recovery," Ashworth said.

Left behind are people like Aimee Brittain, 31, who said she can't get employers to return her calls. She's hunting for work as a secretary after being laid off from a commercial real estate firm near her home in suburban Atlanta.

"I'm fighting against people with master's degrees for receptionist jobs," Brittain said. "I can't compete."

How many of the 11,000 new jobs were taken by people in the same position as Brittain? How many will be relegated to jobs outside their areas of expertise, with wages well below what they made before? Unless those questions are answered then the state of the economy will not be accurately reflected by the unemployment rate.

I have to say the opening statements of the President's State of the Union address were on target, talking about the problems that we, as a nation and as individuals, are facing. But once he started addressing the main issue we face - the economy - he lost me.

He talked about tax cuts, but only the temporary tax cuts. The somewhat more long term cuts, the Bush tax cuts, expire next year, meaning everyone will see a tax increase once they're gone.

On the stimulus bill - blah blah blah blah blah blah. (At least that's what I heard.)

As much as I agree that jobs are an issue, I have to disagree with the president that somehow it's up to the government to stimulate them with our money. Better that government get the heck out of the way. We don't need it to take $30 billion of the repaid TARP funds and spend it again.

I agree with Obama that we need to upgrade our infrastructure to help American businesses compete in the global marketplace. But what do high-speed trains have to do with that? Better that electrical systems and broadband communications networks be built, which will do far more to support American businesses than trains.

And while the president says he "won't accept second place for America", he's been doing what he can to make sure that's where we'll end up, if not third or fourth place.

After that I started nodding off as he started mouthing the same old platitudes but in different wrappers. (Make energy less expensive by taxing the hell out of it. Punish all the banks for the actions of a few. Spend billions more on education even though study after study after study shows more money doesn't equate to better education. Destroy our health care system in order to save it. And so on and so on.)

I. GOT. BORED.

ZZZZZZZzzzzzzzzzzz........

UPDATE 1/28/10: Going back and watching the address again, I saw that as time passed he shifted more and more blame for all our troubles on to others. He laid all the blame for the failure of health care reform and cap-and-tax squarely on the Republicans, saying they now owned the blame. Senator John Kyl rebutted that allegation today on NPR, stating the Senate Republicans were following the will of their constituents, blocking bad legislation that would do little more than cost the American people untold hundreds of billions of dollars with nothing to show for it.

I've seen all kinds of reports and so-called exposés about the TEA party movement in MSM. Many were derisive, a few tried hard to be neutral, a few more were big supporters, and some were outright hostile.

But then, out of nowhere, comes a piece that even a cynic like me has to admit was pretty well balanced, and from a source I never would have thought of as fair.

Ben McGrath does a pretty good job covering the rise of TEA party activism for the New Yorker, resisting the urge to paint everyone involved with the TEA party activities as inbred right-wing rednecks beholden to Big Oil, Big Finance, and Big (place name of latest scapegoat du jour here).

My first immersion in the social movement that helped take Ted Kennedy's Massachusetts Senate seat away from the Democrats, and may have derailed the President's chief domestic initiative, occurred last fall, in Burlington, Kentucky, at a Take Back America rally.

About a thousand people had turned up at the rally, most of them old enough to remember a time when the threats to the nation's long-term security, at home and abroad, were more easily defined and acknowledged. Suspicious of decadent élites and concerned about a central government whose ambitions had grown unmanageably large, they sounded, at least in broad strokes, a little like the left-wing secessionists I'd met at a rally in Vermont in the waning days of the Bush Administration.

If there was a central theme to the proceedings, it was probably best expressed in the refrain "Can you hear us now?," conveying a long-standing grievance that the political class in Washington is unresponsive to the needs and worries of ordinary Americans. Republicans and Democrats alike were targets of derision.

Addressing McGrath's last point, more than a few Republicans have made the mistake of thinking the TEA party movement is a phenomenon automatically supportive of the GOP. They're wrong. Most Americans are sick and tired of being ignored or marginalized by both political parties. TEA party activists like me see both the Democrats and Republicans as being part of the problem, so GOP congresscritters, governors, and state legislators are no more immune from our displeasure than Democrats. (It's just that there are so many more Democrats in office these days that they're taking the brunt of our pushback.)

McGrath credits Rick Santelli, a CNBC reporter, as being the spark that started the TEA party fire with his rant on the floor of the Chicago Mercantile Exchange last February. The rant, reminiscent of Peter Finch's portrayal of Howard Beale in the movie Network, expressed the frustration so many of us were feeling at being ignored by the very people we put in office to serve us. Instead, they decided that we served them, and as such, all that was ours was theirs to use or misuse as they saw fit.

They were wrong.

And so the movement grows, as McGrath has shown.

There's something terribly wrong with this whole concept.

How is it the President can impose a tax (a fine fee) on responsible financial institutions that wisely and carefully shepherded their depositor's/client's money through the financial meltdown, required no TARP funds, didn't have to declare bankruptcy, nor required any other government 'help' because they were solvent and didn't get involved with the financial shenanigans? Yet the irresponsible institutions and corporations that squandered hundreds of billions of dollars get a walk and won't have to pay the fine fee?

Doesn't this send the wrong message? The President is saying, in effect, "If you do well and make money for your clients/depositors/shareholders while also providing sensible and responsible financial services we will punish you!. But if you are spendthrift and get involved with high risk financial strategies and investments and lose all of your money, will give you all the taxpayer money you need to stay afloat."

Like that will help stimulate the economy in any kind of sustainable fashion. But then, the looters never look at such things from an economic point of view. It's always about being "fair and just". But who decides what is fair and just? The looters, or course.

Why doesn't this surprise me?

December auto sales showed that while GM and Chrysler sales fell, Ford sale increased 33%.

The difference between GM/Chrysler and Ford? That's easy: Ford didn't require any bailout money and therefore, is still a publicly owned and traded company with little debt and independent of the Feds. GM and Chrysler, on the other hand, are partially owned by the Feds, having received billions in bailout funds, stiffing the bond holders in the process, and handing a portion of GM over to the UAW.

I've been a Mopar man all my life, having owned a number of great Chrysler Corporation cars and trucks, including my present 2000 Dodge Intrepid. But sadly, that love affair has ended. I have a feeling my next car will likely be a Ford, or maybe a Toyota if I can't find a Ford I like (which is unlikely).

It doesn't help either GM or Chrysler that a number of their better performing dealerships were closed at government insistence. If the allegations are true, most of the closed dealership were owned by Republicans (a little payback from the Obama Administration, perhaps?), and some of the surviving dealerships weren't all that good - not having the sales or the good reputation the closed dealerships enjoyed - or in locations that weren't convenient for potential customers.

A comment to a related post over at the Volokh Conspiracy says it all:

I was in a Ford dealership last week, and saw a car on display with a big "NO BAILOUT NEEDED" sign in the windshield. Sounds like they realize it resonates well with customers.

(H/T Instapundit)

Is it possible that the much hated Sarbox (Sarbanes-Oxley) law will be struck down by the US Supreme Court? Let's hope so.

Free Enterprise Fund v. Public Company Accounting Oversight Board was brought in 2006 by Brad Beckstead, whose small Nevada accounting firm endured a costly examination under Sarbox rules. At issue is whether the Public Company Accounting Oversight Board, or PCAOB, which supervises compliance with the law, violates the Constitution's separation of powers. Under the Appointments Clause, all "officers" of the United States must be appointed by the President and accountable to him--a condition PCAOB members do not meet.

(emphasis added - ed.)

--snip--

The PCAOB has indeed grown as a politically unaccountable entity with vast power to regulate business. Texas Senator Phil Gramm warned at its creation that Congress was setting up a board with "massive unchecked power" to "make decisions that affect all accountants and everybody they work for, which directly or indirectly is every breathing person in the country."

Massive is the right word. The accounting board's wide-open mandate--to make whatever rules "may be necessary or appropriate in the public interest or for the protection of investors"--has cost the economy nearly $1 trillion, according to a study by AEI and the Brookings Institution. The benefit is supposed to be investor protection. But despite these costs, the law did nothing to warn about the meltdown of mortgage-backed securities, much less expose Bernie Madoff or other fraudsters.

A hastily put together bill created an unsupervised and unchecked regulatory organ with little or no Congressional or Executive oversight with questionable efficacy as well as problematic constitutionality pulling almost $1 trillion out of the economy and we're just supposed to take it?

I don't think so.

Hopefully the Supremes will pull the rug out from underneath Sarbox, a bill that actually did little to 'protect the investor' but added one hell of a burden on to American businesses.

It's time for Sarbox to die.

I have to agree with Eric the Viking on this one: Who's writing Nancy Pelosi's material these days?

"The American people have an anger about the growth of the deficit because they're not getting anything for it. ... If somebody has the idea that the percentage of GDP of what our national debt is will go up a bit, but they will now -- and their neighbors and their children -- will have jobs, I think they could absorb that, and then we ride it out and bring money in," she said.

She's kidding, right? (Unfortunately, she's not.)

This statement and the others in Eric's post and link shows me three things about our Speaker of the House:

a) She really has little understanding of economics.

b) She really has no idea what motivates average Americans, particularly when it comes to matters economic.

c) She really doesn't care because she knows better than everyone else in the nation, including the very folks she claims she wants to 'help'.

The angry American taxpayers don't want Congress to spend even more money we don't have on more stimulus, health care reform that will reform nothing, or any other dubious and expensive government programs.

Sucking over $1.4 trillion out of the economy (the present budget deficit figure) is not helping the economy in any way, shape, or form. Pulling even more out of the economy with higher deficits and higher taxes in a second effort to 'stimulate' the economy will only make the recession worse. This is something Pelosi, as well as Reid and Obama, do not understand. I find that difficult to believe considering there's plenty of history to show previous attempts to do just that have failed miserably and, in fact, made things worse.

Watching what's happening to our economy today it's easy to forget that this isn't the first time we've been through this, with government trying to spend its way out of a recession. The effort back in the 1930's failed miserably, extending the Great Depression for years, as did the 'stimulus' of 1962, which prompted Ayn Rand to comment on the error on the part of government in thinking such spending would do anything but have negative effect, that our economic IQ was sadly deficient. From her column in the L.A Times back in 1962:

Since "economic growth" is today's great problem, and our present Administration is promising to "stimulate" it--to achieve general prosperity by ever wider government controls, while spending an unproduced wealth--I wonder how many people know the origin of the term laissez-faire?

France, in the seventeenth century, was an absolute monarchy. Her system has been described as "absolutism limited by chaos." The king held total power over everyone's life, work, and property--and only the corruption of government officials gave people an unofficial margin of freedom.

Louis XIV was an archetypical despot: a pretentious mediocrity with grandiose ambitions. His reign is regarded as one of the brilliant periods of French history: he provided the country with a "national goal," in the form of long and successful wars; he established France as the leading power and the cultural center of Europe. But "national goals" cost money. The fiscal policies of his government led to a chronic state of crisis, solved by the immemorial expedient of draining the country through ever-increasing taxation.

Colbert, chief adviser of Louis XIV, was one of the early modern statists. He believed that government regulations can create national prosperity and that higher tax revenues can be obtained only from the country's "economic growth"; so he devoted himself to seeking "a general increase in wealth by the encouragement of industry." The encouragement consisted of imposing countless government controls and minute regulations that choked business activity; the result was dismal failure.

Colbert was not an enemy of business; no more than is our present Administration. Colbert was eager to help fatten the sacrificial victims--and on one historic occasion, he asked a group of manufacturers what he could do for industry. A manufacturer named Legendre answered: "Laissez-nous faire!" ("Let us alone!")

Apparently, the French businessmen of the seventeenth century had more courage than their American counterparts of the twentieth, and a better understanding of economics. They knew that government "help" to business is just as disastrous as government persecution, and that the only way a government can be of service to national prosperity is by keeping its hands off.

Regardless of the purpose for which one intends to use it, wealth must first be produced. As far as economics is concerned, there is no difference between the motives of Colbert and of President Johnson. Both wanted to achieve national prosperity. Whether the wealth extorted by taxation is drained for the unearned benefit of Louis XIV or for the unearned benefit of the "underprivileged" makes no difference to the economic productivity of a nation. Whether one is chained for a "noble" purpose or an ignoble one, for the benefit of the poor or the rich, for the sake of somebody's "need" or somebody's "greed"--when one is chained, one cannot produce.

There is no difference in the ultimate fate of all chained economies, regardless of any alleged justifications for the chains.

It seems that we still haven't learned that lesson four decades or four centuries later. As the late Ronald Reagan said more than once, "Government isn't the answer. Government is the problem." It was true back during Louis XIV's reign and it's true today. Our government is bent on controlling more businesses, either through direct take over like GM, Chrysler, the banks, and health care, or through onerous regulation and taxation, all in the name of 'stimulus' and 'fairness'.

Apparently our leaders have learned nothing from past attempts to tighten control over economies and businesses that their attempts won't work, won't create the results they want, and won't lead to anything but more poverty, less business, and a weaker economy than if they'd just left everything alone. But government is incapable of not fiddling about with things they really don't understand. And that's our biggest problem today.

From the November 5th issue of Machine Design comes this eye opening observation about our economy, specifically in regards to the Law of Unintended Consequences.

As the official unemployment rate tops 10% in more than one quarter of all states, the hot topic of the day increasingly moves toward how to stimulate more hiring. This is particularly true in states hit the hardest in the economic downturn.

With this in mind, consider the annual trade show put on by the Packaging Machinery Manufacturers Institute last month. Despite the punk economy, show attendance was healthy. Many exhibitors reported a lot of interest in the packaging and food-processing equipment they had on the show floor.

One might wonder why, with manufacturing companies in such terrible shape, makers of food-processing and food-packaging equipment seemed to be doing relatively well. Part of the answer, according to a longtime PMMI board member, is that makers of automation equipment for the food industry are being helped along by recent legislation, but not in the way you might think.

This board member, who has held management positions in the foodprocessing- equipment industry for many years, wasn't referring to stimulus spending. He was alluding to the rise in the minimum wage which took effect this past summer. The food industry is characterized by a significant number of low-wage workers, he points out. In the past, he'd noticed that every increase in the minimum wage resulted in an up-tick of orders for automation equipment designed to eliminate a few more jobs. He figures this past summer's wage hike is shaping up to be no different. Of course, you'll likely never read this explanation for economic activity in newspaper headlines. One suspects that machinery manufacturers asked to publicly explain their improving business conditions tend to avoid giving politically incorrect answers. It is generally unwise to point out that your own good fortunes are partly due to missteps by politicians that have brought misery to others.

(emphasis added - ed.)

Of course it was the politicians in Congress that pushed through the raise in the minimum wage, using the excuse that no one could support a family making the minimum wage as it was before they took action. However, it is rare that anyone making minimum wage is also supporting a family. Such jobs are usually entry level positions for people taking their first jobs. But with the increase of the minimum wage over the past couple of years many of those jobs have disappeared. As illustrated above, when the costs go up employers find ways of cutting costs. Whether that means trimming jobs or replacing personnel with machinery, the end result is the number of jobs at minimum wage shrink.

I have no doubt the members of Congress that ramrodded this change will now claim the decrease in the number of minimum wage jobs is solely the fault of the greedy business owners. But the one thing they constantly overlook is that businesses, particularly small businesses, are not charities. If they don't remain profitable they go out of business, and those working for them will be out of jobs. This is something that seems to have escaped the notice of the Congresscritters when they passed the minimum wage increase legislation.

Things are not going well in the socialist paradise of Venezuela. Apparently Hugo Chávez and his minions are having trouble keeping the lights on and the water running. Is it really any surprise?

Venezuelans in the capital are bracing themselves for drastic rationing as public services in the oil-rich nation sink ever deeper into crisis, threatening to undermine President Hugo Chávez's support.

Water is to be cut off in Caracas for up to 48 hours a week from Monday, possibly lasting until next May or June. Power rationing is also starting this week, aiming to reduce national useage by 20 per cent.

Venezuela's populist leader says the water shortages are a result of the driest weather in 40 years, which has also intensified the problem of blackouts. The country relies on hydroelectricity for about three-quarters of its power and reservoirs are at record lows. Increased consumption due to high economic growth has exacerbated the problem, he says.

"High economic growth"? Really? In Venezuela?

Hmm. Somehow I find it difficult to believe there is economic growth of any kind in Venezuela, particularly when price controls for various commodities (like food) have made them very scarce. Graft, corruption, and incompetence have severely limited or destroyed various segments of the economy. Even Venezuela's oil reserves, claimed by Chávez to be greater than that even of Saudi Arabia, have been unable to support the government's growing social and economic engineering programs. Of course it doesn't help that their petroleum infrastructure has been decaying since Chávez took power and nationalized the oil companies. Most of the personnel that used to run and maintain the infrastructure have either quit, been fired, or fled Venezuela. The missing workers have been replaced by many of Chávez's political cronies, few of which know anything about running or maintaining the wells and equipment needed to keep the oil flowing.

I wonder how long it will take their wells, pipelines, oil terminals, and other equipment to deteriorate to the point where it doesn't work? All one need do is look at how Iran's once profitable oil infrastructure has crumbled to the point where they can't even refine enough of their own oil to meet their domestic needs.

His fellow Venezuelans haven't been buying his line about the causes of the various shortages, knowing many of the problems they are suffering are due entirely to his actions.

Government critics say that, despite Venezuela being flooded by oil wealth in recent years as energy prices rose, persistent under-investment in maintaining and expanding water and electricity networks lies at the root of the problem. They also point to chronic mismanagement, poor planning and even corruption. Furthermore, frozen tariffs have provided no incentive to conserve water or electricity.

Many remain unconvinced by Mr Chávez's attempts to brush off responsibility for the shortages by attributing problems to the climatic phenomenon known as El Niño .

"It's not the root of the problem," says Norberto Bausson, director of the Municipal Institute for Water and Aqueducts of Sucre, an opposition-controlled municipality in eastern Caracas. He says the rationing is caused by rising demand due to population growth and increased consumption per capita, while an absence of infrastructure investment has caused supply to be lower now than a decade ago.

Eventually Chávez will run out of excuses. He won't be able to blame the rich because there won't be any left, except for his cronies (he'll have made sure of that). He won't be able to blame a drought if the electrical and water systems finally break down and provide neither to the populace even though there's plenty of water available to drink and generate electricity. He won't be able to blame the farmers for the shortage of food if he's driven them all out of business due to his fixing prices at such a low level that the farmers go bankrupt.

The time will come (if it hasn't already) when the only one left to blame will be Chávez himself. But he won't (or can't) admit he's been the cause of Venezuela's economic ills because when it comes to economics he's a total moron. But then most dictators are when it comes to understanding how economies work.

Here's yet another non-surprise in regards to FairPoint Communications and their ongoing financial and operations difficulties: The New York Stock Exchange delisted FairPoint today. Their stock fell to a little over 10¢ per share after the NYSE's action.

And the hits keep on coming.

Let this be a lesson for Frontier Communications, a firm that also spent far too much money for some more of Verizon's rural wireline assets. That's what caused FairPoint's problems. I have a feeling Frontier will end up in the same boat.

"I don't understand why Marx came to the conclusion that workers are naturally inclined toward revolution and that 'the proletariat has nothing to lose but its chains.'  As far as we can see, to the contrary, this part of society is the most inert, and readily hands over its freedoms in exchange for security." ~ Vladimir Bukovsky in To Choose Freedom, p. 119.

Professor Russ Roberts of George Mason University gave the House Committee on Oversight and Government Reform an earful earlier today when he testified in front of the committee about executive compensation and the serious imbalance that exists in regards to over-the-top compensation given to high level executives of failing or failed firms.

While I have a problem with the government setting the pay scales and other compensations for corporations and financial institutions, Roberts does make a case for reining in giving incompetent or corrupt executives excessive pay and perks while everyone else takes it in the wallet.

Americans are angry about executive compensation.

Rightfully so.

The executives at General Motors and Chrysler don't deserve to make a lot of money. They made bad products that people didn't want to buy.

The executives on Wall Street don't deserve to make a lot of money. They were reckless with other people's money. They made bad bets that didn't pay off. And they wasted trillions of dollars of precious capital, funneling it into housing instead of... a thousand investments more valuable than bigger houses.

Everyday folks who are out of work through no fault of their own want to know why people who made bad decisions not only have a job but a big salary to go with it.

No wonder they're angry at Wall Street.

But if we keep getting angry at Wall Street, we'll miss the real source of the problem. It's right here. In Washington.

We are what we do. Not what we wish to be. Not what we say we are. But what we do. And what we do here in Washington is rescue big companies and rich people from the consequences of their mistakes. When mistakes don't cost you anything, you do more of them.

(Emphasis added - ed.)

For far too long we have taken a path that privatized profits but socialized risks, meaning the risks businesses were willing to take became greater because they knew they really wouldn't have to pay the price if things didn't work out. All we need to do is look at the housing crash, Fannie Mae, Freddie Mac, and the string of failed banks holding non-performing loans, mortgages, and mortgage backed securities. And we have Congress to thank for that, Barney Frank's protestations to the contrary notwithstanding.

The question is, have we learned anything from this? Probably not.

Capitalism is a profit and loss system. The profits encourage risk-taking. The losses encourage prudence. Is it a surprise that when the government takes the losses, instead of the investors, that investing gets less prudent? If you always bail out lenders, is it surprising that firms can borrow enormous amounts of money living on the edge of insolvency?

I'm mad at Wall Street. But I'm a lot madder at the people who gave them the keys to drive our economy off the cliff. I'm mad at the people who have taken hundreds of billions of taxpayer money and given it to some of the richest people in human history. I'm mad at Bush and Obama and Paulson and Geithner and Bernanke. And I'm mad at Congress. You made sure that risk-takers continue to expect that the rules that apply to the rest of us don't apply to people with the right connections.

You have saved the system, but it's not a system worth saving. It's not capitalism but crony capitalism.

And therein lies the problem. If we were truly a capitalistic economy, the meltdown we experienced never would have happened because the banks, investment firms, and mortgage lenders would never have floated the amount of tainted paper that caused it all. They would have been prudent because they knew no one would bail them out, would get canned (without the golden parachute), and possibly go to prison. But the government intervened with "incentives"and gave them a license to be foolish, to push the edge of the envelope, and to waste money that wasn't theirs to begin with. They knew that if they lost it the government would bail them out, which means that we - the taxpayers - would ultimately foot the bill.

While a "pay" czar may sound like it would stop the insanity, it is merely window dressing that does nothing to solve the problem. Dictating what salaries and other perks high level executives will receive may be a sop to those calling for the government to "Do something!", but it doesn't address the underlying cause of the problem: the government itself.

The regulations and laws passed by Congress that forced lending institutions to make loans to people unlikely to pay them back was merely one aspect of what led to the economy into a deep recession. Changes in lending practices at the behest of the government and government guarantees for sub-optimal loans merely added fuel to the fire that was the banking/credit and housing market collapse.

From what I've been hearing, seeing, and reading, Congress seems disinclined to actually do something substantive about it. They will make the appropriate noises, tell the media that they'll be tackling the issue(s), pass some legislation that sounds like it will take care of it but in the end will do very little to actually fix the problem, and then they'll move on to making sure they get re-elected in 2010.

Thus endeth the lesson.

The question was only in the timing: How long until FairPoint Communications files for bankruptcy?

Now we know.

FairPoint filed for Chapter 11 bankruptcy, citing its $2.7 billion (that's billion with a 'b') debt. It hopes to reduce that debt by $1 billion.

The three states most affected, Maine, New Hampshire, and Vermont, are likely to seek protection as well. New Hampshire has already said it will intervene in the reorganization of FairPoint to protect New Hampshire's interests.

On more than one occasion I and others have warned that the deal that sold Verizon's wireline assets in northern New England to FairPoint was a bad idea. Even the three state's utility regulators had doubts. But the deal went through and now we'll all be paying for it.

Can you hear me now?

Unless you've been entirely incommunicado, you've probably heard that the Dow closed above 10,000 yesterday. For many it was a reason to celebrate. But not for me.

Reaching 10,000 is a great psychological boost, but it means asking a hard question, that being what is the Dow when the value of the dollar is taken into account? As compared to the last time the Dow reached 10,000, the dollar has weakened considerably, meaning that in constant dollars we aren't really anywhere near 10,000.

With gold at an all time high, oil futures above $75 per barrel, and the dollar's fall in relation to the Euro, British Pound, and the Yen, it isn't looking all that attractive.

One thing we hear again and again is how alternative energy sources will somehow "save" us and that all other forms of energy are bad/dangerous/icky and aren't green. But that view is shortsighted, ignoring far too many other factors that determine whether a particular energy source is truly green. For instance, what good is a green alternative energy source if it uses materials that are extremely toxic in the manufacturing process or is far less efficient than traditional energy sources meaning more of them are needed to produce an equivalent amount of energy? What if making the shift of more energy production to alternative sources in an effort to save the environment ends up destroying it instead?

The House of Representatives has passed climate legislation that started out as an attempt to reduce carbon emissions. It has morphed into an engine for raising revenues by selling carbon dioxide emission allowances and promoting "renewable" energy.

The bill requires electric utilities to get 20% of their power mostly from wind and solar by 2020. These renewable energy sources are receiving huge subsidies--all to supposedly create jobs and hurry us down the road to an America running on wind and sunshine described in President Barack Obama's Inaugural Address.

Yet all this assumes renewable energy is a free lunch--a benign, "sustainable" way of running the country with minimal impact on the environment. That assumption experienced a rude awakening on Aug. 26, when The Nature Conservancy published a paper titled "Energy Sprawl or Energy Efficiency: Climate Policy Impacts on Natural Habitat for the United States of America." The report by this venerable environmental organization posed a simple question: How much land is required for the different energy sources that power the country? The answers deserve far greater public attention.

This is something too many alternative energy proponents have overlooked in their zeal to move the US towards more sustainable energy production. They've ignored the actual impact of some of those alternative sources on the surrounding environment, ignored the amount of land these alternative energy sources will take up to provide the amount of energy to meet the needs of the people. Simply put, alternative energy sources of the type most are talking about are what would be called low density sources, meaning the amount of energy produced for each square meter of space taken up by those sources is very low as compared to the more traditional sources of energy like coal, gas, oil, and nuclear plants. And of the more traditional sources, nuclear power has the highest density of energy produced per unit of land, above that of the other traditional sources and well above that of the alternative sources.

By far nuclear energy is the least land-intensive; it requires only one square mile to produce one million megawatt-hours per year, enough electricity for about 90,000 homes. Geothermal energy, which taps the natural heat of the earth, requires three square miles. The most landscape-consuming are biofuels--ethanol and biodiesel--which require up to 500 square miles to produce the same amount of energy.

Coal, on the other hand, requires four square miles, mainly for mining and extraction. Solar thermal--heating a fluid with large arrays of mirrors and using it to power a turbine--takes six. Natural gas needs eight and petroleum needs 18. Wind farms require over 30 square miles.

--snip--

Renewable energy is not a free lunch. It is an unprecedented assault on the American landscape. Before we find ourselves engulfed in energy sprawl, it's imperative we take a closer look at nuclear power.

One must also consider the up-time and maintenance requirements of the various energy sources. Both wind and solar are primarily daytime sources (yes, wind also blows at night, but generally not as much or as steadily as it does during the day). The maintenance required is higher for alternative sources. Solar collectors, PV panels, or mirrors must be cleaned constantly to maintain efficiency. Wind turbines undergo mechanical stresses that require constant inspection and repair, with such duties often being more difficult due to the size and height of each turbine.

Traditional power sources can run 24 hours a day. Nuclear power plants can run 24 hours a day, 365 days a year for two or three years at 100% power. The traditional combustion-based power plants (coal, oil, and natural gas) have higher down time and require more maintenance, usually of the boiler systems for coal and oil and the combustion turbines of the natural gas plants due to the corrosive nature of high temperature combustion.

Maybe it's time to seriously look at new nuclear plants as a green source of energy and avoid the 'energy sprawl' common to alternative energy sources.

Part I can be found here.

Part II can be found here.

For those contemplating the effects of the sale of some of Verizon's rural landline assets to Frontier Communications, one needs only look at what's happening with FairPoint Communications in northern New England to see it might be biting off more than it can chew.

As the October deadline gets closer for FairPoint Communications to make an interest payment on the $1.92 billion it borrowed to buy Verizon's landline assets in northern New England, FairPoint's CEO seems to be taking his company's perilous situation lightly, acting as if there will be no problem even if it ends up in bankruptcy. I doubt FairPoint needs that kind of laissez faire attitude in its chief executive.

For a man whose company may be heading into bankruptcy court any time now, FairPoint Communications CEO David Hauser exudes a surprising amount of confidence in his company and its prospects.

"I think the debt comes to a head one way or another in the next couple of months," Hauser said.

For a company that's seen its stock price plummet from $9.02 on the day of the acquisition to $0.46 per share (today's closing price) and is in danger of being de-listed from the New York Stock Exchange, the attitude is puzzling. But the state regulators of at least one of the three northern New England states has been taking it far more seriously.

The company's financial health was always a concern, New Hampshire regulators said.

"We thought that FairPoint would be overleveraged, that they would have too much debt and that they were being overly optimistic," said Meredith Hatfield of the Office of the Consumer Advocate.

FairPoint paid far too much for a business that's been on a slow decline for years as competition increased and wasn't worth what they paid for it. It's one of the quickest ways to go broke.

FairPoint has also been behind schedule for bringing broadband to underserved and unserved areas in the three states, which means it will start accruing penalties for failing to meet its targets for deployment. What's worse is the broadband technology it is deploying (DSL) can barely be considered broadband as the maximum data rates are far lower than that available through cable and Fiber To The Home. DSL is also distance limited, meaning maximum data rates are available only if the customer is close to the central office or local concentrator. The farther away, the lower the maximum data rate available. With some of the newer services available on the Internet, like streaming video and online gaming, FairPoint's DSL-based broadband won't be adequate to meet the bandwidth requirements for those services.

In short, FairPoint hasn't lived up to its promises, hasn't provided the services expected by its customers, hasn't been able to respond in a timely manner to its customers' needs and requests, and has managed to lose about 10% of its customers since it took over operations from Verizon back in February. On top of that they are on the edge of defaulting, and if reorganization fails and debt payments cannot be rescheduled, they will be forced into bankruptcy.

This is not what the consumers in Maine, New Hampshire, and Vermont signed on to when Verizon sold its landlines to FairPoint.

It's bad enough Congress was complicit in part for making the housing meltdown a reality. Now they want to do it again.

(Remember the definition of insanity: Doing the same thing over and over again but expecting the results to be different this time.)

...[F]ew people noticed a hearing with an exceedingly boring title -- "Proposals to Enhance the Community Reinvestment Act" -- held last week in the House Financial Services Committee. But the session marked a key moment in the ongoing battle between Republicans and Democrats over what caused our current financial woes -- and how we might best avoid getting into the same trouble again.

At the hearing, and in others across Capitol Hill, Democratic majorities are pressing hard to expand some of the very policies that led to the reckless home lending that in turn helped lead to the great financial meltdown. If Chairman Barney Frank and his fellow Democrats have their way, we'll do it all again -- and more.

At issue last week was H.R. 1479, the Community Reinvestment Modernization Act of 2009, sponsored by Democratic Rep. Eddie Bernice Johnson. It would expand and strengthen the 1977 Community Reinvestment Act, which required banks to make loans in low-income areas that many lenders had traditionally shunned.

The same legislation that forced banks to lend to borrowers incapable of repaying the loans is now being 'enhanced' to force banks to do even more of this kind of lending? If that isn't an example of fiscal insanity, I don't know what is.

Back in 2003 and again in 2007, President Bush tried to rein in Fannie Mae and Freddie Mac, two government-created financial organizations, because he believed they were getting in over their heads. Barney Frank, the same Chairman of the House Financial Services Committee, blocked any attempts to do that, stating on more than one occasion that they were fiscally sound and required no such efforts.

He was wrong.

Both Fannie Mae and Freddie Mac backed the irresponsible loans the banks were forced to make by taking them off the bank's hands and repackaging them, in effect collecting most of the risky home loans and holding on to them or repackaging them as mortgage backed securities. When these home loans stopped performing, as they were destined to do, both financial organizations failed and billions of dollars were lost in the financial markets and billions of dollars worth of real estate was foreclosed upon, leaving the taxpayers holding the bag.

Now these congressional idiots want to the same thing...again.

Do they really believe that this time there won't be a housing market collapse when banks are forced to give even more home loans to people incapable of paying them back?