Calculated Risk has a nice summary of the CBO's analysis of the "stimulus" bill. Allegedly this has helped us.
However, this would appear to be about the most bogus of a series of bogus gov't analyses. How anyone can try to separate the ARRA effects on the economy from all the Fed and Federal machinations is difficult to see. In addition, not all GDP is the same. Productivity enhancements are one things, repaving functional roads another.
The crowding out phenomenon of Federal spending replacing private spending is another unmeasurable effect. When ARRA was passed, the prediction was for a peak unemployment rate of 7.0%. Is it not possible, or more than possible, that businesspeople saw the government lurch back to the interventionist, tax-raising policies of Hoover and FDR and held back on investing just as they did all through the '30s?
The U. S. Government is almost "all in" with the real economy. Total debt to revenue is very large. Unpayable private debts and obligations, and mismarking of assets are going to have to be reconciled, the sooner the better. But don't hold your breath.
It is likely that more and more we will see bank-like multinationals such as Apple and Microsoft be able to issue debt at rates equal to or better than AAA sovereigns, with common stocks offering greater yields than 2-5 year Treasuries.
Meanwhile the WSJ is out with an article saying that gold is $5000 per ounce from a bubble valuation, just as India is finding gold too expensive to import and as Abu Dhabi is pictured as rolling out a gold-dispensing ATM and gold funds such as CEF and PHYS are buying more and more physical metal-- which appears easy enough to acquire. Gold may be just a bit too popular here, but chart-followers will be buying it. With growth rolling over, the jewelry-related demand for gold will be harmed.
No easy choices in a world increasingly suffering from too much financialization.
Copyright (C) Long Lake LLC 2010
Showing posts with label ARRA. Show all posts
Showing posts with label ARRA. Show all posts
Wednesday, May 26, 2010
Friday, January 8, 2010
Jobs Friday: More Establishment Cheerleading as Hard Times Continue
The BLS has reported on December jobs, and an ugly sight it is. The household survey of individuals data was that employment dropped 589,000 last month (see Table A to review these and related statistics). The labor force dropped 661,000. "Not in labor force" rose by a massive 843,000.
Yikes and then some!
It is hard to see that the "Great Recession" (a polite term for what is a non-great depression) is definitively over. Yes, jobs are actually one of the factors that goes into recession dating, much as the MSM would like to divert attention to production (itself pumped up by Federal/Fed exertions).
On the "establishment" survey, the data came out the same as ADP, down 85,000. This of course was boosted by the unmeasured "birth-death" adjustment, which as usual was estimated as up (59,000 jobs) supposedly stemming from the vitality of small businesses that are not part of the "establishment" survey. Ha! Try a loss of 59,000 more likely. Or 159,000. Or 500,000 to come close to the household survey numbers. Those of us who live in the real world are aware that small businesses are mostly shrinking or closing or happy that they can simply stand pat and survive, that there is little appetite from those with savings to risk them on a new venture, and that the birth-death adjustment almost certainly should be negative rather than positive.
When you are part of the quiet coup that keeps its jackboot on the throat of the public at large, you will say anything you can to provide hope for the masses (that is, that part of the masses that reads Bloomberg.com). Here is the ridiculous statement from the article and a member of Big Finance about how things are going to get better, from Bloomberg's article at http://www.bloomberg.com/apps/news?pid=20601087&sid=aP0v0wdCG_YQ&pos=1:
In another government boost, the Census Bureau will hire 1.15 million temporary workers in the first half of the year to conduct the population count that takes place every 10 years. That hiring may boost payrolls by a peak of 700,000 in May before those workers begin getting dismissed in June, according to a forecast by economist Lori Helwing at BofA Merrill Lynch Global Research in New York. (Ed.: 700,000 is less than the number estimated to have left the labor force in December alone per above.)
“They’re going to hire an army of people,” said Julia Coronado, a senior economist at BNP Paribas in New York. “In some sense, this acts as a stimulus package and is a timely coincidence, coming so early in the recovery.”
Timely? You mean hiring a bunch of people for a few months is a timely stimulus? Wasn't there stimulus in 2008 under Bush? What about ARRA (Obama's stimulus of almost a year ago)? Gimme a break . . . And is this really "stimulus"? Then that perforce also means that there will be an anti-stimulus governmental effort timed to end in June when the census is completed. Oh, I forgot: the boom will be on by then. As if in 2003-7, the boom was not entirely artificial, fueled by mortgage and securities fraud, wildly unsound lending practices, dancing financiers, etc. The idea of a self-sustaining economic growth cycle is unproven of late in the U. S.
Brazil, it appears is in that zone of self-sustaining growth; but in parts of the world run by quiet coupsters doing God's work, the jury is out and we may be lucky if it is a hung jury.
When Big Finance is reduced to touting a Constitutional requirement to enumerate the population as a stimulus to the economy, things are bad. Real bad.
Hard times continue. The Economic Cycle Research Institute, which has been predicting good employment growth soon, will have an opportunity to comment. For now December goes to the bearish Dr. David Rosenberg in his ongoing debate with ECRI.
Copyright (C) Long Lake LLC 2010
Yikes and then some!
It is hard to see that the "Great Recession" (a polite term for what is a non-great depression) is definitively over. Yes, jobs are actually one of the factors that goes into recession dating, much as the MSM would like to divert attention to production (itself pumped up by Federal/Fed exertions).
On the "establishment" survey, the data came out the same as ADP, down 85,000. This of course was boosted by the unmeasured "birth-death" adjustment, which as usual was estimated as up (59,000 jobs) supposedly stemming from the vitality of small businesses that are not part of the "establishment" survey. Ha! Try a loss of 59,000 more likely. Or 159,000. Or 500,000 to come close to the household survey numbers. Those of us who live in the real world are aware that small businesses are mostly shrinking or closing or happy that they can simply stand pat and survive, that there is little appetite from those with savings to risk them on a new venture, and that the birth-death adjustment almost certainly should be negative rather than positive.
When you are part of the quiet coup that keeps its jackboot on the throat of the public at large, you will say anything you can to provide hope for the masses (that is, that part of the masses that reads Bloomberg.com). Here is the ridiculous statement from the article and a member of Big Finance about how things are going to get better, from Bloomberg's article at http://www.bloomberg.com/apps/news?pid=20601087&sid=aP0v0wdCG_YQ&pos=1:
In another government boost, the Census Bureau will hire 1.15 million temporary workers in the first half of the year to conduct the population count that takes place every 10 years. That hiring may boost payrolls by a peak of 700,000 in May before those workers begin getting dismissed in June, according to a forecast by economist Lori Helwing at BofA Merrill Lynch Global Research in New York. (Ed.: 700,000 is less than the number estimated to have left the labor force in December alone per above.)
“They’re going to hire an army of people,” said Julia Coronado, a senior economist at BNP Paribas in New York. “In some sense, this acts as a stimulus package and is a timely coincidence, coming so early in the recovery.”
Timely? You mean hiring a bunch of people for a few months is a timely stimulus? Wasn't there stimulus in 2008 under Bush? What about ARRA (Obama's stimulus of almost a year ago)? Gimme a break . . . And is this really "stimulus"? Then that perforce also means that there will be an anti-stimulus governmental effort timed to end in June when the census is completed. Oh, I forgot: the boom will be on by then. As if in 2003-7, the boom was not entirely artificial, fueled by mortgage and securities fraud, wildly unsound lending practices, dancing financiers, etc. The idea of a self-sustaining economic growth cycle is unproven of late in the U. S.
Brazil, it appears is in that zone of self-sustaining growth; but in parts of the world run by quiet coupsters doing God's work, the jury is out and we may be lucky if it is a hung jury.
When Big Finance is reduced to touting a Constitutional requirement to enumerate the population as a stimulus to the economy, things are bad. Real bad.
Hard times continue. The Economic Cycle Research Institute, which has been predicting good employment growth soon, will have an opportunity to comment. For now December goes to the bearish Dr. David Rosenberg in his ongoing debate with ECRI.
Copyright (C) Long Lake LLC 2010
Tuesday, October 6, 2009
"Stimulus" That Did Not Stimulate May Be Regifted to Americans Under a New Brand
Bloomberg.com is reporting that another "stimulus" program is under active consideration by Team Obama. The title of the article suggests that Team O thinks we are all fools: Obama Weighs Spending to Stem Job Cuts Without Second Stimulus.
None dare call it stimulus! (Well, EBR didn't, always trying to put the term in quotes. The March "stimulus" bill, known more formally as ARRA, was a mix of humanitarian relief measures such as support for Medicaid and a silly reprise of the failed 2008 one-time hand-outs to taxpayers and non-taxpayers alike, plus allegedly "shovel-ready" roads projects (Seinfeld fans cannot help but have been reminded of Elaine being "sponge-ready" whenever the shovel-ready term came up) and other such boondoggles such as a multi-billion dollar high-speed rail system to take Angelenos to Vegas so they could lose their money with less travel time.
Regular EBR readers know that we have been bullish on Treasuries for some months. That is changing. The incoherence of the Obama administration on policy, the horrible jobs data, the impossibility of understanding the solvency level of the large complex financial institutions, the likelihood that the real economy will in one way or another sop up some excess liquidity, and the large move down in 10-30 year rates the past few months suggest that traders should consider taking profits. As detailed in several current posts at Mish's site and in Dave Rosenberg's posts at Gluskin Sheff, however, deflationary pressures persist. In other words, the economy really is not so hot. It is 10 months since the Economic Research Institute's "Long Leading Indicators" turned up. And last month well over 700,000 jobs were lost according to the Labor Department's household survey. In one month! And supposedly the "recession" (EBR says depression) is over, perhaps as long ago as May. As Stanley Kowalski said in "Streetcar", Ha! I say Ha!
So, Treasuries are "OK" for now per this blog's opinion but are no longer on the bargain counter.
The stock market continues to be lunatic. Consider GE. 90 days ago, consensus earnings estimates were $1.00 and $0.95 for 2009 and 2010, respectively. These are now down to $0.97 and $0.89. (Some economic recovery!) This should not be great for a stock that had already doubled from its 12-month low. Well, this is no ordinary time. The stock is merely up another 30+% in the past 3 months. It is something approaching escape from Earth orbit when you compound an over 30% quarterly gain.
GE allegedly is worth $168 Billion but has a tangible book value of only $13 B, with unbelievable leverage in the half of its business that is the financial business and that might have gone pffft last year and this winter without extraordinary help from you and me.
In another sign of "investor" complacency, the giant pharmacy chain CVS announced a significant business reverse Monday, yet the stock sold off only 1.5%. It only yields 0.9% and has virtually no tangible book value. CVS is what is known as a roll-up. It shows growth by acquiring whatever business it takes to show growth, incurring both cash and non-cash "one-time" expenses which compliant "analysts" tell you to ignore, and rewards its insiders much better than the actual owners of the company, the shareholders. In a "normal" stock market, CVS stock would have been down much more, especially because the whole company may (or may not) be little more than thin air. Could CVS be another AIG? Could GE be another AIG?
I have no idea where stock prices are going. However, for the first time, I know few people who know anything about how the financial world works today and/or how the real business world is (or is not) working who has any real interest in exposing an increased percentage of his/her financial assets to stocks. This is a major sea change from past years. This may well be more than fear vs. greed. It may just be indifference added on to the realization that most people with financial assets are already heavily exposed to "the market" and just do not want to increase that exposure. (Such is NOT the same for gold.)
Nancy Pelosi mumbled something about convening a "Pecora Commission" to investigate Wall Street abuses when the heat was on many months ago. What have you heard lately from her or Sen. Reid, or from the President who posed as a populist when he was candidate Obama, about truly getting to the bottom of the minor matter of how we got into the current mess? Nada, gornischt, nothing. Any hearings that might be held will likely not be worth the cost of the electricity needed to run your TV to listen to them or your (more valuable) time.
In any case, Team Obama would not be leaking to the press about another non-stimulus "stimulus" if it believed that the ECRI was correct and that a strong, durable economic recovery is underway. (On the other hand, a contrarian would say that Larry Summers et al may be so inept that if they are pessimistic, we should be optimistic!)
The only current beneficiary of the current situation is, sadly, gold. Since gold is money (though not a transactional form of money) - according to the Fed, the Treasury, the IMF, amongst others, for those skeptics who think it little but a barbarous relic or a raw material for jewelry- all gold can do is change relative value against other assets, such as Federal Reserve notes that Americans transact business in (i.e., dollars). It is thus not a dynamic asset as a well-priced equity can be, or as a truly undervalued junk bond can be if the underlying business is turning upwards; gold is therefore sterile and rises for the "wrong" reasons. However . . .
As the most inept Congress in memory (except for the prior couple of Congresses before it) continues to do little more than (maybe) fiddle with healthcare while the economy continues to shed jobs at an unbelievable pace, and while the geniuses at the White House who only 7 months ago forecast an 8.5% peak unemployment rate even without "stimulus" demonstrate so little imagination that apparently all they can do is think of repeating the first failed "stimulus" and failed follow-ons such as a ludicrously expensive first-time homebuyer credit but remarket these once-failed policies under a non-stimulus brand, it is hard to see the contrarians who have been bullish on the dollar primarily because everyone else was bearish stay contrarianly bullish. Sometimes the majority is simply correct.
The time is out of joint (said Hamlet). And there is a growing perception that Hamlet II is running the show in the most important nation in the world.
Not good.
Copyright (C) Long Lake LLC 2009
None dare call it stimulus! (Well, EBR didn't, always trying to put the term in quotes. The March "stimulus" bill, known more formally as ARRA, was a mix of humanitarian relief measures such as support for Medicaid and a silly reprise of the failed 2008 one-time hand-outs to taxpayers and non-taxpayers alike, plus allegedly "shovel-ready" roads projects (Seinfeld fans cannot help but have been reminded of Elaine being "sponge-ready" whenever the shovel-ready term came up) and other such boondoggles such as a multi-billion dollar high-speed rail system to take Angelenos to Vegas so they could lose their money with less travel time.
Regular EBR readers know that we have been bullish on Treasuries for some months. That is changing. The incoherence of the Obama administration on policy, the horrible jobs data, the impossibility of understanding the solvency level of the large complex financial institutions, the likelihood that the real economy will in one way or another sop up some excess liquidity, and the large move down in 10-30 year rates the past few months suggest that traders should consider taking profits. As detailed in several current posts at Mish's site and in Dave Rosenberg's posts at Gluskin Sheff, however, deflationary pressures persist. In other words, the economy really is not so hot. It is 10 months since the Economic Research Institute's "Long Leading Indicators" turned up. And last month well over 700,000 jobs were lost according to the Labor Department's household survey. In one month! And supposedly the "recession" (EBR says depression) is over, perhaps as long ago as May. As Stanley Kowalski said in "Streetcar", Ha! I say Ha!
So, Treasuries are "OK" for now per this blog's opinion but are no longer on the bargain counter.
The stock market continues to be lunatic. Consider GE. 90 days ago, consensus earnings estimates were $1.00 and $0.95 for 2009 and 2010, respectively. These are now down to $0.97 and $0.89. (Some economic recovery!) This should not be great for a stock that had already doubled from its 12-month low. Well, this is no ordinary time. The stock is merely up another 30+% in the past 3 months. It is something approaching escape from Earth orbit when you compound an over 30% quarterly gain.
GE allegedly is worth $168 Billion but has a tangible book value of only $13 B, with unbelievable leverage in the half of its business that is the financial business and that might have gone pffft last year and this winter without extraordinary help from you and me.
In another sign of "investor" complacency, the giant pharmacy chain CVS announced a significant business reverse Monday, yet the stock sold off only 1.5%. It only yields 0.9% and has virtually no tangible book value. CVS is what is known as a roll-up. It shows growth by acquiring whatever business it takes to show growth, incurring both cash and non-cash "one-time" expenses which compliant "analysts" tell you to ignore, and rewards its insiders much better than the actual owners of the company, the shareholders. In a "normal" stock market, CVS stock would have been down much more, especially because the whole company may (or may not) be little more than thin air. Could CVS be another AIG? Could GE be another AIG?
I have no idea where stock prices are going. However, for the first time, I know few people who know anything about how the financial world works today and/or how the real business world is (or is not) working who has any real interest in exposing an increased percentage of his/her financial assets to stocks. This is a major sea change from past years. This may well be more than fear vs. greed. It may just be indifference added on to the realization that most people with financial assets are already heavily exposed to "the market" and just do not want to increase that exposure. (Such is NOT the same for gold.)
Nancy Pelosi mumbled something about convening a "Pecora Commission" to investigate Wall Street abuses when the heat was on many months ago. What have you heard lately from her or Sen. Reid, or from the President who posed as a populist when he was candidate Obama, about truly getting to the bottom of the minor matter of how we got into the current mess? Nada, gornischt, nothing. Any hearings that might be held will likely not be worth the cost of the electricity needed to run your TV to listen to them or your (more valuable) time.
In any case, Team Obama would not be leaking to the press about another non-stimulus "stimulus" if it believed that the ECRI was correct and that a strong, durable economic recovery is underway. (On the other hand, a contrarian would say that Larry Summers et al may be so inept that if they are pessimistic, we should be optimistic!)
The only current beneficiary of the current situation is, sadly, gold. Since gold is money (though not a transactional form of money) - according to the Fed, the Treasury, the IMF, amongst others, for those skeptics who think it little but a barbarous relic or a raw material for jewelry- all gold can do is change relative value against other assets, such as Federal Reserve notes that Americans transact business in (i.e., dollars). It is thus not a dynamic asset as a well-priced equity can be, or as a truly undervalued junk bond can be if the underlying business is turning upwards; gold is therefore sterile and rises for the "wrong" reasons. However . . .
As the most inept Congress in memory (except for the prior couple of Congresses before it) continues to do little more than (maybe) fiddle with healthcare while the economy continues to shed jobs at an unbelievable pace, and while the geniuses at the White House who only 7 months ago forecast an 8.5% peak unemployment rate even without "stimulus" demonstrate so little imagination that apparently all they can do is think of repeating the first failed "stimulus" and failed follow-ons such as a ludicrously expensive first-time homebuyer credit but remarket these once-failed policies under a non-stimulus brand, it is hard to see the contrarians who have been bullish on the dollar primarily because everyone else was bearish stay contrarianly bullish. Sometimes the majority is simply correct.
The time is out of joint (said Hamlet). And there is a growing perception that Hamlet II is running the show in the most important nation in the world.
Not good.
Copyright (C) Long Lake LLC 2009
Friday, July 17, 2009
New York Fed and Stimulus Program
The New York Fed published its July Empire State Manufacturing Survey this week, and in a supplement, asked some questions about the "stimulus" program (ARRA). Please click HERE and look at Q3-5.
Hint: Joe Biden, who was quoted yesterday as stating that ARRA has led to lots of rehiring and reopening of factories, might be surprised.
Copyright (C) Long Lake LLC 2009
Hint: Joe Biden, who was quoted yesterday as stating that ARRA has led to lots of rehiring and reopening of factories, might be surprised.
Copyright (C) Long Lake LLC 2009
Thursday, July 16, 2009
Veep: The Stimulus Is Working
The Washington Post reports in an article about a sort of feud between the elephants and the donkeys:
"To those who say that our economic decisions 'have not produced jobs, have not produced and simply have not worked' I say, take a look around," Biden will say while visiting Cantor's home district.
"I say, 'Don't let your opposition to the Recovery Act blind you to its results. Come see what I see everywhere I go: workers rehired, factories reopened, cops on the street, teachers in the classroom, progress toward getting our economy back on the move.'
Comment: Just look around you. Read the WaPo about all the factories that have reopened and all the workers that have been laid off and then rehired. Read all about it.
Copyright (C) Long Lake LLC 2009
"To those who say that our economic decisions 'have not produced jobs, have not produced and simply have not worked' I say, take a look around," Biden will say while visiting Cantor's home district.
"I say, 'Don't let your opposition to the Recovery Act blind you to its results. Come see what I see everywhere I go: workers rehired, factories reopened, cops on the street, teachers in the classroom, progress toward getting our economy back on the move.'
Comment: Just look around you. Read the WaPo about all the factories that have reopened and all the workers that have been laid off and then rehired. Read all about it.
Copyright (C) Long Lake LLC 2009
Friday, May 15, 2009
The Truth Begins to Surface About TARP and Shovel-Readiness
Naked Capitalism posts tonight a missive about a TARP beneficiary in TARP Beneficiary Says "Sham" Bailouts Help Speculators. Here are excerpts, first from Yves Smith, the blogger and then from the speculator:
So far, the beneficiaries of the handouts equity injections have complained only about the Obama Adminstration's occasional efforts to act like a substantial shareholder and exercise some influence over the companies' affairs. We are the first to acknowledge that these too often have involved matters of appearance (executive pay) as opposed to substance (risk taking on the taxpayer dime for the benefit of shareholders and employees).
But now we have a salvo from an unexpected source: an investor who used TARP funds to buy a bank, and thinks taxpayers are getting ripped off. Mark Patterson, of MatlinPatterson Advisers, used TARP matching funds to buy a Michigan bank. This by no means was a large transaction, but the point is that someone that one would expect to praise the process (after all, he benefitted from its largesse) is a pointed critic. . . (Ed.: Now the speculator/beneficiary in an article in the Telegraph (UK)):
“The taxpayers ought to know that we are in effect receiving a subsidy. They put in 40pc of the money but get little of the equity upside,” said Mark Patterson, chairman of MatlinPatterson Advisers...
Mr Patterson said the US Treasury is out of its depth and seems to be trying to put off drastic action by pretending that the banking system is still viable.“It’s a sham. The banks are insolvent. The US government is trying to sedate the public because they are down to the last $100bn (£66bn) of the $700bn TARP funds. They think they’re doing this for the greater good of society,” he said, speaking at the Qatar Global Investment Forum.
Mr Patterson said it would be better for the US to bite the bullet as Britain has done, accepting that crippled lenders must be nationalised. “At least the British are not hiding the bail-out,” he said.
MatlinPatterson said private equity and hedge funds were deluding themselves in hoping to go back to business as usual after the trauma of the last 18 months.
“This is not a normal recession and there will be no V-shaped recovery. The crisis has destroyed leveraged companies. We’re going to see a catastrophic increase in the number of LBO’s (leveraged buyouts) going into default because they’re knee-deep in debt and no solution exists since they can’t refinance,” he said.
“Alpha hedge funds have been making their money by gambling with excessive leverage, so the knife that cuts off leverage is going to cut off their heads as well,” he said...
“The US government has thrown 29pc of GDP at this crisis compared to 8pc in the early 1930s. The Fed’s balance sheet has risen from $900bn to $2.7 trillion to bail out the system. America has to do it because the only way out is to debase the currency, but that is going to lead to some very high inflation three years down the road,” he said.
DoctoRx here now. The only thing in the above I would disagree with is the final statement that "the only way out is to debase the currency". Nouriel Roubini advocates, as I do, that debtors and lenders get together and cancel out as much of the debts as can be done. Barack Obama should be jumping on that theme. Avoiding debt deflation simplifies many, many matters and allows a balanced economy that should be "allowed" to grow at whatever pace is natural for it. Debasing the currency is a strictly political choice. It is not inevitable.
Below almost in its entirety is another piece from Naked Capitalism, reprinted here in its entirety as it has disappeared from the main NC page. Along with the above, which demonstrates problems with TARP (not to mention the even more abusive PPIP!), here is a discussion of practical problems with "stimulus":
Thursday, May 14, 2009
Not So Shovel-Ready Projects?
(Yves): Reader Harry H tells us that, at least in Vermont, shovel-ready projects aren't as ready to go as the very nature of the term would suggest. The Wall Street Journal described some reasons for delay back in March:
It turns out, though, that shovel-readiness is in the eye of the beholder. Soon after his visit, Mr. Biden found out that his model stimulus project wouldn't see a shovel for almost four more months, possibly longer, knowing how such timetables slip....
States are quickly assembling their construction wish lists. But it takes time to advertise for contractors, collect bids, check the numbers, pick a winner and get work underway. A typical paving project -- easy roadwork -- takes close to three months from the time the money is approved to the arrival of work boots on the ground, according to the American Association of State Highway & Transportation Officials. "It is not an instant process," says a spokesman.
(Yves again): However, an additional complicating (factor) appears to be the vagaries of the bidding process. (A Naked Capitalism reader) Harry H describes the local situation:
I was talking with a construction firm that was supposed to oversee a large ($9 million) civil project in VT.The bids on the project came in and there were 2 that were below $7 million. The $9 million was the engineers estimate. Take 20% off that, and that is roughly the cost of the work for the contractor, or $7.2 million. So the bids came it below what the costs for the project were likely to be.
This situation is very bad. The municipality does not want to let the work out if the contractor is going to go broke during the project, even with bonding it is a royal mess to have a contractor go bust in the middle, and to get someone else to go in and finish it is even harder. At the same time, getting rid of low bidders on government projects is very difficult. Lots of lawyers and obscure bidding laws, but it is possible to not let the job to the lowest bidder. It depends on law mostly, but smaller municipalities will usually throw out the entire bidding process, and start over in a few months. This is a simplification of the process, obviously. Lots of law behind the scenes that I only have seen in practice.
I have heard this is happening a lot, all of the "shovel ready" projects are not going anywhere because of bidding problems. This particular project was in a small town in VT, dig up main st and replace all of the water, sewer and gas line, and then re-do the entire road and drainage, as well as sidewalks. Very good work for a stimulus, lots of labor, as compared to say a new road.
(Back to Yves): The construction season is relatively short in the Northeast. If it doesn't get started soon, it will have to wait till next year. . .
DoctoRx here. The best-laid plans . . . gang aft agley.
The above demonstrates why this blog refers to ARRA of 2009 (i.e. the Obama "stimulus" plan) with quote marks around the word "stimulus". Supposedly only 5% of the ARRA funds have yet been disbursed. Along with waste and corruption, the rest of these funds are going to kick in when the economy is having a cyclical rebound without massive Federal debt. Oh, I forgot: a crisis is a terrible thing to waste.
But so is taxpayer money.
Copyright (C) Long Lake LLC 2009
So far, the beneficiaries of the handouts equity injections have complained only about the Obama Adminstration's occasional efforts to act like a substantial shareholder and exercise some influence over the companies' affairs. We are the first to acknowledge that these too often have involved matters of appearance (executive pay) as opposed to substance (risk taking on the taxpayer dime for the benefit of shareholders and employees).
But now we have a salvo from an unexpected source: an investor who used TARP funds to buy a bank, and thinks taxpayers are getting ripped off. Mark Patterson, of MatlinPatterson Advisers, used TARP matching funds to buy a Michigan bank. This by no means was a large transaction, but the point is that someone that one would expect to praise the process (after all, he benefitted from its largesse) is a pointed critic. . . (Ed.: Now the speculator/beneficiary in an article in the Telegraph (UK)):
“The taxpayers ought to know that we are in effect receiving a subsidy. They put in 40pc of the money but get little of the equity upside,” said Mark Patterson, chairman of MatlinPatterson Advisers...
Mr Patterson said the US Treasury is out of its depth and seems to be trying to put off drastic action by pretending that the banking system is still viable.“It’s a sham. The banks are insolvent. The US government is trying to sedate the public because they are down to the last $100bn (£66bn) of the $700bn TARP funds. They think they’re doing this for the greater good of society,” he said, speaking at the Qatar Global Investment Forum.
Mr Patterson said it would be better for the US to bite the bullet as Britain has done, accepting that crippled lenders must be nationalised. “At least the British are not hiding the bail-out,” he said.
MatlinPatterson said private equity and hedge funds were deluding themselves in hoping to go back to business as usual after the trauma of the last 18 months.
“This is not a normal recession and there will be no V-shaped recovery. The crisis has destroyed leveraged companies. We’re going to see a catastrophic increase in the number of LBO’s (leveraged buyouts) going into default because they’re knee-deep in debt and no solution exists since they can’t refinance,” he said.
“Alpha hedge funds have been making their money by gambling with excessive leverage, so the knife that cuts off leverage is going to cut off their heads as well,” he said...
“The US government has thrown 29pc of GDP at this crisis compared to 8pc in the early 1930s. The Fed’s balance sheet has risen from $900bn to $2.7 trillion to bail out the system. America has to do it because the only way out is to debase the currency, but that is going to lead to some very high inflation three years down the road,” he said.
DoctoRx here now. The only thing in the above I would disagree with is the final statement that "the only way out is to debase the currency". Nouriel Roubini advocates, as I do, that debtors and lenders get together and cancel out as much of the debts as can be done. Barack Obama should be jumping on that theme. Avoiding debt deflation simplifies many, many matters and allows a balanced economy that should be "allowed" to grow at whatever pace is natural for it. Debasing the currency is a strictly political choice. It is not inevitable.
Below almost in its entirety is another piece from Naked Capitalism, reprinted here in its entirety as it has disappeared from the main NC page. Along with the above, which demonstrates problems with TARP (not to mention the even more abusive PPIP!), here is a discussion of practical problems with "stimulus":
Thursday, May 14, 2009
Not So Shovel-Ready Projects?
(Yves): Reader Harry H tells us that, at least in Vermont, shovel-ready projects aren't as ready to go as the very nature of the term would suggest. The Wall Street Journal described some reasons for delay back in March:
It turns out, though, that shovel-readiness is in the eye of the beholder. Soon after his visit, Mr. Biden found out that his model stimulus project wouldn't see a shovel for almost four more months, possibly longer, knowing how such timetables slip....
States are quickly assembling their construction wish lists. But it takes time to advertise for contractors, collect bids, check the numbers, pick a winner and get work underway. A typical paving project -- easy roadwork -- takes close to three months from the time the money is approved to the arrival of work boots on the ground, according to the American Association of State Highway & Transportation Officials. "It is not an instant process," says a spokesman.
(Yves again): However, an additional complicating (factor) appears to be the vagaries of the bidding process. (A Naked Capitalism reader) Harry H describes the local situation:
I was talking with a construction firm that was supposed to oversee a large ($9 million) civil project in VT.The bids on the project came in and there were 2 that were below $7 million. The $9 million was the engineers estimate. Take 20% off that, and that is roughly the cost of the work for the contractor, or $7.2 million. So the bids came it below what the costs for the project were likely to be.
This situation is very bad. The municipality does not want to let the work out if the contractor is going to go broke during the project, even with bonding it is a royal mess to have a contractor go bust in the middle, and to get someone else to go in and finish it is even harder. At the same time, getting rid of low bidders on government projects is very difficult. Lots of lawyers and obscure bidding laws, but it is possible to not let the job to the lowest bidder. It depends on law mostly, but smaller municipalities will usually throw out the entire bidding process, and start over in a few months. This is a simplification of the process, obviously. Lots of law behind the scenes that I only have seen in practice.
I have heard this is happening a lot, all of the "shovel ready" projects are not going anywhere because of bidding problems. This particular project was in a small town in VT, dig up main st and replace all of the water, sewer and gas line, and then re-do the entire road and drainage, as well as sidewalks. Very good work for a stimulus, lots of labor, as compared to say a new road.
(Back to Yves): The construction season is relatively short in the Northeast. If it doesn't get started soon, it will have to wait till next year. . .
DoctoRx here. The best-laid plans . . . gang aft agley.
The above demonstrates why this blog refers to ARRA of 2009 (i.e. the Obama "stimulus" plan) with quote marks around the word "stimulus". Supposedly only 5% of the ARRA funds have yet been disbursed. Along with waste and corruption, the rest of these funds are going to kick in when the economy is having a cyclical rebound without massive Federal debt. Oh, I forgot: a crisis is a terrible thing to waste.
But so is taxpayer money.
Copyright (C) Long Lake LLC 2009
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