TIFS: THE GIFT THAT KEEPS ON GIVING…TO THE POLS AND THEIR PALS

9/29/13

Today’s (i.e., Sunday, 9/29/13’s, page 6) Chicago Sun-Times contains an article by staff reporter David Roeder about tax increment financing districts (“TIF”s), which have been in use for decades now but that lately, and finally, have engendered the controversy they’ve long deserved.  People see that the city of Chicago is broke (See yesterday’s post,  CHICAGO PENSION PROBLEMS:  I’LL GLADLY PAY YOU TOMORROW FOR A HAMBURGER TODAY…AND THIS TIME, I REALLY, REALLY MEAN IT! for only the most salient manifestation of the city’s wretched financial condition.) but that Mayor Emanuel is seemingly able to summon boatloads of spondulicks from TIF funds for whatever will further his reelection and/or repay the myriad IOUs he has figuratively written to campaign contributors.  People are understandably upset; what makes TIF money so special that it is untouchable for any purposes except those that Super Rahm deems worthy?

           

The Sun-Time article states, correctly…

TIFs have been called a slush fund, a description that’s in the eye of the beholder.  But they are a mad money pot of off the books spending controlled by the mayor of Chicago based on priorities that can be mysterious.

The article goes on to describe various projects, some that have worked out and some that haven’t, that have been funded by TIF money and summarizes some recommendations for reforming the process.

Yours truly will leave the arguments regarding the pros and cons of TIFs for another post, other than to say that TIFs are another idea that makes eminent sense in theory but in practice turn into yet another mud pool for the porcines that we continue to re-elect.  However, I will take this opportunity for nearly shameless self-promotion.  In chapter 10 of my second book,   The Chairman’s Challenge, A Continuing Novel of Big City Politics, I describe a meeting between developer Jack Smith, his somewhat putzy son that he is trying to break into the family business, and Linas Siliunas, an old school alderman who has replaced the book’s title character as chairman of the city council Zoning Committee.  In one especially relevant portion of that chapter, the parties discuss TIF financing and the Smiths discover that the wily Siliunas is way ahead of them on this subject and correctly describes TIFs for what they are.  This excerpt starts with the elder Smith asking Alderman Siliunas for TIF money and thinking he is somehow enlightening the unenlightened:

“Good, Alderman, because I’ll need something I didn’t need before, but only because they weren’t much in use when we did the original project.  We’re going to need a tax increment financing district so any additional property taxes go back into the project instead of to the city.   It only makes sense, Alderman; if we didn’t do the development, there wouldn’t be any additional property taxes.   Why not let them go back into the property to make it better?  Provides a little more incentive, if you know what I mean.”

Alderman Siliunas smiled.  “And we get a lot of say over where the money goes.  It’s a great deal for everyone, Jack.   It’s sort of like our little pool of money to reward our friends and screw our enemies, as my old friend, the late, great Alderman Brancato used to say.  But Jack, I’m the Chairman of the Zoning Committee.  I’ve been an alderman for over thirty years.   You sound as if I don’t know what a TIF is.”

Smith immediately backtracked.  “I’m sorry, Alderman…”

“Don’t be sorry, Jack.  I know that it’s sometimes hard to conceive that people from the neighborhood could understand something as sophisticated as a TIF.”  Smith felt sufficiently put in his place.   Siliunas continued.   “But we do.   Hell, you know, if you’ve followed what’s going on in our town, that we’ve used TIFs more than anyone else.  We love them so much that, if you hadn’t suggested one, I would have suggested, no, demanded, that you use one.   We really like TIFs.”

“So it’ll be no problem.”

“No problem at all.”

(Emphasis mine)

You should read the book if you want to learn more about TIFs and other shenanigans that politicians around here (and everywhere) use to circumvent normal political channels to get their hands on scads of cash.

In fact,

See my two books, The Chairman, A Novel of Big City Politics and The Chairman’s Challenge, A Continuing Novel of Big City Politics, for further illumination on how things work in Chicago and Illinois politics. 

CHICAGO PENSION PROBLEMS: I’LL GLADLY PAY YOU TOMORROW FOR A HAMBURGER TODAY…AND THIS TIME, I REALLY, REALLY MEAN IT!

9/28/13

In addition to continuing to seek a pension holiday for the Chicago Public Schools (See my 6/3/13 piece, THE PENSION DEBACLE IN ILLINOIS: MR. MADGIAN AS MACHIAVELLI, MR. EMANUEL LOSES A ROUND, OR MR. QUINN GOES TO SPRINGFIELD?), Mayor Rahm Emanuel is working with his apparently favorite legislator, Illinois Senate President John Cullerton, to delay payments by the city into pension plans for its workers, including those covering its fire fighters and police officers.  The plan would postpone the date on which Chicago falls off its own fiscal cliff by having to increase annual pension contributions to $1.1 billion in 2015 from $483mm in 2014.  The bill would delay any pension related tax increases until 2018, not coincidentally until after Mr. Emanuel is safely reelected, and any meaningfully increased pension contributions until 2022, after Mr. Emanuel is safely, one presumes, in the White House.  The bill would give the city further breathing room by postponing the date by which the pension plans must be 90% funded from 2040 to 2061, by which time yours truly, and most of you, will be safely into the next life.

The obvious objection to this plan, which faces rough legislative sledding, to say the least, is that further delaying addressing the problem is not a good solution to a problem that has arisen from delaying addressing the problem.   The pension liabilities will continue to grow, even if concessions are made by the unions, and if the city doesn’t put money behind its promises, the unfunded portions of those liabilities will continue to grow.   Right now, the police pensions are 31% funded, the fire fighter pensions are 25% funded, and the pensions for all city employees are 35% funded.  These numbers are pathetic on their faces, but they are also the lowest of what are, for the most part, pathetic numbers for cities across the country.   The problem will get worse if the Emanuel/Cullerton plan somehow gets passed.

There are further objections to the plan that perhaps aren’t so obvious.  The first is that delaying the 2015 $600mm day of reckoning not only obviates the massive property tax increase it would necessitate but also frees up other money.   For the politicians, this is terrific news…more money to blow on getting reelected and making good their IOUs to campaign contributors.   But for the taxpayers, this is not such good news.   Spending commitments tend to become permanent and must be funded by taxpayers.  Giving the politicians more money to spend ultimately, and more quickly than the adverb “ultimately” implies, results in more money from taxpayers.   Money that doesn’t go into paying pensions doesn’t get squirreled away to meet such obligations later; it gets blown.   And we have seen this Mayor’s propensity to spend money.  Even though we are broke, we seem to have plenty of money for basketball arenas, new schools that serve Rahm’s yuppie constituency, NATO summits, etc.  Give this guy a dollar and he’ll spend five, just like any politician, but, in Rahm’s case, with both more aplomb and more gusto.

The other less obvious objection to escaping the $600 mm day of reckoning, and the property tax increases it will necessitate, is that such evasion confirms the impression that the city will never abide by any of the promises it makes to dig itself out of its fiscal hole.  This $600mm 2015 day of reckoning itself is the result of a deal the Richard II made years ago, the last time pension funding threatened to blow up the city budget.   The second Daley administration managed to codify into state law a plan to gladly pay tomorrow for a hamburger today, if you will, by promising to contribute $1.1 billion to city pensions in 2015.  It is quite clear that the Daley administration had no intention to pay that $1.1 billion and was merely, to use a variation on a trite expression, kicking the can down the alley a bit.  While the plan outlined by Senator Cullerton and Mayor Emanuel is much more reasonable (but not nearly as efficacious) as the Daley plan, does anyone believe that whatever administration is in power at the times its measures are to be implemented will really go along with it?

I don’t believe the city when it says it will be good tomorrow if we only let it evade its responsibilities today.  You shouldn’t either.  Surely the bond rating agencies won’t believe the city.  But I am not concerned so much about the bond rating agencies; I am concerned about the investors who buy the city’s bonds.   Detroit didn’t get into trouble when it was downgraded by the rating agencies; Detroit got into trouble when no one would lend it money.

See my two books, The Chairman, A Novel of Big City Politics and The Chairman’s Challenge, A Continuing Novel of Big City Politics, for further illumination on how things work in Chicago and Illinois politics. 

BILL BEAVERS: THE HOG WITH THE BIG NUTS GOES AWAY FOR ABSCONDING WITH SMALL NUTS

9/26/13

Former Cook County Commissioner, Chicago Alderman, and Chicago Police Officer Bill Beavers was sentenced yesterday to six months in prison on a tax related charge.   Mr. Beavers was convicted of using money from his campaign funds, and from his County expense account, for personal reasons but failing to report the income to the IRS.  Mr. Beavers said the transactions were loans; the jury didn’t believe him.  The press has been all over this story and the thrust of most of the reporting is twofold.  First, the sentence appeared light given that the prosecutors were asking for two years or so.  Second, Mr. Beavers was completely unrepentant and said nothing to Judge James Zagel.  There is a trace of admiration for the man on the part of the press for being a stand-up guy, not a whiner and perhaps the last of his breed…perhaps the purest specimen of an old time, let’s sit down and carve the turkey Chicago politician.

John Kass had an especially good column in today’s (Thursday, 9/26/13’s) Chicago Tribune in which he pointed out that Mr. Beavers neither cried nor begged; as Mr. Beavers, “the hog with the big nuts,’ put it

“I don’t beg my woman, so you know I wasn’t gonna beg the judge, all right?”

Mr. Kass then went on to draw the obvious contrasts with the sniveling Jesse Jackson, Jr. and his equally nefarious wife, both vehement Beavers adversaries.  And, like yours truly, Mr. Kass feels a little guilty about it, but he likes and kind of admires Mr. Beavers, or at least the way Mr. Beavers comported himself as his sentencing.

I last wrote about Mr. Beavers on the occasion of his conviction in March of this year.  (COMMISSIONER BILL BEAVERS:   HOG WITH THE BIG NUTS, REAL LIFE FRANK PANTANGELI, OR BOTH?, 3/22/13).  You ought to re-read that piece, and the piece that I copied onto it (COMMISSIONER BILL BEAVERS ON ALDERMAN SANDI JACKSON:  DIOGENES, PUT DOWN YOUR LANTERN) and I ought to reiterate something I wrote back then…at the risk of being attacked for somehow condoning the, by today’s standards, penny-ante type of corruption that made Chicago famous:

An old time corrupt pol like Bill Beavers is a heck of a lot less dangerous than a self-professed reforming crusader with a messianic complex.  The former make a few bucks.   At the very least, the latter cost the taxpayers more than legions of Bill Beavers.  At worst, the latter make history, but not in a “good” way.  Perhaps a better way of putting it would be that they achieve infamy.  Give me Bill Beavers, any day, any time,  to a guy who is certain he has all the answers and  can’t wait to get access not only to the public purse but also to the coercive powers of the state to make sure we comply with those answers.

See my two books, The Chairman, A Novel of Big City Politics and The Chairman’s Challenge, A Continuing Novel of Big City Politics, for further illumination on how things work in Chicago and Illinois politics. 

CHRYSLER’S IPO: ARE WE SUPPOSED TO TAKE THIS SERIOUSLY?

9/24/13

Chrysler filed for an initial public offering (“IPO”) yesterday, but the whole exercise is something of a sham.   As loyal readers remember (See, for example, my 4/25/13 piece IMPORTED FROM DETROIT:  MARCHIONNE BETTER BE AS FAST AS ACHRYSLER 300 SRT8), Fiat and Chrysler CEO Sergio Marchionne is trying to buy for Fiat the 41.5% of Chrysler that it doesn’t own, which is currently is owned by a United Auto Worker (“UAW”) health care trust.  Then he plans to merge the two companies, giving Fiat access to Chrysler’s cash and fully integrating the two companies’ operations and financial statements.  Once that merger is completed, Mr. Marchionne would like to do an IPO of the new company.

The problem has been the price that Fiat would have to pay the health care trust for its 41.5% stake in Chrysler.   The trust wants $4.3 billion.  Fiat wants to pay less than half that amount.  The trust, trying to move things along, insisted on filing for the IPO, hoping to put some pressure on Chrysler and perhaps establishing a price for its stake in Chrysler.  The smart money is indicating that the IPO will be pulled when Fiat feels the heat, a price is established, or both, but, at any rate, before the IPO is actually consummated.

A few thoughts come to mind.

First, today’s (Tuesday, 9/24/13’s, page A1) Wall Street Journal reports that Mr. Marchionne is in an “awkward” position, having to go on a road show for the IPO to persuade investors to pay big bucks for Chrysler while he is trying to buy Chrysler for a lower, perhaps far lower, price.  But it is worse than that.  As I explained on 5/1/13 (CHRYSLER’S QUARTER:   HOW DO YOU SAY “POOR MOUTH” IN ITALIAN?), even if the IPO is not done, Mr. Marchionne must first argue to the health care trust that its shares are cheap and then, when the Chrysler and Fiat are merged and he prepares to IPO the new company, he must then persuade the public that the new company is worth far more, or at least more, than the price Fiat paid for Chrysler would indicate.   This is possible, but it certainly looks like Mr. Marchionne will have to go on the road and tell investors that he really hornswoggled the UAW.   This is not great labor relations and, in any event, would strain his credibility.  

Further, as I said back on 4/25, Mr. Marchionne better move quickly.   Much of the “pent up demand” we are seeing for cars is only pent up because money is so cheap.   If and when the Fed decides that bizarro world is not such a great place in which to live and interest rates return to reasonably “normal” levels, whatever that is, the car market is in for trouble.   Perhaps, however, Mr. Marchionne doesn’t have to move all that quickly; he only has to move more swiftly than the Fed.  If last week is any indication, that shouldn’t be difficult.

Second, how much genuine effort are money managers going to expend on this IPO if they believe it is all a dance designed to quicken the negotiations between Fiat and the UAW health care trust?  I’ve been out of the professional money management business for a long time, and perhaps I am so hopelessly old school (I hate using such trite expressions as “old school,” but this might be one situation when the trite expression sounds better than the alternative, “old fashioned.”  But I digress.) that my opinions matter very little.  But I wouldn’t be expending much time or expensive talent looking at an IPO that will never come.  If I were still in the business and had any authority, I wouldn’t waste my shareholders’ money doing the bidding of Mr. Marchionne and/or the UAW trust.

If the money managers’ hearts are not in this, how much real price determination will be done?

Third, how does Mr. Marchionne legitimately argue that the UAW trust’s stake in Chrysler is worth only a couple billion dollars?   Perhaps, again, I am a troglodyte, hopelessly out of touch with modern finance, but let’s look at simple multiples of earnings, a quaint old concept that maybe they don’t teach at Harvard any more.

Chrysler earned $1.6 billion in the twelve months ending 6/30/13.   Ford’s multiple of lagging earnings is about 11 times.  GM’s multiple of lagging earnings is about 13.  Let’s agree, or at least assume for these purposes, that Chrysler is neither Ford nor GM and assign it a multiple of, say, 8 times.  That would make Chrysler worth $12.8 billion.  The UAW owns 41.5% of Chrysler.  That would make its stake worth $5.3 billion. 

I must be missing something because the UAW is only claiming its stake is worth $4.3 billion and the highly paid car analysts on Wall Street value the company at $10 to $11 billion.  But even assuming those analysts are right, the UAW has it just about right when it claims its stake is worth $4.3 billion.  No coincidence that, but, again, I digress.  So how can Mr. Marchionne say the UAW stake, and by extension Chrysler, is worth only half that much?   This is, to be sure, a negotiating tactic on Mr. Marchionne’s part, but how can he keep a straight face when making this argument?

Fourth, perhaps Mr. Marchionne can make such an argument while resisting the temptation to burst into laughter because he knows what yours truly and other car enthusiasts know…Chrysler’s product line is, er, woefully lacking and Chrysler therefore will need to put a LOT of money into product development.   The Chrysler Grand Cherokee is a big hit.  The new Dodge Durango is quite a vehicle as well.   The Ram pickup line is pretty good…especially for a third place finisher in a three truck competition.  The good news ends there.  The Dodge Dart is something of a disappointment and is not up to the competition…the Honda Civic, Ford Focus, Toyota Corolla, and Mazda 3.  As much as yours truly salivates over the Chrysler 300, it and its cousin, the Dodge Charger, are getting long in the tooth and are lagging the competition.   Finally, Chrysler needs a lot of help in the mid-sized car segment…the Chrysler 200 and the Dodge Avenger (See THE DODGE AVENGER:   CHEAP AND WORTH EVERY PENNY, 6/4/13) are pathetic and sell well only because they are being virtually given away by Chrysler dealers.   No one mentions these cars in the same breath as the Honda Accord, Toyota Camry, Ford Fusion, Nissan Altima, or even the Chevy Malibu.

This “IPO” will be entertaining to watch…but not as entertaining as the dance Mr. Marchionne will have to do to buy Chrysler cheap and then sell it rich...before the car market takes a dive.

ILLINOIS DEMOCRATIC PRIMARY: DALEY IS OUT; IS LISA BACK IN?

9/16/13

Now that Bill Daley has dropped out of the Democratic primary race for Illinois governor, we have to consider the ramifications of that move both for the state’s politics and for the state’s fiscal survival.

First, the politics.  We roughly six months will transpire before the March primary, so there is plenty of time for another candidate or two to enter the race.   Could one of those candidates be Attorney General Lisa Madigan?   Recall that Ms. Madigan dropped out in July claiming that her father’s remaining as House Speaker would make it difficult for her to win the race, and, if she did, to govern   She said this with a straight face as if it came as a surprise to her that her dad would not give up his job for life in order to make it easier for his daughter to take the next transitory step in a political career that the press has repeatedly assured her is heading to the very top.   See my 7/16/13 piece, LISA MADIGAN WON’TRUN FOR GOVERNOR:  WOULD YOU WANT THE JOB?

It’s easy to reflexively say “No way” when the question of Ms. Madigan’s re-entering the race comes up, but her potential re-entry deserves more thought than that.

Recall that in the aforementioned 7/16/13 piece, I gave two real reasons for Ms. Madigan’s hasty exit, or non-entrance.   First, as I explained it…

Lisa wanted a coronation, not an election.  Bill Daley made it a fight.

Whenever one is facing the incumbent office-holder in a primary, one is in for a fight.  The last person to win such a brawl in this state was Mike Howlett, the jovial but limited then Secretary of State who was able to topple Dan Walker in the Democratic gubernatorial primary in 1976, but only with the last major demonstration of the raw, dominant power of the Richard J. Daley Machine.   To say that Mike Howlett’s primary victory was Richard J. Daley’s last hurrah would not be an overstatement.  But I digress.   Daley went on to let the ever likeable Howlett hang out to dry once the bothersome Dan Walker had been dispensed with, but that is another story and another digression.  

A three way race involving the incumbent Pat Quinn (no relation), Bill Daley, and Lisa Madigan would have been tough to the point of impossibility for both of the two challengers; incumbency, even an inept incumbency, is almost always strong enough to face down two strong challengers.  Yes, Ms. Madigan had the advantage of being the only woman in the three way race and a press that simply can’t get enough of their imagined incarnation of Wonder Woman, and those factors might have been enough for her to prevail against not only the long odds against the incumbent but also Ms. Madigan’s “daddy problem,” but it would have been a long shot.  Once Daley got in, Madigan had little choice but to stay out unless she wanted something she had never experienced before…a very difficult, arduous election.

So does Daley’s leaving open a door for Lisa Madigan?   No.   Now it is not Bill Daley who is making it a tough fight; it is Pat Quinn who is making it a tough fight.  As I said only most recently in my 8/15/13 piece, PAT QUINN PUTS PAT FITZGERALD ON A VESTIGIAL COMMISSION:  IS THE GOVERNOR RUNNING THE TABLE?

Pat Quinn (no relation) may have a deserved, or otherwise, reputation as a reformer, but he is showing he didn’t get this far in Chicago and Illinois politics by spending an inordinate amount of time consulting the Marquis of Queensberry.

Pat Quinn has made some brilliant political moves which, no matter what Bill Daley says (see below), went a long way toward convincing Mr. Daley that this race was unwinnable or very close to unwinnable.  It would be equally nearly unwinnable for Lisa Madigan; she’d prefer to wait around for a coronation.

The second reason I gave in my 7/16/13 piece for Ms. Madigan not entering the race was, as I put it

The better reason is not quite as political but very simple:   Would you want to be governor of Illinois right now?   This state is in a hell of a mess, with bankruptcy looming over the fast approaching horizon.  In all likelihood, nothing will be solved before the next governor takes office.  One does not blame an ambitious pol like Ms. Madigan for not wanting to tie her dinghy to such a sinking ship.  It would be much easier, and conducive to obtaining that big job that every politician ultimately wants, to become a U.S. Senator, and that job may become available, albeit not necessarily for the asking, in 2016.

The state of Illinois is in a hell of a mess.  The daughter of the man who cannot deny a good measure of the responsibility for getting us in this mess was not the person to get us out of it.   Maybe (probably?) no one can get us out of it.  

So Lisa Madigan’s real reasons for dropping out—that it would be too difficult to win the primary and that the state is in such a fiscal mess that no sane person, and especially no sane, politically ambitious person, would want the job—remain valid.  So I don’t anticipate a dramatic Madigan re-entry into the race.   But anything can happen, and Ms. Madigan tends to believe the hagiographic press she gets.

The second aforementioned reason for Ms. Madigan not getting into the race gets us beyond the politics to the fiscal prospects for Illinois:  they stink.  Bill Daley, who, despite looking really bad for deciding to get out of the race after saying that he got into it after a great deal of thought, is no dummy.   In giving the reasons for his taking his leave, he stated

“To be honest with you, losing it wasn’t the worst of my fears. In many ways, winning it and having the commitment of five years to nine years was something I struggled with. You know, the dog catches the tire and, boom.”

A point of useful digression:   Whenever anyone uses the term “To be honest with you…” or something like it, and especially when a politician uses that term, yours truly immediately assumes that s/he is lying the rest of the time, probably all the time.  If s/he weren’t lying all the time, why would s/he have to preface anything with “To be honest with you”?  To do so is to indicate that one is not being honest when one does not use that preface.   So I believe and so I advise my students.   They need someone like me to balance this starry-eyed optimism fad.

His campaign manager, Pete Giangreco, said that Mr. Daley dropped out after considering “what it’s going to take” to dig Illinois out of its fiscal hole.

So Bill Daley, by his own words and through his campaign manager, is telling us that the state is in such bad shape that Mr. Daley can’t fix it, or at least not without an exertion of time, effort, and will that he is unable to provide.   This is coming from a man with no shortage of ego.   What does that tell you about the fiscal state of the Land of Lincoln?

 See my two books, The Chairman, A Novel of Big City Politics and The Chairman’s Challenge, A Continuing Novel of Big City Politics, for further illumination on how things work in Chicago and Illinois politics. 

SAVING VS. SPENDING: WHAT WOULD YOU RATHER HAVE YOUR HEIRS SAY WHEN YOU DIE?

9/15/13

As regular readers of Mighty Quinn on Politics and Money (“MQPM”) are more than aware, one of my recurring themes is that saving is a virtue that we have long ago abandoned in this country.  Saving money is not only a financial necessity, both for the individual doing the saving and for his or her country, but it is also a mark of character, a manifestation of one’s ability to delay gratification, to be prudent, and to show good judgment.   Conversely, spending money to excess on things one “just has to have” is not only financially debilitating, it is a sign of poor character, immaturity, insecurity, a lack of self-control, and a very unflattering sense of entitlement.

A friend called this morning with a question about an estate for which she is acting as executor.  Another sage observation…if anyone asks you to be an executor of an estate, unless he is willing to pay you a lot of money or if you are the ONLY person who can fulfill that role, run away.   But I digress.   After we finished the conversation, a thought came to me regarding my very strong view on the relative desirability of frugality and financial lasciviousness, to wit…

What would you rather have your heirs say, or think, of you when you die?

“Gee, I didn’t know s/he had this much money,”

or

“Gee, I thought s/he had money.”  ?

Sadly, the answer isn’t obvious to everyone.

ABENOMICS: HAVE THE GOVERNMENT CREATE A MESS AND THEN SPEND MONEY CLEANING IT UP

9/13/13

Japanese Prime Minister Shinzo Abe has apparently decided to go ahead with the first increment in the increase of Japan’s sales tax; consequently, the national sales tax in the Land of the Once, and Maybe Again, Rising Sun will increase from 5% to 8% in April of next year.   If further increments are implemented, the sales tax will rise to 10% in October, 2015.  (See my 6/7/13 post, JAPANESE GROWTH RATES:  THE ONLY PLACE INTHE WORLD NOSTALGIC FOR THE ‘70s for my last ruminations on Abenomics.)

Mr. Abe and his allies, however, fearful that such a tax increase will hurt Japan’s still nascent economic recovery, have proposed a stimulus plan to offset the deadening impact of the sales tax increase.

Hmm…

One not trained in the more advanced theories of economics, or perhaps too lethargic of mind to understand the deeper aspects of that discipline, might ask a perhaps simplistic question, to wit…

Rather than embarking on a stimulus program to dull the desiccatory impact of a yet to be enacted tax, why not dispense with both the tax increase and the stimulus program and call it even?

One can come up with two possible answers to the above question.   First, Mr. Abe and his braintrust buy into the puzzling Keynesian presumption that a dollar miraculously multiplies when it passes through the government’s hands but goes into the economic equivalent of a coma when it stays in private hands.   Therefore, the government’s spending money is ALWAYS more salubrious for the economy than having the people who earned it decide what to do with the fruit of their labors.  Since Mr. Abe is a politician, and those he hires are, at least to a certain extent, in all likelihood political toadies and hangers-on, this is always a possibility.

Second, money that passes through public hands and is spent according to the designs of politicians provides those public servants with not only greater avenues for rewarding campaign contributors but also more control over our lives.  Therefore, there is no debate in the mind of the typical politician; it is ALWAYS better to spend money rather than let said money remain in the hands of the taxpayers.  The job of their economic braintrust is to come up with some theory, no matter how hare-brained, that will justify, or at least rationalize, this political predilection for “stimulus” programs.  This is true, to varying extents, in every nation on the planet.

The second explanation answers our question so effectively that one wonders how one conducts one’s life, or finds the answers to any public policy question, without a seemingly bottomless store of what yours truly calls realism but which others insist on calling cynicism.

CHICAGO WATER NOT GOOD ENOUGH FOR MAYOR SAN PELLEGRINO?

9/12/13

Yesterday’s (i.e., Wednesday, 9/11/13’s, page 22) Chicago Sun-Times featured an article by Dan Mihalopoulos highlighting the retirement of Chicago City Council Sergeant-at-Arms Christina Pacheco Butler.   Mrs. Butler, a longstanding fixture in the 33^rd Ward Regular Democratic Organization, was a patronage hire of Alderman Dick Mell and has held her current Council job for ten years.   According to the way the city works, now that Mr. Mell has retired, his patronage hires have to go or find another, to use the perhaps insensitive descriptive terms of another era, Chinaman or rabbi.  Mrs. Butler has apparently elected to retire.  However, given her still quite tender age (62) and her feisty demeanor, one suspects that she will not be retired for long.

Mrs. Butler, from Mr. Mihalopoulos’s account, seems to be an effective and well liked sergeant-at-arms.   She does her job well, has the respect of the Council and the mayor, takes no guff from anyone, and (usually; see below) knows how to keep her mouth shut when the situation so demands.   She is probably the equal of the fictional Jimmy McErlean, council sergeant-at-arms in my book The Chairman, A Novel of Big City Politics.  Further, Mrs. Butler is  living, breathing testimony that the patronage system, despite its many faults, is not the unmitigated evil its most vociferous critics would have us believe it is.   That having been said, one wonders why the post of city council sergeant-at-arms exists, or maybe one doesn’t wonder; it has everything to do with the aforementioned patronage system.  But I digress.

What captured my attention in the article was not so much the major story, but an aside.  Mrs. Butler says, not complaining, just pointing out, that she pays for the almonds and San Pellegrino water that Mayor Rahm Emanuel likes to snack on during city council meetings.

San Pellegrino water and almonds?!   What’s wrong with good old Chicago water, the Michigan cocktail that flows from our taps and that is the finest drinking water in the country, probably the world?  And who eats almonds that aren’t imbedded in a Hershey or World’s Finest bar or mixed into some delectable dish at a Chinese restaurant, usually involving chicken?

The next time I get blowback when accusing Mayor Emanuel of being a hopeless elitist yuppie with not a whit of empathy for the people in the neighborhoods, I will simply point out his snack preferences.  San Pellegrino and almonds indeed!

 See my two books, The Chairman, A Novel of Big City Politics and The Chairman’s Challenge, A Continuing Novel of Big City Politics, for further illumination on how things work in Chicago and Illinois politics. 

THE MIDWAY PRIVATIZATION DEAL’S COLLAPSE: “(RAHM EMANUEL) ALWAYS MADE MONEY FOR HIS PARTNERS…”?

9/8/13

As hard as it might be for yours truly to say this, the recent collapse of the Midway Airport privatization deal might be just what Mayor Emanuel and his floor leader, Alderman Patrick O’Connor (40^th), say it is:  a failure of a deal that just didn’t make sense from the taxpayers’ standpoint and that wasn’t going to get any better due to the absence of competition in the bidding process in the wake of one of the last two competitor’s dropping out of the process.  

Yes, the city’s Chief Financial Officer, Lois Scott, who quarterbacked this Hindenburg of a project, has her problems; the mutual back scratcher she recommended for the job of city comptroller, Amer Ahmad, has been indicted for placing his hand in the cookie jar back in Ohio and apparently was the subject of federal curiosity even as Ms. Scott wrote Mr. Ahmad a glowing recommendation.   Perhaps as problematical for Ms. Scott, at least in the short run, the hiring of Mr. Ahmad has embarrassed the seemingly omniscient Rahm Emanuel.   But one suspects that the failure of the Midway deal had nothing to do with Ms. Scott’s growing problems, which should provide plenty of grist for the mill of future posts.

Indeed, Alderman O’Connor may have unwittingly told us why the deal fell apart when he, defending his master Rahm, opined

“All it’s (the collapse of the Midway deal) gonna do is tell private investors we’re getting smarter as a negotiating adversary.   They’re not gonna be able to come in and make a ton of money off us at our sufferance.”

(A point of parenthetical digression:  why has the Chicago media taken to printing the contraction “gonna” for “going to”?   Yes, we know how much the media are gaga for their boy Rahm, who uses that bastardization of the words “going to” with great frequency, but must their adoration of their consanguineous heart throb take the English language as a casualty?)  

Whether the adjective “smarter” is the most apt term here is questionable, but Mr. O’Connor is correct.   The city is negotiating more aggressively; in this case, the most salient manifestation of this determination is its insistence on a 40 or fewer year term for the Midway lease deal.  With such constraints, the potential lessees were not going to “make a ton of money off” the city.   And that is why there was ultimately only one bidder for this project.  

Genuine businesses exist to make money, one way or another, for their shareholders and partners, not to serve the whims of Super Rahm and his minions in exchange for a photo-op with the Mayor for their CEOs.   And when they don’t make money, they don’t do deals.   One suspects that people like Messrs. Emanuel and O’Connor, despite having spent their entire lives on the public payroll or selling the influence they garnered on the public payroll, know this.  Further, Mr. Emanuel will keep this simple concept in mind as he tries to light a fire under his seemingly moribund “infrastructure trust.”  Therefore, maybe we should take some comfort in the infrastructure trust’s halting progress and in the failure of the Midway deal.   If either results, or resulted, in too good a deal for taxpayers, one can be sure that side deals were being cut to make sure the contractors were making it somewhere else.

One more thing…

People are decrying the hundred of thousands of dollars spent on consultants, lawyers, etc. spent by the city and the publicly funded “Midway Advisory Panel.”  What a waste, we are told.   Baloney.   That money surely found its way into the pockets of politically connected people who make sure the politicians get their cut at election time and/or otherwise.  Thus, though the taxpayers may be stuck with the bill, the politicians are doubtless very happy with these seemingly pointless expenditures…mission indeed accomplished.

See my two books, The Chairman, A Novel of Big City Politics and The Chairman’s Challenge, A Continuing Novel of Big City Politics, for further illumination on how things work in Chicago and Illinois politics. 

U.S. INVOLVEMENT IN SYRIA: ESCALATING EVEN BEFORE IT STARTS

9/6/13

President Obama a few days ago was promising that his intentions for Syria were limited to a pinpoint attack, designed to punish Bashar Assad for using chemical weapons on his own people.  He and his minions initially assured us that the attack would feature Tomahawk cruise missiles and the like, weapons that enable us to keep our guys out of harm’s way, to the extent such a thing is possible once combat starts.  (See my 9/2/13 post, OBAMA’S EXCELLENT SYRIAN ADVENTURE: THE NOBEL PEACE PRIZE WINNER GETS BY WITH A LITTLE HELP FROM HIS ENEMIES? for only my latest, until now, comments on Syria.)

But now talk turns to the use of manned bombers, perhaps B-1s stationed in the Gulf, B-2s stationed in Missouri, or B-52s stationed in a variety of locations.   The use of B-2s is especially troubling; they are stealth bombers designed not to stand off and fire cruise missiles and the like from afar, like B-52s and B-1s, but, rather, to use their stealthy features to fly right over the target and deliver smart bombs.   So using B-2s means having actual live Air Force personnel penetrating the airspace of Syria, which has among the best anti-aircraft defenses in the world, defenses so formidable that the Israeli Air Force fears to figuratively tread there.

Perhaps this talk of expanding beyond Tomahawks and graduating to weapons systems that put Americans in harm’s way is designed to mollify the likes of Senators John McCain and Lindsey Graham who are, as is their wont, hell-bent on getting us deeply immersed in another centuries old, irresolvable, Middle Eastern secular conflict.  And what better way to get a reluctant American public on board for all out war in a place in which we have few vital interests and no chance of coming out on top than the death of a few American soldiers and airmen?  Is this too cynical and conspiratorial?   Does it take too dark a view of the War Party and its most fervent members?   Probably not.   But I digress.

The major lesson to take away from this talk of manned bombers over Syria is that this conflict, which the President promised not to escalate, is escalating even before it starts.   The broader lesson is to never, ever trust a politician, especially when he is preparing to send your kids and your money to war.  In fact, it would be wise to check your driver’s license should a politician tell you your name.

THE DEBT RESURGENCE: YOURS TRULY GETS VERTIGO FROM WATCHING THIS MOVIE AGAIN

9/6/13

Today’s (i.e., Friday, 9/6/13’s) Wall Street Journal featured a page 1 article entitled “For Corporations and Investors, Debt Makes a Comeback,” which outlined the dangers of growing debt levels that short term and short memories pundits are lauding as the salvation of our economy from the near death experience that it experienced as a consequence of taking on too much debt.

Long time readers know that yours truly shares the sentiments it expressed and could have written the article, had I had the time to do the extensive research its authors conducted, and thus to comment on it seems to be beating on a dead horse.   However, this debt problem seems to be only a comatose horse that refuses to die, or perhaps, in the fashion of the day, and equine zombie that occupies our fascination until it fulfills our nightmares.  So here goes.

Too much debt sunk our economy.   A return to the attitude toward money and borrowing that led to too much debt, even as we bob to an uncertain position just barely at the surface, will surely sink our economy again.   Yet those who purport to know something about how things work, and who only recently acquired such skills as shaving, seem to think that debt is the bromide that will somehow save us.   This endless prescription of the financial equivalent of the hair of the dog is perplexing and troubling to us older guys who have been around the track a few times and thus have a measure of perspective.

Regarding this particular article, it is not as troubling as it appears at first glance; it concentrates mostly on corporate accumulation of debt.   While corporate debt surely had a big role in sinking our economy in 2008-09, personal debt played a far larger role.  That having been written, the ravenous appetite for corporate debt is itself troubling, especially because it is being put on the books as corporate profit growth decelerates to the low single digits.   Yet investors pile into corporate debt, and especially into high yield, or junk, debt, in a desperate search for yield born of Ben Bernanke’s insidious and never ending War on the Elderly.

This rushing into the riskiest corners of the debt market in a reach for yield would be troubling enough if people were using hard accumulated savings to do so.   But apparently they aren’t.   Instead, they are borrowing to do so; margin debt reached a record $384 billion this Spring, up nearly a third from the last year.  The record this year’s margin borrowing transcended was set in 2008; oh, boy.

The article’s authors, James Sterngold and Matt Wirtz, who surely deserve fulsome kudos on such a well written and researched piece, took the trouble to interview one Mr. Gerald Schatz of Fort Washington, PA.  The 78 year old Mr. Schatz, against the wise counsel of his wife, borrowed $500,000 on margin at 1.6% from his broker and invested the proceeds in stocks and bonds, earning “about 6%.”   He commented

“This just made so much sense to me.  Leverage is just using cheap money. I don’t consider this a big risk.”

And then

“I never did anything like that before.  I wouldn’t have bought a lottery ticket.   But this is different.”

It is not at all heartening to know that the likes of Mr. Schatz would not buy a lottery ticket.  A lottery ticket is indeed a poor investment, but it’s only A BUCK!  Instead, he risks half a million dollars arbitraging interest rates.   Shrewd.  Wait until rates start to rise.  One wonders if Mr. Schatz’s broker, who lent him the half million, somehow forgot to mention the impact of rising rates on the value of the bond portfolio that Mr. Schatz bought with borrowed money. 

Perhaps this is indeed, as Mr. Schatz says, “different.”   But surely, at 78, and having accumulated a sizable portfolio, Mr. Schatz has been around long enough to experience that cold feeling of terror that runs down one’s spine at the words “This time it’s different.”

Last night, my wife and I watched Vertigo, the Alfred Hitchcock classic starring Jimmy Stewart and Kim Novak that some experts consider one of the best movies ever made, for about the 10^th time.  We very much enjoyed watching it again.   Watching this even darker debt movie again will not be nearly as enjoyable.

THE TREASURY CURVE: SOMETHING BULLISH THIS WAY COMES?

9/5/13

Everyone who pays attention to these things knows that treasury yields, broadly defined, are at their highs for the year.    The only exception to this, and it’s barely an exception, is the 30 year yield, now at 3.89%.  I thought I saw it at 3.90% on August 19, but I may have been wrong and, in any case, who cares about a basis point?

Perhaps I haven’t been paying sufficient attention, but I, not being a daily trader of bonds in many years, just noticed something today…

The treasury curve out to ten years, whether measured from the two year, the six month, or the three month treasury on the short end, is the steepest it has been all year

But…

The curve from either the five year or the ten year to the 30 year is the flattest it has been all year.

Hmm…

Don’t ask me what this means.  I only find it fascinating and have one perhaps not very good explanation for this phenomenon…

Maybe those who think the treasury market is in for a rally are playing that hunch at the most obvious, or at least the most potentially lucrative, point on the curve, i.e., the 30 year.   And there are a lot of bulls doing so.   Maybe.

OBAMA’S EXCELLENT SYRIAN ADVENTURE: THE NOBEL PEACE PRIZE WINNER GETS BY WITH A LITTLE HELP FROM HIS ENEMIES?

9/2/13

President Obama has finally done the right thing regarding the ghastly situation in Syria.

He may have looked more indecisive than the Dane himself in doing so.   Further, he may be doing so for the wrong reasons; a lot of people think the President is seeking Congressional approval of military action against Bashar Assad only as a ruse for changing his mind once again.   All this doesn’t matter.  We can’t count on people’s good motives; Francis of Assisi long ago vacated this mortal coil and there are few decent replacements.  We can only count on people’s actions.   And, regardless of his motivations, the President has finally done the right thing and gone the Constitutional route in asking Congressional approval before sending American blood and treasure on yet another foreign adventure with dubious, yet frightful, potential consequences.  In so doing, Mr. Obama has reversed the approach of every post-War president, with the possible and ironic exception of Richard Nixon, in committing American firepower, money, and troops to combat, which has been, effectively, I am the State.

This circuitous, stumbling in the dark path to righteousness has come at some cost to American credibility.   In his alternating red lines, expressions of outrage, and admonitions to caution, Mr. Obama has displayed more flip-flops than will be seen on the Jersey Shore this Labor Day weekend.   As Efraim Inbar, director of the Begin-Sadat Center for Strategic Studies at Bar-Ilan University put it, the President

“…is becoming a laughingstock in the eyes of friends and foe alike.”

While it is hard in the Middle East, or anywhere, for that matter, to distinguish friend from foe (Was it Kissinger, Metternich, or Richelieu who said “Countries don’t have permanent friends; they only have permanent interests?), Mr. Inbar has a point.  Mr. Obama could have saved himself, and this country, a lot of humiliation by saying early on, and unequivocally, that the U.S. has no interests in Syria sufficiently salient to commit American resources and kids to the conflict.   (See 8/27/13’s  SYRIA:  “WE (WILL) GET FOOLED AGAIN!” for only my latest expostulation on why getting involved in yet another Middle Eastern centuries old irresolvable sectarian conflict would be ruinous, or worse, for the United States and the world.)   But the President, as is his wont, blew that opportunity.  

More importantly, if it took an embarrassing to the point of pain Hamlet act on the international stage on the part of the President to finally get him to do what no president since Roosevelt has done, i.e., abide by the Constitution in committing American troops to conflict, that is a small price to pay.

Will the President be able to persuade the Congress to go along with this latest Bushite adventure for who knows what reason in the Middle East?   Or will he suffer the type of heaven sent humiliation that the clear-headed British Parliament sent to the starry-eyed David Cameron?

First, while things can change rapidly and political predictions are thus always perilous, the odds are not good that the Congress will give the President the nod he ostensibly seeks.   Mr. Obama must persuade not only those Congresspersons with the good sense to stay as far away from Syria as one does from a rabid dog; he also must also mollify the likes of Senators John McCain and his mini-me, Senator Lindsey Graham, who seem to have visions of mushroom clouds, and generous payment of IOUs to the “defense” industry, once again dancing in their febrile brains.   One can only hope that the Republican impulse to oppose anything that Mr. Obama proposes will override the GOP reflexive equation of militarism with patriotism and that they will thus join the Democrats, and the libertarian oriented corners of the GOP, to slap Mr. Obama’s hand and save us from another quagmire in the cradle of civilization.

Second, one does get the impression that the President is secretly hoping that Congress will not go along with the Bushite militarism that has led Mr. Obama and his team to ostensibly flak for another folly in the Middle East.   This will enable the President to avoid conflict, blame it on Congress, and breathe a heavy sigh of relief.   The nation ought to join him in that sigh should that be the outcome of this entire fiasco.