Alabama ♥s Debt

Jefferson County, Alabama, the home of Birmingham, may soon be filing bankruptcy:

Officials of Jefferson County in Alabama told their lawyers to prepare a bankruptcy filing if the county was unable to reach an agreement with creditors over how to escape from $3 billion of bonds with soaring interest rates.

The Jefferson County Commission voted unanimously on Tuesday to have the law firm of Bradley, Arant, Rose and White and the county attorney take over negotiations with creditors led by JPMorgan Chase and draw up bankruptcy papers should talks falter. The two replace bankers and advisers, including Citigroup, whose proposals failed to win support.

[...]

Should the county renege on the debt, it would be the largest municipal bond default ever in the United States, outstripping the Washington Public Power Supply System’s $2.25 billion default in 1983 of revenue bonds sold for nuclear plants.

Jefferson County, which includes Alabama’s largest city, Birmingham, has unsuccessfully sought to refinance debt, amassed building a sewer system, which it now says it cannot afford. More than $3 billion of the bonds, including $2.2 billion of so-called auction-rate debt, have interest that resets frequently, a strategy intended to hold down costs. That backfired when the fallout from the credit crisis pushed the county’s rates as high as 10 percent.

Of course, this is untrue; the 1983 default would have been nearly $5 billion today [according to the BLS's CPI Inflation Calculator], so this one doesn’t really come close.

While the county must make good on its debts by tomorrow, August 29th, the commissioners are hedging:

The commission set no timetable for a bankruptcy filing and said it is working to avoid that. The Friday deadline expiration will place the county in default of its agreement with creditors.

“In a perfect world, we would work out a plan that would be the equivalent of bankruptcy without filing for bankruptcy,” Commissioner Jim Carns, a Republican, said. “If we can’t get an agreement, then our only alternative would be to file.”

Sewer fees have risen more than fourfold over the past decade and commissioners said the increases needed to pay the higher interest rates would be too great a burden on the county’s poor. A proposal by advisers, including Citigroup, that would have used county taxes to support the bonds drew criticism and would have required approval of the Legislature and voters.

Today’s resolution passed by a 4-0 vote. Commissioner Shelia Smoot, a Democrat, didn’t vote because she was in Denver for the national party’s convention.

“We were a divided commission, but not any longer,” Carns said. “We are moving to a better position. This gives us a way out. We were boxed in, because we couldn’t raise taxes and couldn’t raise rates, which are already too high anyway. We had to have a way to pursue other directions.”

 

 

The true irony here is that the county’s namesake, the 3rd US President, Thomas Jefferson, was sincerely and vocally opposed to government debt.

“I sincerely believe… that the principle of spending money to be paid by posterity under the name of funding is but swindling futurity on a large scale.” –Thomas Jefferson to John Taylor, 1816

What makes this news item so noteworthy?  The US ain’t far behind.  Vast transfer payments domestically and internationally, and an aggressive and needlessly adversarial foreign policy have combined, along with corporate rapacity in congressional lobbying, to bring the US economy to its knees.

The federal government is overextended in the extreme, with foreign and domestic committments estimated to be as much as 20 times its current annual receipts, and four times the GDP.  This is not a sustainable level of spending:

“If the U.S. government allows Fannie and Freddie to fail and international investors are not compensated adequately, the consequences will be catastrophic. If it is not the end of the world, it is the end of the current international financial system. The seriousness of such failures could be beyond the stretch of people’s imagination.” These are the words of Yu Yongding, who is a Professor in Beijing and a former advisor to China’s central bank (August 22, 2008, in Bloomberg news).

We should listen to Prof. Yongding. The Bloomberg article reports: “Yu is ‘influential’ among government officials and investors and has discussed economic issues with Premier Wen Jiabao this year, said Shen Minggao, a former Citigroup Inc. economist in Beijing, now an economist at business magazine Caijing.”

China has loaned Fannie Mae and Freddie Mac huge amounts of money: “China’s $376 billion of long-term U.S. agency debt is mostly in Fannie and Freddie assets, according to James McCormack, head of Asian sovereign ratings at Fitch Ratings Ltd. in Hong Kong. The Chinese government probably holds the bulk of that amount, according to McCormack.”

Fannie Mae and Freddie Mac, the two government-sponsored enterprises (GSEs) that have invested in and supported the U.S. housing market these many years, have essentially already failed. The equity of stockholders is 95 percent gone, due to the bad loans these companies made and the prospects of further losses.

Professor Yongding is notifying everyone that China has first priority at the “bankruptcy” table. Even if there is no formal bankruptcy procedure, China, as the foremost creditor, does not want to absorb default losses on its loans to Fannie and Freddie. China is pressuring the U.S. to make good on its implicit guarantee to support the GSEs.

The U.S. taxpayer is the ultimate bagholder in this process. U.S. citizens borrowed heavily from the GSEs and thus from China to build and buy houses. They are being asked to pay off these loans and not stiff their creditors. If they do not pay, China will hasten to wind down its loans to U.S. institutions, and that includes the U.S. government. This process has already begun.

To have reached this phase in which creditors line up to see who is first means that the GSEs have already failed. This is not surprising. The entire enterprise of Government, in the bloated and intrusive form we know it as, is destined to fail. The failure of any and every coercive monopoly Government is assured by its own dynamics. Unaccountable monopolies blunder, fragment, lose direction, lose momentum, and fail. It is only a matter of time.

Strap yourself in; it’s gonna be a wild ride.

An Egalitarian Dream

Check out this adaptation of Kurt Vonnegut’s “Harrison Bergeron.”  This is the world of ultimate PC expression.  Awesome commentary and criticism [par for the course for Vonnegut], though I can’t see how a short story of just a few pages can be turned into a feature-length movie without some serious alteration to the story line, as happened in the 1995 TV movie adaptation.

I hope this movie serves as a cautionary tale to all of the small-minded people who think that “equality” is the geatest, most worthy goal of all human endeavor.  Equal opportunity — not government-enforced, but simply people truly judging others each on his own merit — and equal treatment under the law <i>are</i> worthy, moral and proper goals, but equality of outcome is something altogether different:  as assinine as it is impossible to acheive.

Brilliant Recruiting Ad

The US Navy finally figured out how to recruit.

This is kind of old, but it’s still good.  My old boss sent it to me a while back as an audio-only file, but some bright young guy person has thoughtfully added video.  And now, through the magic of the “internets,” I offer it up for your viewing pleasure.

[Colorful Language & Mild Sexual Content Warning]

I would still strongly reccommend against anyone joining the military under the current belicose  and interventionist administrative policies.

Alcoa Can’t Wait (No, Really)

Aug. 27 (Bloomberg) — U.S. stocks rose for a second day after orders for durable goods unexpectedly advanced in July and a jump in oil prices boosted energy shares.

Alcoa Inc. and Boeing Co. each climbed more than 1 percent after the Commerce Department report bolstered expectations that the economy is recovering. Fannie Mae and Freddie Mac rallied more than 10 percent on a Citigroup Inc. analyst’s report that new investments will boost profits. The advance in crude pushed up 36 of 39 energy producers in the Standard & Poor’s 500 Index, while sending Target Corp. and McDonald’s Corp. down by about 1 percent each.

From the Pittsburgh Tribune-Review:

Alcoa Inc. said Monday its first-quarter earnings plummeted 54 percent because of surging energy costs, a weaker U.S. dollar and lower metals prices.

Net income dropped to $303 million, or 37 cents per share [Brian: or about 1% of its 1Q closing price], during the first three months of the year, compared with $662 million, or 75 cents per share [Brian: about 2-½% of its 1Q 2007 closing price], during the same period last year, said the company, which has its operations center in Pittsburgh.

[...]

Alcoa slipped from its position as the world’s largest aluminum producer last year after a merger led to the creation of Russia’s Rusal. Rio Tinto’s $38.1 billion takeover of Alcan Inc. pushed Alcoa to third.

[...]

Alcoa sold aluminum for an average of $2,801 a metric ton during the quarter, down 3.5 percent from a year earlier. Aluminum is sold mostly in dollars, meaning a weakening U.S. currency increases costs the company must pay in Australian dollars and Brazilian reals. The declining greenback reduced earnings by 8 cents compared with the fourth quarter, Alcoa said.

In February, Alcoa and Aluminum Corp. of China Ltd. announced they were jointly buying 12 percent of Rio Tinto’s shares in a deal valued at $14.05 billion. Alcoa said it contributed $1.2 billion to the total investment. The move was widely seen as an effort to complicate efforts by Australia’s BHP Billiton Ltd. to acquire Rio Tinto.

Alcoa is talking with the Beijing-based company about “various options for the future,” Alcoa Chief Operating Officer Klaus Kleinfeld said yesterday during a conference call with analysts.

Kleinfeld said the purchase was “an important next step in our relationship. I am confident this investment will reap long-term value for our shareholders.”

Alcoa used to be the biggest dog on the block, in the aluminum industry. Now, it’s not. In fact, it’s just partnered up with Aluminum Corp of China to buy out its second biggest competitor, and the bump in its stocks from that news didn’t bolster its profits sufficiently.

Now, in the Texas town of Rockdale, Alcoa is laying off a substantial portion of its employees. Why?

Energy.

Specifically, Energy Future Holdings, the front company of the [in]famous KKR, Texas Pacific Group, and Goldman-Sachs. EFH, in turn, owns Luminant, which used to be known as TXU, which was itself embroiled in a huge controversy about expansion of generation capacity with the Texas Public Utilities Commission, and is often accused of price gouging [arguably with good reason] by its customers.

[Full Disclosure: My employer is a contractor and sub-contractor to Luminant in North Texas]

Back to Alcoa. Alcoa has seen its profits drop by fairly significant margins in the past couple years, and its overall stock performance for the last five years, in particular, has been flat.

Adding insult to energy, Alcoa’s Rockdale plant has been subject to undependable power from Luminant. This is not good when you have involved processes like smelting metals; it’s kind of a good thing to have processes that can be followed to completion, so that the product doesn’t solidify and gum up your equipment, or come out all heterogeneous in composition. Mistakes can be costly; Luminant seemed to be guaranteeing these mistakes by not guaranteeing Alcoa’s power supply. So now, Alcoa is suing EFH for providing shoddy electric service:

Energy Future has failed to conduct maintenance at the Sandow power plant, which supplies Rockdale’s electricity, and has caused “outrageous spikes” in power prices, Alcoa said in the complaint filed in Milam County District Court in Texas on Aug. 22.

[...]

Alcoa said in June it would idle half of its annual production at Rockdale, or about 120,000 metric tons, because of unreliable power supplies from lignite-fueled Sandow and rising costs. The company and competitors including Rio Tinto Alcan have shut plants in North America and Europe and expanded in the Middle East and Iceland, where power is cheaper. Energy makes up about one-third of the cost of smelting aluminum.

New managers at Energy Future’s Luminant power units have sought to hide information that they are legally bound to disclose, Alcoa said.

“It appears that the Luminant family’s true goal may be to cause Alcoa’s Rockdale smelter to shut down completely and forever,” Alcoa said in a copy of the lawsuit provided to Bloomberg News.

What kind of ignorant tripe is that? “true goal may be to cause [us] to shut down completely and forever.” Yes, because that’s why people go into business: to drive their customers out of business. [You make more money if you don't have customers. Didn't you know that? Idiots.]

But Luminant isn’t playing:

We believe Alcoa has a history of using layoffs to manage costs and drive their own profitability. This is simply another example. Alcoa has made independent business decisions that have apparently now resulted in layoffs.

For the past two months, Luminant has offered Alcoa additional price protections along with a stable, predictable and economically viable power supply. Alcoa has refused, taking an inflexible stance, seeking power at unrealistically advantageous terms and demanding a price far below the prevailing commercial market price.

We will continue to fully honor the long-term contractual agreement with Alcoa, under the terms of which Alcoa has received prices that are linked to the costs and performance of the Sandow 4 unit, which have been generally well below prevailing market prices.

As it turns out, way, way below market price. Alcoa signed up for “first drop” pricing, which means that if the grid gets overloaded, Alcoa’s smelting plant is the first to go off-line. In other words, Alcoa is suing EFH for providing exactly the service they had contracted to provide. Granted, the add-ons to deregulation in Texas have driven energy costs sky-high [fodder for another post; and notice I did not say, "deregulation has driven energy costs"], but these guys haven’t seemed too likely interested in keeping open US facilities, anyway.

Did you notice, at the end of the second quote, way up at the beginning of this post,

Alcoa is talking with the Beijing-based company about “various options for the future,” Alcoa Chief Operating Officer Klaus Kleinfeld said yesterday during a conference call with analysts.

Kleinfeld said the purchase was “an important next step in our relationship. I am confident this investment will reap long-term value for our shareholders.”

Alcoa is flush with the possibilities: “important next step;” “various options for the future;” “long-term value.” I smell something fishy.

My take is this:

1. Alcoa has partnered up with this Beijing-based company to buy out its closest market rival. [But one has to wonder why Alcoa, Big Number 3 on the block, can only go in 12%. Over-leveraged much?]
2. Alcoa and the purchased competitor have a history of shutting down production facilities in North America and moving them elsewhere.
3. Luminant “forces” Alcoa into layoffs in Rockdale because of inconsistent power delivery.
4. Alcoa now has a scapegoat for laying off the workers it had already been planning to lay off.

CONCLUSION:

I believe Alcoa is irresponsible and dangerous. They are looking to cut expenses [nothing wrong with that] taking some of the few manufacturing jobs left in the US and relocating them somewhere they don’t have to support a standard of living they themselves will continue to enjoy [that is pretty despicable]. By discharging its contract as promised, Luminant, at worst, made Alcoa speed up its timeline, and for that (and to hide its own wrongdoing), Alcoa is pushing this obviously frivolous lawsuit, tying up valuable docket space, and wasting your and my tax dollars.

I mean, they want to put people out of work and move productivity somewhere else, I’m not gonna tell them otherwise (tho’ I think that’s always a dumb idea). But at least let’s be honest about giving each other the shaft, can we?

Is That the Best You Can Do?

As I have been reading and studying the Word, I thought maybe it might be a good idea to put my thoughts down. I’m going to shoot for a chapter a day, just a quick overview with some context. And, since I’ve never written down anything but scribbles in the margins, I figured, why not start with Romans, the [Sarcasm Alert!] one book in the Bible that doesn’t really bear on anything.

So, here goes. I’m reading in the English Standard Version, because it’s a literal (word-for-word) translation in more conversational language than many of the extant literal translations. So, crack open your own Bible, or click on the link below and read along! Comments are both encouraged and welcome! (You can find the beginning of this series here)

ROMANS 4

This chapter is key in describing the continuity of God’s plan from the Old Testament through the New. There is no distinction made between Jew and “Greek” here: justification by works is nonexistent; God has always saved according to faith.

²For if Abraham was justified by works, he has something to boast about, but not before God. ³For what does the scripture say? “Abraham believed God, and his faith was counted to him as righteousness. ⁴Now to the one who works, his wages are not counted as a gift but as his due. ⁵And to the one who does not work but trusts him who justifies the ungodly, his faith is counted as righteousness

Paul is attempting to underline the uselessness of our efforts on our own behalf; all the striving to please God that we can muster will never be enough to satisfy our guilt before our Lord and Judge. If the sacrifices, the ways, even the thoughts of the wicked are an abomination to the Lord, how, then do we become righteous in God’s eyes? By justification. How are we justified? By grace, through faith.

⁹Is this blessing then only for the circumcised, or also for the uncircumcised? We say that faith was counted to Abraham as righteousness. ¹⁰How then was it counted to him? Was it before or after he had been circumcised? It was not after, but before he was circumcised. ¹¹He received the sign of circumcision as a seal of the righteousness that he had by faith while he was still uncircumcised.

So what about the Law?  Does it even apply anymore?

[My Lovely Bride and I were talking about this very subject just last night, the relationship between the OT and the NT.  My take on it is this:  If we wish to follow the Law of Moses, we must follow all 600+ components of it.  I don't think there's an exemption for moral law, or another exemption for ceremonial law.  And I don't know how you'd easily pick out which was which; there are all sorts of proscriptions all piled on top of each other.  Keeping the Law means keeping all of the Law; likewise, failing any part of it means violating all of it.  So what use is the OT?  Well, it's certainly good color commentary on our world today.  It reveals to mankind a portion of the character of God.  But where the Law can only show us how far off we really are, grace allows us to bridge the gap.  Thus, the OT should be viewed only through the lens of the NT.]

¹³For the promise to Abraham and his offspring that he would be heir of the world did not come through the law but through the righteousness of faith. ¹⁴For if it is the adherents of the law who are to be the heirs, faith is null and the promise is void. ¹⁵For the law brings wrath, but where there is no law there is no transgression.

Jesus said once said he had come to fulfill, not abolish, the Law.  Other places in scripture talk about breaking the chains of sin, or about not being a slave to the flesh anymore.  And set free from the bonds of sin, where we were shackled under the law, we are now free for the first time in our lives …to not sin.

 ²⁰No distrust made him waver concerning the promise of God, but he grew strong in his faith as he gave glory to God, ²¹fully convinced that God was able to do what he had promised. ²²That is why his faith was “counted to him as righteousness.” ²³But the words “it was counted to him” were not written for his sake alone, ²⁴but for ours also. It will be counted to us who believe in him who raised from the dead Jesus our Lord, ²⁵ who was delivered up for our trespasses and raised for our justification.

God’s grace covers us completely.  We have the ability to screw things up royally on our own.  Nobody knows this better than me.  How much easier would it be for us if we simply followed Abraham’s example and trusted in God to do what He’s told us He’ll do?  I mean, the reference in the above quotes are to the story in Genesis about God telling 100-year-old Abraham and his 90-year-old wife Sarah that they were going to have a son.  And Abraham believed Him, unquestioningly.  Please don’t misunderstand me here; I’m not advocating — and I don’t think God would want — mindless drones buzzing around in His name.  By all means, ask for clarification and reassurance.  Gideon tested God several times, and he had arguably seen an angel face to face!

The thing to remember is:  God’s.  Grace.  Is.  Sufficient.