Thursday, March 21, 2013

Investing In Nothing... In Oregon

SoloPower - another solar panel disaster - is the latest Fed/State/Private Sector partnership to collapse.  This one, right here in Oregon.  The feds guaranteed $197Mil in loans but SoloPower never met the minimum requirements to cash in.  Narrow escape for us, right?  Well, no.

SoloPower (SP) opened last September.  Promised four production lines and "450 well-paid green jobs."  They eventually hired 60 employees but started laying them off in January.  

Now the CEO, chief tech officer and president have left.  SP is selling some of their equipment and trying to "restructure its $197 million federal loan guarantee."  Getting that Fed money, yessiree, that's the answer, according to new management. 

Could happen, the feds won't say what they need to do to get it back but it isn't out of the question.  Should be, but isn't.
"(T)he DOE would not say what the benchmarks are or if the feds will lower the bar in order to help the company survive."
But SoloPower isn't trudging this lonesome road alone.  Oh, no.  SoloPower is headquartered right here in my home state of Oregon.  Oregon is a big supporter of hopeless green ideas like Solopower.  Calls 'em "investments"... of your tax money.  No proof required.  All you have to do is convince some bureaucrats that your idea has legs and... free Mexican food.  In this case, free money.  Your money.  Oregon counties can't afford to staff their own jails but there's free state OreBux if you've got a good sales pitch.

What did SP need to do to get that state money?  They "had to employ 39 people and convince bureaucrats that it would still be in business in five years."  Like I said, a sales pitch.  "Just convince us and do some hiring and the money is yours."  

So they hired the first batch of hopeful employees and they promised to stay in business for five years.  The State of Oregon gave SP $20Mil in salable tax credits last December. 

That was way back, oh, three months ago.  Did SP need those credits?  Probably not so much since start-up companies in competitive industries rarely make any money for years.  Just ask Jeff Bezos.  So what did SP do?  They sold the credits... for $13.5Mil, cash. 

Think about it.  We're out $20Mil (someone's gonna use those credits to offset their tax liability or increase their refund) and the intended beneficiary only got $13.5Mil. 

And what about that 39 jobs part?  They did the hiring and they got the salable tax credits.  In December.  Last December.  90 days or so ago.

And when did they start their initial layoffs?  That was last January, the one that ended 80 days ago.  Got the money one month, fired their employees the next month and never so much as finished their first production line.  I'm not saying that was their business plan all along... OK, I am saying that.  

There's more:  Portland loaned SP another $8Mil cash and fronted some more tax credits, making the total state and local "investment" $58Mil. 

And still more:
"The former mayor of Portland seems to suggest the answer is more help from U.S. taxpayers.
'They survive by downscaling and being responsible with the resources they have,' said Sam Adams, 'by reducing costs and being able to wait out, hopefully, until Congress passes new energy tax credits.'
More tax money, that's the answer says SamA, widely loathed ex-mayor.  What could it hurt?  Except you, of course, and you can't be trusted. 

In the big picture, $58Mil or whatever isn't very much.  But if you steal it, it will be.  If the gummint pisses it away, well, it's just one of those things.  It's hard to get excited about sequester cuts in the increase in spending when the money gummint does get is squandered on stupid sales pitches like SP. 

SoloPower, Solyndra and hundreds of others.  Billions of YourBux.  You didn't earn that. 

Here's a useful rule that I shared with you on June 1, 2009, in GM and Chapter 11:
It's not an investment if you can't sell it.
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"The four most dangerous words in investing are: 'this time it's different.'"
-- Sir John Templeton

Tuesday, March 19, 2013

Taxation and Cyprus... and Russia

"Taxes are the price we pay for a civilized society."  

Justice Oliver Wendall Holmes said that in 1904.  It's over the door to IRS headquarters in DC so it must be true.  

(Full disclosure:  I am a retired IRS tax collector and international tax collection consultant.  This blog began life as "TaxBlog" but that was far too limiting for what I wanted to say.)

I accept the principle that we need to fund our government and taxes are the right way to do it.  Nothing else makes sense, except to anarchists.  I leave to our lawmakers the what and how of taxation.  It is a difficult but necessary job.  It's also a job that no one in Congress is doing these days.  The cries and promises of "tax reform now" go unheard and unfulfilled.

Cyprus had a novel tax idea:  "Let's close the banks and take money out of everyone's savings accounts."  Really, that's what they proposed to do.  Close the banks for a day;  no, make it two days;  no, now it's three.  Create an electronic siphon and funnel between 6.75% and 9.9% out of all savings deposits and into the treasury. The Boss Hog at IMF was all for it.  “Now is the time for the authorities to deliver on what they have commented,” she said. (Thanks, NY Times)

Can you say "bank run?"  Oh, yeah.  It's already happening, as Cypriots are withdrawing money in excess of the anticipated tax via ATMs.
"The governor of the Cypriot central bank, Panicos Demetriades, warned lawmakers on Tuesday that as much as 10 percent of the €65 billion in deposits placed in Cypriot banks would flee the country as soon as banks’ doors open Thursday morning, should Parliament approve the deposit tax." (NYT again)
Did I mention that a whole lotta Russian expat money is on deposit in Cyprus?  
"On Tuesday, Russia’s envoy to the European Union, Vladimir Chizhov, said in Brussels that the levy was “similar to forceful expropriation,” and warned that “the whole banking system can collapse,” Reuters reported." (NYT) 
Didn't the Russians invent "forceful expropriation?  The Russians - and all other depositors -  are Cyprus' neo-kulaks.  Remember them?

Nicosia (the capitol) didn't bother to consider any possible consequences. They  include:
  • Massive social unrest and possible (probable?) rioting
  • Complete loss of public confidence once the banks have re-opened, leading to a run on whatever savings accounts remain
  • Resulting collapse of the banking system - no money to lend = no banking
  • Unwanted foreign profiteering and intervention
  • A new government that at least promises not to steal citizens' money
All this is because Cyprus has spent itself into debt from which it cannot recover.  Ever.  This idea was part of an EU bailout, by the terms of which Nicosia would come up with €6Bil and the EU would lend €9Bil.  Since Nicosia didn't have €6Bil to spare, they had to come up with it somewhere.  Theft under the banner of taxation.

Now the government is trying to wiggle out of their self-inflicted disaster.  "Oh, we didn't meant that, silly Cypriots."  We meant Someone Who Isn't You.  See my  posts HERE and No, Really, You're Gonna to Pay More Tax and Neo-Kulaks and Someone Who Isn't You and Free Mexican Food

As I was writing this, Cyprus' parliament voted the measure down.  They called it a "stability tax."  Thing is, they voted it down after they enacted it.  How does that work in a democracy?

"After midnight, negotiators thought they had a proposal that could work: a one-time “tax” of 12.5 percent on depositors with $130,000 in the bank and milder but still painful cuts of around half that or less for everyday account holders."  (NYT)

Does that sound familiar?  Think "tax the 1-percenters!"  After all, they can afford it... can't they?  Maybe, until they can get the rest of their money outta Dodge.  Or Nicosia.  Now that this has failed in parliament, they're gonna have to re-open the banks sometime.  

Imagine that you had your life savings in a Cypriot savings account.  Would you leave it there and assume this isn't going to happen again?  Not only would I not do that, I would rid myself of euros as much as I could.  Can the EU survive if that becomes widespread?

Who could have seen this coming?  Oh, you?

"The Russians reacted angrily to a so-called stability tax on deposits in Cyprus, and at being left out of the negotiations."  (NYT)  No surprise there.  Anger is the Russian default emotion and their ox is being gored this time.  

Putin has offered The Russian Plan.  It's simple:  Give us your (extensive) oil rights and we'll bail you out.  "And own you forever" goes unsaid. Russia already provides most of Europe's energy.  Why not a little more?  That whole free market thing is such a nuisance.

All EU countries are interlinked.  What happens in each affects the others.  Germany is strong, Spain is a basket case, the north is bailing out the south and so forth.  There's going to be a full-scale world banking crisis if the the euro weakens dramatically as a result of a Cypriot bank industry failure.  Then who's going to bail out the next failure.  Greece, anyone?

The Russian Bear is licking his chops.  I warned of this three years ago, in Katyn, Bishkek and You:
"Russia isn't quiet.  Russia isn't sleeping.  Russia is coming soon to a country near you. "

---  Welcome Swedes!  For some inexplicable reason, I've been getting a number of page views from Sweden.  It feels good.  Keep coming back and please comment as you wish.

* * * * *

When a new source of taxation is found it never means, in practice, that the old source is abandoned.  It merely means that the politicians have two ways of milking the taxpayer where they had one before.
-- H. L. Mencken

Friday, March 15, 2013

The Drone Debate


I admit to being conflicted by the ongoing drone debate.  Do we need them, when, where, who?

And land mines are fearsome things.  The world would be better without them.  Like war.  But when I was in a war I appreciated them.  They protected me from ground attack and that was all I needed to know.  I never thought about the ethics involved until Soviet land mines became controversial during their Afghan invasion.  

Then the repugnant reality of their indiscriminate killing made me stop and reconsider.... and I'm still conflicted.  I understand their need and use to protect troops, as I was once protected.  But the Soviets also dropped and placed little mines that were particularly attractive to little kids, especially little kids who had never seen a toy in their lives.  

That's the Soviet "butterfly mine' up above.  Those make me a little queasy.  The anticipated effect of these small mines was to demoralize the Afghans so much that they would stop fighting.  Victory through grief over dead and maimed children.  The actual effect was to strengthen their resolve, recruit more to their cause and reinforce their pitiless treatment of POWs. 

What are we getting for our drone attacks?  Well, we're killing a lot of al-Qaeda, Taliban and affiliated bad guys.  I'm for that, in general, if that is the purpose of our warBut is it?   

I have completely forgotten the reason for continuing the war and simultaneously planning our exit from it.  How does that work and how do you explain it to the parents of the last soldier killed on the way out?  "Your son died a hero's death in defense of the Karzai opium crop."

When do we use drones to kill people?  Well, that's a hot topic right now.   The CIA won't even admit to the existence of a drone program and the Prez says he has the authority to, you know, kill people.  Says it's in a memo.  Won't show us the memo, though.  It's a secret.  We can't be trusted.  (Could I make this stuff up?)  Showed it to a few congressmen yesterday, after stonewalling for two years.  After all, congressmen can be trusted.  We can't be trusted.

Where are we killing the alleged baddies?  Afghanistan, Pakistan, Iraq, Somalia, Mali, Yemen and God only knows where else.  God and the Prez and John Brennan, and none of them is talking to us.  We can't be trusted.

Who are we killing?  The administration has a curious policy:  "if you're standing near them, you must be a terrorist."  So pretty much anyone we think is a danger to us, whoever "us" is at the moment and what you mean by danger, and whomever is close by - kids, women, grocery clerks, doesn't matter.  No need for a battlefield, formation, weapon, uniform, Congressional oversight or... anything.  It's really none of our business, though.  We can't be trusted.

We have a secret army for secretly killing secret peopleWe say you're on the list, you're goin' down.  Don't piss us off, bearded turban people.  Prez won't tell us who's on the list, who makes the list, why they made it or if it's possible to get off the list once you're on it.  We can't be trusted.

We are killing a lot of civilian non-combatants, but they don't really matter.  Here's the first bit of an anecdote from a CNN story that ran today:
Farmers are on their way to tend their crops when a missile slams into their midst, thrusting shrapnel in all directions.
A CIA drone, flying so high that the farmers can't see it, has killed most of them. None of them were militants.
"Just because I have a beard and wear a turban, does that make me part of the Taliban?" asked Malik Jalaluddin.

CIA director John Brennan has said that only in "exceedingly rare" cases have civilians been "accidentally injured, or worse, killed in these strikes."

John, have you met Malik?

And speaking of the Prez, he said about himself the other day, in reference to the non-transparency of the drone program:
"This is not Dick Cheney we're talking about here"
 Translation:  "It's Bush's fault."

"The president noted that he would have 'probably objected' over the White House’s handling of this issue if he were still a senator, they said. But, according to the sources, he noted his viewpoint changed now that he occupies the Oval Office — not a room in a Senate office building." (Credit Politico for both quotes.)
 So where are your principles, Prez?  Looks like you were against drones before you were for them.  Our current SecState used that line about the Iraq War once.  What it means is that political expediency is the only thing that matters in DC.  But they want us to trust them anyway.  To quote the Prez, "Hey, I won."

Makes you miss Dick Cheney, doesn't it?

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There is no instance of a nation benefiting from prolonged warfare.
-- Sun Tzu