Isaac Laquedem

The money traders give Isaac a bill of good health

Back on September 19, I noted that at the rate that American banks are failing, I had a greater chance of surviving to December 31 than a bank picked at random.  On Wednesday, November 25, Dubai announced that it would ask its creditors to defer being repaid, which brought to mind another comparison to the Laquedem blood pressure and cholesterol count.  But first, a little background.

Dubai is a sovereign state, one of the oil-rich United Arab Emirates adjacent to Saudi Arabia, which in recent years went on a borrowing and spending spree similar to those indulged in by winners of the lottery. The most prominent example is the palm island, pictured here, expensively constructed by a subsidiary of Dubai World. a series of artificial islands built in the gulf.  Others in the series include a map of the world, and a stylized crescent.

What do you do if you lend money to a sovereign and it doesn't want to repay it?  Mostly, you suffer patiently; it's hard to collect from a sovereign on its own debt.  You can, however, insure against the risk that the government won't pay its debts on time.  According to a weekend Wall Street Journal article, which got its information from Barclays Capital, on November 20 it cost about $20,000/year to insure $10 million of United States government debt against default for one year.  Put in more familiar terms, that's odds of about 500 to 1 against the United States defaulting on its debt over a period of one year.  You can insure against other nations defaulting on their debt: as of November 20, the market odds for Britain were 140 to 1, for Mexico were 66 to 1, for Russia were 50 to 1, and for Dubai were 32 to 1, meaning that for $310,000, you could buy one year of insurance against Dubai defaulting on $10 million of its debt.

What a difference one announcement makes!  After Dubai dropped its bombshell on the credit markets, the premiums for its debt skyrocketed to $675,000 for one year, corresponding to odds of 14 to 1 (or 1 in 15) of Dubai defaulting on its debt in the next year.  Premiums for the sovereign debt of other countries such as Bulgaria, Hungary, and Russia bumped up a bit.  Premiums for Abu Dhabi's debt nearly doubled; oddly, so did premiums for United States debt, suggesting that the credit market mavens believe that Dubai's troubles aren't good news for the United States Treasury.

By contrast, the Loyal Insurer of the Laquedem Household is willing to bet roughly 300 to 1 that I'll produce CO₂ for another 12 months, roughly the same odds that the credit market is now giving the United States Treasury of not defaulting on its debt during the same period.  So if anyone should ask about my health, I'm delighted to say that in the opinion of the world's bankers, I'm sound as the dollar, thank you.

The leading purpose of the federal economic stimulus contracts is . . . Hanford?

Today's Whimperer carried a chart of  figures, taken from www.recovery.gov (the federal government's website that tracks where the federal economic stimulus money is going), showing where the economic stimulus dollars have gone so far.  About 1.13% of the money dispensed so far has gone to Oregon.  This is $1.8 billion, of which $1.7 billion was grants, $122 million was contracts, and $27 million was loans.  The table also showed how many jobs were created by the money in each category.  In Oregon, each job created by grants cost $187,000; each job created by contracts cost $224,000; each job created by loans cost $3.8 million.  It's reasonable enough that contracting jobs cost more, because contracts typically involve purchasing materials as well as labor. It's reasonable also that the loan jobs cost much more, because the borrower is supposed to pay the money back with interest.

I noted two oddities: as I said, Oregon jobs created by grants cost $187,000 per job; the national average was $230,000 per job, or about 20% more than Oregon's average.  We may have lower labor costs than the average grant recipient (California, a high-cost state, got more than its proportionate share of the loot).  Oddly, the national average for contract jobs is $582,000, more than 2-1/2 times the cost of Oregon's contract jobs.

How can this be?

I think I have the answer, which I gleaned from digging around the government's website.  It lists the top ten contracts, the top ten grants, and the top ten loans.  The largest contract to date -- $1.4 billion -- went to a coompany that's decommissioning two federally-owned nuclear reactors and cleaning up the contamination at the Savannah River nuclear facility, owned by the Department of Energy.  The second-, third-, sixth-, and ninth-largest contracts, totaling $2.35 billion, are also to clean up the government's radioactive messes. (Nos. 2, 6, and 9 are for Hanford.) That's $3.75 billion out of the $18 billion contracted so far, or more than a fifth of the contract dollars.  The labor for these dangerous projects is likely high-cost.

I'm delighted to see the government pick up after itself; however, I can't help thinking that a significant chunk of the funds being classified as stimulus funds are for projects such as these that the federal government would be doing anyway.

Isaac saves money on his mortgage, and the bank does also

Grandfather and Grandmother Farmer's last home mortgage, something they took out in the late 1950s and paid off in 1975, was at 4-3/4%, fixed for 20 years.  I equalled that in 2004, but with a 5/1 adjustable loan, not a fixed-rate loan.

Last week came the bank's letter with the first adjustment.  I opened it with all the enthusiasm that my friends applied to unsealing their letters from the Selective Service Administration during the Vietnam War.

To my surprise, my rate is going down, to 3-1/2%.  I don't know how my lender can make a profit at this rate, but my lender doesn't care; it's undoubtedly packaged this loan and many others into mortgage-backed securities, sold its interest, and recouped its capital with a profit, and now acts merely as a servicer.

Even now, several days later, I still beam when I read the letter, much as I do when I reread Mrs. Laquedem's first letters to me.  I'm tempted to frame the bank's letter, but it's printed on very cheap paper.  At 3-1/2% I shouldn't expect anything finer; but if next year my rate jumps into the sixes, I'd like the notice to come on cotton bond, with some gilt if the rate's seven percent or higher.

"Seven at one blow!" Grimm news from the FDIC

Thus does the Federal Deposit Insurance Corporation (FDIC) emulate the Grimm tale about the gallant tailor who killed seven flies with one blow and embroidered a boast on his belt.  The FDIC closed seven banks on Friday, October 23, which for those familiar with the stories of the Brothers Grimm gives a new and playful meaning to the phrase "they're dropping like flies."

The Laquedem Made In Oregon Landmark Sign and Lottery Plan

I don't remember when the "Made In Oregon" sign in downtown Portland advertised White Satin Sugar (here's an image of it that the University of Oregon found), but it was then a plain outline of the state with a White Satin logo in the center.  The building beneath later became the property of Hirsch-Weis Co., an old-line manufacturer of work clothing and ship sails that started a line of skiwear in 1930, which it called "White Stag," the translation of the company's name.  Under the leadership of Harold S. Hirsch (1907-1990), a jovial Oregonian who brought back the idea from his years on the Dartmouth ski team in the 1920s, the White Stag line of skiwear grew to be the largest part of the company.  The company changed its name to White Stag in 1956.  When it bought the building, it added a white stag to the sign (it's still there today) and changed the text to read "White Stag," in the font that it used to label its clothing.  Here are photos of the White Stag sign and the sign as it is now.

After White Stag was sold to a conglomerate, the building became the property of the Naito family, owners of the Made in Oregon retail stores, who changed the sign text to "Made In Oregon" and the footer from "Sportswear" to "Old Town."  The University of Oregon now owns the building.  It very reasonably doesn't want to pay to advertise the Naitos' stores, and wants to put its own text on the sign.  The hitch is that the sign is a designated landmark, and can't be changed without the City's approval.  The City won't approve.  The University also doesn't want to pay the cost of lighting the sign unless the sign advertises the university, so it's gone dark.

Ramsay Signs, the company that owns the sign itself, proposes to solve the conundrum by taking the sign down.  That would be a shame.  That, combined with the City's reputation for being anti-business (something that part of the city council would like to change), led me to the Laquedem Made In Oregon Landmark Sign and Lottery Plan.

I recall reading that the sign costs about $20,000/year to maintain.  I don't know what it costs to light it up, so I'll guess that it's another $20,000.  That's $40,000/year.  Let's imagine that ten civic-minded businesses with significant operations in Portland would each pay $5,000 toward the cost to maintain and light the sign, and commit to do that for ten years -- or just pay $50,000 each up front.  That covers the cost to maintain and light the sign for ten years.

Each year, a lottery selects one of the businesses to be on the sign for the year.  At the end of 10 years, each business has had one year of being the icon in front of downtown Portland, inexpensive publicity for the $50,000 it would cost.  A plaque near the building would honor all ten donors.  The surplus covers the cost to rework the sign each year with the name of the lucky winner.  The City's part is to approve all ten designs at once through design review, so that the civic-minded businesses don't have to slog through Portland's land use process every year simply to update the sign.

Not every business would be able to buy a Laquedem Light-It-Up Lottery ticket.  To qualify, a business must have its headquarters within the City of Portland, be a for-profit enterprise (this prevents Duck boosters from buying all ten tickets), and employ at least X people within the city limits (perhaps 50).  If the tickets could be sold for more than $5000/year, some of the surplus would go to the University of Oregon for tolerating the sign on its rooftop.  If the tickets sell for less, the City would kick in the deficit and proudly point to its subsidy as evidence that it's open for business.

One variation on this would be for the City to pay the cost of the sign, and offer it free of charge for one year to any business that moves its head office to Portland with at least 100 workers, or opens a factory or office in Portland with at least 100 workers, as a sort of thank you for coming to Portland.  In years without new businesses, the City could draw lots and give the year's worth of advertising to an existing business that's been here for X years or more.  That's promoting business, in grand style.

Metro and the convention center people could learn from Western Airlines

Once upon a time the federal government regulated the price of air travel.  Airlines had to file their rates with the Civil Aeronautics Board and show that their proposed fares were high enough to earn a profit.  It was hard to lose money in the airline business, because there was little price competition.  Airlines could, however, compete on schedule, service, and comfort.

Western Airlines, a carrier based in Los Angeles with the cheerful slogan "The o-o-o-only way to fly!", tested the limits of CAB regulation by offering free champagne to every adult passenger, differentiating itself from its competitors and elevating its image to the traveling public.  Its competitors complained, but they quickly figured out that although they couldn't compete on price (the CAB did not start to lose its ratemaking authority until 1978), they could compete on freebies.  Soon everyone was offering something extra: alcohol, playing cards, maps, junior pilot wings, and so on.

Western's champagne came to mind today when I read something about the ongoing battle over whether the public should subsidize a hotel across the street from the convention center.  The argument went like this: we needed to expand the convention center because other cities were expanding their convention centers.  We need a headquarters hotel because other cities have headquarters hotels.  We need X because other cities are building X. 

The result is that after all the cities have expanded their convention centers and built headquarters hotels, they are all in the same place, relative to each other, as they were to begin with.  It's a zero-sum game.  Building more hotels in 200 convention destinations doesn't create more conventions, and it shuffles them only slightly from city to city.  Like Western and the champagne, if one offers it, then the others have to offer something to, resulting in everyone spending more money but no one getting more business.

Here's a method of analysis I'd suggest to the convention center boosters:  Identify the 100 most significant convention cities in the United States.  Rank Portland as honestly as possible on that list.  Now assume that Portland has a convention center hotel of 600 rooms.  How many places up the list does Portland move?  If the answer is smaller than 10, then the hotel will be a waste of the public's money.

$2000 for a dog, but no money for the bank

Back on June 22, I wrote that if I had pleaded guilty to a mail fraud in a case that cost investors $355 million, I'd be embarrassed to have the Wall Street Journal report that my family spent $2000 to buy a dog.  I'd be even more embarrassed if it were reported (as the Oregonian did on Saturday) that although we could spend $2000 to buy a dog with a pedigree, we were now 10 months behind on our mortgage payments for our house in Green Hills.  Admittedly, those mortgage payments are $33,000 a month, so the dog (a purebred something-fancy-or-other) cost only about two days' worth of that family's mortgage payments.  The one pet I have was free, a gift from Youngest Sister, but then my mortgage payments aren't anywhere near $33,000 a month either, and I'm current.

It's embarrassing to disclose that I have nothing to disclose

The Federal Trade Commission is requiring bloggers to disclose when businesses give them cash or free goods to review their products. 

As a conservative capitalist, I'm abashed to say that in five years of blogging, all I've received free as a result was an invitation to the Sam Adams beer party put on by Mark and Dave when Sam Adams (the brewer) was complaining about their acquisition of a website name for Sam Adams (the politician).  I need to try harder.

Perhaps, as I drive home tonight in my new and luxurious (this space available) car, effortlessly financed through (this space available) Bank, and enjoy a glass of Oregon's best pinot noir from (this space available) Winery, I'll think of something.

I'm healthier than the average bank, not that this fact makes me feel any better

In a gloomy mood yesterday, I looked up the mortality rate for American men of my age. I then saw that two more banks failed yesterday, bringing the year's total to 93.

Based on the CSO mortality table, and on the current rate of bank failures, I have a better chance of surviving to December 31 than my bank does. 

My estimate of the odds has nothing to do with the actual condition of my bank, which I think is good; I hope it is, for I own some of its shares that would become worthless if the bank were taken from us.  On the other hand, the bank holds some of my paper, which wouldn't be worth much if I were similarly taken.  So it's a standoff: I'll agree to watch my cholesterol intake if it agrees to watch its other borrowers.

On Fridays, the FDIC does election night one better

I know it's ghoulish of me, but in the way that other people watch the early returns come in on Election Day, every now and then, on Friday afternoons, I watch the FDIC site to see which banks have been taken over.