The Wall Street Journal had an article on July 17-18 titled "Roads to Ruin: Towns Rip Up the Pavement."
The story highlights the practice of converting paved roads to gravel instead of repaving them in order to save money.
This is yet another example of our (national) inability to maintain our infrastructure.
I believe that the current state of our national infrastructure represents a "silent crisis." It is not one which receives a lot of press or attention, yet is very significant for a variety of reasons.
Apart from the obvious risks posed to citizens from decrepit, crumbling infrastructure there are other broader issues. The longer one waits to fix the existing infrastructure, the higher the cost. Needless to say, at this time there is not trillions of dollars available to make the needed repairs. As such, one is led to wonder when such repairs will be made. Even if the trillions of dollars needed were suddenly available, such repairs can't be made in a short time period due to a variety of factors.
Of course, it is easy to let such repairs "slide", since the costs are high and few currently seem concerned about the issue.
The state of the infrastructure can also be examined from an economic standpoint. I view the deteriorating infrastructure as being both a symptom of as well as a contributor to the "economic brownfield" condition that I described in the article "America's Economic Future - 'Greenfield' or 'Brownfield'?"
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SPX at 1093.67 as this post is written
Showing posts with label economic brownfield. Show all posts
Showing posts with label economic brownfield. Show all posts
Thursday, July 22, 2010
Monday, June 7, 2010
Economic Impact Of Policies
On May 18 The Wall Street Journal had an article on a new lead-paint law titled "New Lead-Paint Law Heavy on Budgets."
This law serves as a good example of an important issue I wrote of in my May 2009 article "America's Economic Future - 'Greenfield' or 'Brownfield'?"
In that article I wrote of the need for policies to be thoroughly assessed with regard to overall economic impact, compared with whatever "societal good" the policy purports to accomplish.
A thorough discussion of the benefits and costs of this new lead-paint law would be exceedingly lengthy and complex. However, I believe that this lead-paint law, if thoroughly analyzed from an "all things considered" standpoint - taking into account both "societal good" as well as economic impacts - would be found to be (far) suboptimal in many respects. Of particular concern is that this is yet another law that disproportionately (negatively) impacts small businesses.
While one may dismiss this new law as one that is limited in nature and thus relatively insignificant, it is important to note that it is just one example among many in which inadequate overall analysis was conducted. Cumulatively, these poorly analyzed policies are very significant in determining whether America's economic future will be that of a "greenfield" or "brownfield."
back to home
SPX at 1064.88 as this post is written
This law serves as a good example of an important issue I wrote of in my May 2009 article "America's Economic Future - 'Greenfield' or 'Brownfield'?"
In that article I wrote of the need for policies to be thoroughly assessed with regard to overall economic impact, compared with whatever "societal good" the policy purports to accomplish.
A thorough discussion of the benefits and costs of this new lead-paint law would be exceedingly lengthy and complex. However, I believe that this lead-paint law, if thoroughly analyzed from an "all things considered" standpoint - taking into account both "societal good" as well as economic impacts - would be found to be (far) suboptimal in many respects. Of particular concern is that this is yet another law that disproportionately (negatively) impacts small businesses.
While one may dismiss this new law as one that is limited in nature and thus relatively insignificant, it is important to note that it is just one example among many in which inadequate overall analysis was conducted. Cumulatively, these poorly analyzed policies are very significant in determining whether America's economic future will be that of a "greenfield" or "brownfield."
back to home
SPX at 1064.88 as this post is written
Wednesday, July 22, 2009
Tax Breaks And The Economic Greenfield vs. Economic Brownfield Concept
Here is a recent story from BusinessWeek, "Will Tax Breaks Boost Jobs?"
http://www.businessweek.com/magazine/content/09_28/b4139000570651.htm
As seen in my article (with italics added for emphasis) "America's Economic Future - 'Greenfield' or 'Brownfield' ?" (found here):
http://sites.google.com/site/prosperitybypen/articles-1/america-s-economic-future---greenfield-or-brownfield-
"One way to determine whether an economic "greenfield" environment exists is whether businesses are thriving and multiplying naturally – with an indicator being that they are choosing and wanting to locate their operations and sales territories in a specific location without needing to be artificially induced to do so through various incentives or coercions. However, this indicator has to be viewed in the overall economic context, as there may be circumstances that can serve to override casual observations."
____
One of the reasons I started this blog is because I felt that this economic 'greenfield' vs. 'brownfield' concept is not understood; yet has massive implications for our economic future.
As seen in the BusinessWeek article, that states and regions have to engage in bidding wars to attract and/or retain businesses (and jobs) is likely a "red flag." While it is easy to dismiss these "bidding wars" as "the way things are," perhaps the critical question, in the larger context, becomes "Is this the way things should be?"
SPX at 953.18 as this post is written
http://www.businessweek.com/magazine/content/09_28/b4139000570651.htm
As seen in my article (with italics added for emphasis) "America's Economic Future - 'Greenfield' or 'Brownfield' ?" (found here):
http://sites.google.com/site/prosperitybypen/articles-1/america-s-economic-future---greenfield-or-brownfield-
"One way to determine whether an economic "greenfield" environment exists is whether businesses are thriving and multiplying naturally – with an indicator being that they are choosing and wanting to locate their operations and sales territories in a specific location without needing to be artificially induced to do so through various incentives or coercions. However, this indicator has to be viewed in the overall economic context, as there may be circumstances that can serve to override casual observations."
____
One of the reasons I started this blog is because I felt that this economic 'greenfield' vs. 'brownfield' concept is not understood; yet has massive implications for our economic future.
As seen in the BusinessWeek article, that states and regions have to engage in bidding wars to attract and/or retain businesses (and jobs) is likely a "red flag." While it is easy to dismiss these "bidding wars" as "the way things are," perhaps the critical question, in the larger context, becomes "Is this the way things should be?"
SPX at 953.18 as this post is written
Tuesday, June 30, 2009
The Global Economic Future
The Global Economic Future
Sunday, June 21st, 2009
One of the questions I received when I first started this blog is why I didn’t choose to discuss the global economic future, as opposed to America’s Economic Future.
This is a good question. In essence, I do believe its focus is on the global economic future, as not only is the United States (obviously) the largest economy, but its economy and its characteristics are so pivotal to those of the rest of the world. Perhaps as importantly, the United States seems to have attained global leadership with regard to how to best ”manage” an economy, as well as how to “fix” The Economic Crisis. It is evident that many global economies, especially the more developed ones, have adopted (to varying degrees) the same philosophies and actions that the United States has as far as overcoming The Economic Crisis.
As such, I believe an economic discussion that focuses on the United States can in many ways be extended to other countries as well. The main issues of this blog, such as Sustainable Prosperity, Economic Greenfield vs. Economic Brownfield, etc. are certainly pertinent and applicable to countries and regions worldwide.
SPX at 921.23 as this post is written
Sunday, June 21st, 2009
One of the questions I received when I first started this blog is why I didn’t choose to discuss the global economic future, as opposed to America’s Economic Future.
This is a good question. In essence, I do believe its focus is on the global economic future, as not only is the United States (obviously) the largest economy, but its economy and its characteristics are so pivotal to those of the rest of the world. Perhaps as importantly, the United States seems to have attained global leadership with regard to how to best ”manage” an economy, as well as how to “fix” The Economic Crisis. It is evident that many global economies, especially the more developed ones, have adopted (to varying degrees) the same philosophies and actions that the United States has as far as overcoming The Economic Crisis.
As such, I believe an economic discussion that focuses on the United States can in many ways be extended to other countries as well. The main issues of this blog, such as Sustainable Prosperity, Economic Greenfield vs. Economic Brownfield, etc. are certainly pertinent and applicable to countries and regions worldwide.
SPX at 921.23 as this post is written
An Economic Brownfield Facet
An Economic Brownfield Facet
Thursday, June 11th, 2009
I am posting a letter from Guy Haselmann, as I believe it is very well-written and illustrates how actions can promote an Economic Brownfield environment. My comments will follow the letter:
__
To the Editor, May 6, 2009
The Obama administration is creating the next future crisis. Their handling of the Chrysler situation is irresponsible, injudicious, and will have monstrous ramifications. The President libelously scolded investment managers who owned Chrysler bonds for not taking the government’s “deal”. Some fund managers have even gotten death threats. Obama said the managers should “sacrifice like everyone else” and be “patriotic”. Personally, I find this outrageous. Let me explain.
A buyer of a corporate bond is really just a lender of money to the company, who in return for his money receives a “fair” interest rate from the company. Bonds are safer than stocks, and therefore lower yielding, because if the company runs into problems the bond holder gets paid back first. All investors understand that there is a clearly identifiable capital structure which dictates an investor’s priority position to getting paid back.
Anyone who lends money expects to be paid back. But, realizing there is the chance of default, a lender charges a certain interest rate that, in theory, compensates for the risk. In a corporate bankruptcy, there are often plenty of assets left that can be sold to pay back lenders (bond holders) in the order of their capital position, so while the common stock maybe worthless bondholders typically get some money back.
Investors, such as hedge fund and pension managers, bought Chrysler Bonds on behalf of their clients. Every investment manager has a fiduciary responsibility to protect and invest their client’s money to the best of their ability. The hedge fund manager did not accept the administration’s “deal”, plain and simply, because it was unfair, as they could have received much more in bankruptcy court.
Obama abused his power. He had no right to “steal” money from bondholders, and in turn, give it to the labor unions and then call the managers selfish. From what I have seen, hedge fund managers are typically some of the most philanthropic people in society. If you gave your money to a financial advisor, and rather than preserving your capital in a time of crisis, the advisor decided to “be patriotic” by giving it to a labor union, how would you feel? Would you be angry?
The Bush administration did something similar by stripping away the assets assigned to the senior secured bond holders of Washington Mutual, and then giving those assets to J.P. Morgan to help facilitate their takeover of the company. This horrendous decision served to exacerbate the financial turbulence last September. The decision turned the capital structure upside down, i.e., the common stock maintained value, while the senior most lenders were wiped-out. It resulted in a chaotic and broken financial market place.
Most market pundits blame the failure of Lehman brothers as the tipping point of market upheaval. I believe that the ignoring of Delaware corporate law and the decimation of the priority of the capital stack was the true catalyst which destroyed market liquidity, accelerated selling pressures, and made the rules of investing too unpredictable for rational investors.
The precedent being set by government will have unintended consequences and serve to change the behavior of bond investors going forward and ultimately cause a crisis of significant proportion. You see, trillions of dollars of corporate, municipal and sovereign debt will mature and need to be rolled-over (re-issued) in the next several years. By changing the rules of investing and instilling questions as to the true state of the hierarchy of the capital structure pay back, investors will forever price risks differently. Rather than demanding, say, a 6% yield for a corporate bond, an investor may now demand 16%. Such a re-pricing will make debt servicing prohibitively too expensive for many businesses to raise capital and consequently have a deep negative effect on the broader economy. Unfortunately, those most in need of funds will be unable obtain them.
The ultimate result of the Chrysler mess will mean bankruptcy for many smaller businesses, an economy that cannot grow as fast as desired, and a less efficient capital market and one which has wider spreads between borrowers of different credit quality. Any person or company without impeccable credit will now find it difficult to find a loan at a reasonable rate. And tragically, if foreign investors start to question the depth and safety of our capital markets, September 2008 will look like a mere hiccup.
Guy Haselmann, CAIA
Principal, Gregoire Capital LLC
http://www.thealternativepress.com/letters.asp?ID=207
__
My comments:
This letter illustrates how actions and policy decisions can create an Economic Brownfield. Our economy has been dependent upon cheap and plentiful credit for years; and with the onset of The Financial Crisis, this need has only grown more acute. Actions (both already taken as well as contemplated) that restrict credit and/or make it more expensive will make an environment that makes it harder for businesses to exist and prosper.
During times of stress, like those presently encountered, it is easier to lose track of the “bigger picture,” i.e. what type of environment (Economic Greenfield v. Economic Brownfield) is being promoted by various decisions.
__
As background on the Economic Greenfield v Economic Brownfield topic, here is my “America’s Economic Future – ‘Greenfield’ or ‘Brownfield’?” article.
SPX at 944.96 as this post is written
Thursday, June 11th, 2009
I am posting a letter from Guy Haselmann, as I believe it is very well-written and illustrates how actions can promote an Economic Brownfield environment. My comments will follow the letter:
__
To the Editor, May 6, 2009
The Obama administration is creating the next future crisis. Their handling of the Chrysler situation is irresponsible, injudicious, and will have monstrous ramifications. The President libelously scolded investment managers who owned Chrysler bonds for not taking the government’s “deal”. Some fund managers have even gotten death threats. Obama said the managers should “sacrifice like everyone else” and be “patriotic”. Personally, I find this outrageous. Let me explain.
A buyer of a corporate bond is really just a lender of money to the company, who in return for his money receives a “fair” interest rate from the company. Bonds are safer than stocks, and therefore lower yielding, because if the company runs into problems the bond holder gets paid back first. All investors understand that there is a clearly identifiable capital structure which dictates an investor’s priority position to getting paid back.
Anyone who lends money expects to be paid back. But, realizing there is the chance of default, a lender charges a certain interest rate that, in theory, compensates for the risk. In a corporate bankruptcy, there are often plenty of assets left that can be sold to pay back lenders (bond holders) in the order of their capital position, so while the common stock maybe worthless bondholders typically get some money back.
Investors, such as hedge fund and pension managers, bought Chrysler Bonds on behalf of their clients. Every investment manager has a fiduciary responsibility to protect and invest their client’s money to the best of their ability. The hedge fund manager did not accept the administration’s “deal”, plain and simply, because it was unfair, as they could have received much more in bankruptcy court.
Obama abused his power. He had no right to “steal” money from bondholders, and in turn, give it to the labor unions and then call the managers selfish. From what I have seen, hedge fund managers are typically some of the most philanthropic people in society. If you gave your money to a financial advisor, and rather than preserving your capital in a time of crisis, the advisor decided to “be patriotic” by giving it to a labor union, how would you feel? Would you be angry?
The Bush administration did something similar by stripping away the assets assigned to the senior secured bond holders of Washington Mutual, and then giving those assets to J.P. Morgan to help facilitate their takeover of the company. This horrendous decision served to exacerbate the financial turbulence last September. The decision turned the capital structure upside down, i.e., the common stock maintained value, while the senior most lenders were wiped-out. It resulted in a chaotic and broken financial market place.
Most market pundits blame the failure of Lehman brothers as the tipping point of market upheaval. I believe that the ignoring of Delaware corporate law and the decimation of the priority of the capital stack was the true catalyst which destroyed market liquidity, accelerated selling pressures, and made the rules of investing too unpredictable for rational investors.
The precedent being set by government will have unintended consequences and serve to change the behavior of bond investors going forward and ultimately cause a crisis of significant proportion. You see, trillions of dollars of corporate, municipal and sovereign debt will mature and need to be rolled-over (re-issued) in the next several years. By changing the rules of investing and instilling questions as to the true state of the hierarchy of the capital structure pay back, investors will forever price risks differently. Rather than demanding, say, a 6% yield for a corporate bond, an investor may now demand 16%. Such a re-pricing will make debt servicing prohibitively too expensive for many businesses to raise capital and consequently have a deep negative effect on the broader economy. Unfortunately, those most in need of funds will be unable obtain them.
The ultimate result of the Chrysler mess will mean bankruptcy for many smaller businesses, an economy that cannot grow as fast as desired, and a less efficient capital market and one which has wider spreads between borrowers of different credit quality. Any person or company without impeccable credit will now find it difficult to find a loan at a reasonable rate. And tragically, if foreign investors start to question the depth and safety of our capital markets, September 2008 will look like a mere hiccup.
Guy Haselmann, CAIA
Principal, Gregoire Capital LLC
http://www.thealternativepress.com/letters.asp?ID=207
__
My comments:
This letter illustrates how actions and policy decisions can create an Economic Brownfield. Our economy has been dependent upon cheap and plentiful credit for years; and with the onset of The Financial Crisis, this need has only grown more acute. Actions (both already taken as well as contemplated) that restrict credit and/or make it more expensive will make an environment that makes it harder for businesses to exist and prosper.
During times of stress, like those presently encountered, it is easier to lose track of the “bigger picture,” i.e. what type of environment (Economic Greenfield v. Economic Brownfield) is being promoted by various decisions.
__
As background on the Economic Greenfield v Economic Brownfield topic, here is my “America’s Economic Future – ‘Greenfield’ or ‘Brownfield’?” article.
SPX at 944.96 as this post is written
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