FT118: ” It’s better to have rich investors risk their wealth than having the government risk our taxes.” -Old Pithy

Posted by PITHOCRATES - May 18th, 2012

Fundamental Truth

It wasn’t the Private Investors who lost Half a Billion Dollars on Solyndra

It takes money to create jobs.  Some conveniently forget this fact when the politicians want to take money away from rich people who got rich by creating jobs.  But the politicians always remember this fact when they want to ‘invest’ our tax money into projects to create jobs.  When they want to spend our taxes they then fully understand the concept that it takes money to create jobs.  Funny how that works.

Also funny is that the projects the politicians want to invest in are not projects the rich investors want to invest in.  Because it’s their wealth they’re risking they are a little choosier in deciding where to invest it.  So they don’t invest in these losers the politicians champion.  For even though these politicians are Ivy League graduates who are smarter than everyone else they only like to risk other people’s money.  Unless they have inside information.  Such as pending legislation that will affect the market.  Then they’ll invest their own money.  But that’s the only time.  For as smart as these Ivy League graduates are they have little understanding of free market capitalism.  Or what it takes to be an entrepreneur.  And have no idea how to evaluate an investment opportunity without having inside information.

Still, politicians are so arrogant to believe that they are smarter than the market.  And that if they ‘wisely’ invest our tax money that they can do a better job than those who risk their own money.  People the politicians believe aren’t smart enough to make the best and wisest investments.  Despite their having gotten rich doing just that.  Making wise investments.  For example, it wasn’t the private investors who lost half a billion dollars on Solyndra.  For they saw the only thing keeping the solar industry afloat were government subsidies.  And any industry that requires government subsidies is not likely ever to earn a profit.  So they said ‘no’ to Solyndra and put their money in what they deemed wiser investments.  While the government invested in Solyndra.  Because they saw that as the ‘wiser’ investment.  Only to lose a half a billion of our tax dollars in the process.  Yup.  When it comes to making smart investments the politicians are regular ‘geniuses’.  And by that I mean they are actually the opposite of geniuses.  I was using sarcasm.

Politicians lose Hundreds of Billions of our Tax Dollars in Investment after Investment because they Care 

So the politicians are worse than the worst rank amateur investor.  We know it.  They know it.  At least they should know it what with their perfect record of failure.  So why do they do it?  Why do they continually take money away from the people who know how to better invest that money so they can make some of the worst investments of all time?  That’s a good question.  And we really need to think about it. 

To figure this out think about this one word.  Elections.  That’s the key.  You see, a majority of people wouldn’t vote for these politicians.  Because they want to spend our money.  They want to raise our taxes.  So they can spend it on more Solyndras.  How does that help them?  Here’s how.  People at these companies who receive this federal money are very grateful.  And to show their gratitude they make campaign contributions.  Often with some of the very money they received from the government.  Part of that ‘wise’ investment to create the ‘smart jobs’ of the future.  And why not?  There’ll be a little left over after paying some generous executive salaries and bonuses.  Why not give a little back to the people that made all of that possible?  Make a nice campaign contribution to help the politicians convince the people that they are smart and wise and deserve to win the next election.  So they can spend more of the people’s taxes.  Into other wise investments.  Like Solyndra. 

You just need one thing to make this all possible.  A bad investment.  An investment so bad that no rich people will risk their own money.  Because they know what a loser the investment is.  It has to be that bad.  So someone in the government can say rich people are evil and selfish.  That they only care about turning a profit.  That they are not interested in the jobs of the future.  Or high paying jobs with good benefits for the working man.  Like the politicians do.  They care about the people.  Instead of turning a profit.  And are willing to invest taxpayer money in the poorest of investments.  And lose hundreds of billions of our tax dollars in investment after investment.  Because they care.  More for their own self-interests but they care.  Unlike those evil rich people.  Who refuse to waste valuable investment capital.  And won’t let the people they’ve loaned it to waste it either.  Because they only care about the money.  Unlike our government.  Who has no problem throwing away trillions of our tax dollars.

Investors Invest Responsibly and know how to Pick a Winner that will Create Jobs 

Rich investors take risks when they invest their own money.  So they are very careful in how they invest it.  And when they invest it they are very interested in how that money is used.  They don’t need any oversight committees or legislation.  Because they are no one’s fool.  They are not rank amateurs.  And they appreciate the value of hard-earned money.  They have a vested interest to make sure that money is used in the most efficient manner possible.  Because it’s their money.  And they care.

Politicians invest taxpayer money.  They have no vested interest.  So they don’t care.  When they run out of money from all of their bad investments they don’t suffer any consequences.  All they do is malign rich people again to foster a little class warfare to make raising taxes on the ‘evil rich’ easier.  Then they keep on making bad investments.  Mostly to their political cronies.  Who will return some of that public money back to them in the form of a campaign contribution.

That’s why it’s better to have rich investors risk their wealth than having the government risk our taxes.  Investors will invest responsibly.  The politicians will not.  And the investors know how to pick a winner that will create jobs.  The politicians do not.  The only way they know how to make money is with inside information.  Or skimming a little off the top of the public purse.  Which is the only way to explain investments like Solyndra.  It’s either that or our politicians are just really stupid. 

What a choice.  Corrupt or stupid.  Or is it even worse?  Are they corrupt AND stupid?  If so it sure would help explain a lot.

www.PITHOCRATES.com

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Using the Myth of Man-Made Global Warming to Acquire Money and Power

Posted by PITHOCRATES - August 31st, 2011

A Company needs Government Help when they can’t Compete in the Market Place

The new green energy sector was going to make America energy independent.  And create jobs.  Good, high-tech jobs.  Building high-tech, expensive things.  Things we could charge lots of money for.  So we could pay high wages to all those new green energy workers.  And the Obama administration helped.  Poured federal money into green startups.  That are now failing left and right (see What went wrong at Solyndra by Barry Cinnamon posted 8/31/2011 on CNNMoney).

Chinese solar panels are 10-20% less expensive than U.S.-made panels; but by some estimates, Solyndra’s panels were 100% more…

For five years or more, the U.S. government was providing support for solar manufacturing in the U.S.  The DOE Loan Guarantee program provided critical funding for Solyndra’s manufacturing growth, supported by over $1b in private capital. Unfortunately, both these private investors and the DOE made a couple of bets on Solyndra that didn’t pan out.

A company needs government help when they can’t compete in the market place.  So they can continue to build a more costly and/or a more inferior product.  And even when they get that help they still can’t compete.  Which just means this was a bad investment from the get-go.  Only getting as far as it did because of government help.  Which was tax money poorly spent.

So why did they fail?  A couple of bad decisions by their CEO.

The first bad bet was that refined silicon, the feedstock for the solar panel industry, would stay expensive. Solyndra invented a solar panel that didn’t use expensive silicon. Unfortunately for Solyndra, and fortunately for all the silicon solar panel manufacturers and customers, silicon has gotten very cheap over the past few years…

The second bad bet was that Solyndra’s flat roof installation technology would make up for their relatively expensive panels.  Solyndra did indeed see big savings on flat roof installations, but the rest of the industry did not stand still. Other commercial flat roof products are on the market (full disclosure, Westinghouse Solar has an inexpensive and easy to install flat roof solar panel product) with similar benefits at much lower costs to Solyndra.

Of course, had they never had the government help they never would have gotten off the ground.  And anyone who would say otherwise needs to answer the logical follow-up question.  If they could have done this without government help, why didn’t they?

The Public Sector doesn’t know Squat about a Good Business Idea

But it’s just not Solyndra.  There’s green failure wherever you look in the unfolding saga that is the tragedy of green energy (see Green jobs only produce fiscal black hole posted 8/31/2011 on qcsunonline.com).

Lowlights of the saga include the recent bankruptcy of Evergreen Solar Inc. of Massachusetts, recipient of $58 million in direct subsidies and tax breaks, including federal “stimulus” funding, but which cut 800 jobs and is now $485 million in debt, with more job losses to come with the closure of a Michigan plant. Green Vehicles of Salinas, Calif., received $500,000 in city subsidies, but closed last month without having produced anything of significance, Human Events magazine reported. The company had promised to create 70 jobs and pay back local taxpayers $700,000 a year in taxes.

Seattle got a $20 million federal grant to weatherize 2,000 homes and create 2,000 jobs. After a year, three homes had been retrofitted and 14 new jobs created, many of them administrative. That’s a return on investment of about one job per $1.4 million. In Michigan, Fisher Coachworks is out of business two years after being touted as part of the state’s green future, and despite millions in state subsidies to sell buses bought with federal tax money.

The U.S. Forest Service awarded $490,000 in stimulus funding to Urban Forestry Revitalization Project in Clark County, Nev., to plant trees and other greenery in urban neighborhoods. It created 1.7 jobs, one of them a full-time temporary job, and 11 short-term and temporary.

Overall, estimates the Competitive Enterprise Institute’s Chris Horner, $30 billion in green handouts in the stimulus bill cost taxpayers about $475,000 per job.

These are good examples of why there is a private sector and there is a public sector.  The private sector aren’t experts on providing for the common defense or promoting the general welfare.  And the public sector doesn’t know squat about a good business idea.

Lobbyists’ Money influences Government Misdirection into Economic Affairs

The government is backing a lot of electric cars and hybrids.  They believe this is our future.  And, of course, ethanol.  So while they are interfering with natural market forces, good ideas may not get a chance.  Like, say, this one (see Old newspapers could make gas substitute by Colin Bird posted 8/31/2011 on USA Today).

The researchers have discovered a bacterial microbe that likes the taste of old newspapers — the cellulosic wood pulp that makes the paper, to be more exact. In the process of eating the paper, the microbes excrete a biofuel that can act as a substitute for gasoline, the Detroit News reports.

Such microbes aren’t new; we outlined their potential to make ethanol a few years ago. The difference here is the type of fuel that comes out of the microbes: butanol.

Butanol is better than ethanol because it doesn’t require any modifications to today’s gasoline-powered engines. (Many older cars can’t accept E15, let alone E85.) Also, butanol would generate similar gas mileage performance as gasoline. Ethanol has 27% less energy per gallon compared with gas.

It’s not yet known if this discovery is marketable or scalable, especially since alternative fuels are a bit out of vogue, with more attention focused on electrics, plug-ins and hybrids.

Anyone who has ever tried E85 that actually had a real commute to work saw what a bust E85 was.  There was no cost savings because you had to pump 27% more of it into your tank than gasoline.  Worse, the first time you found out about this you may have been driving home from work.  Late at night.  Going through an area not known for its bright lights and safety.  And have to stop.  To buy gas.  Not a lot of fun.  Especially if you’re a woman.

But the government is committed to E85.  Because, of course, of the powerful corn lobby.  Who is chopping in high cotton these days.  The price of corn has never been higher.  What with it being both a staple food and now a fuel.  So while the money will influence more government misdirection into economic affairs, butanol may die a quiet death.  For it has no lobby.

Global Warming may not be Man-Made, but the Myth of Man-Made Global Warming Is

All of this government malinvestment in products is one thing.  And a complete waste of taxpayer’s money.  But it’s ‘the why’ that they are doing this that really rubs the salt into the open wound.  To save the planet.  From man-made global warming.  Which, as it continues to be shown, is a myth (see Watching A Green Fiction Unravel posted 8/30/2011 on IBD’s Investors).

Experiments performed by a European nuclear research group indicate that the sun, not man, determines Earth’s temperature…

The results from an experiment to mimic Earth’s atmosphere by CERN, the European Organization for Nuclear Research, tell researchers that the sun has a significant effect on our planet’s temperature. Its magnetic field acts as a gateway for cosmic rays, which play a large role in cloud formation.

Consequently, when the sun’s magnetic field allows cosmic rays to seed cloud cover, temperatures are cooler. When it restricts cloud formation by deflecting cosmic rays away from Earth, temperatures go up.

Or, as the London Telegraph’s James Delingpole delicately put it:

“It’s the sun, stupid.”

Why, this seems to disprove much of what the global warming alarmist have been alarming us about for lo these many years.  And being scientists, of course you know what they will do.  Do everything within their power to hush things up.

This new finding of 63 scientists from 17 European and U.S. institutes from an experiment that’s been ongoing since 2009 is, if we may paraphrase Vice President Joe Biden, a big deal. Which is exactly why the mainstream media, with so much invested in global warming hysteria, is letting last week’s announcement from CERN pass like a brief summer shower, ignoring it.

Even CERN’s own director general, Rolf-Dieter Heuer, is trying to avoid the meaning of the findings.

He told Germany’s Die Welt Online that he’s “asked the colleagues to present the results clearly, but not to interpret them. That would go immediately into the highly political arena of the climate change debate.”

But, as British science writer Nigel Calder points out, Heuer would have no reservations about entering “‘the highly political arena of the climate change debate’ provided” his results endorsed man-made warming.

Of course, without global warming, the globe isn’t warming.  Even at the poles.  Where the icebergs are.  Which can mean only one thing.  Those icebergs aren’t melting.  And the sea levels aren’t rising.

And it’s not just the CERN research creating a problem for them. They also need to explain why sea levels, like presidential approval numbers and consumer confidence, have fallen. According to NASA, the oceans are down a quarter of an inch this year compared to 2010.

Under the rules of climate change, sea levels, due to melting ice and water that expands as it warms, should be increasing in a way that we’re all supposed to believe is a threat. But NASA scientists say that El Nino and La Nina, weather cycles in the Pacific Ocean, have caused sea levels to fall.

So, yes, global warming is man-made.  The myth of global warming, that is.  Just like the billions of dollars the government has been throwing at these bad green investments.  The idea that these ‘investments’ will create jobs is another man-made myth.

Money and Power – the Driving Force of all Mankind and Governments

The green energy sector is based on man-made global warming.  Which real science continually disproves.  Man isn’t warming the planet.  The sun is.  As it always has.  And always will. 

And the scientists know this.  The real ones.  And the fake ones that have been pushing global warming.  Why do they do this?  Just look at what they have accomplished.  Costly new regulations.  And all that government spending on green energy.  Paid with our taxes.  Stifling real economic output.  And transferring a lot of wealth from the private sector to the public sector. 

And there it is.  Like it always is.  Money and power.  The driving force of all mankind.  And governments.

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LESSONS LEARNED #27: “Yes, it’s the economy, but the economy is not JUST monetary policy, stupid.” -Old Pithy

Posted by PITHOCRATES - August 19th, 2010

WHAT GAVE BIRTH to the Federal Reserve System and our current monetary policy?  The Panic of 1907.  Without going into the details, there was a liquidity crisis.  The Knickerbocker Trust tried to corner the market in copper.  But someone else dumped copper on the market which dropped the price.  The trust failed.  Because of the money involved, a lot of banks, too, failed.  Depositors, scared, created bank runs.  As banks failed, the money supply contracted.  Businesses failed.  The stock market crashed (losing 50% of its value).  And all of this happened during an economic recession.

So, in 1913, Congress passed the Federal Reserve Act, creating the Federal Reserve System (the Fed).  This was, basically, a central bank.  It was to be a bank to the banks.  A lender of last resort.  It would inject liquidity into the economy during a liquidity crisis.  Thus ending forever panics like that in 1907.  And making the business cycle (the boom – bust economic cycles) a thing of the past.

The Fed has three basic monetary tools.  How they use these either increases or decreases the money supply.  And increases or decreases interest rates.

They can change reserve requirements for banks.  The more reserves banks must hold the less they can lend.  The less they need to hold the more they can lend.  When they lend more, they increase the money supply.  When they lend less, they decrease the money supply.  The more they lend the easier it is to get a loan.  This decreases interest rates (i.e., lowers the ‘price’ of money).  The less they lend the harder it is to get a loan.  This increases interest rates (i.e., raises the ‘price’ of money). 

The Fed ‘manages’ the money supply and the interest rates in two other ways.  They buy and sell U.S. Treasury securities.  And they adjust the discount rate they charge member banks to borrow from them.  Each of these actions either increases or decreases the money supply and/or raises or lowers interest rates.  The idea is to make money easier to borrow when the economy is slow.  This is supposed to make it easier for businesses to expand production and hire people.  If the economy is overheating and there is a risk of inflation, they take the opposite action.  They make it more difficult to borrow money.  Which increases the cost of doing business.  Which slows the economy.  Lays people off.  Which avoids inflation.

The problem with this is the invisible hand that Adam Smith talked about.  In a laissez-faire economy, no one person or one group controls anything.  Instead, millions upon millions of people interact with each other.  They make millions upon millions of decisions.  These are informed decisions in a free market.  At the heart of each decision is a buyer and a seller.  And they mutually agree in this decision making process.  The buyer pays at least as much as the seller wants.  The seller sells for at least as little as the buyer wants.  If they didn’t, they would not conclude their sales transaction.  When we multiply this basic transaction by the millions upon millions of people in the market place, we arrive at that invisible hand.  Everyone looking out for their own self-interest guides the economy as a whole.  The bad decisions of a few have no affect on the economy as a whole.

Now replace the invisible hand with government and what do you get?  A managed economy.  And that’s what the Fed does.  It manages the economy.  It takes the power of those millions upon millions of decisions and places them into the hands of a very few.  And, there, a few bad decisions can have a devastating impact upon the economy.

TO PAY FOR World War I, Woodrow Wilson and his Progressives heavily taxed the American people.  The war left America with a huge debt.  And in a recession.  During the 1920 election, the Democrats ran on a platform of continued high taxation to pay down the debt.  Andrew Mellon, though, had done a study of the rich in relation to those high taxes.  He found the higher the tax, the more the rich invested outside the country.  Instead of building factories and employing people, they took their money to places less punishing to capital.

Warren G. Harding won the 1920 election.  And he appointed Andrew Mellon his Treasury secretary.  Never since Alexander Hamilton had a Treasury secretary understood capitalism as well.  The Harding administration cut tax rates and the amount of tax money paid by the ‘rich’ more than doubled.  Economic activity flourished.  Businesses expanded and added jobs.  The nation modernized with the latest technologies (electric power and appliances, radio, cars, aviation, etc.).  One of the best economies ever.  Until the Fed got involved.

The Fed looked at this economic activity and saw speculation.  So they contracted the money supply.  This made it hard for business to expand to meet the growing demand.  When money is less readily available, you begin to stockpile what you have.  You add to that pile by selling liquid securities to build a bigger cash cushion to get you through tight monetary times.

Of course, the economy is NOT just monetary policy.  Those businesses were looking at other things the government was doing.  The Smoot-Hartley tariff was in committee.  Across the board tariff increases and import restrictions create uncertainty.  Business does not like uncertainty.  So they increase their liquidity.  To prepare for the worse.  Then the stock market crashed.  Then it got worse. 

It is at this time that the liquidity crisis became critical.  Depositors lost faith.  Bank runs followed.  But there just was not enough money available.  Banks began to fail.  Time for the Fed to step in and take action.  Per the Federal Reserve Act of 1913.  But they did nothing.  For a long while.  Then they took action.  And made matters worse.  They raised interest rates.  In response to England going off the gold standard (to prop up the dollar).  Exactly the wrong thing to do in a deflationary spiral.  This took a bad recession to the Great Depression.  The 1930s would become a lost decade.

When FDR took office, he tried to fix things with some Keynesian spending.  But nothing worked.  High taxes along with high government spending sucked life out of the private sector.  This unprecedented growth in government filled business with uncertainty.  They had no idea what was coming next.  So they hunkered down.  And prepared to weather more bad times.  It took a world war to end the Great Depression.  And only because the government abandoned much of its controls and let business do what they do best.  Pure, unfettered capitalism.  American industry came to life.  It built the war material to first win World War II.  Then it rebuilt the war torn countries after the war.

DURING THE 1980s, in Japan, government was partnering with business.  It was mercantilism at its best.  Japan Inc.  The economy boomed.  And blew great big bubbles.  The Keynesians in America held up the Japanese model as the new direction for America.  An American presidential candidate said we must partner government with business, too.  For only a fool could not see the success of the Japanese example.  Japan was growing rich.  And buying up American landmarks (including Rockefeller Center in New York).  National Lampoon magazine welcomed us to the 90s with a picture of a Japanese CEO at his desk.  He was the CEO of the United States of America, a wholly owned subsidiary of the Honda Motor Company.  The Japanese were taking over the world.  And we were stupid not to follow their lead.

But there was no invisible hand in Japan.  It was the hand of Japan Inc.  It was Japan Inc. that pursued economic policies that it thought best.  Not the millions upon millions of ordinary Japanese citizens.  Well, Japan Inc. thought wrong. 

There was collusion between Japanese businesses.  And collusion between Japanese businesses and government.  And corruption.  This greatly inflated the Japanese stock market.  And those great big bubbles finally burst.  The powerful Japan Inc. of the 1980s that caused fear and trembling was gone.  Replaced by a Japan in a deflationary spiral in the 1990s.  Or, as the Japanese call it, their lost decade.  This once great Asian Tiger was now an older tiger with a bit of a limp.   And the economy limped along for a decade or two.  It was still number 3 in the world, but it wasn’t what it used to be.  You don’t see magazine covers talking about it owning other nations any more.  (In 2010, China took over that #3 spot.  But China is a managed economy.   Will it suffer Japan’s fate?  Time will tell.)

The Japanese monetary authorities tried to fix the economy.  Interest rates were zero for about a decade.  In other words, if you wanted to borrow, it was easy.  And free.  But it didn’t help.  That huge economic expansion wasn’t real.  Business and government, in collusion, inflated and propped it up.  It gave them inflated capacity.  And prices.  And you don’t solve that problem by making it easier for businesses to borrow money to expand capacity and create jobs.  That’s the last thing they need.  What they need to do is to get out of the business of managing business.  Create a business-friendly climate.  Based on free-market principles.  Not mercantilism.  And let that invisible hand work its wonders.

MONETARY POLICY CAN do a lot of things.  Most of them bad.  Because it concentrates far too much power in too few hands.  The consequences of the mistakes of those making policy can be devastating.  And too tempting to those who want to use those powers for political reasons.  As we can see by Keynesian ‘stimulus’ spending that ends up as pork barrel spending.  The empirical data for that spending has shown that it stimulates only those who are in good standing with the powers that be.  Never the economy.

Sound money is important.  The money supply needs to keep pace with economic expansion.  If it doesn’t, a tight money supply will slow or halt economic activity.  But we have to use monetary policy for that purpose only.  We cannot use it to offset bad fiscal policy that is anti-business.  For if the government creates an anti-business environment, no amount of cheap money will encourage risk takers to take risks in a highly risky and uncertain environment.  Decades were lost trying.

No, you don’t stimulate with monetary policy.  You stimulate with fiscal policy.  There is empirical evidence that this works.  The Mellon tax cuts of the Harding administration created nearly a decade of strong economic growth.  The tax cuts of JFK were on pace to create similar growth until his assassination.  LBJ’s policies were in the opposite direction, thus ending the economic recovery of the JFK administration.  Ronald Reagan’s tax cuts produced economic growth through two decades. 

THE EVIDENCE IS there.  If you look at it.  Of course, a good Keynesian won’t.  Because it’s about political power for them.  Always has been.  Always will be.  And we should never forget this.

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