Misery Economic Theater 2011

[only_human]

Todays episode of As The Dollar Burns:

Open Range Communications is bankrupt. It had been awarded a $267 million dollar loan from the Rural Utilities Service of the Agriculture Department. Another $100 million had been invested by JPMorgan Chase. Open Range’s network to nowhere draws fire

Open Range Communications was providing internet phone service and WiMax using satellite frequency spectrum licensed to Global Star. In March OPS said it had more than 20,000 subscribers. The FCC rescinded permission to Global Star for that spectrum for land-based signals but seems to have given some waivers for Open Range Communications to continue using it. That was not going to keep working, I guess. ORC looked to switch over to using LTE via LightSquared but that seems to not have worked out either. I haven't looked at it but know that LightSquared has been mentioned regarding GPS interference.

At least the USDA was awake enough to the floundering that was occurring and froze its' loan after disbursing $73.5 million rather than the full $267 million -- the full amount is the largest loan in USDA history per the quote below and also would amount to half a Solyndra, and that, then, would be real money.
http://www.openrange.us/

Headquartered in Greenwood Village, Colorado, Open Range Communications was approved in 2009 for a loan by the United States Department of Agriculture’s Rural Development Utilities Program (RDUP) to deliver High Speed Wireless Internet to 525 rural communities across 17 states. This Broadband Access Loan of $267 million loan (the largest loan in USDA history) was made possible through the combined efforts of the RUS, FCC and Members of the House of Representatives and United States Senate. Open Range received additional funding on January 9, 2009 an investment of $100 million from One Equity Partners (OEP), the private equity arm of JPMorgan Chase & Co. The OEP investment satisfied the RDUP's loan terms, making the funds available to Open Range. Open Range would like to thank everyone from local and state government who equally share the Open Range vision for rural America and ubiquitous High Speed Internet Service at an affordable price.

[fivemack]

This sort of thing I find difficult to complain about - it's quite reasonable for a government to hand out loans to new companies trying to do desirable but difficult things, and you would expect that quite a lot of these companies will fail and lose all their money. If it becomes a political catastrophe for any government-loan-receiving company to fail, no politician will provide the loans, and companies that would have survived with the loans will fail quietly.

Solyndra was part of IIRC a $40 billion collection of loans from the DoE; having only one complete disaster in the first year, amounting to 2% of the fund, would be cause for celebration and champagne at your average venture capital fund. And it seems likely there's been only one disaster, since partisan journalists would be slavering to report second and subsequent disasters.

[only_human]

Originally Posted by fivemack

This sort of thing I find difficult to complain about - it's quite reasonable for a government to hand out loans to new companies trying to do desirable but difficult things, and you would expect that quite a lot of these companies will fail and lose all their money. If it becomes a political catastrophe for any government-loan-receiving company to fail, no politician will provide the loans, and companies that would have survived with the loans will fail quietly.

Solyndra was part of IIRC a $40 billion collection of loans from the DoE; having only one complete disaster in the first year, amounting to 2% of the fund, would be cause for celebration and champagne at your average venture capital fund. And it seems likely there's been only one disaster, since partisan journalists would be slavering to report second and subsequent disasters.

Weeelll, yes, even though the private bank investment and the USDA portion that was disbursed works out to over $8500 per account (20k+ users); it seems a bit much to burn through for non-landline user connections. In this case almost $200 million was held back and that is good when it became clear that there were serious problems. Here are the top 5 of the DOE loans and as you say, all's quiet on that front: Top Five DOE Recovery Act Loans

[ewmayer]

Originally Posted by fivemack

This sort of thing I find difficult to complain about - it's quite reasonable for a government to hand out loans to new companies trying to do desirable but difficult things, and you would expect that quite a lot of these companies will fail and lose all their money. If it becomes a political catastrophe for any government-loan-receiving company to fail, no politician will provide the loans, and companies that would have survived with the loans will fail quietly.

But merely asking "is this type of subsidy desirable?" is not good enough - "Is it remotely cost-effective compared to a genuine competitive market solution?" needs to be asked, and alas too seldom is when the govt is involved. In the case of ORC, did anyone even bother to do a Gedankenexperiment which imagined the intended beneficiaries of the subsidy instead paying for their net access out of pocket, and perhaps had a handful of the targeted communities actually try to work out a private-market solution to see what it would cost? If that had been done and all the credible answers pointed to "ludicrously more expensive than ORC's bid", fine. But at nearly $10K per user (from only_human's post), I have my doubts that any kind of real competition came into play. More likely the execs/backers of ORC are politically well-connected. What we are finding out about similar green-tech fed-loans in the wake of Solyndra strengthens my skepticism - you know when I find myself agreeing with bank-owned twits like Summers and Geithner I have either lost my mind or the issue is so glaringly obvious that only a deluded politician would fail to see a problem:

Long before the politically connected California solar firm Solyndra went bankrupt, President Obama was warned by his top economic advisors about the financial and political risks of the Energy Department loan guarantee program that boosted the company's rapid ascent.

At a White House meeting in late October, Lawrence H. Summers, then director of the National Economic Council, and Timothy F. Geithner, the Treasury secretary, expressed concerns that the selection process for federal loan guarantees wasn't rigorous enough and raised the risk that funds could be going to the wrong companies, including ones that didn't need the help.

And there is a proliferation of reports revealing the hidden political connections in many such govt-backed projects - here is a recent example from my neck of the woods:

It’s as if Solyndra never happened. The Obama Administration is giving $737 million to a Tonopah Solar, a subsidiary of California-based SolarReserve. PCG is an investment partner with SolarReserve. Nancy Pelosi’s brother-in-law happens to be the number two man at PCG.

The blogger here has a clear political bias, but my point is that this kind of thing is pervasive. One of the few areas where we see genuine "bipartisanship" on Capitol Hill is when it comes to funneling taxpayer monies to political, family and business cronies.

Solyndra was part of IIRC a $40 billion collection of loans from the DoE; having only one complete disaster in the first year, amounting to 2% of the fund, would be cause for celebration and champagne at your average venture capital fund. And it seems likely there's been only one disaster, since partisan journalists would be slavering to report second and subsequent disasters.

One *known* disaster in the first year, and it just broke this week that there was tremendous pressure from DOE (apparently at the behest of the White House) on Solyndra execs to delay a pending layoff announcement until after the 2010 midterm election. (Note the linked article has DOE secretary Chu saying *he* did not exert pressure on Solyndra, not that there was not such pressure - the cited internal e-mails from Argonaut Ventures paint a pretty clear picture).

Also, it seems that - as with Wall Street - the real truth about many such ventures never comes out until one fails spectacularly. If MF Global had managed to avoid blowing up, would we have ever been the wiser about their misuse of client funds? And remember Madoff`s decades-long Ponzi only came to light when the 2008 financial crisis caused a sufficient number of his clients to pull their money. If for every Solyndra there were a hundred ventures quietly bleeding cash but managing to avoid highly-public shock bankruptcies, you think your hypothetical venture fund would still be throwing that party?

[Fusion_power]

This one is well worth reading.
http://news.yahoo.com/next-financial...204303737.html

"There is definitely going to be another financial crisis around the corner," says hedge fund legend Mark Mobius, "because we haven't solved any of the things that caused the previous crisis."

We're raising our alert status for the next financial crisis. We already raised it last week after spreads on U.S. credit default swaps started blowing out. We raised it again after seeing the remarks of Mr. Mobius, chief of the $50 billion emerging markets desk at Templeton Asset Management.

Summarizing: the fundamentals have not changed, the music played for a few years, the players danced to the tune, now the music is poised to stop again and there are NOT enough chairs.

DarJones

[fivemack]

Originally Posted by only_human

Weeelll, yes, even though the private bank investment and the USDA portion that was disbursed works out to over $8500 per account (20k+ users); it seems a bit much to burn through for non-landline user connections. In this case almost $200 million was held back and that is good when it became clear that there were serious problems. Here are the top 5 of the DOE loans and as you say, all's quiet on that front: Top Five DOE Recovery Act Loans

Enormously large per-account costs are just diagnostic of failed infrastructure companies; we've had satellite-TV companies in the UK which would have lost less money had they bought every viewer a ticket to the matches they watched and a taxi to the stadium, we've had bus companies whose routes cost more than paying for taxis for each user.

[fivemack]

Originally Posted by ewmayer

But merely asking "is this type of subsidy desirable?" is not good enough - "Is it remotely cost-effective compared to a genuine competitive market solution?" needs to be asked, and alas too seldom is when the govt is involved. In the case of ORC, did anyone even bother to do a Gedankenexperiment which imagined the intended beneficiaries of the subsidy instead paying for their net access out of pocket, and perhaps had a handful of the targeted communities actually try to work out a private-market solution to see what it would cost?

The Internet has been around for quite a while; I expect that the targeted communities have asked the small number of monopoly providers to provide service, and been told 'not at any cost'. If you believe that universal access is important, then you need to have the cheap-to-cater-for subscribers in dense cities subsidise provision to outlying areas; if the few major country-wide providers aren't doing that off their own backs then you need a non-market solution. I think I'd prefer an obligation-to-provide on Verizon to a government-funded startup, but that seems to be the kind of imposition unpopular in current US politics.

It’s as if Solyndra never happened. The Obama Administration is giving $737 million to a Tonopah Solar, a subsidiary of California-based SolarReserve. PCG is an investment partner with SolarReserve. Nancy Pelosi’s brother-in-law happens to be the number two man at PCG.

I think that's just a measure of the small size of the community from which senators are drawn - ruling out every group at less than four degrees of separation from a senior politician rules out pretty much everybody.

[Christenson]

We have the same issue with cell coverage...I, being one of the less dense people, find myself often in areas where cell phones just don't work -- for example, in Shenandoah National park, but not on a mountaintop with a view!

[ewmayer]

Big-time signs of credit stress in Europe ... and on this side of the pond, all I have to say today is "Just because you called it a 'supercommittee' doesn't make it true."

The hilarious (in a sick-laughter kind of way) thing is, with this level of hyperpartisan wrangling and dysfunctionality over plans to cut annual budget deficits by at most 10% versus current levels, what chance is there of these same blinkered, dogmatic, corporate-owned morons actually putting the nation on track to a balanced budget? Why, that would be 'none'. High time for the ratings agencies to slash the US to the 'junk' it deserves.

[ewmayer]

Germany had a disastrously failed bond auction today:

Deutschlands Spottzins verschreckt die Investoren: Die Schuldenkrise hat Europas Stabilitätsanker erfasst. Der Verkauf von Staatsanleihen wird für Deutschland zum Desaster. Dabei muss die Euro-Zone 1,5 Billionen am Markt einwerben.

(translation mine):

Germany`s low bond yields spook investors: The debt crisis has reahed Europe`s stability anchor. The latest auction of German government debt proves a disaster. The Eurozone as a whole has 1.5 Trillion in bond offerings on deck in the coming year.

The European debt crisis has eaten its way into the heart of the currency union. After the debt issuss of other Euro nations encountered ever-lower investor interest in the preceding weeks, on Wednesday it hit Germany - until now the stability anchor of the Eurozone.

In the auction of 10-year Bunds teh German finance ministry failed to find enough buyers for the offer of 6 billion Euros of debt. There were only offers on the amount of 3.889 billion Euros, the Bund was forced to retain 2.1 billion Euros` worth. "This is now an existential crisis for Euro, nothing less", said Sony Kappoor of the Brussels think tank Re-Define.

The article breaks down the bond-issuance needs (sum of maturing bonds being rolled, interest due, and new debt needing to be financed) in 2012 of the various major players thusly:

Germany: 335 billion Euro
France: 414 billion Euro
Italy: 400 billion Euro
Spain: 217 billion Euro
Belgium: 82 billion Euro.

Greece, Ireland and Portugal are full 'wards of the state' w.r.to debt issuance, i.e. their financing needs are presumably included in the above and the ECB rescue fund.

[garo]

I don't think it is that disastrous. They were issuing a coupon of 2% and investors said, sorry we need a better return. Even from Germany.