Sunday, November 23, 2008

Bailout Nation

Senator Shelby of Alabama and other economically literate political leaders are walking against a gale-force wind in opposing the government-financed rescue of every failing business concern, because it looks like almost every major entity in the United States is floundering in a flood of bad debt and falling revenues. You have to wonder just how many holes the treasury can plug before it flounders, too.

This weekend, treasury officials are scrambling to concoct a plan to rescue Citicorp, whose collapse financial pundits have been anticipating for months, in which the government, i.e. the taxpayers, will assume approximately $100 Billion-200 Billion in losses on the books, according to sources. The government will be guaranteeing about $300 Billion of mortgages at the troubled institution.

Meanwhile, Team Obama is contemplating a $700 Billion stimulus package to be implemented over the next two years. This will be in addition to the approximately $2.5 Trillion in government interventions to support the crumbling financial system and the additional $2 Trillion in loans given to various banks over the past two years.

At the same time that we are placing ourselves at risk of a treasury default with a complete economic collapse, Argentina style, by bailing out the messes created over the past ten years, our massive structure of government-sponsored home ownership programs is enabling more of the same. The FHA, which was created expressly to help otherwise unqualified buyers afford homes, is in the process of making hundreds of billions of dollars more in shaky mortgages to unqualified buyers, that many financial observers predict will create the need for yet another massive rescue package a few more years down the road.

Right now, it is fashionable to blame something some folks refer to as the "free market" for the cascading financial debacle, yet, were it not for FHA, GNMA, the GSEs, local home buyer programs, and the multitudes of other government props to home buyers, lenders, and builders, as well as the implicit government guarantee of rescue for failing financial concerns, most of these bad loans would never have been made to begin with, and the structured debt based on them with its uncharted and apparently unlimited risk, would not have been created.

Let's put the blame for this debacle where it belongs- on government intervention in economic affairs.

Saturday, November 22, 2008

Obama Energy Policy Fraught With Contradictions

The new administration's energy policy was released a couple of months before the election, and received very little attention, due to the nation's preoccupation with the financial collapse and economic morass, and the focus on the show-stealing Republican running mate.

The best that can be said for Obama's energy policy, is that his heart is in the right place, and that the new team's policies constitute a significant and positive departure from Republican policies that encouraged waste and promoted the disastrous transportation and land use policies of the past 60 years as "patriotic". At least Obama recognizes that we are on the eve of a massive shift in the conditions on which they're predicated, and that the energy regime that made them feasible is over.

However, many of the the new liberal policies will not only not mitigate the hardships of the new energy regime of scarcity and upward spiraling prices, but might well aggravate the waste and misallocation of finite resources. In short, the new administration's Energy Policy is a well-meaning disaster, and the policy statement is an essay in the power of denial and wishful thinking, in that its principal feature is the emphasis on symptomatic treatments and short-term "feel goods", at the expense of the complete overhaul of transportation, agricultural, and land use policies, which is what we really need in order to cope with shrinking fossil fuel supplies.

Mainly, the program is another attempt to repeal the law of supply and demand, and maintain fuel at artificially low prices while doing nothing to steer the country's population away from wasteful lifestyles Among the short-term measures outlined by the report are: 1) an Emergency Rebate of $500-$1000 for every American family, to mitigate the escalating costs of energy; 2) Crack down on energy speculation; and 3) Swap light and heavy crude, Release oil from the Strategic Petroleum Reserve in order to cut prices.

The futility and potential averse effects of the foregoing ought to be obvious. The "energy rebate" is merely another costly "stimulus package" and short-term salve that will add to the towering public debt load and further endanger savings and jobs, in addition to necessitating a tax increase, which is supposed to be paid for by a tax on the windfall profits enjoyed by oil companies.

Measures to "crack down on energy speculation" are worse. These are blatant scapegoating, and worse than useless. The only reason "speculators" buy any commodity or security in order to scalp profits from a move in prices is because they perceive a move in prices in the direction of their bet- if traders perceive a drop in demand, they can just as easily "short" the market. It's interesting that, just as our authorities made no attempt to cap the rampant inflation in house prices or run-up in stock prices unrelated to underlying fundamentals, or prevent "speculators" from profiting from it by "flipping" houses; it is also making no attempt to prevent "speculators" from profiting from fluctuations in oil prices by shorting oil as prices of crude dropped rapidly from last year's high of $149 a barrel.Speculators are no more responsible for the increase in global demand for petroleum and global depletion of supplies, than they are for the Fed's disastrous monetary policies and explicit support of the loose lending that created the financial debacle, and we aren't going to mitigate either condition by "cracking down" on attempts by market players to respond to whatever situation presents itself.

The third short-term palliative is to swap light for heavy crude and release oil from the Strategic Petroleum Reserve. May I ask: Are we insane? The policy paper explicitly states that "swapping light for crude" means that we will release the light, sweet crude from the Strategic Petroleum Reserve in an attempt to lower oil prices, to replace it later with sour, heavy crude, which is much more difficult and expensive to refine. The obvious implication is that we will be forced to replenish the Reserve with inferior oil at a time when doing so will be much more expensive, in attempt to maintain artificially cheap prices for petroleum products to placate American consumers and enable them in unsustainable lifestyles. This is sheer insanity, and it will only cause more pain and disruption down the road as it will only encourage more consumption of the very resources we need badly to conserve. Worse, we need badly to protect the Strategic Petroleum Reserve against a real emergency, such as critical spot shortages of fuel that could threaten our lifeline civil services such as police and fire protection, never mind the copious supplies needed by the military to ensure essential defense. Sorry, but $4 a gallon gasoline is not an emergency, and encouraging wasteful civilian consumption by maintaining artificially low prices will only increase the pain and disruption down the road, when the global drawdown in petroleum production becomes critical, and irreversible.

The policy's longer term solutions address Climate Change and the urgent need to develop sustainable alternative energy. Most of these measure are appropriate, as they go. Prominent among them are measures to increase fuel efficiency requirements, begin transitioning to a new digital electric grid, promote development of commercial scale renewable energy, invest $150 Million over the next 10 years to develop plug-in hybrid vehicles, invest in low emissions coal plants, and advance the next generation of biofuels and biofuel infrastructure.

I seriously have to question the emphasis on the development of hybrid vehicles, and even more, the promotion of biofuels, at the expense of the rebuilding of our rail system and intercity public transit. Our "green" liberals are almost as invested in the fantasy that we can continue to run 200 million cars and trucks and continue converting irreplaceable farmland into auto suburbs as any right-wing rube in his 3000 sq ft house on 2 acres in the far hinterlands. There is no recognition that even if we diverted every arable acre of land in this country, including that now used for food production, to production of biofuel feedstock, we could not even replace a fraction of the massive quantities of oil necessary to run our systems as they are currently structured. Increased production of biofuels will inevitably come at the expense of food production, and at a time when we will have less petroleum and natural gas, which is necessary to produce the cheap food that we now enjoy. Yet nowhere in the policy statement is it acknowledged that the mass diversion of land currently in food production, to fuel production, could trigger catastrophic food shortages, or famines.

Nowhere in this policy statement is the critical need for a complete rebuild of our decrepit rail and public transit even mentioned, and there is no mention of the need to curtail our massive over-investment in highway and airport infrastructure, if only to offset the massive amounts of public money that that are to be spent on the development and promotion of "green" jobs and industries. There is no discussion of reversing the disastrous transportation and development policies of the past 60 years that have created a geography of roads and housing development that render 90% of our population totally dependent upon autos for transportation, and that are still promoting urban sprawl and the destruction of some of the best farmland in the world in order to build auto suburbs.

Let's hope that Team Obama's misconceived Energy Policy is only a "feel good" aimed at the more "progressive" elements of the population in order to win the election, in recognition that the truth is too unpalatable to be presented to an already skittish and traumatized population at election time. Let's hope that after the new team is installed, they will Get Real and replace this stew of pandering "feel-goods", and costly diversions that will only set us up for more disaster and disruptions, with reality-based policies that will promote the complete restructuring of our systems to enable steeply reduced energy consumption in a very short time frame.

Tuesday, November 11, 2008

What Happened to Peak Oil?

Tonight's the night of Rogers Park Alderman Joe Moore's little enviro-confab at the No Exit Cafe on Glenwood, the "Global Warming Cafe", another idiotic gesture where our alderman will get to burnish his lib credentials while steadfastly ignoring the rather large environmental problems here in Rogers Park, principally the number of bullets flying around and blood on the streets.

As usual, the discussions center around Global Warming, while ignoring Peak Oil, which seems to have been shoved to the back burner by the steep drop in oil prices to the $60-65 a barrel range, due to massive demand destruction and to the mass unloading of oil forward contracts by financial concerns unloading them and every other salable asset on their books in their desperation to stem the loss of blood due to the collapse of their mortgage-based structured debt. Due to the steep economic downturn, demand for oil has dropped 9% in the past few months, which might help us make it through the winter without a steep hike in our heat bills.

People tend to have extremely short memories, and to focus on the issue of the hour, which at this moment is the collapse of our financial system and related loss of jobs, incomes, businesses, and homes. But the fact remains is that we are still past the peak of global oil production, which, according to oil geologist Kenneth Deffeyes, occurred in 2005, right on the schedule predicted by M. King Hubbert in 1956. Global oil production has dropped every years since, so we can be thankful for demand destruction, and hope that the vacation from escalating gasoline prices doesn't trigger another spate of gas-guzzler purchases and moves to remote suburbs. As it is, prices have dropped low enough to render unprofitable many of the ventures that are essential to augment the world's dwindling oil supplies, such as the tar sands ventures in Calgary, and deep sea drilling.

However, the demand destruction here and abroad, due to the unfortunate global economic situation, may not be enough to keep demand level with production, for nearly all OPEC members are cutting production and exports, and some forecasters predict that global oil production will drop as much as 9% in 2009, due to depletion of major oil fields and increasing oil use in member countries, who are now reserving more of their production for their own use. A minor increase in demand in tandem with production cuts could, and probably will, cause prices to escalate again, especially if lower prices render much production unprofitable.

For all our local politicians' blathering about climate change and the need to reduce our carbon footprint, we don't see them engaging in serious action to reduce Chicago's prodigious energy consumption and car dependence. We should be making full use of the respite in oil prices to prepare our city for the inevitable draw-down in fossil fuel supplies, yet we have made very few policy changes that would steer development and infrastructure investment in a direction that will produce systems that will serve us when foreign oil is no longer available, or available only in quantities insufficient to run our current systems. Neither Joe Moore or Mayor Daley has made a serious commitment to improving and expanding our inadequate public transit, in spite of a steep spike in ridership in recent years, and the obvious inadequacy of the system to the demands that will be made on it when car ownership drops by 30% or more in coming years. None of our politicians seems eager to develop other infrastructure that will be necessary to keep sensitive communications and other services viable in an energy-short future, either- plans for universal, cheap wireless internet connectivity have been tabled because of the city's failure to negotiate favorable terms with commercial wireless providers, and no other alternatives are being considered.

Worse, Daley and most of our aldermen remain committed to costly and unnecessary expansion of existing highway and airport infrastructure, at a time when the commercial airline industry, which is completely predicated on the availability of cheap fossil fuels, is collapsing, and auto travel is headed for steep decline. Scarce tax monies invested in increasingly redundant and obsolete highway and airport infrastructure, is money being taken away from the systems that we will desperately need in order to maintain a minimal level of technological amenity in an era of depleting fossil fuel supplies and rapidly increasing costs of necessities in combination with disappearing jobs and industries.

It's easy to yap about ways to reduce your carbon footprint on an individual basis, and Joe Moore could sure stand to get a few clues on how to reduce his. However, all the individual efforts - trash recycling, home gardening and canning, buying used goods, turning down the thermostat- don't mean much when individuals are living in a context that demands massive energy waste just to live a normal life, thanks to 80 years of disastrous public policy at the federal and local levels alike that have driven the most wasteful urban development patterns and allocation of resources in the history of the world. Our politicians need to stop twaddling in empty gestures and get down to the necessary and gritty work of developing policies and systems that will enable steep reduction of energy consumption, and the harder work of managing the transition so that it doesn't blow our system, and our lives, to pieces.

Bottomless Bailouts

Why did nobody back there, about the time our politicians promulgated the first "housing rescue" bailout package, twig that this was a bottomless pit and that one "rescue" would lead to another?

And another. And another.

And why did no one up there figure out that the money borrowed against our future taxes was not going to accomplish the goal of propping up the inflated housing market, because the only way to prop housing up at prices paid in 2006 was to float more of the bad loans that caused the inflation to begin with?

And why have none of our pols figured out that if we pile on so much government debt that we go into to default on it, that the result will be a collapse so complete and and a depression so deep we need not hope to recover within the lifetime of anyone born before 1970?

It's deeply frightening that none of our politicians, not one, can reason through the hysteria and self-serving arguments of the bank and housing lobbyists, to reach the conclusion that we have already borrowed far beyond our ability to repay, and that adding more unrepayable debt will only prolong the pain.

The loans made to financial houses, completely apart from the $700 Billion rescue plan and all other official interventions, brings the tote for this debacle, to the taxpayers, past $5 trillion and we're nowhere near finished. AIG is now into us for $150 Billion. Many more hundreds of billions will be tossed at banks to help renegotiate home loans in danger of foreclosures.

Expect far more job losses for the next couple of years, and expect the financial sector to shrink by at least 50%. Don't expect to find it any easier to borrow to buy a house or condo, for lenders are reverting to traditional lending standards no matter what. The easy money machine has been dismantled. Do look for prices to drop further as incomes drop in the shrinking economy, and as lenders continue to tighten lending standards to require things like down payments, decent credit scores, and proof of your ability to repay the loan.

Expect higher local taxes with reductions in services as the local tax base shrinks, and less of the money we pay in Federal income taxes is returned to us to help fund our infrastructure repairs and essential services.

I'm not faithful that Obama, much as I like him, will do anything to improve the situation, because his solutions are very much like those deployed so far- when in doubt, throw money at it. I believe that Obama is the best choice that we could have made, but all politicians are financially inept and do not grasp that you don't fight a fire by pouring more fuel on it. The most that Obama is going to be able to do is offer comfort to citizens in their desperate pass, and lay the truth on us in as palatable a form as possible, which is that this country is stone broke, owned by not-quite-friendly countries, and is dependent on enemies for its most essential resource. We also have no manufacturing left, and tossing tens of billions at our failing auto manufacturers is not going to make them competitive in the present time, let alone enable them to develop the transportation technologies we will need to make it throught the decline in oil supplies.

What we're doing with the ongoing and ceaseless cash calls for more "rescue", is throwing all our money and resources at propping up a failing and obsolete financial system whose "wealth" was all debt and that cannot survive as it's set up, or help finance the types of industreis we will need going forward. Debt creation and asset inflation never were the foundations of real wealth and a solid economy.

Friday, November 7, 2008

Is the Skyscraper Obsolete?

It was with a long pang of sadness that I read of the current financial difficulties of the developers of the lovely Chicago Spire. Financing always was dicey for this mega-scraper, even at the peak of the boom, which is why the original plans for the building were altered twice before the third and final version was settled on; and now it begins to look like the building might not get built at all for lack of adequate financing. At this time, only one third of the units have sold, and that might not be sufficient to get the project off the ground in the current crisis.

I would so much rather have had this beautiful and appropriately sited structure than the Trump building on the Chicago River that has destroyed the beautiful sightlines along Michigan Ave from Wacker Drive. But, hell, I'm not the one putting up the money, so it was not exactly mine to say, even though I feel strongly that the city should have blocked the Trump building because of the total mismatch between the building and its site among the dense grouping of much-smaller vintage buildings with their intricate ornamentation, that are among the city's chief architectural gems.

Of all the creations of the Age of Fossil Fuels, the thing I'm personally most loathe to give up is the high-rise building and the type of city that these buildings have made Chicago.

Will the Trump tower be the last building of its type and scale built in this country? Will the magnificent skyline of Chicago become a symbol, not of human ingenuity and ascendancy as a species, but the gravestone of a mentality and a society that didn't know when to stop and whose major achievement was the ability to build things that are just too big? Many people think so. In spite of the many "green" features now incorporated into mega-scrapers, such as the geothermal cooling system designed for the Spire that will use lake water to provide air conditioning, these extremely large buildings carry disproportionately large internal energy loads, that more than offset efficiency gains made by high population density and concentration of services; and many critics contend that these buildings will be rendered unusable as we move further into the age of resource depletion, and are destined to become slums, or scrap. Additionally, these really large buildings of 50 stories or more are much more difficult for first responders to deal with in the event of emergency-consider the challenge of evacuating an 85-year old off the 124th floor when the elevators have stopped running, as they are programmed to do in the event of a fire. Thus, these buildings require many redundant systems and fastidious maintenance thereof, as well as battalions of highly trained personnel to keep them running and to deal with such emergencies as might arise. Most come with their own power generators and fire protection systems, and most of them are highly dependent upon the ongoing availability of resources, such as natural gas, that are in steep depletion and might be unreliable twenty or thirty years into the future.

While I tend to think that substitutes can be found for these resources on the scale that a large building requires, they will most likely not be economical, and we can be thankful most of the inhabitants of these mega- structures are extremely affluent. However, it's not only the extremely affluent who live in buildings 20 stories or more, for Chicago and other cities contain thousands of buildings ranging 20-60 stories with hundreds of thousands of lower, moderate, and middle-income residents shoehorned into their flanks. The high-rise lifestyle has been, for most of those who live it who are above poverty level, a very comfortable and convenient existence, and the population densities it makes possible are crucial for the support of city services and amenities such as dense, various commercial and entertainment districts, and most of all frequent, and reliable public transit that can only be supported by these types of densities.

Can we make our existing stock of skyscrapers sustainable into the future, and should we build any more? It might be wise to impose height limits on residential buildings outside the downtown area, of twenty stories or less. The New Urbanist ideal is 4-7 stories, 7 stories being the maximum comfortable walking height in the event of a power failure. Some neighborhoods have limited new construction to that height, and that might be pragmatic, in addition to keeping new construction to the scale of an area of historic homes and buildings.

Saturday, November 1, 2008

Save Our Beaches and Stop The Lakefront Expansion

Vote YES To Stop the Landfill

The vista pictured at the right, the shoreline in Berger Park, will be destroyed forever if Mayor Daley and Friends of the Park have their way and ram through the plan to extend Lake Shore Drive northward into Evanston, and southward to Promontory Point.

Voters in Rogers Park, Edgewater, and other areas affected by the beach landfill and extension of the Outer Drive will have the opportunity to vote on this issue again in a non-binding referendum that will be on the ballot on Tuesday, November 4.

The provision reads as follows:
Should the City of Chicago, State of Illinois and Federal Government prohibit lakefront expansion from Hollywood Ave. to Evanston that includes extension of Lake Shore Drive or establishment of any other roadways, marinas or harbors, housing, major landfill or commercial development?

Yes _____
No _____

The plans of Mayor Daley and the Friends of the Park to construct an immense landfill and extend Lake Shore Drive into Evanston have met with overwhelming opposition from residents of affected areas in Edgewater, Rogers Park, Evanston, and Hyde Park (where the infill will extend south). In the referendum of 2006, 88% of Edgewater and Rogers Park voters voted against the expansion, as did 80% of Evanston voters. In a more recent referendum in Hyde Park, 90% of voters voted against it. However, FOTP and Mayor Daley are undeflected by the overwhelming opposition, and are continuing their efforts to ram this costly and destructive boondogle down our throats.

The original plans include a marina at either Calvary Cementary, or at Devon and Sheridan, and the extension of the Lake Shore Drive Expressway north into Evanston and south to Hyde Park. A vast landfill will be constructed east of the expressway.

At stake are the beaches in Rogers Park and Edgewater, which offer the only beach access on the north side north of the Oak Street Beach. These beaches will be lost, replaced by an extension of Lake Shore Drive to the east, and infill that will extend Lincoln Park, which is already underutilized. If the plans are fully realized, a marina will also be constructed, bringing boat pollution and increased traffic to the area, with no gain for area residents who will lose a major amenity, our beaches.

Loyola University is pressing for the expansion, and Mayor Daley badly wants this. The desires and priorities of residents in the affected areas are of no importance to Daley, or , apparently, to the aldermen who are supposed to be representing them. The justification offered is the relief of the heavy rush-hour traffic on Sheridan Road, which will be replaced, if plans are realized, by even heavier and faster traffic, complete with additional traffic noise and pollution, where now repose our beaches.

Year 2006 estimates, subject to revision, peg the cost of the project at $300 Million. It will mostly likely be at least three times that, at a time when the city is having a difficult time funding essential services and maintenance of critical water, sewer, and road infrastructure. Moreover, it will add greatly to the ongoing cost of maintaining the lakefront, in an era of constricting energy supplies and reduced need for highways or demand for amenities such as marinas.

There is no justification for the construction of another marina to accommodate pleasure boats, or another high-speed, limited-access roadway. Demand for harbor space and highway traffic both will most likely decrease drastically in coming years as energy supplies tighten further, while the need for expanded and more efficient public transit is growing rapidly. Money allocated to this wasteful and destructive project is money badly needed for repairs to our dangerously decrepit and outdated water and sewer infrastructure, for repairs and expansion of our decrepit and inadequate public transit, and for the expansion and improvement of our underfunded, and steeply undermanned police department and fire department.

Tuesday's referendum is, as mentioned, non-binding, and much more work and citizen involvement is needed to block this project.