And when the costs get passed along with the parties in charge bearing little financial risk it is no surprise to see a chart like this one. The runup into the latest earnings release is especially interesting.
Kemper County power plant price tag tops $6.1 billion as costs climb again, start-up delayed ~ Associated Press
I’m going to be spending some time on Edgar learning more about this mess for myself. I see stockcharts like the one linked above against the backdrop of these massive cost overruns at Kemper County and the term moral hazard immediately comes to mind. In layman’s terms, it is easy to take risks when someone else bears a disproportionate share of the financial burden.
Stay tuned because this is likely not the last of the bad news form Southern Company and the Kemper coal boondoggle.
God help everyone hold onto their wallets because the Movie Industry is targeting the Mississippi treasury after successfully looting Louisiana’s with taxpayer funded boondoggle. Geoff Pender promotes the scheme for the Clarion Ledger:
Adam Rosenfelt, a film producer and president of Element Pictures with more than 15 feature films to his credit, including “Mr. Brooks” and “Waiting,” wants to create Mississippix Studios, based in Jackson.
And, he wants to create a new program of film incentives that would result in more money coming in to the state, and permanent jobs. Typically film productions are granted tax breaks or other incentives upfront, shoot for a few months then head back to Hollywood with states often seeing little direct financial benefit. Rosenfelt is proposing the state create a loan guarantee program that serves as a “backstop.” If his company is successful, the state pays nothing, and instead gets 10 percent of his profit.
One big clue the latest scheme is gonna be a problem is the guy in Jackson promoting it is:
- Spreading a BS story about how much he loves the Mississippi coast which is why he’s been 3 and a half hours away in Jacktown for the past year with his nose up Phil Bryant’s hiney. Bryant, never known for private sector financial acumen was likely sucked right in by the promise of getting to hob nob with Slabbed favorite Bull Durham, who was last seen celebrating his successful shakedown of BP back during the oil spill.
- Was a “pioneer in state film incentives, and helped develop Louisiana’s groundbreaking motion picture tax credit program.” This program was groundbreaking in the sheer amount of taxpayer money that has been pissed away into the pockets of people like Rosenfelt, who now splits his time between Los Angeles and Jackson.
In fact pioneering the latest movie industry scheme to fleece the taxpayers is exactly what Rosenfelt is doing in Mississippi because he’d no more live in Jackson, Mississippi than he would Montgomery Alabama if the taxpayers weren’t gonna pay for it some sort of way. Louisiana pissed away over one bllion dollars before people started to ask the critical questions that had not been previously asked about Rosenfelt’s Louisiana film tax credit boondoggle according the Louisiana Budget Project (PDF of their 12 page report can be found here).
One would naturally think that after the financial crash just 5 years ago the problems with Rosenfelt’s scheme would be apparent, especially to Lt. Gov Tate Reeves, who comes from a financial background. Here are Rosenfelt’s talking points: Continue reading “Latest boondoggle proposed by Phil Bryant and the Mississippi Development Authority: Jackson Movie Studio”
These past 2 weeks we’ve periodically gotten a huge number of worldwide referrals from what appears to be a pornographic website, based on the verbage contained the referring URL. Running the link through a Whois search reveals it is in reality a Forex scam site. As is my custom I checked the wiki entries to see if the explaining could be made easy for me and sure enough the two wiki entries had a wealth of great information. (Those wondering about the Forex proper can click here.) For the balance of this post we’re going to concentrate on the scam I linked first and the implications therein so is there we now visit:
A forex (or foreign exchange) scam is any trading scheme used to defraud traders by convincing them that they can expect to gain a high profit by trading in the foreign exchange market. Currency trading “has become the fraud du jour” as of early 2008, according to Michael Dunn of the U.S. Commodity Futures Trading Commission. But “the market has long been plagued by swindlers preying on the gullible,” according to the New York Times. “The average individual foreign-exchange-trading victim loses about $15,000, according to CFTC records” according to The Wall Street Journal. The North American Securities Administrators Association says that “off-exchange forex trading by retail investors is at best extremely risky, and at worst, outright fraud.”
With the scam set let’s visit with the assertion it is possible to beat the Forex. I’ll note these same concepts apply to the stock markets too in varying degrees:
The forex market is a zero-sum game, meaning that whatever one trader gains, another loses, except that brokerage commissions and other transaction costs are subtracted from the results of all traders, technically making forex a “negative-sum” game.
…………..there are many experienced well-capitalized professional traders (e.g. working for banks) who can devote their attention full time to trading. An inexperienced retail trader will have a significant information disadvantage compared to these traders.
Retail traders are – almost by definition – undercapitalized. Thus they are subject to the problem of gambler’s ruin. In a “Fair Game” (one with no information advantages) between two players that continues until one trader goes bankrupt, the player with the lower amount of capital has a higher probability of going bankrupt first. Since the retail speculator is effectively playing against the market as a whole – which has nearly infinite capital – he will almost certainly go bankrupt. The retail trader always pays the bid/ask spread which makes his odds of winning less than those of a fair game. Additional costs may include margin interest, or if a spot position is kept open for more than one day the trade may be “resettled” each day, each time costing the full bid/ask spread.
Although it is possible for a few experts to successfully arbitrage the market for an unusually large return, this does not mean that a larger number could earn the same returns even given the same tools, techniques and data sources. This is because the arbitrages are essentially drawn from a pool of finite size; although information about how to capture arbitrages is a nonrival good, the arbitrages themselves are a rival good. (To draw an analogy, the total amount of buried treasure on an island is the same, regardless of how many treasure hunters have bought copies of the treasure map.)
So it is the middle men who always make the money. Often the middle men also are taking a trade position too so the game truly is rigged. I mention this because the entry properly mentions information advantages. Indeed in my closest circle of stock trading friends we often discuss price/volume movements in issues we own in terms of buyers/sellers “with superior knowledge” or “access to information” the retail investor simply does not have. Properly analyzed the data can confirm previous buys or signal that it’s time to sell. These concepts also underpin the business of insurance where “information advantages” has a more proper name: Information asymmetry. Continue reading “A peek inside Slabbed as we set up some important financial concepts and introduce the ol’ Forex Scam. Anyone else remember Russell Erxleben?”
FORGET HEALTH CARE, IF THE CRAZIES WANNA LOCK AND LOAD LET ‘EM TAKE A BEAD ON CORPORATE EXECUTIVE PAY
Ever wonder why you just paid $2.75 a gallon at the discount Kroger pump? Oil went from $145.00 a barrel in July 2008, down to $34.00 in December. And, when the recession hit, domestic consumption went way, way down. So . . . how does this supply and demand thing work anyway . . . shouldn’t the price be really cheap right now?
Well, here’s a possible answer that the feds are saying they’re gonna look into. There are these super rich corporations, investment bankers and hedge funds that manipulate the commodities markets, and make money from us by keeping the prices of things we gotta have, like gasoline, artificially high. In other words, they flip the supply and demand rule upside down, and hijack the market. A Los Angeles Times Business column Money and Company reported about 30 days ago that a report was coming out soon that will show oil traders, aka “speculators” are to blame for the oil prices’ spike ups in 2008. Imagine the profits – let’s say you and buy all the oil contracts we can get our hands on at $50.00 p/b and by the time we sell, we’ve spiked the market to $145.00.
So who are these traders or “speculators?” If you ever saw the documentary film “Enron: the Smartest Guys in the Room” you’d know. Watch this You Tube clip, or if you’re really intrigued, watch the whole film some time. (Personally, I think it ought to be part of the core curriculum in every high school). There’s a scene in the You Tube clip where some Enron energy traders are laughing about manipulating California’s electricity grids to jack prices up. If you wanna cut straight to the chase, start watching at about the 2 minute mark.
Right now there’s a lot of grousing by corporate execs over this Citigroup oil trader, and his bonus pay for the fine work he did for Citigroup in 2008-2009. The execs claim the government is unlawfully tampering with his pay package, and illegally taking away his “earnings.” This Continue reading “Juriscribe checks in with a great post on executive pay. Lesson of the financial crisis #1: Why good corporate governance matters to everyone.”
Friday afternoon I decided to take on the broad topic of Moral Hazard, the concept for which this blog is unpinned. I collected links and research and then promptly experienced writers block for which even my gratuitous bashing of Rossie could not break. Then as per normal (and in true Talebesque fashion) Russell serendipitously emails me a link that ties things together. This becomes part 1 because there is no way I can tackle the topic in one post and do it justice. The bonus is I get to indulge a personal interest in Game Theory and of course poke some fun at what one observer calls moral hazard lite which represents the intersection of politics with the calamity that has shaken our banking system to its core. Let’s start with a quick definition of Moral Hazard:
Moral hazard is the prospect that a party insulated from risk may behave differently from the way it would behave if it were fully exposed to the risk. Moral hazard arises because an individual or institution does not bear the full consequences of its actions, and therefore has a tendency to act less carefully than it otherwise would, leaving another party to bear some responsibility for the consequences of those actions.
How does this “different behavior” that results from having no ri$k play out in the financial markets? We have a case study in progress commonly known as the bailout that provides some clues. Russell knows me as an intuitive trader when it comes to individual issues and I’ve been casually telling people this current rally in the financial services sector is an illusion in respects. We’ll have to retest our lows and that could happen as many as three times between now and Q4. Tyler Durden at Zero Hedge gives us a 2009 example to the old Wall Street saying, “Sell in May and go away” as he details why banks as a whole were surprisingly profitable the past two months. Hopefully this will stick with us when the bank execs collect their bonuses from these “results” down the road. Here are some snippets from the Zero Hedge exclusive: AIG was responsible for the bank’s January and February profitability:
Zero Hedge is rarely speechless, but after receiving this email from a correlation desk trader, we simply had to hold a moment of silence for the phenomenal scam that continues unabated in the financial markets, and now has the full oversight and blessing of the U.S. government, which in turns keeps on duping U.S. taxpayers into believing everything is good. Continue reading “Moral Hazard? Slabbed wipes our a$$ with Moral Hazard (Part 1)”