Random Thoughts On Random Things

Call it winding down for the Holidays but I find myself struggling to find something worthwhile to write about. Having failed miserably in doing so, here are some random thoughts that have been bouncing around in my very slow moving brain.

State Finances

It is becoming painfully evident that many states are in dire straits and at the same time seem to lack the political will to do anything to turn the tide. The accompanying chart from Jake at EconompicData clearly shows the severity of the decline sources of revenue.

California is the posterboy for the crisis but they certainly aren’t alone. My home state of Arizona is struggling mightily and exhibiting some of the same signs of denial as California. The governor (a lame duck who is headed to Obama’s cabinet) and the legislature are carping at one and other over the size of the projected deficit as well as measures to deal with it. Accounting chicanery has been the preferred method of dealing with the new realities but there are only so many imaginary pots to dip into and we seem to be running out of them.

No doubt, that the hope is salvation arrives in the form of new money from the federal government. All well and good but then what. It’s one thing to close a budget gap with a shot of money from Uncle Sam, it’s quite another to budget for leaner times going forward. By all accounts any recovery is going to be mediocrel at best, so the states, mine included, that have grown used to spending like the good times would never end have a serious readjustment process ahead of themselves. Whether or not they can handle it is debateable.

Stimulus

The early reports on Obama’s stimulus plan puts the outlay at somewhere in the neighborhood of $750 billion over a couple of years. That seems to be approximately the number that is going to be presented to Congress. I think that we can all agree that the noble denizens of that zoo will probably up the ante considerably.

Speaking of zoos, the WSJ reports that the Association of Zoos and Aquariums is lobbying for a share of the stimulus money. They have “shovel ready” (that term is already starting to grate) projects ready to go.

On a bit more serious note, Greg Mankiw has two posts (here and here) on the subject. The first recommends that the feds just give block grants to the states. The states in turn can decide to either distribute the money to their constituents or spend it on infrastructure. The second post is actually a letter from a federal employee with some budgeting experience who points out the difficulty of moving this much money through the bureaucracy. He really nails the problem.

Secretary of Labor

The nomination of Hilda Solis as Secretary of Labor has been met with cheers from the union ranks and head scratching from lots of other people. Ms. Solis is a member of the House of Representatives and aside from a strong pro-union stance in that body doesn’t seem to have any other solid credentials for the job. She is a strong advocate of “card check” and other issues high on the agenda of the union movement.

I understand that Obama had a big debt to the unions to pay off. There are, however, a lot of issues like retraining and equipping America’s workers to compete in the 21st Century that go well beyond narrow union interests. Here’s hoping that Representative Solis has bigger ambitions than her resume would seem to indicated.

TALF

If you have acronym overload like I do, TALF stands for Term Asset-Back Loan Facility. It’s the Fed’s lending facility that was intended to suck up credit card, student, auto, and small business loans from institutions that can’t sell them in the non-existent securitization market.

Anyway, Accrued Interest (a blog you should read regularly by the way) has a post about some meaningful changes to the facility. In essence the changes allow the Fed to make loans to companies that need to offload these assets and take these assets security. The key change is that the loans will be non-recourse and for three years instead of the original one year term.

The net effect is that the company borrowing the money from the Fed won’t have to be concerned about any margin calls from the Fed if the value of the assets declines and the three year loan term approximates the life of these assets. Thus, the companies are relieved of any cloud hanging over their balance sheets in terms of having to repurchase the assets sold to the Fed.

I’m still mulling this one over. In many respects it seems a bit like what the TARP was originally set up to do. Essentially, buy assets from the banks in order to get their balance sheets back up to snuff. Leave a comment if you have any thoughts on this one.

See, I told you that I wasn’t functioning at max speed today. Hopefully, I am out of this funk by tomorrow.

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