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TVA budgets, fixes, and selling securities


Knoxville News points to a 2003 report on options to fix the leaks:

In November 2003, a leak along the bottom of the dike forced TVA to cease depositing fly ash into the pond’s dredge cells.

TVA considered at least eight options to address the leak, according to a Dec. 22, 2003, agency update. Three of the options would have provided a “global fix” to the problem, but high costs were cited as liabilities to pursuing them.

The most expensive option – converting to a dry fly ash collection system – would have cost an estimated $25 million. That’s far less than the $37 million spent to clean up a 2005 Pennsylvania fly ash spill one-tenth the size of the Kingston spill.

Two other proposed global fixes were to construct a synthetic liner for the pond for $5 million and building a cutoff wall around the perimeter of the dredge pond for $2.6 million. In addition to high cost, TVA noted that using a synthetic liner would set a precedent for all other dredge cells.

TVA opted to repair the dike and install “underdrains,” which in a summary of the inspection report the agency likens to residential french drains, “to relieve water pressure.”

Repairs were completed in 2005, but the dike sprang another leak the next year.

Summary of 2007 budget items:

TVA is the largest single producer of power in the country.Their revenue in 07 was $9 Billion, they showed a $385 Million (non taxable) profit after paying $48 Million in bonuses.

They make a total of about $480 Million a year in “tax equivalent” payments to municipalities where they operate. I believe Roane County gets about $1 Million per year from them. That’s been a great deal for them…til now.

The reason that these fixes were never done was because TVA sells securities….the fixes would have cost dollars that would have affected their security sales by moving them closer to true non profit status. Many people do not understand that TVA is a hybrid. It is a gov’t agency but only sort of…..

The fly ash clean up that they just settled cost them $35 Million for a spill 1/10th the size of this one. After paying the piper here they will most likely have to some serious restructuring.

(bolding mine)

Unintended consequences is real, but rarely the complete story. At what point does one intention become unintentional somewhere else. My assumption is that not setting a precedent is a high level decision. The current CEO has a remuneration package of $3.27 million, being a competitive amount for large utilities. And who is to foot the bill for the possible unintended $350 million cleanup? And where else are there problems?

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Remember the water table


CNN has a follow up to the story and post concerning the breaking of a retaining dam and the coal ash that was released. Coal ash is full of heavy metals, and not bio-degradable.

I believe I was the only one to be concerned about the water sources for the area as part of clean up and reparations in comments. This is an area of concern that takes a steady approach and re-visiting of consequences over time…usually time periods too long to hold readers’interest.

It is worth a re-visiting from time to time.

Update: Kentucky and Indiana obtain 90% of their electricity from coal. This article in Kentucky newspaper points to some concerns. Source Watch offers more information and an interactive map for all fifty states.

Update 2: This GAO report on toxins in the Great Lakes is instructive.

Update 3:

Independent toxin screens and survey in comments hat tip reader run.

The TVA in published statements has found no contamination above safety limits except for lead, with the water intake for Kingston being a high impact test site.

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Economy: Enjoying the Pre-Game Show?

Sorry to be missing from the Angry Bear scene – but I have had several long and serious medical outages in 2008. Good health insurance was my best investment – picking up a six-figure tab.

So far as other investments are concerned — in some of my 2007-2008 HALOSCANS I had mentioned that my biggest position was with Prudent Bear Funds [BEARX] which made enough to cover all losses on the long side of my portfolio and then some – and I did not need to spend my time shorting individual stocks.

Target Conservative Portfolio for 2009: 50% Canned Goods / 50% Ammo.

But first a brief detour to one year ago:

I continue to stand by the (very general) ideas that I put forward as themes for 2008. I do not see our current situation as a “downturn” – I see it as a COLLAPSE. A downturn – a normal part of the business cycle – does not usually include a banking-broker/dealer-insurance-derivatives meltdown that requires trillions in support to prevent insolvency of virtually all of major financial institutions.

In the long run, we would be better off without many of those institutions. My buddies on

Wall St.

used to tell me that they were “creating wealth” – I would correct them and tell that they were “making money” (and participating in massive mal-investment and un-economic activity). The BailyBuilding and Loan Assoc. (of BedfordFalls) somehow didn’t need billions in leveraged speculation, proprietary trading or derivative bets.

There seems to be a lot of talk in AB and elsewhere about this thing called “solutions”. Solutions are not my department – predictions are. Any reasonable solution is by definition politically impossible – our political process is about putting out today’s fire and leaving the water damage issue to another day.

Since our society cannot go forward carrying every currently existing debt ($50T++) – (this figure does NOT include unfunded liabilities) unwinding unwise credit expansion means insolvency or inflation. There are few true creditors in our society – being a debtor is far more universal. The Federal Government, State Governments,

Wall St

., Banks, homeowners, consumers, leveraged investors and many other groups would benefit (in a lesser of various evils sense) from the debt reducing power of inflation.

Inflation is on vacation at the moment – but it is the end game. Fiat money requires at least some net positive inflation and a determined Central Bank can Quant-Ease (plus Gov fiscal) some of our problems away – with many side effects to be sure – but someone has to go over the top rope – and it is going to be savers and not debtors.

At some point we will have what may be called A Recovery – but it will really turn out to be A Reflation and collapse again – just like in the late 1930s. Inflating our way out of trouble may also crash into Peak Oil – creating Check Mate and Lights Out.

Obama recently pointed out how so many “different” economists – were in lockstep about the need for massive “stimulus” – funny how a counter-cyclical idea can seem sensible – but the same people advocate pro-cyclical “stimulus” as we chase one free-lunch after another.

My long-term view is dimmer than my short-term view — so as we enter this New Year, let’s all try and fondly recall how affluent our society once felt – as you will not see that again in your lifetime.

Regards to All !

Edward Charles Ponzi Jr.

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Correlation is not Causation

I spent most of the evening reading Underbelly posts, so this link is probably due to Buce:

On Oct. 22, 1986, President Reagan signed into law the Tax Reform Act of 1986, one of the most far-reaching reforms of the United States tax system since the adoption of the income tax. The top tax rate on individual income was lowered from 50% to 28%, the lowest it had been since 1916.

About thirteen years from 1916 to 1929. About thirteen years (plus the Clinton Administration) from 1986 to 2008.

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Proportionate Response

by cactus

Proportionate Response

I’m not going to weigh in on the latest incarnation of the Israeli-Arab conflict – everyone’s opinion about who is right and who is wrong is set in stone anyway – except to say that I found the constant use of the term “proportionate” to be quite interesting.
First, because very few people would advocate “proportionate responses” in non-military situations. Consider, for instance, Bernie Madoff. As I understand it, the man is in house arrest and many people wonder why he isn’t already in jail. However, putting Madoff in jail would not be proportionate – there is no indication that he imprisoned or otherwise directly interfered with anyone’s freedom of movement.
The reason it is important to imprison someone like Madoff, if he is indeed guilty of the offenses alleged (and admitted) is to prevent these offenses (and worse) from being committed again. Proportionate responses do not have a deterrent effect. We (through the state) could collectively seize all of Madoff’s assets, but that wouldn’t even deter Madoff from trying again, much less anyone else.
On the other hand, if police officers were allowed and encouraged to routinely shoot one out of every two people caught driving faster than the posted speed limit, and the odds of getting caught any time you were speeding rose to one in two, the average speed on the freeways would drop quite a bit. (Note – the issue of what level of response is needed to achieve a deterring effect is a different question than whether that level of response is worth applying to achieve that effect.)
Second, there is the issue of intent. Osama bin Laden and Al Qaeda clearly would like to kill us (i.e., and here, “us” amounts to “the West”) all. Every one of us. The fact that they only succeeded in killing a small fraction of us doesn’t mean that in combating Al Qaeda, the West only has the right to go after a small fraction of them. Incompetence is not a defense… and incompetents can succeed at their goals if given enough bites at the apple.
Third, a proportionate response often doesn’t exist. If Osama manages to get his hands on a bomb and next time around nukes New York, what is a proportionate response? His entire organization doesn’t have as many people in it as would have been killed in such an attack. Of course, if you include his fellow travelers, supporters (financial, material, and otherwise), and plain old well-wishers, you could easily end up with far more than enough people for a “proportionate response.” But is it proportionate to go after say, citizens of countries that are purportedly allies of ours who happily send money to Osama knowing full well that if he could, he’d nuke New York. Is it proportional to go after people who only provided money or material support without knowing precisely that it would be used to nuke New York? Perhaps not, but not doing so guarantees what you’re trying to avoid would happen again.
by cactus

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A look back at 2005 (Kash)

Excessive Liquidity

The Economist is worried about the rapid growth in the world’s money supply over the past couple of years:

HOW loose is the world’s monetary policy? One gauge is that real interest rates in America and other countries are still negative. Another is that global liquidity has been expanding at its fastest pace for at least 30 years. This deluge largely reflects the combined effects of American and Asian monetary policies.

… Central banks are supposedly the guardians of money. Yet between them they may have created the biggest liquidity bubble in history.

With the exception of the stock market crash year of 1987, the world’s money supply has not grown this fast since the mid 1970s. But exactly where has all of this vast amount of liquidity gone? Since output and output prices have not been rising particularly fast, it seems that much of it has gone to fuel asset price inflation. Housing prices have probably been inflated thanks to all of this liquidity (as many people have noted), but so have bond prices. As a result, bond yields have remained unusually low for this stage in an economic expansion.

As the following chart shows, real long-term interest rates have continued to fall over the past year or two even as the economic recovery has gained strength. (I used the average inflation rate over the previous 24 months to proxy for 10-year inflation expectations, and the close correspondence with the 10 year TIPS rate suggests that this is a good first cut at gauging real long-term interest rates.)

The failure of long-term interest rates to rise recently as the Fed has pushed up short term rates has been puzzling to many observers recently, and troubling to some. But I think that the explanation is simply that long-term bonds are one of the only places left for all of this liquidity to go. As we know, much of this newly-created money has ended up in the hands of a few Asian central banks, and they are not in the habit of putting their liquidity into purchases of goods and services, or stocks, or real estate.

This creates what I think is a surprising paradox: the unusually low long-term interest rates that the US is currently enjoying may in fact be the direct result of the US’s financial imbalances, since that is exactly what has put so much of the world’s liquidity into the hands of those Asian central banks. And those financial imbalances are in turn the result of the US’s poor savings. So in a bizarre twist, we may be experiencing a situation where the US’s lack of saving is what is actually keeping interest rates low…


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Reads of the Day for the start of 2009

All (somewhat***) via Mark Thoma:

Thomas Frank in the WSJ tells me why I always disagree with Robert (and the Other Economists) on the role of rating agencies:

And who makes sure that Moody’s and its competitors downgrade what deserves to be downgraded? In 1999 the obvious answer would have been: the market, with its fantastic self-regulating powers.

If you look at the spreads of various debt products, you can see that the market was doing that type of job even in 2007. For instance, the debt market priced [“rated”] Bear Stearns’s five-year bond issue in August 2007 at 245 over: rather closer to “junk” status than its rating would have implied. If you compare the debt and stock markets, it’s easy to see which is closer to “rating.” Unfortunately, the area where information is more valuable* is not the one discussed and understood in the press, where BSC kept trading up for several more months.

If a market “regulates” but no one notices, does it make the WSJ?

Brad Setser finishes the destruction of Tyler Cowen’s LTCM “argument” begun by Buce, while revealing its underbelly:

The big banks called to the New York Fed were the creditors of LTCM and they were in some sense “bailed-in.” To avoid taking losses on the credit that they had extended to LTCM, they had to pony up and recapitalize LTCM. [footnoted exception for BSC]

It just so happened that the market recovered and it was possible for LTCM to exit many of its positions without taking large losses, or in some cases any losses. The banks that took control of LTCM when LTCM was on the ropes were able to unwind LTCM’s portfolio in a way that didn’t result in additional losses. But the result Cowen desired — large losses for the banks and broker-dealers who provided credit to LTCM – was quite possible if LTCM’s assets weren’t sufficient to cover all its liabilities. No creditor of LTCM was able to get rid of its exposure as a result of the Fed’s actions. [emphases mine]

It used to be a standard rule that if you wanted to bury something in a newspaper, you published it on a Friday, or the day before a holiday. This seems to be what the NYT is doing with Casey Mulligan (previously discussed here here), who dropped the other shoe yesterday and was, amazingly, worse than expected. PGL at Econospeak does the read and calls out the deed:

Mulligan is essentially saying that those poor saps who have lost their jobs actually quit so they can game the mortgage system. In other words, there is no such thing as involuntary unemployment or being forced to either lose one’s home versus enter into one of these mortgage modification programs.

As noted in the WaPo two weeks ago (via Stan Collender at Capital Gains and Games),** qualifying for the “mortgage modification” program (i.e., reducing the principal on your loan to not more than 90% of the current market value) is an onerous task:

He was hoping he could qualify for the federal government’s Hope for Homeowners program, which allows the Federal Housing Administration to insure a new mortgage if the lender voluntarily writes down the mortgage principal to 90 percent of the new value of the home. But when he asked his bank about that, he was told he would have to be on the brink of foreclosure or have an adjustable-rate mortgage.

So Mulligan is basically blaming (1) those whose ability to keep their home depended on keeping their job and (2) those who took Alan Greenspan’s venal advice to go into ARMs just at the point at which he started raising rates. Class act.

And, finally, lest you think I’m always bashing Tyler Cowen, he notes a phenomenon in chess and suggests a reasonable conclusion:

I also see a general principle operating: the more exact a “science” the game becomes, the smaller is the value of accumulated experience relative to sheer skill.

The sheer is dicey, but the identification of the shift in proportionality may be accurate, and probably has applications in economics as well.

*The debt market is less liquid and therefore considers information more valuable. This is effectively the corollary of the DeLong, Shliefer, Summers and Waldmann papers: if you can’t depend on momentum trading, you take more care not to be the “greater fool.”

**Yes, I saw the Collender-bashing in my previous post. I’ve said before that CG&G became significantly less readable after the election, and am foolishly optimistic enough to believe that they may be returning to rationality. Besides, he happened to be correct: any given from increased military spending is definitionally no better (and likely worse) than spending the same amount on public infrastructure.

***I read PGL’s piece before seeing it in the links, but they’re all there.

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