Keeping India Poor, One Company at a Time

**UPDATE: Tata Releases Nano to India!**

With the world's second largest population, India also has one of world's largest populations in poverty, no thanks to Mamata Banerjee and her anti-business politics.



As a an Indian MP, and member of Trinamool Congress Party, Banerjee was a leader in the violent protests against Tata Motors and the building of their Nano plant in Singur. See "Tata Motors Says "Tata" to Singur" for more information.

If that wasn't bad enough for the economically depressed city of Singur, now Banerjee announced that she would lead anti-industrial protests across Communist-led West Bengal. Further, some of her ilk would like to see her take this campaign industrial suicide nation-wide.

According to The Wall Street Journal, on 05 Nov 2008,:

"...she (Banerjee) voiced her opposition to land acquisition for a power plant, a shipbuilding yard and a technology park in the state... She said she intends to keep up pressure on Tata and wants it to return any loans it got on favorable terms from the state."

Is this what India needs? Fewer manufacturing jobs, less technology, and more subsistence farmers? These companies and opportunities will help West Bengal improve the standard of living for all who live there. Infrastructure will have to be improved, which is one of Banerjee's complaints. New jobs and job training benefits the entire population. However, Banerjee, who is wed to foolish notion that subsistence farming is somehow more virtuous than working in industry, and is willing to exploit for political gain, is deserving of great contempt.

Every country in the world that has transitioned away from primarily agrarian economy to an industrial economy has felt this type of pain. It is not easy, but is best for the well-being of the country as a whole. It is a matter of efficiency. Farming on a large scale is more efficient and requires fewer workers. Those workers could be trained to take higher paying industrial or technology jobs. Higher wealth creates a higher standard of living and demands for better services from the government, such as clean water, power, and environment. Has Trinamool Congress Party of the Communist done that for Kolkata or Singur?? I think not.

India, don't let Banerjee and her brand of populism stop your country from being its best. Men like Ratan Tata have the right idea to improve the country. Industrial growth, while not perfect, offers a better life for the poor and their families. Don't be slaves to populist politics or subsitence farming, but be free to explore the possibilities of an improved economy.

Hold on to Your Wallets, Here Comes Obama

So you went and did America. You voted for Barack Obama. All of that "Change" and "Hope" talk snowed you, didn't it?

Well guess what? Starting with the new Democrat congress and Obama in the White House, taxes are going to skyrocket! One of the first things on the agenda will be allowing what was known as the Bush tax cuts to expire. That is an instant tax increase on all tax payers.

We also know that Congress and President-elect Obama are going to raise income taxes on anybody making $250,000, no wait, $200,000, nope, its $150,000, ok, just everybody. The tax increase that is really going to hurt the US economy is the capital gains tax.

Captial gains tax is a tax on the increase in investments. For simplicity sake, if your investment earns $100, current tax law takes $25. In percentage terms, if your investment earns 8%, your actual return is 6%, after taxes. President-elect Obama plans to raise that rate to 35%, thus making that $100 gain worth $65, or that 8% gain is really 5.2%. Will triple tax-free bonds become more popular?

What that really means is that folks will reconsider investing that next dollar, as the tax hit may not be worth it. Additionally, if companies have investment gains outside of the US, they won't repatriate that money because it will wipe out their investment returns. Without money to improve the business, or pay dividends, the economy begins to sputter. Considering the current state of the global economy, ANY tax plan that increases the burden on individuals or corporations is both dangerous and foolish. But don't blame me, I voted for McCain. Rant over.

"Beware of Geeks...Bearing Formulas"

Warren Buffett says it all, as reported in the 03 November 2008 print edition of the Wall Street Journal, titled "Behind AIG's Fall, Risk Models Failed to Pass Real-World Test." The article explains why the risk modeling used by AIG was one of the most significant causes of the storied insurers dramatic fall and current weakness.

As I have written in the past (Financial Crisis Primer), much of today's financial crisis is based on poor risk management. Additionally, the U.S. government had a strong role in the distortion of the mortgage and mortgage-backed securities market, creating a ripple effect felt through the credit-default swaps.

What is a credit-default swap? From the article:

"In essence, AIG sold insurance on billions of dollars of debt securities backed by everything from corporate loans to subprime mortgages to auto loans to credit-card receivables. It promised buyers of the swaps that if the debt securities defaulted, AIG would make good on them."

So, AIG had a Dr. Gary Gorton, formerly a Wharton professor and now a professor at Yale School of Management, build highly detailed models to determine "worst case scenarios" for the securities AIG was using for the credit-default swaps. While Dr. Gorton provided data based solely on the default potential of the backing securities, the AIG management was the final say on what was purchased.

So far, this sounds like a good practice. A very smart PhD economist builds a huge computer simulation to model risk. What the model didn't take into account is where this all falls apart and AIG is getting almost $100 billion in U.S. government loans.

The risk model of Dr. Gorton didn't account for the loss in value of the backing securities, nor did it account for the loss in value of AIG itself. Why? Mainly because the financial instruments used to create the credit-default swaps were so complex, and the other outside factors were near impossible to predict. In short, there were too many variables making proper risk management impossible also.

One can argue, as does a current criminal case, that AIG should have exercised better judgment in how it set up and sold credit-default swaps. One can argue that conservative risk management would have minimized these issues and allowed AIG to not require government financing. Perhaps there is another lesson in all of this. When something is too good to be true, like loose credit and cheap money, it pays not to be greedy. Just ask Lehman Brothers, or should I say, Barclays?

Price Discrimination in Health Insurance

According to the "New York Times," women pay higher health insurance premiums than men. The article, titled "Women Buying Health Policies Pay a Penalty," explains the reasons, but convolutes the issue for political reasons, shocking, I know.

In general, women pay more for health insurance because they tend to consume more health services. Seems pretty simple, right? Just like a life insurance is cheaper for somebody who doesn't skydive. Would you feel better if you had more energy? Try FRS® Healthy Energy™ Free*!

However, and this is where you should get nervous, "Women’s advocacy groups have raised concerns about the differences, and members of Congress have begun to question the justification for them."

I will save these groups and members of Congress the trouble by explaining this issue with data from the article itself.

"In general, insurers say, they charge women more than men of the same age because claims experience shows that women use more health care services. They are more likely to visit doctors, to get regular checkups, to take prescription medications and to have certain chronic illnesses." Pretty simple, right?

How about this:

Thomas T. Noland Jr., a senior vice president of Humana, said: “Premiums for our individual health insurance plans reflect claims experience — the use of medical services — which varies by gender and age. Females use more medical services than males, and this difference is most pronounced in young adults.” Again, women are consuming more health services. Cheap? No. 100% Free. Trade stocks for free on Zecco.com. The Free Trading Community. www.zecco.com

Again, for the advocacy groups who claim insurance should cost the same, in the name of equality, "Mr. Bykerk, a former executive vice president of Mutual of Omaha, said, “If maternity care is included as a benefit, it drives up rates for everybody, making the whole policy less affordable.”

So there you have it. Disparities in the cost of health insurance for women are based on usage. It seems like this is just another contrived issue for big government types to get there hooks into the best health care system in the world. These are same government types that brought you the TSA. Think about that!

A Global Nuclear Renaissance

An article in the 24 October 2008 print edition of the Wall Street Journal (B2) reports that France's Areva SA and Northrop Grumman are forming a joint venture to build heavy equipment for the nuclear power industry, as well as an engineering center in Newport News, VA.

According to a joint press release on 23 October:

The 300,000 square-foot facility represents a significant investment of more than $360 million in the U.S. commercial nuclear and manufacturing industries and will bring more than 500 skilled hourly and salaried jobs to the Commonwealth of Virginia. AREVA Newport News will be the first full-scale manufacturing facility dedicated to supply heavy components, such as reactor vessels, steam generators and pressurizers to the U.S. nuclear energy industry.



What the casual reader should know is the that the Newport News facility is one of the world's largest shipyards, and only one capable of building a Nimitz-class nuclear aircraft carrier. In short, it is a gigantic heavy industry site with highly-skilled labor.

This story is relevant to this blog not only because it follows the path of several previous articles:
"A Nuclear Renaissance in Germany?", "Nuclear, French Style", "Nuclear, India Style", "Nuclear, America Style", and "Build Wind, Drop Nuclear - Germany Loses its Mind" but also because nuclear power is one of the "greenest" and most reliable source of energy on the planet. This joint venture is also a shot in the arm of US heavy manufacturing, as the predicted market for its products is $100 billion.

Nuclear power is good for the US and those nations who are responsible. Let's hear it for Areva and Northrop Grumman for expanding the opportunity for clean and reliable power to the rest of the world.

A Nuclear Renaissance, in Germany?

In two previous posts, "Build Wind, Drop Nuclear? Germany Loses its Mind!" and the follow up post "Germany Loses its Mind- Follow Up" I wrote about how the German government was looking to decommission nuclear plants in favor of building 17 wind farms. As you can tell from the above titles and posts, I think it was a pretty bad decision.



However, there has been a ray of hope! I found this article on Platts titled "Germany's RWE to build new nuclear plants at home, abroad." The CEO, Juergen Grossman stated the following to the German newspaper, Sueddeutsche Zeitung, (as reported by Platts):

"RWE will engage in projects in Germany as well as abroad. An exact number will depend on the financing options available and possible partners, but we reckon about three to five new builds."

Well, it seems like Herr Grossman has the inside track. Maybe Germany has figured out that there is a real need for clean, reliable, nuclear power and that it doesn't have to be a zero-sum game with wind power.



Interestingly, he also makes this statement, that on first blush, is counter intuitive, considering the enormous capital costs surrounding the construction of nuclear facilities:

"Grossman believes the credit crunch provides an opportunity for RWE to grow as people look to greater security in their energy supplies. The crisis may require affected governments to reduce the amount of imported natural gas and re-focus on national resources, such as nuclear or clean coal technology, he said."

Let's hope that Germany can get back on the nuclear track while it lives out its wind fantasy.

Financial Crisis Primer, Part II

In my previous article, "Financial Crisis Primer," I gave a very brief explanation of why there is a financial crisis in the first place.

What I failed to mention, was a solution. While I would love to take credit, I didn't come up with this, and sadly I don't remember the name of the guest on CNBC who mentioned it.

What the Treasury should do, and it appears as though they will, is ask the banks what they need in terms of recapitalization. For example, Neel Kashkari (Cash-Carry, right? Love it) pictured above, calls Citi and asks how much they need to cover existing losses on mortgages, as well as capital necessary for lending. Citi responds with a number like $15 billion (twice what they got from Abu Dhabi Investment Authority). The government in turn, gets $15 billion in prefered stock, warrants, and other financial instruments of value.

I think this is a good model. It is very similar to what Warren Buffett did with Goldman Sachs. Goldman needed some quick cash and Warren put down a cool $5 billion. In exchange, (from MSNBC):

"(Buffett got)...$5 billion worth of perpetual preferred stock getting a 10% dividend and warrants to buy $5 billion of common stock with a strike price of $115 a share. He'll be able to exercise the warrants at any time over five years."

Imagine if the Treasury could spend $120 billion, $15 billion over 8 banks, and voila, much of the financial crisis is solved. The banks get fresh capital and the US taxpayer gets a profitable investment. Unfortunately for the existing shareholder, the infusion will dillute existing shares. Oh well, caveat emptor.

In the end, I think Bernake and Paulson are trying to shorten the duration of this mess by offering US taxpayer money to purchase the worst of the worst assets as well as providing plenty of cash at the Federal Reserve Discount Window.

Many argue that the government shouldn't be spreading around taxpayer dollars. While I agree in principle, the overall market for money indicates that banks are hoarding cash and investors are fleeing for quality. For the global financial system to function smoothly, capital has to get moving again, and I think that is the plan.

Tata Motors Says "Tata" to Singur

Tata Motors, who is building the world's least expensive car, the Nano, has finally fled business unfriendly Singur, in West Bengal, for Sandand in Gujarat. I have written two other articles about this topic, "Indians are Bad for Indian Business" and "India, When it Can't Get Any Worse."

In a press release dated October 7, 2008, Tata states:

"The integrated project, ... will come up on an area of about 1100 acres. The plant, ... will produce 250,000 cars per annum. The capacity is expandable up to 500,000 cars per annum. The project, including Tata Motors’ plant, vendor facilities and service providers, will together generate over 10,000 direct and indirect jobs."

I guess poverty is what local politicians had in mind for the populace, and poverty they will continue to enjoy. When will Indians learn that the way to move a country forward is through a positive business climate, and not one ruled by tin-pot, local politicians?? Gujarat seems to have learned that simple lesson, while West Bengal hasn't. It is a shame for the poor who are left to suffer.

Forget HHO, Go HCCI

In previous posts, ("HHO or HHype" and "HHO Sounds More Like HHype") I have provided a 10,000 foot overview of the HHO topic for increased fuel efficiency. In general, I have found it impractical at best and highly dangerous at worst.

However, there is a newer topic being researched at Berkeley, GM, and Sandia National Laboratory called Homogeneous Charge Compression Ignition. Here is a video about GM's research. Shop DriveTime First! Bad credit, no credit, no problem. Apply on-line.

The long and short of it is trying to get a gasoline engine to perform more like a diesel in efficiency. Berkeley explains it best: "Unlike a traditional S.I. or Diesel engine, HCCI combustion takes place spontaneously and homogeneously without flame propagation. This eliminates heterogeneous air/fuel mixture regions. In addition, HCCI is a lean combustion process. These conditions translate to a lower local flame temperature which lower the amount of Nitric Oxide (NOx) produced in the process. NOx is a gas that is believed to be responsible for the creation of ozone (O3)." 3-Bureau Credit Monitoring alerts you to changes on all 3 of your credit reports! Get a free 7-day trial plus credit report & score!

Increased fuel efficiency, lower emissions, using standard platforms, now that is what I call economically efficient. Let's hope that the technology around the lifters is improved to make this viable soon.