Veblen Dairy's Korean Investors Keep Green Cards...

...but probably lose green.

I noted that those attending the bankruptcy auction of the Veblen East Dairy last week included Terry N. Prendergast, representing the Hanul Professional Law Corporation. Hanul is the Korean law outfit that handles EB-5 visa applications for foreign investors participating in South Dakota Regional Center programs. That's the program through which rich foreigners can buy their green cards simply by dumping a half-million dollars or more into American job creation projects. Veblen East Dairy is one of several projects in South Dakota that has benefited from this investment program.

So I got to wondering: could any of those Korean investors be losing their green cards due to the failure of Richard Millner's Veblen operation?

I contacted Joop Bollen, president of the SDRC, to find out what's up with our Korean investors. Mr. Bollen says the Korean may have a fight on their hands to recoup their investment, but their green cards are safe.

All that matters to the EB-5 program is that the investors' money creates jobs within the first two years. Each investor's money needs to generate 10 jobs, direct or indirect. The EB-5 program calculates that one job on a dairy operation translates into 2.66 jobs in the local economy (hire one guy to shovel poop, and he goes to town to buy more beer and lumber, which generates enough economic activity for the bar and the lumberyard to hire 1.66 new people). Thus, if one Korean's $500,000 can be shown to create four actual dairy jobs, the EB-5 number crunchers apply that multiplier, declare 10.64 jobs created, and Uncle Sam erases the word "conditional" from the Korean's green card. Welcome to America!

The Veblen East Dairy satisfied the job creation criterion for all of its Korean investors before it declared bankruptcy. Most of the Korean investors have already received their permanent status. A few investors have applied for but not yet received approval of permanent status from the feds, but the bankruptcy proceedings and change of ownership have no impact on those remaining applications. It doesn't matter who owns the operation, as long as the jobs have been created. And as I understand Mr. Bollen's explanation, it wouldn't even matter if the new owners couldn't keep the dairy going and the whole operation collapsed. Once the EB-5 investors' money creates the necessary jobs (real and statistically assumed), their green cards are secure.

Not so secure are their greenbacks, which are what Mr. Prendergast was in the neighborhood last week to check on. Mr. Bollen's office isn't involved at all with the bankruptcy proceedings, but he says Hanul and the Korean investors are discussing how they might recoup their investment with the new owners' group organized by Richard Millner (that's Vista "Family" Dairies). The investors might well "have to take a haircut," says Bollen. I am encouraged, at least, to see that the Korean investors are still paying attention and trying to hold Millner and partners accountable for their cash.
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Bonus Business: Vista "Family" Dairies has 30 days to get together the $23.1 million it bid for Veblen East. If Millner's minions can't convince their remaining friends to chip in for this latest Millner shell game, VFD loses the bid, and backup bidder Whetstone Valley Dairy gets Veblen East. According to the articles of organization filed last week with the Secretary of State, Whetstone Valley Dairy, LLC, is managed by Steve Myers and Michael Crinion of Brookings.

Conservatives Agree Derivatives Dangerous... So Get on Board with Regulation!

I've noted previously that we really need to reform the derivatives market. Unregulated derivatives trading helped get us into the current recession. Even arch-conservative blogger John Walker agrees that unregulated derivatives are dangerous. Walker cites this article from the Washington Times (you know, the conservative Moonie paper) that refers to derivatives as "the fiscal equivalent of a weapon of mass destruction" and chides the "generously lubricated lobbyists for the unrestricted, unsupervised derivatives markets [who] tell congressional committees and government regulators to butt out."

Of course, Walker's ideological blinders are screwed on so tightly that he doesn't actually call for reform; he just uses the article to reinforce non-sequiturally his delusion that President Barack Obama is a lying communist. Never mind that President Obama is advocating derivatives reform. Never mind that Congressional Dems are pushing for derivatives reform harder than Walker's GOP.

I can't help wondering if Mr. Walker would rather see financial reform fail and the whole economy collapse again, just so he could fling more insults at the President. Sigh.

Shake off those blinders—support the President's call for regulating derivatives!

Legislative Notes: Curd vs. Noem on Small Schools

Of interest to small-town voters: The South Dakota House yesterday passed HB 1150 on a 40–29 vote. Compare the votes of two of our Republican candidates for U.S. House: big-city doctor R. Blake Curd votes aye, while small-town ranch gal Kristi Noem votes nay.

Dr. R. Blake Curd evidently feels it's perfectly acceptable to punish small schools for their success in attracting open enrollees. Evidently supporting school choice isn't a big issue for this conservative. Noem apparently feels we can find budget savings for the state somewhere other than on the backs of successful school districts.

Locally, District 8 Reps. Mitch Fargen and Gerry Lange joined Noem in voting against HB 1150. Let's see where our senator Russell Olson goes on this school-choice issue.

In other news from the Legislature yesterday:

• HB 1222, the farmers market bill, got unanimous support from the House (yay!).
• SB 21, a rather mushy bill that sort of bans social investing with the state investment funds and sort of doesn't, passed the State Senate unanimously. The more direct SB 134, stopping state investment in Iran, has passed the Senate and awaits attention from House State Affairs.
• Even deferred to the 41st day does not mean dead! Senate Appropriations resurrected SB 193, the pro-life bill that would extend Medicaid to all pregnant women. Alas, they made that effort just to give the bill a formal "Do Not Pass" recommendation.
• Oh yeah, and HB 1277 & HB 1278, those silly little anti-blogger bills, went nowhere in committee. Thank you, Mr. Powers, for your testimony. And thank you, members of the committee, for your rationality. Now, back to the counterplans....
  

Hunhoff: Get State Money Out of International Evil

Senate Bill 134 is up. This legislation from Senator Stan Adelstein and Representative Dan Lederman would divest South Dakota investment funds from companies doing business with Iran.

Yanking our money from Iran is a good idea. But if we're going to engage in social investing, we should be concerned about any evil our money supports, whether it kills our soldiers in Iraq or women and children in Sudan.

With that in mind, I reprint a letter from Rep. Bernie Hunhoff to the Yankton County Observer, in which he discusses the need for a broader view on social investing that goes beyond the specific politics of Iran, as embodied in Senate Bill 21.

For The Observer

STATE INVESTMENTS SHOULDN'T SUPPORT TERRORISM AND GENOCIDE

By Rep. Bernie Hunhoff


Chol Atem of Yankton spoke to state legislators last year about the evil regime that continues to terrify the people of his native Sudan. The Mount Marty College student joined others who pleaded with the 2009 state legislature to stop investment of state monies in companies that support the Sudanese government. Chol is one of the "Lost Boys of Sudan" who had to flee their homes to avoid been killed or abducted by government-sponsored gangs of terrorists who have now murdered more than 300,000 people and caused two million to abandon their villages.

While the divestment bill did not pass last year, Chol's testimony still rings in the ears of many who heard him. And last week — in the opening days of the 2010 legislative session — we were able to pass a bill through a Senate committee that addresses our state's responsibility in foreign affairs. Hopefully the compromise language will continue to find support as it winds its way through the Senate and House.

The bill requires the State Investment Council (SIC) to establish a Social Activism Policy to deal with problem companies. Once the U.S. Congress identifies such companies, the state legislature would advise the SIC to apply the policy.

The SIC staff in Sioux Falls would then begin a process of "engagement," meaning they would alert the companies that South Dakotans won't tolerate such behavior and that they must end their relationships with certain governments. Engagement is considered an important step by many foreign affairs experts, and hopefully it will have an impact. If it does not, then the Social Activism Policy requires that the SIC apply a risk-factor to the targeted companies which would eventually lead to the divestment of that stock.

The SIC would report to the legislature annually on the success of the policy.

The compromise bill (Senate Bill 21) doesn't act quickly enough for some in the legislature, especially a group of lawmakers who want immediate divestment from three companies that do business with the dictators in Iran. But overnight divestment gives away the opportunity for engagement as a major stockholder. Some experts think engagement can be more effective than divestment, so long as there is a threat of divestment. Immediate divestment may garner big headlines, but does it change corporate behavior?

The compromise also addresses the opponents' concerns that states shouldn't dabble in foreign affairs. South Dakota legislators and our State Investment Council will only apply the Social Activism Policy when the U.S. Congress acts to identify problem companies. The Congress has already done so for both iran and Sudan.

The SIC board and staff are rightfully worried that any engagement and divestment law may eventually lead to other proposals. Should we invest more in value added agriculture plants or renewable energy companies that locate in South Dakota? Should we cease investments with tobacco companies?

Our proposed bill would prohibit those types of social investment initiatives, but establish a procedure that seeks to keep your state dollars from being used to murder, maim, terrorize and oppress people in other parts of the world.

If the bill passes we can thank Chol, who is now working at Hy-Vee in Yankton and hoping to attend law school. His trip to Pierre made a difference.

Legislative Roundup: Toothless Legislation, Jail Bait, Beavers...

This week in the South Dakota State Legislature:

Genocide Concerns Us, But Keep Investing in Iran: The Senate Retirement Laws Committee stamped SB 21 "Do Pass." They did amend the state's request for unfettered investment in terrorist states. The amendment calls on the State Investment Council to "engage and promote compliance" with federal divestiture laws and authorizes the Legislature to "express its concerns" about state investments that may fund evildoers. In other words, more toothless paperwork. No sign yet of Rep. Lederman's promised legislation to outright ban the state from investing in Iran. Stay tuned....

Sex Sex Sex...: And you thought the budget would be all our legislators had on their minds. There are a slew of proposals relating to sex offenders and the life sentences our state imposes on them. There's also HB 1110, which eases the penalty for statutory rape for certain young and restless penetrators fondlers.

[Update 2010.01.24: HB 1110 primary sponsor Rep. Rich Engels drops by the comment section to clarify! See below! This bill is about sexual contact, not sexual penetration! Errors from the original post are corrected below—sorry for the mess!]

(Read carefully: this is tricky!) Right now, sex with someone under 16 is a Class 3 felony. However, if you're less than three years older than the victim, it's only a Class 1 misdemeanor.

HB 1110 changes the law to read thus:

If the victim is at least thirteen years of age and the actor is less than five years older than the victim, the actor is guilty of a Class 1 misdemeanor.

Let's try to clarify, kids:

Under HB 1110, if you are this old...	...[correction] serious necking is a felony if she/he's this old (or younger)	..but a misdemeanor if she/he's this old
16	12	13–15
17	12	13–15
18	13	14–15
19	14	15
20	15

Correction: The rules on rape remain the same. basically, kids, don't go all the way! If either party is under 16, it may be rape... and it's probably stupid. And for pete's sake, don't do it a second time: HB 1110 makes second offense a Class 2 felony.

So under HB 1110, two legal adults, one 19, one 18, could perform the same act, sex heavy petting with a 14-year-old. The 19-year-old could get 15 years in the pen and a $30K fine. The 18-year-old could get a year in the county jail and a $2K fine.

Hmm... could we just issue stainless steel underpants to everyone and hand out keys with high school diplomas? (Now that would cut the drop-out rate.)

Darn You Beavers!: In the unnecessary legislation department, HB 1113 adds prairie dogs, raccoons, skunks, and beavers to list of critters GF&P can target on the animal damage control list. Thing is, current statute already says that list can include "other wild animals" deemed injurious to the general welfare. I guess certain legislators just want to say, "Skunks! Coons! Beavers! We mean you!"

Update 13:05 CST: But wait, there's more!

Tightening the Auto Insurance Noose: Driving without insurance could get harder: SB 87 would require folks registering any noncommercial motor vehicle to show their proof of insurance to the county treasurer.

Make Your Own Gun, Dodge Federal Rules!: A majority of the Legislature has already signed on to sponsor SB 89, which will exempt firearms, firearm accessories, and ammo made and used exclusively in South Dakota from federal regulations. Do whatever you want with your weapons, as long as you don't invade Minnesota.

Sure enough, the "Firearms Freedom Act" is a coordinated national effort. SB 89 copies language used in a "Firearms Freedom Act" proposed in Minnesota last year. Montana led the way, passing the first version of said law last year and now fighting Uncle Sam in court to keep it. Interestingly, the NRA may not be supporting this law.

Stricherz Gets Bipartisan Support for "Stop South Dakota Iran Investment" Group

Patricia Stricherz has started a "Stop South Dakota Iran Investments" group on Facebook. That good Republican shares my view that our state government should not be investing funds in companies that do business with Iran, Sudan, and other state sponsors of terrorism and genocide.

The folks signing on to this group include a fair number of Stricherz's Republican friends, including Mr. Powers, who brought the Iran investment issue to my attention a couple weeks ago, and state Young Republican chair Kyle Jensen. But signatories include folks from the left side of the aisle as well, including myself and Matt McGovern.

State Representative Dan Lederman (R-16/Dakota Dunes) tells group members that he has a bill in works that will include the following:

Targeted divestment limited to foreign oil companies making substantial improvements to Iran's oil production infrastructure

Grace period for investment officers to divest for maximum return

Sunset clause in the event the company ceases prohibited activity or until Iran has satisfied United Nation and United Stae's call to halt funding terrorist organizations

Lederman's bill sounds like a better idea than Senate Bill 21, which is our investment fund managers' request that we citizens and our legislators keep our noses out of our business and not hinder their work with any "social investment" requirements.

Rep. Bernie Hunhoff (D-18/Yankton) offered divestment legislation last year that fell short by one vote in the Commerce Committee. Let's hope Lederman, Hunhoff, and the rest of the Legislature can work together to get it right this year and get South Dakota money out of Iran, Sudan, and other bad places.

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Read more:

• Randy Dockendorf speaks with Stricherz and Lederman in the Jan. 8 Yankton Press & Dakotan. Governor Rounds declines to offer an opinion (that would take leadership, wouldn't it?).
  
• Stephen Rosenthal of Sioux Falls reminds us of several South Dakotans killed by roadside bombs, the very sort of terrorist devices funded by money trickling into Iran.
  

SB 21 Prohibits "Social Investment" Restrictions on SDRS Funds

Newly posted on the state legislature's website, a bill to inspire comity in the blogosphere: SB 21, which Pat Powers and I agree deserves a big "Do not pass." SB 21 is a prohibition on "social investing" restrictions on state investment funds.

Let the Wobbly Democrat in the room translate: SB 21 is big-government elitism. It's bureaucrats in Pierre telling you that they know better than you, and that lowly citizens (i.e., shareholders... i.e., the people who pay the money into the system and who pay those bureaucrats' hefty salaries) have no business telling them how to do their job. SB 21 says that the state will invest your money wherever it thinks it can turn the fastest buck, even if that means investing in places where your money may fund roadside bombs, political oppression, and genocide.

I look forward to hearing which of our legislators is willing to take the side of Iran and Sudan on this one. I also look forward to Rep. Dan Lederman's counter-legislation to put at least a drop of morality in our state investment system.

End South Dakota Investment in Terrorism

Pat Powers is right: this is an issue where we strip off the party labels and talk about doing the right thing.

Dakota War College spotlights a gross injustice in South Dakota's state investments. According to Powers, of the money we use to fund pensions for our state employees, 29% is invested with companies connected to terrorist states. Of 55 companies where we invest our money, 44 deal with Iran, 18 deal with Syria, 16 with Sudan, and 10 with Libya.

If you think President Obama is a menace for suggesting we talk with Iran, how do you feel about Pierre investing your money there?

Powers notes that the honchos of the state investment council and retirement system are pushing legislation to keep the Legislature from interfering with their investment decisions, even if those decisions are socially unsavory. He says State Rep. Dan Lederman is leading a group of legislators who will fight to get our money out of Iran.

Powers makes a clear call to all South Dakotans to get on board with terror-free investment of state dollars. I can't argue with that. Yes, social investing would create some more hassle for state investment officer Matt Clark. But he gets paid big bucks to do hard work like that. He also gets paid big bucks to do the will of the people of South Dakota. I suspect South Dakotans will agree that no marginal growth of our state investment fund is worth funding roadside bombs, political oppression, or genocide.

Keep an eye out for Lederman's bill... and morality in state investments.

Investors Quit Big Stone II: Harbinger for Hyperion?

Could good news breed good news? Might the death of the proposed Big Stone II coal plant in northeast South Dakota signal the impending extinction of Hyperion's proposal to bring dinosaur power to the southeast corner of the state? Big Stone II failed because it couldn't convince investors to bet their money on a big unsustainable energy project. Backers of the Grant County coal plant were trying to buck a negative investment trend that has seen 100—now 101—coal plants defeated or abandoned since 2000 as high rollers like Warren Buffet realize stuffing their money in the coal-power mattress is not a wise move.

Now Hyperion has to convince these same cautious energy investors to sink their capital into a project that will use an even dirtier fuel source and cause even more environmental disruption in its construction and operation. Shell Oil says the tar sands oil Hyperion would refine is cleaner than coal... but Shell also made $351M in profit on its tar sands operations in quarter 2 this year. **[Update!] On the climate change score sheet, BSII would have pumped 4.5 million tons of CO₂ annually. Hyperion's complex would emit 19 million tons.** Oil refineries are also more likely to explode than coal plants (pace BP).

As Dean Spader points out in a Sunday letter to that Sioux Falls paper, the Hyperion refinery would take 6,000 acres of some of South Dakota's most productive farm land out of production. "No advanced civilization destroys and pollutes its source of food," says Spader. "Nor should any Christian nation ever deliberately annihilate rich cropland when 1 billion people are starving."

Far be it from me to appeal to the Christian sentiments of venture capitalists. The business case alone is enough to make them back away from refineries. Valero, the biggest refiner in America, is losing money on oil and switching off refineries. The only bright spot in its portfolio: all those ethanol refineries they bought from bankrupt Verasun.

Blame the recession, blame ACESA... heck, blame me and my fellow bike-riding propagandists. The cold hard facts of the market say investors are looking for smarter, cleaner, more sustainable places to put their money than fossil fuels.

Memo to Preston Phillips, Albert Huddleston, et al.: have you thought of installing wind turbines and solar panels on that land you've optioned? There's some decent Class 3 wind down around Elk Point, and we can get you just about as much solar potential as down in Dallas. Plus, you wouldn't be dependent on foreign oil!

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Update 09:17 CST: Of course, don't tack this blog post up on your bulletin board in Union County. Elected officials there might threaten to fine you for speaking out against the refinery.

Energy Investors Summary: Big Stone II Dead

A review of the literature suggests that the only people saying that the Big Stone II coal-fired power plant can survive the departure of leading developer Otter Tail are the remaining investors in Otter Tail who are begging other investors to fill the gap.

• "Otter Tail was the lead utility in the much-troubled effort to build a $1.6 billion coal-fired plant in South Dakota. The Fergus Falls, Minn.-based company’s withdrawal means the remaining four partners would have to find a replacement to fill Otter Tail’s $400 million gap. Given the condition of the economy and the uncertainty in the energy sector, the project is a hard sell to investors" ["Otter Tail Declines the ‘Risk’ in Power Plant," Fargo-Moorhead In-Forum, 2009.09.18].
• On Sept. 11, the lead developer, Otter Tail Power Co., dropped out of the consortium. That should kill the plant.... For Minnesota, this decision should be an economic boon. Without Big Stone II, the wind farms of southwest Minnesota will be even more in demand and will likely expand. That will mean more jobs and economic activity in the state, rather than the few jobs that would have been added (in South Dakota) by building the coal-fired plant. It will also mean more jobs and economic activity in Minnesota's energy-efficiency industry [Pual Aasen and Michael Noble, "Do We Need Coal for Power? No," Minneapolis Star-Tribune, 2009.09.16].
• The clean-coal project was originally slated to be up and running by 2011, but capitalization efforts and lawsuits have now put the start to late 2015, if at all, with Otter Tail's withdrawal ["Do We Need Coal for Power? Yes," Bemidji Pioneer editorial, reprinted in Minneapolis Star-Tribune, 2009.09.17].
• The withdrawal of Otter Tail Power will likely be the death of the $1.6 billion project, and that’s a good thing, said Chuck Laszewski, communications director for the Minnesota Center for Environmental Advocacy, which has long opposed Big Stone II. “This is a major victory for not only the environment, but also the economy of Minnesota,” he said [Nathan Bowe, "Big Stone II Power Plant Project Could Be Dead after Otter Tail Power Company Pulls Out," Detroit Lakes DL-Online, 2009.09.16].
• My favorite mini-conglomerate just swam into murky waters. Otter Tail (Nasdaq: OTTR) subsidiary Otter Tail Power no longer wants any part of the Big Stone II coal-fired power plant, throwing years of planning to the wind.... Otter Tail's retreat throws the very future of that power plant into question. Demand for baseline power is still there, but the other utilities involved now need to find some other way to fill that void [Anders Bylund, "Otter Tail Swims Away from Big Stone," The Motley Fool, 2009.09.15].
  

Notably absent from any of the press coverage: an independent assessment from anyone who doesn't have skin in the game (e.g., not Dan Sharp, Tom Heller, or Russell Olson) explaining why potential investors should reject the economic and political logic that led Otter Tail to bail.

By the way, since announcing its withdrawal from Big Stone II on September 11, Otter Tail's stock has risen just about 4%.

I note also that Nathan Bowe's Detroit Lakes article is one of the few balanced pieces of journalism I've seen on the piece. Where KELO has gotten quotes from no one but boosters of the Big Stone boondoggle, Bowe balances the public relations efforts of Big Stone II communications manager Dan Sharp with the public relations efforts of environmentalist opponents. Nice work, Nathan!

Stimulus or Savings: Sounds Like a Win-Win to Me!

O.K., o.k., the stimulus isn't sending the economy roaring back into a frenzy of consumer spending. But it is fueling the highest savings rate in America since 1993. Last month, consumer spending went up just 0.3%, even though our incomes rose 1.4%. But we socked away 6.9%. Even that figure isn't spectacular: as this cool NYTimes graph shows, 6.9% only brings us back to the average for the last 50 years. Still, that beats the credit-drunkenness of the past few years. And after this year's mess, I think we could all use a nice, slow, boring economy where people act like Grandma and Grandpa told us to: save your money, spend wisely, and don't buy what you can't afford.

National Thrift Week? Heck, let's try National Thrift Decade.

College Worth the Cost? Not for Investors... and Not for Self-Motivated Learners?

I've told students that college is a great place to be during a recession. You go to class, think big thoughts, and when the recession is done, you ride out into the revitalized workforce with more skills and earning power.

An eager reader sends this article from SmartMoney.com's Jack Hough, who questions whether the investment in college is worthwhile, in a recession or otherwise. Hough runs the numbers on two hypothetical high school grads, Ernie and Bill. Both save up cash for college, but after high school, Ernie invests that money and goes straight to work. Bill goes to college, covers about half of his tuition with his savings, and takes on students loans for the rest. Saving money at the same rate as Ernie, Bill pays off his student loans by age 34 and begins investing. Thanks to his college degree, Bill earns higher pay each year than Ernie. However, with a 16-year jump on investing, by age 65, Ernie has over three times as much money—$1.3 million, not adjusting for inflation—than late-saver Bill.

I like to argue that money isn't everything, but even I have a hard time arguing to value of a university education against a tripling of lifetime savings. Maybe we can argue that Ernie will be stuck with a much narrower range of employment, fewer jobs that really engage his talents and fulfill his spirit. Is a big retirement fund worth 47 years of toiling away at unsatisfying work? But who's to say Ernie or any ambitious high school graduates can't find such work, or create it for themselves?

And who's to say Ernie and others who would skip college can't expand their minds and obtain a liberal education outside of traditional degree programs? Hough contends that our universities are lowering their standards and inflating their grades at the same time that the Internet is making it ever easier for individual learners to pursue the knowledge that interests them. Individual learners ought to be able to prove their brains and skill on the job without having to pay the costly premium of branding (that's what Hough calls it) via a university diploma.

But how do we know folks know what they know without a B.A., B.S., or other letters after their names?

Here Hough makes me antsy: he embraces the recommendation the Bush-era Spellings Commission to create standardized tests for university-level learning. I place the burden of proof on testing advocates to demonstrate that their tests can effectively gauge learning as rich as what our universities are supposed to offer. But would scores on a mega-SAT be any less arbitrary than the piece of paper the dean or president hands out in May? A set of standardized tests for advanced learning might even be more fair than a diploma, since it would be open to anyone, not just those students who can afford to sit for four years (or five, or six...) in university classrooms.

It will be hard to reverse the enormous social pressure to go to college. A lack of a degree shuts a lot of employment doors. But Hough's argument suggests that the labor market's expectation that more employees have a university degree (and, increasingly, degrees) may be closing as many doors as it opens and degrades the quality of university education.

Bailout for Sioux Falls Home Federal: I Own My Own Mortgage!

...and so do you!

Ah, the joys of discovery on the Internet! Talking Points Memo linked to a cool map at ProPublica.org that shows where the Troubled Asset Relief Program funds (you know, the bailout money for silly bankers) have gone so far. I clicked on the full-size map, then clicked on the one little dot, all alone on the prairie, sitting on Sioux Falls. Up popped a little info balloon: "HF Financial Corp in Sioux Falls, SD. $0.025 billion."

When you put it that way, $25 million seems so small.

I checked Pro Publica's list of bailed-out institutions and found the press release from HF Financial and Home Federal Bank of Sioux Falls. Home Federal—hey! They own my mortgage!

...which I guess the infusion of my tax dollars means I now own my mortgage. Surely this means I get to skip a payment, right? Remind me to propose that at the next stockholder's meeting... since I'm now a Home Federal stockholder, just like you!

HF/Home Federal got preliminary approval on October 27, then got its board's approval and issued the press release on November 21:

"HF Financial Corp. and Home Federal Bank are pleased to be one of the first in our region to participate in this voluntary program," said Curtis L. Hage, Chairman, President and CEO of HF Financial Corp. Hage continued, "In addition to our currently well capitalized position, this new equity will serve to increase our capacity to lend and enhance our already strong support of economic activity and development in the communities we serve. This is a very prudent means to execute upon our strategic business plan and we believe it adds value to our shareholders, customers, future customers and the communities and region we serve."

Corporate cowpuckey.

• "Pleased to be one of the first in our region...." Since when is anyone pleased to be the first person in the neighborhood to get a welfare check?
• "...our currently well capitalized position...." Hold on. I thought we were bailing out banks that were in trouble. Why are we handing money to companies that showed nearly 50% increase in earnings per share?

CEO Hage gives me the giggles as he reiterates that everything is fine, really:

"HF Financial Corp. and Home Federal Bank are well-capitalized, but we are also in agreement with the Treasury Department that this additional capital can help stimulate the economic growth our nation now so vitally needs," said Hage. "In approving our participation in this program, which has been extended to viable banks such as ours, we believe we can increase our lending activities in the economically stable markets we serve" [emphasis mine, baloney all Hage's].

Hilarious. I have plenty of capital. I'm perfectly viable. I serve a stable market. Hand me some bailout money!

Or, as I suggested above, just let me skip a couple mortgage payments... to myself.

Bailout: Throw Money at Success

Forget bailouts; let's build boats that float!

Robert Reich offers an explanation of the perverse narcissism of Wall Street (and the Treasury Department and Federal Reserve, which share Wall Street's mindset) that thinks Citigroup deserves a bailout while General Motors does not. Nutshell: Big financiers want to believe that they are special, that their money games are more vital to the economy than manufacturing real goods, not to mention the jobs and communities GM more directly supports.

Reich is no champion of free money for GM, either: he notes that both GM and Citigroup are in trouble because of their own management blunders. He just wonders why, if we have tax dollars (or unused deficit capacity) to throw at losers, we don't help the losers who do more immediate good for American workers.

Listening to Bob Edwards Weekend yesterday, I heard a NASA supporter, maybe an astronaut in training, respond to a question about whether we can afford to fund NASA when we have to deal with the economic crisis. He noted that NASA's budget ($17.3 billion this year) is a tiny fraction of the hundreds of billions of dollars we are throwing at failing banks. [Paraphrasing] "Instead of throwing money at failure," he said, "maybe we should try throwing money at success."

Throw money at success. We can conjure up hundreds of billions of non-existent dollars to protect bankers and investors who made selfish, stupid choices. Yet we scrape together maybe $20 billion next year for brave women and men who risk their lives for science, exploration, and the future hope of mankind (not to mention GPS and Google Earth).

Want to stimulate the economy, or even just keep it alive? Let Citigroup and GM sink. Let's throw money after some winners. I'll bet $700 billion could build a whole lot of moon rockets and Mars Rovers (how about Pluto Rovers?!).

Or if you don't want to build the Enterprise, let's look around for some successful existing enterprises that deserve a reward. Someone out there has got to be making good products, services, and investments. Maybe we should match every dollar we hand to losers like Citigroup and GM with a dollar to winners like First Bank of Madison and American-based Toyota factories (oops, wait a minute...).

I can think of a host of success stories whom we could reward with some economic stimulus:

• South Dakota teachers: producing above-average graduates on the lowest teacher wages in the nation. Dump some $10,000 bonuses on them; those teachers will spend that money on books, computers, decks and landscaping....
• Soldiers: National Guards leaving their jobs and families for mulitple tours, dodging snipers and roadside bombs, coming home with lifelong injuries. Time for some bonuses. Big bonuses. Three million personnel in the regular ranks and reserves, $10,000 each, extra for war-zone duty... $100 billion would cover that.
  
• College graduates: let's forgive student loans! But not every student loan: Uncle Sam let's you off the hook, but only if you get straight 4.0 (o.k., maybe a 3.6), and only if you get it done in four years. No dinking around—the economy needs you!

I'm sure you can come up with your own list of winners, of individuals and organizations who have made good decisions, who done real good for their communities, and who are so much mroe deserving of a fat economic stimulus check than myopically, incompentently managed corporate behemoths. Write down your list, send it to your Congresspeople and President-Elect Obama.

When you bet on the stock market or the horses, you generally don't lay your money on a losing streak. You look for proven performance. Let's stop throwing money at failure. Let's look for programs and people—like NASA, teachers, and soldiers—who continue to prove they can succeed.

Decline Everywhere: What's Going Down in South Dakota?

Lots of things receding, not just the economy. Here's a random-sounding sample (though nothing is random, Alex tells me) of declining numbers, good and bad:

• Traffic deaths in South Dakota: down 25% from this time last year.
  
• Price of gas in Madison today: $1.799 for E-10 (uh oh... and I'm still waiting for grocery prices to follow)
  
• South Dakota Retirement System: total value down 27%... since July 1.
• Job cuts coming at Citigroup: 53,000 worldwide, on top of 22,000 announced last month (but remember, Citigroup: South Dakotans work cheap! Save money firing those darn Californians! We're you're Third World!)
• Amount of open water on Lake Herman: less than 10% this morning, before the wind started blowing the ice around. Brrr!
• Antelope population in South Dakota: down 17... in one shot! Eeeewww! That had to be an awful drive on I-90.
  

Herseth, Flip Your Vote: Let's Flip Houses!

I still don't know fully what to make of the Seven Hundred Billion Dollar financial bailout. (Remember: $700 billion is a huge amount of money, enough to seven million houses just like mine... and there are only 124,000 chronically homeless people in the U.S.) My gut tells me we should sock it to the meatheads, borrowers and lenders alike, who caused this mess. But then I think back to Prof. Blanchard's sensible words on fires and fat, stupid brothers-in-law, and I feel inclined to put my anger aside and fix the problem now and the blame later.

And when Republican Joel Dykstra criticizes Democrat Tim Johnson for siding with constituents and not supporting a massive government intervention in the free market, well, I can hardly tell what planet I'm on any more.

But to today's vote: with the Senate's aye vote Wednesday, the bailout ball is now back in the House's court. Representative Herseth Sandlin voted no on Monday (along with Dennis Kucinich and Mike Pence, another mind-bending political convergence). Will she flip her vote to grease the economy and let her and her colleagues get back home to campaign (not that Herseth Sandlin has to work too hard, even if Chris Lien does slide his whole face into his campaign banner)?

If I were in her shoes, I think I could come up with a justification for turning my Nay on the bailout into an Aye. Let's speculate... literally. Let's speculate in the best investment the world has ever known: real estate.

O.K., I know, the housing market stinks, that's the problem. But as Donald Trump said on KELO last week, that's also the opportunity. The market wants cash, liquid assets, not boring old solid assets like houses. We, the American taxpayers, have cash... or at least a reasonable facsimile thereof in the form of an apparently infinite federal debt capacity. Fine. Let's buy. The banks will kiss our feet for it, and they'll get back to floating the loans we need to meet payrolls, buy cars and equipment.

Plus, we will be the proud owners of a whole bunch of houses, or at least mortgages. Think that's a worthless investment? Right now, maybe. We aren't going to flip those houses on the market in 2009. But we don't have to be like the bankers and brokers and constantly move our money around. We can sit on this investment for five, ten years. Straighten out Wall Street, ride out the current turbulence, get five million veterans and other Americans to work in President Obama's new "Green-collar" jobs, and let the real estate market do what all investments except for horse-and-buggy stocks do over the long term: grow.

The population is growing, and land isn't. Folks will always need places to live. Investment in real estate may not be a plus on the FY2008 balance sheet, but long-term, it will always pan out.

The banks don't want to delay their gratification, hold onto their mortgage investments, and enjoy the profits ten years from now? Fine. We'll take those profits, thank you, and pour them right into balancing the federal budget in 2018.

Is that economic analysis sound? I really have no idea. But it seems to make as much sense as anything else I've heard from Wall Street and the politicians over the past two weeks (two weeks, and no meltdown yet!).

Congresswoman Herseth Sandlin, your comments (and everyone else's!) are welcome. We look forward to your vote today....

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Update 14:41 CDT: The Kucinich-Herseth Sandlin-Pence axis stayed strong, but enough others wavered: on a 263–171 vote, the House of Representatives approved the bailout, and President Bush has fixed his signature to the biggest single federal intervention in the economy ever. Hold onto your hats, kids: we're going into the real estate business!

House GOP (and McCain?): Let's Try More Deregulation!

As Governor Palin continues her unrelenting search for more examples to bring to Katie Couric of Senator McCain supporting stricter regulation (maybe she'll find Nicole's real killer while she's at it), she can skip the House Republicans' bailout alternative. Her boss mentioned it yesterday at the big White House meeting; Secretary Paulson said directly that it won't work; the House GOP are still fighting for it.

And what does that GOP alternative ask for?

Before the Thursday-afternoon White House gathering, Bush aides were trying to rally support in anticipation of a close series of votes. But congressional Republicans were ginning up an alternative plan that would allow banks to purchase insurance for mortgage-based assets.

In a morning meeting with Sen. McCain, the group proposed charging premiums to companies that hold mortgage-backed securities and using that money to create an insurance fund for these products. The House Republican proposal would also remove regulatory and other barriers that they say block private investors from pumping capital into ailing financial institutions [emphasis mine; Greg Hitt, Damian Paletta, & Deborah Solomon, "Bush Promises Bailout Will Pass," Wall Street Journal, 2008.09.26].

Talk about fighting fire with fire.

Economists Urge Caution, Highlight Three Pitfalls of Bailout

Don't worry, Stan: I was kidding... sort of!

Tony points us to an NYTimes Freakonomics post on an "emerging consensus" view among economists that the $700-billion mortgage bailout is at least dangerous, if not unnecessary. To understand why, see this new open letter to Congress from almost 200 (as of this a.m.) economists of all political stripes who see three big pitfalls to the bailout:

1) Its fairness. The plan is a subsidy to investors at taxpayers’ expense. Investors who took risks to earn profits must also bear the losses. Not every business failure carries systemic risk. The government can ensure a well-functioning financial industry, able to make new loans to creditworthy borrowers, without bailing out particular investors and institutions whose choices proved unwise.

2) Its ambiguity. Neither the mission of the new agency nor its oversight are clear. If taxpayers are to buy illiquid and opaque assets from troubled sellers, the terms, occasions, and methods of such purchases must be crystal clear ahead of time and carefully monitored afterwards.

3) Its long-term effects. If the plan is enacted, its effects will be with us for a generation. For all their recent troubles, America's dynamic and innovative private capital markets have brought the nation unparalleled prosperity. Fundamentally weakening those markets in order to calm short-run disruptions is desperately short-sighted.

"Illiquid and opaque assets"—sounds like something warranting a call to the Lake Herman Sanitary District, not the Treasury Department.

You want to spend $700 billion helping bankers flush their bad assets? Oh my.

Tar Sands: Big Oil's Subprime Lending Collapse in the Works?

An eager reader recommends this article from the UK Guardian which highlights a new report that claims tar sands could turn to financial quicksand for Big Oil.

To review: tar sands are basically a mix of sand or clay, water, and really heavy oil called bitumen. It's hard to extract: instead of just punching a hole in the ground and drinking the milkshake, you have to use all sorts of steam, filters, chemicals, and whatnot just to separate the bitumen before it can be refined into usable fuel. All that extra work means extra expense. Extracting that "unconventional" oil from the muck only became profitable recently as conventional oil prices shot up.

We have tar sands in Utah; the Canadians have the mother lode in Alberta. That's the stuff TransCanada hopes to be pumping through our fair state in a couple years (and probably the stuff Hyperion hopes to be refining in Union County).

But now some market analysts worry that BP and Shell, the biggest backers of tar sands development, may be risking financial disaster by investing in the petro-equivalent of subprime loans, a risky investment that ignores market fundamentals:

Mark Hoskin, senior partner at the ethical investment advisers Holden & Partners, expressed concern about the increasing focus on tar sands at a time when oil companies are being shut out of traditional drilling areas such as Russia and Venezuela.

"The recent banking crisis has shown how the financial markets can totally misjudge both the risks and values inherent in company balance sheets," he said. "Oil companies depend on oil reserves for their market values. BP and Shell are two of our most trusted UK stocks, but it is a shocking fact that 30% of Shell's oil reserves are in tar sands.

"This report unveils how dangerous this approach is. There is a good chance that tar sands could be to the oil industry what sub-prime lending was to the banking sector" [Terry Macalister, "Tar Sands: The New Toxic Investment," Guardian UK, 2008.09.17, p. 27].

Greenpeace and Platform, co-sponsors of the report, cite four big factors that could negate the profitability of tar sands development:

1. Low carbon fuel standards under consideration by US presidential candidate Barack Obama and already implemented in California threaten to close sections of the American market to products derived from tar.
2. Acute labour shortages and the rising cost of delivering gas to the tar sands threaten to stifle the planned expansion of the sector.
3. An unrealistic reliance on untested carbon capture and storage (CCS) technology risks leaving the companies with huge stranded assets in the future, as international climate change regulations are strengthened at Copenhagen next year.
4. The extensive clean up operation and potential future litigation from local communities carry significant brand risk.

I suspect Big Oil won't be persuaded directly. The analogy to subprime lending feels tenuous. I get the feeling, though, that Greenpeace is trying a different tactic: instead of fighting directly with the industry, they are working on the investors, the fickle stock market speculators who are much more susceptible to whim and worry. By making even a metaphorical link between the great fiscal demon of the moment, subprime lending, to what some consider the greatest environmental demon of the decade, tar sands opponents hope to frighten some capital away from Big Oil.

No one said an argument has to be rational for the strategy to be effective. (Just ask the McCain campaign.)

Economic Armageddon? Not on Wall Street, Not Yet

While I still try to pick my jaw up off the floor over $700 billion dollars to bail out irresponsible borrowers and lenders, here are some smaller stock market numbers, for what they're worth:

• Dow Jones Industrial Average (DJIA) closing value, Friday, 9/19: 11,388.44
• DJIA opening value, Monday, 9/15: 11,318.59
• DJIA net gain for the week: +0.6%
• DJIA net change since peak (14,093) last October: -19%
  
• DJIA net gain over the last five years: 22%
• DJIA net change from 9/3/1929 to 11/11/1929: -40%
• DJIA net change from 10/14/1987 to 10/19/1987: -31%
• DJIA net gain over 1987: +0.6%
  

Maybe President Bush and Secretary Paulson should take the investment advice I hear all the time: take the long view, ride it out.

But if we can't ride it out, if we have to write that check (and leave it to our kids and grandkids to pay for our profligacy), it will prove one thing: the free market is dead.

And Sibby thought Obama and I would bring Marxism to America. Hmph: President Bush beat us to it.