NewGeography.com blogs

A reader forwarded along this video of a bustling recent weekend at La Gran Plaza, a shopping center serving the Latino market in Fort Worth, TX. Just a few years ago, La Gran Plaza was a failing conventional shopping center before developers purchased it and completely redesigned and repurposed the mall to cater to Latinos. Partly because it serves a more insular, cash based clientele and largely because of brilliant design and programming choices, this mall seems to be thriving during a very tough period for retailers.

The days of the nu-cu-ler presidency may be over, but nuclear energy continues to be a hot-button issue, even if pronunciation isn’t the problem.

As it stands, President Obama plans to “slash the budgets of the U.S. Nuclear Regulatory Commission and the national nuclear waste facility at Yucca Mountain, Nevada,” reports eco-watcher Paul Taylor.

The 104 nuclear power plants spread across the United State currently supply around 20% of the nation’s power and have eliminated 8.7 trillion tons of carbon dioxide released into the atmosphere.

Technological improvements in nuclear facilities have also led to a typical power plant operating at 90% annual efficiency – whereas wind and solar power generally operate at 25% efficiency.

The U.S. may operate about a quarter of the 430 nuclear power plants worldwide, but “nuclear energy” continues to be a polarizing subject – safety may have improved, but Chernobyl and Three Mile Island continue to be associated with the energy’s potential hazards.

Despite the memories of Karen Silkwood, Americans appear to be increasing their approval of nuclear power. The number of American citizens in favor of expanding nuclear power is up to 50% in 2007 from a 44% approval rating in 2001.

The energy harvested from one pound of uranium fuel is equivalent to 1.3 millions pounds of coal energy. The decisions Obama will make about the nuclear program will undoubtedly be closely watched by those concerned with stable, domestic energy supplies as well as GHG emissions.

In a potentially ominous development, Television New Zealand reports that the Obama government has postponed free trade agreement discussions under the proposed Trans-Pacific Strategic Economic Partnership (P4) with New Zealand, Singapore, Brunei and Chile. Along with the United States, Australia, Peru and Vietnam were to have been involved in the expanded free trade area. It is reported that the postponement is related to an assessment of trade policy by the Obama administration. An inward turning US trade policy, favored by President Obama's organized labor allies even before the economic meltdown, could set the nation on a protectionist course not unlike the measures that prolonged the Great Depression.

Imagine the following scenario. John, Paul, Ringo and George are the only members of a society and each has amassed a pile of currency over his lifetime. John and Paul each have 100 utils, Ringo has 300 utils and George has 500 utils. All told, the size of the entire system is 1000 utils.

John and Paul decide to enter into a private contract. Under the terms of their agreement and in exchange for an apartment on the ultra-hip Upper West Side, John will pay Paul 40 utils up-front, 1 util a month for 5 years, and 1,000 utils in a lump sum at year 5. While the insanity of such a contract is undisputed, there are two approaches for a government to take once the impossibility of its satisfaction becomes clear.

The first, simpler and more sane approach allows the two parties to work out an eventual default between themselves. In fact, most economic systems, like ours, anticipate these types of failures and have time-honored methodologies for dealing with them once they occur.

Approach two -- the one that seems to be favored by our government at every turn -- turns on the printing press, prints enough additional money and hands it to Paul (the non-defaulting party) in satisfaction of John's (the defaulting party) obligation. While the second approach appears charitable and seems noble enough, it has ramifications throughout the entire society. John and Paul might both be satisfied that their contract can be completed. Ringo and George, however, will each have their share of the society's resources seriously diluted by the government's action.

By virtue of the government's actions in our little story, George's ownership of the society's resources falls by half from 500 of 1000 utilts at the beginning of our story to 500 of 2000 utils at the end -- all by virtue of the bad behavior of other societal actors and the government's choice of response.

I bet that, upon reflection, George might favor of the first approach!

I hate to say “I told you so” but… I told you so. The holders of the credit default swaps (CDS) have more to gain from the failure of the borrower than from accepting payments.

Bloomberg is reporting a strategy at Citigroup, Inc. to do just that. In one example, they can buy up Six Flags bonds at 20.5 cents on the dollar, pay a small premium to get the CDS and then collect the full face value of the bonds when Six Flags files for bankruptcy – which the CDS holder can be sure happens.

Normally, before a company goes into bankruptcy, they would meet with the debt holders to try to re-negotiate their debt. Debt holders will usually do this because they have more to gain from the company remaining in operation than otherwise. Sometimes, the company may even get them to exchange their debt for equity, provided there is a good business model that has the potential for future earnings.

Now, as I’ve described repeatedly, the CDS holders have more to gain from the bankruptcy because they will get their entire investment paid back, with interest, not from the company that issued the debt but from another company that issued the CDS – some company like, for example, AIG!

Speaking of AIG, there was very little coverage of the Senate Committee hearing Thursday (3/5/2009): “American International Group: Examining what went wrong, government intervention, and implications for future regulation.” It was a stunner! Bottom line? Senator Jim Bunning (R-KY) told the panelists that if they asked for another dime for AIG, “You will get the biggest ‘no’” ever heard. The entire committee was incredulous that Federal Reserve Vice Chairman Donald Kohn point-blank refused to tell them 1) who is benefiting from the AIG payouts on CDS and 2) how much more is it going to cost to bailout AIG.

Stand by, because home foreclosures are on the same course as Six Flags: homeowners attempting to re-negotiate their debt will find that somewhere in the background, a CDS holder has more to gain from the foreclosure because they will get their entire investment paid back, with interest, not from the homeowners but from some company that issue CDS – some company like, for example, AIG!