NewGeography.com blogs

This week Reuters is hosting a Food and Agriculture Summit in Chicago. On Tuesday presenters, including leading agribusiness executives and business economists, reported that despite the challenging global economic climate, the U.S. rural economy has weathered the recession better than most sectors due to steady demand for agricultural products, stable land prices and healthy credit lines for farmers".

Jim Borel, a VP at DuPont Co stated that "fundamentally, food demand is there," as "people need to eat," which "helps to stabilize things." According to Reuters such claims were echoed by other participants, including Mark Palmquist, CEO of CHS Inc, who noted that the world keeps "adding mouths to feed," and that "food demand... tends to be pretty insensitive to what the global economy is doing."

While there appears to be some anticipation of stability at large agribusiness corporations, such optimism may be tempered among farmers, who have seen commodity prices drop by 50% or more over the past year. Such drops will create a more difficult business environment for producers. However, there is some hope that the strong prices received by farmers over the past couple of years will make them better able to, as one agricultural official in Wisconsin stated recently, "ride it out for somewhat longer than otherwise would have been the case".

On Sunday March 15, 2009, American International Group, Inc. revealed the identities of some of the beneficiaries of about half of the nearly $180 billion the US government has committed ($173 billion actually paid out so far) to support the ailing international financial giant. As we now know, AIG sold credit default swaps (CDS) that paid off if the market value of some bonds fell. (I use the term “bond” here generally to refer to the alphabet soup of CDO, CLO, MBS, etc. – all of which are debt that is sold to the public.) Most CDS only pay off if the borrower fails to make payments – something that hasn’t happened in the case where AIG is making payments. The geniuses at AIG – and we know they are geniuses because they earned $165 million in bonuses for the effort – took on completely unknown risks for, apparently, insufficient premiums, resulting in the need for an emergency $85 billion loan last September from the Federal Reserve Bank of New York (courtesy of my buddy Tim Geithner) to “avoid severe financial disruptions”… as if that worked!

Whatever. So, now AIG is letting us know who got our money: $22.4 billion for payouts on the CDS and $27.1 billion to buy the bonds underlying the CDS (so some of the CDS could be cancelled). That’s about $50 billion so far for derivatives – no one knows how much more they’ll need. Here’s a summary by the country where the recipients are based:

Numbers in billions. $4.1 billion paid to “other” not included here. Numbers won’t total to $49.5 billion due to rounding.

There was also $12.1 billion paid to US municipalities (states, cities, school districts, etc.) – where states invested, for example, bond proceeds prior to expenditure. In those cases, the municipalities invested in assets with guaranteed rates of return (another genius idea at AIG!). The bigger numbers belong to the states that had recent large bond issues – for example, $1.02 billion to California which has yet to distribute a dime of the bond money raised for stem cell research (due to on-going litigation).

AIG took $2.5 billion for their own business needs – like the bonuses? The $165 million bonuses were just for the London-office that specialized in selling those very special CDS. Total bonuses paid were $450 million for all the geniuses at AIG – the AIG who made $6.2 billion in 2007 and lost $37.6 billion in the first 9 months of 2008!

The most interesting bit, perhaps, are payments of $43.7 billion to securities lenders – those stock and bond holders who lend out their shares to enable short sellers. This means that AIG borrowed stocks so they could short sell them – make an investment that paid off only if the prices fell. (If you don’t know what short selling is, here’s a five minute video that explains it in a light-hearted way.) Bottom line – it gave AIG incentives to push down market prices. And their announcements and actions at the end of 2008 certainly achieved that goal. Way to go, geniuses!

A day or so after he was on CNBC, Warren Buffett went on Bloomberg Television and told them that he’ll continue to sell derivatives contracts. He’s getting deeper into investments that he has called “financial weapons of mass destruction.” Apparently he’s betting that there will not be a crash (which would require a payout) in corporate junk bonds, muni bonds or stock markets in the UK, Europe and Japan. Here’s the punch line: his stock is up 17.2% since he started talking!

Berkshire Hathaway shares peaked last year at $147,000 each when Buffett was buying energy companies. The price is so very high because they have a policy of never paying dividends. Therefore, all the company’s earnings are put back into investments. If you tried to use a standard finance model to determine the appropriate price for these shares, the answer would be “infinity” because you can’t divide by $0 dividends. Anyway, two months after the peak, the shares were in the tank – relatively speaking – at $77,500 per share. By the end of the week before his TV appearances, the shares were even lower, at $72,400. The day of the CNBC interview: Berkshire Hathaway shares closed at $84,844 – a cool 17.2% gain. Remember, this is the man who said he is fearful when people are greedy and greedy when people are fearful.

On March 12, Berkshire Hathaway lost its triple-A credit rating from Fitch Ratings because of potential losses from those derivatives. Not that we should believe everything Fitch says – Fitch is among the credit rating agencies that gave triple-A ratings to subprime mortgage bonds, and look what happened to those investments! For what it’s worth, Fitch gives Berkshire a “negative” outlook, meaning another cut is possible within a couple of years. The two other big ratings agencies, Moody's Investors Service and Standard & Poor's, still rate Berkshire triple-A.

Former Illinois Governor Rod Blagojevich's arrest, impeachment and removal from office assured his place as another famous name in our state’s corruption hall of disrepute. But it turns out the selling of President Obama’s Senate Seat was only a minor part of Blagojevich’s misdoings – and some of this could have greater national political fall-out than is commonly imagined.

As the Justice Department looks at Blagojevich’s machinations, the scope is likely to widen. Operation Board Games, the formal name of Justice Department's investigation of Blagojevich, is about more than just Blago’s seat-selling or about Democratic Party political fundraiser Tony Rezko shaking down individuals for campaign contributions.

Perhaps the most fertile ground for the investigation centers on the awarding of a gambling license in the Chicago suburb of Rosemont, as The Chicago Tribune reported in 2005. Because of the negative attention drawn to placing a casino located in the Chicago Mob-linked suburb of Rosemont, Blagojevich needed to make the situation look more respectable.

So who was brought in to try and make Rosemont look acceptable? None other than Eric Holder, the current newly installed Attorney General. Rosemont didn't get the casino because of pressure applied by former FBI agent Jim Wagner on the Illinois Gaming board. Wagner is the guy who publicly raised the question of Eric Holder's connection with Blagojevich.

And there’s more to come:

A day before his arrest, former Gov. Rod Blagojevich was hit with a sweeping federal subpoena seeking eight years of calendars, correspondence, e-mails, logs, notes and other records involving everyone from his wife to Chicago Tribune owner Sam Zell

The "everyone" includes Valerie Jarrett and David Axerod, individuals who are very close to President Obama.Tony Rezko appears to be a link between Rod Blagojevich and Barack Obama. All of this could get pretty messy before it’s all done.

The second part in the series on East St. Louis gives views of downtown today, shows how its history can be seen in the city, and explains why the city could still be a good place for new development.

Part I discusses the origins and development of East St. Louis as an industrial city.

Part III will explore ideas put forward for (re)development of the city, including cultural tourism based on the city's African American heritage and use of vacant land for farming to create a local food source for the St. Louis metropolitan area.

Michael R. Allen is the Assistant Director at Landmarks Association of St. Louis. He edits the blog Ecology of Absence, "a voice for historic preservation and a chronicle of architectural change in St. Louis, Missouri and its region".

Alex Lotz is an undergraduate film student in his final year at Chapman University.