Monday, October 6, 2008

Maybe We Need a Better Bailout

NOTE: We've moved! Visit us at the California High Speed Rail Blog.

The global financial markets tanked again as the financial crisis goes global - even Iceland is facing a serious crisis. Wall Street's reaction to the $700 billion financial bailout Congress approved last week has been a massive selloff. And that's leading some to ask if the bailout fails, then what? So goes an article in today's San Francisco Chronicle that suggests what we really need is economic stimulus that gets at the underlying causes of the financial crisis:

When the housing market boomed, so did consumption. With housing in free fall, people have tightened their belts, which has created a ripple effect on all sorts of businesses. Getting more money into consumers' hands is an obvious way to spur spending.

"I think we're going to need some serious fiscal stimulus," said Dean Baker, director of the Center for Economic and Policy Research in Washington, D.C. He said that might include money going to state and local governments, more spending on infrastructure and more unemployment insurance. "It has to be big money, bigger than the last round," he said, referring to the stimulus package enacted earlier this year.

Mike Lehmann, emeritus professor of economics at the University of San Francisco, said he thinks massive tax cuts for individuals, coupled with a massive increase in federal expenditures to create jobs, would stimulate overall consumption. "If you look at it as a serious emergency, we might be willing to increase the deficit," he said. "In one fell swoop we already increased the deficit by $700 billion, although there's a chance some of that will get repaid."

Both Dean Baker and Mike Lehmann might well be referring to something like Proposition 1A, which would help create exactly that kind of stimulus. 160,000 construction jobs is nothing to sneeze at in a state facing 7.7% unemployment and desperately in need of an economic boost.

HSR deniers never speak of these issues. To them the economic situation merely suggests we should kill HSR and do nothing, even though overdependence on oil is one of the root causes of this crisis. California faced exactly this same situation in the Great Depression, and voters chose to approve bonds for the Golden Gate Bridge and Shasta Dam anyway. Affordable borrowing to build long-term infrastructure that provides for short-term jobs and stimulus needs is exactly what this state needs to get going again. It's a proven solution that can work for us today.


Brandon in California said...

Today, and tonight, I met and talked with peeps in the transit industry at the annual American Public Transit Association meeting held in San Diego.

I talked with peeps in the know... not that I sought them out, but one person I am somewhat confident in with said that 1A was polling 62% favorable... up from previous polling.

Robert Cruickshank said...

That was the most recent JMM poll figure - 62%, as of mid-August. I don't know of any newer polls. It sounds like they were probably referring to that poll, but perhaps they know of a newer one?

Rafael said...

I'd be careful about jumping to any conclusions based on a few days' worth of stock trading on the NYSE. Secretary Paulson has not yet revealed when and how the $700 billion will be spent. Apparently, he will need a few weeks to figure that out.

Some, such as Warren Buffett, argue that the troubled assets should be purchased at fire-sale prices in a reverse auction. Paulson and Bernanke are concerned that would not inject enough money into the system for banks to start lending again - for starters, lending to each other. In their view, the problem is not one of insufficient demand for credit but rather, one of insufficient supply caused by a lack of trust coupled with excessive leverage positions, especially in the hedge fund industry.

Public works essentially bypass the financial sector by pumping public money directly into the construction industry. However, you need a large number of such projects to achieve a significant effect on the national economy. High speed rail would be a shot in the arm for the California economy, but there are also 49 other states. Most do not have similar projects at similar levels of maturity.

An even more direct stimulus would come from another round of tax rebate checks. Consumer confidence has certainly been impacted by falling real estate values. Unfortunately, rebate checks would do little or nothing for businesses that can't meet payroll because their banks won't even extend them a regular line of credit any longer.

As for the price of oil, it may well have been a contributing factor in bursting the asset bubble. However, I believe the root cause of the crisis was irresponsible borrowing and lending in the mortgage markets.

Anonymous said...

The audio recording of the debate between Judge Kopp and Dr. Adrian Moore, which was held at the SF Commonwealth club last Friday (10/03/08) can be found at this link

It is a good discussion, about 1 hour long. You can listen directly or download the mp3 file which is about 32 Mbytes in length.

bossyman15 said...

Ummm off topic...

I was wondering is the prop 1a on state wide ballot (all of california) or just areas (cities) where cahsr will serve?

Rafael said...

@ bossyman15 -

it's a state proposition, so afaik it will be on the ballot statewide.

Anonymous said...

October 07, 2008
California's High-Speed Rail Plan Is Flawed

In a column for the Los Angeles Business Journal, Reason's Adam Summers writes:

Californians are being asked to consider a $10 billion bond measure to build a high-speed rail system, but the proposal is critically flawed and should give voters serious pause, especially in the current economic climate.
Proposition 1A would authorize $9.95 billion in general obligation bonds to start building an 800-mile high-speed rail system linking Southern California with the Bay Area and Sacramento, including the backbone Los Angeles-San Francisco segment. There are crucial questions about the financing of the project, however. For starters, where will the rest of the money come from?

The $10 billion bond would cover less than one-quarter of the projected $45 billion project cost. Proponents hope that they will be able to coax one-third of the cost ($15 billion) from the federal government, which has budget problems of its own and is currently struggling with a planned $700 billion bank bailout and a possible $25 billion bailout of the auto industry. The remainder (about $20 billion) is supposed to come from the private sector, and there is similarly no guarantee that this money will ever materialize. Furthermore, a business plan that the California High-Speed Rail Authority (CHSRA) was required by law to submit by September 1 still has not been completed, and, conveniently enough, apparently won't be available until after the election.

Full Column:

Due Diligence Report on California's High-Speed Rail Proposal:

Anonymous said...

The LA times has just published a letter from Joseph Vranich, co-author of the due diligence report from the Reason foundation.

Quoting from the letter

The Times' editorial acknowledged there is "something undeniably alluring about a bullet train," while warning that high-speed rail sponsors "will ask for many billions more in the coming decades."

You are right to predict future financial demands; the California High Speed Rail Authority's planning has been astonishingly inept. You said the Reason Foundation's study on the project was "more persuasive" than the agency's work, which is gratifying to me, a coauthor of the study. We found the state's proposal relied on overly optimistic financial and ridership projections, understated cost forecasts and bloated assumptions regarding greenhouse-gas emissions and unachievable travel times between major markets.

I've found Sacramento's planning to represent the worst I've ever reviewed, and unworthy of public support.

Joseph Vranich

From an author with over 30 years of experience in transportation issues, with heavy emphasis on rail, these are really very strong words.

Anonymous said...

@ Morris

I'm not sure how spending one's career attacking Amtrak as an example of federal waste qualifies Vranich as anything other than a rail-hating zealot. Hardly a "transportation expert" as you suggest, Varnich reeks of a pro-highway hired gun looking to increase sales of his several Amtrak bashing books.

Kinda like getting Pat Robertson to weigh-in on gay marriage.

You might look for an opponent, ANY opponent who doesn't come with a previous train hating bibliography.

BruceMcF said...

The idea that the average length of a recession should constrain the timeline for infrastructure investment just does not stand up to scrutiny. In the last two recessions, the unemployment recessions ended about two years after the GDP recession. And even as employment recovery begins, there will be ample slack capacity for several years more.

Now that we know that we have a half decade or more of available productive capacity, we should be taking advantage of the time to make fundamental infrastructure investments that will provide long term improvements in deep structural problems, such as the structural import dependency on energy across the economy.

Rob Dawg said...

I'm not sure how spending one's career attacking Amtrak as an example of federal waste qualifies Vranich as anything other than a rail-hating zealot.

Being right lends some weight to his views. You seem to be saying anyone who has objected to public rail in the past is unqualified by that fact alone. Are you sure that's a bar you wish to raise?

Anonymous said...

A letter published in the LA Times on Oct 7, 2008, Joseph Vranich writes (,0,601491.story?page=4):

The Times’ editorial acknowledged there is “something undeniably alluring about a bullet train,” while warning that high-speed rail sponsors “will ask for many billions more in the coming decades.”

You are right to predict future financial demands; the California High Speed Rail Authority’s planning has been astonishingly inept. You said the Reason Foundation’s study on the project was “more persuasive” than the agency’s work, which is gratifying to me, a coauthor of the study. We found the state’s proposal relied on overly optimistic financial and ridership projections, understated cost forecasts and bloated assumptions regarding greenhouse-gas emissions and unachievable travel times between major markets.

I’ve found Sacramento’s planning to represent the worst I’ve ever reviewed, and unworthy of public support.

Joseph Vranich

Brandon in California said...

People believe in what they want to and only hear hat they want to. And sometime you just cannot change their minds. I feel the Reason Foundation person and Vranich person are probably in that group.

Anyway, below is an emal blast I sent to select friends and family to lobby support for 1A.

To my friends and family,

I composed the stuff below...

I support Prop 1A... the high speed rail proposition on the ballot. I want you to too. It will provide approximately 1/3rd of the funding to construct an initial line from SF to LA... through the Central Valley. The other 2/3rds of the funding is expected to come from the Feds and private sector. Trains would travel up to 220mph and connect the two city centers in approximately 2h 42m.

Of course, planes are faster once they are in the air, but once you consider traveling by air includes getting to the airport, checking in, going through security, waiting around for your boarding time, waiting around to get off the plane, and then traveling to the city's center... high-speed train travel is as fast, or faster. And it is cheaper.

Electric powered trains also decrease reliance on foreign oil. This in turn reduces the amount of money we send to parts of the world that absolutely hate Americans and would rather have us obliterated from the face of the Earth. In deed, proposition 1A supports our safety and national security!

There's also the benefit of reducing air pollution and green house gas emissions. If you believe in global warming, high speed trains will convert much of the state long-distance travelers from high polluting planes and cars to energy efficient electric powered trains.

Of course, the state is undergoing continued massive growth. California's population grows by about 400,000 people a year. Often more. We're at 38 million people today and by 2050 there will be an estimated 60 million people! 60 million!!! That is nuts. I remember in 1980 the states population was only 24 million! Anyway, with all those new people roadways and airport expansions are needed; however, where is the room? At least high speed rail takes up much less space, is more efficient as a people mover, and costs 1/3rd as much for accommodating the same number of travelers.

LA to SF is just the first phase that is addressed in proposition 1A. However, additional lines connecting Sacramento and San Diego are planned. Those additional lines are expected to be funded through fare revenue and other private sector interests. It's anticipated that California High Speed Rail will generate operating surpluses once it is up and running... similarly as the case with the Japanese Shinkansen, French TGV, Spain's AVE, the German ICE, and Taiwan's HSR.

Take care, and remember to vote Yes on Proposition 1A!


Anonymous said...

no dawg, that is exactly not what I'm saying, thank you for not distorting my position.

Critique requires the critical interrogation of source documentation. When an author/scholar/academic demonstrates a clear, unwaivering ideology throughout their career, they cease to be objective authorities and become demagogues.

Contrary to your attempt to undermine my comment, I would give a rabid foamer supporting HSR no more or less credence.

You on the other hand, Rob doggy-dawg seem only concerned with sniping at those with whom you disagree.

Anonymous said...

This country has the forward vision of a field mouse..just look at some of the anti-project posts

njh said...

Well the Australian Reserve Bank 1% drop in interest rates was worth about 15 minutes on the stockmarket:

njh said...

Oh sorry, I should have pasted that article in full in the comments to help those here who can't follow links :)

Anonymous said...

The San Diego Union Tribune brings back the issue of Governor Scwarzenegger's support for Prop 1A.

They write

My questions to Aaron McLear: (the Governor's news spokesman)

In light of the state's fiscal woes, the credit crunch, the declining revenue picture, etc., has the governor reconsidered his support for Proposition 1A?

Doesn't it make sense to put off such a costly project until the economy and state budget are on firmer ground?

His e-mail response, which surprised me:

First of all the Governor has not taken a position on Prop 1A but certainly has been a vocal supporter of high speed rail in general. He believes that investing in California's crumbling infrastructure is an investment in our future. How fast California can move goods and people is a major factor in our economic strength and California's place in the global economy.

Wow. So as of this minute, Arnold is neutral on 1A. I thought his edifice complex was so strong he wanted it no matter what. He seemed to endorse it last month, at least according to something called "Greenwire":

Gov. Arnold Schwarzenegger (R) wants to proceed with massive public works projects designed to build high-speed rail and improve water infrastructure in his state despite an economic crisis and a $15 billion budget deficit.

In comments delivered to the Commonwealth Club [in San Francisco], Schwarzenegger said Friday it would be a mistake to "hold back" on high-speed rail in particular because of the state's fiscal problems, which resulted in a stalemate over the budget this year before the impasse was settled last week. ...

The state's celebrity governor urged voters to say "yes" on the rail bond. ...

"Just because we had a problem with the budget does not mean people should vote 'no' on high-speed rail," Schwarzenegger said.

But that was then and this is now.

Fiscal sanity -- on the comeback trail in Sacramento!
Posted by Chris Reed at October 7, 2008 04:49 PM

Tony D. said...

"But that was then and this is now." What exactly is "now?" Arnold hasn't come out and changed his position on high-speed rail, even with the current economic crisis. Even he realizes that these bad fiscal times won't last forever. It would be silly of him to change his position based solely on the news of the last couple of weeks. If anything, the economic news should strengthen his support of Prop.1A; an important economic stimulus that will create jobs, jobs, jobs! Somehow coming out now, tilting at the wind and being anti-high speed rail would be fiscal INSANITY if you ask me.

Anonymous said...

Pepy charts an expansionist future

20 May 2008

FRANCE: Ambitious is the adjective that best describes SNCF's plans for the next five years. Newly-appointed President Guillaume Pepy went public on March 19 with his proposals to expand and develop the French national railway, promising 'a change in pace and scope'.

Declaring that SNCF was 'now financially healthy' (Table I), Pepy indicated that the railway was able to finance its own investments, which in 2007 represented €2·99bn or 12·5% of turnover. Another indication of good performance was payment to government of a €130m dividend.

In his letter of nomination from French President Nicolas Sarkozy, Pepy is tasked with 'regaining a central role for SNCF in freight transport in France, in Europe and worldwide'. If SNCF grasped the opportunities available, said Pepy, it would be 'much larger' in five years' time - he is targeting a huge increase in annual turnover to around €36bn that would generate an operating profit of €2bn.

Pepy lost no time in moving towards this objective, with the announcement on April 6 of a 'voluntary and friendly cash offer' to acquire 100% of logistics group Geodis, in which SNCF already has a 42·4% stake. The bid is worth €135 a share, valuing Geodis at more than €1bn. If the offer succeeds, Geodis would be integrated into a restructured freight and logistics business able to offer customers 'a complete platform of intermodal solutions'. The combined business would employ about 50 000 staff and generate an annual turnover of around €8bn.

On April 7 SNCF announced plans to acquire 75% of Import Transport Logistik, a German business based in Dresden with subsidiaries in the Netherlands, the Czech Republic and Poland. With ambitions to expand into Ukraine and Russia, ITL would give SNCF access to much of eastern Europe. Together with Geodis, it would put SNCF in a position to compete effectively with the DB Schenker empire. Other acquisitions or partnerships are not ruled out, with ABX and SBB Cargo mentioned as possibilities - 'everyone is talking to everyone else', remarked Pepy.

Plans have already been laid to restructure management of the freight business, with Pierre Blayau, Chairman & CEO of Geodis heading the combined entity. ?Olivier Marembaud will continue as Senior Vice-President of Fret SNCF until May 28, when he will take over the functions of Vice-President in charge of exec­utive management policy for the SNCF group. Luc Nadal is expected to replace him as head of Fret SNCF.

Plans call for Fret SNCF to achieve 50 billion tonne-km by 2012. In the short term a programme of reviving and optimising the rail freight network would be implemented with financial contributions from RFF and possibly the government, with SNCF contributing €50m by 2010. A €20m fund would be set up to help attract new customers, and the Fret GV programme (RG 2.08 p76) would be launched in 2009. In the meantime bids have been called for 85 main line diesel locos able to operate in Belgium, the Netherlands and Germany.
Passenger businesses

Pepy reported that the long-distance passenger business Voyageurs France Europe had increased turnover by 5% in 2007 to reach €6·89bn. Thalys traffic was up by 6·6%, Eurostar by 15·5% and Lyria by 19·4%, with internet sales rising by 20%. Over the next three years commercial policy would be honed to achieve better load factors.

Confirming that a tender was being prepared to start renewal of the TGV fleet, Pepy proposed that 'TGV Duplex could be married with AGV technology' to create 'Europe's best-performing jumbo'. He also believed that maximum speeds of 350 to 360 km/h would be needed on selected routes.

The 'Proximité' business, which groups SNCF's TER regional passenger oper­ations, Transilien (Paris suburban), Corail Intercités, Keolis contract oper­ations and the Effia passenger services activities, reported a 4% rise in turnover to €5·9bn. Over the next few years management efforts would be devoted to achieving better punctuality, with RER Line D in Paris singled out for special treatment because of its poor reliability. Punctuality of TER services would improve from 91% to 94% by 2012, and marketing efforts would be stepped up to attract more season-ticket holders.
Table I. SNCF's financial performance in 2007

Turnover €m 23 691
EBIT €m 994
Recurring net profit €m 657
Free cash flow €m 302
Net debt €m 4 488

Brandon in California said...

Given the dire portait being painting from Wall Street and the media... it is sounding like that we, as a state and country, should not only continue to consider HSR in our future, but we should step on the accelerator to get these projects going as a way to infuse the economy and keep people employed.

Anonymous said...

This afternoon from SFGate:

"Pelosi said a ($150b Federal) stimulus package would create jobs by investing in public works...."

Anonymous said...

HJTA files suit against the High Speed Rail Authority over missing Prop 1A Business Plan

By Jon Coupal
President of the Howard Jarvis Taxpayers Association

Thu, October 9th, 2008

Yesterday, the Howard Jarvis Taxpayers Association filed a lawsuit against the California High Speed Rail Authority for a very simple reason: Under the plain language of Prop 1A, which was placed on the ballot by Assembly Bill 3034, the Authority was required to prepare a business plan by September 1st. That plan is more than five weeks late, leaving voters and policy leaders without the critical information they need to make an informed decision on Proposition 1A.

It is really hard to imagine a more clear violation of law. The very first provision of AB 3034 states:

“The authority shall prepare, publish, and submit to the Legislature, not later than September 1, 2008, a revised business plan that identifies all of the following: the type of service it anticipates it will develop, such as local, express, commuter, regional, or interregional; a description of the primary benefits the system will provide; a forecast of the anticipated patronage, operating costs, and capital costs for the system; an estimate and description of the total anticipated federal, state, local, and other funds the authority intends to access to fund the construction and operation of the system; . . . . The revised business plan shall also include a discussion of all reasonably foreseeable risks the project may encounter, including, but not limited to, risks associated with the project's finances, patronage, construction, equipment, and technology, and other risks associated with the project's development. The plan shall describe the authority's strategies, processes, or other actions it intends to utilize to manage those risks.”
In July, the Chairman of the Authority, Quentin Kopp, testified before the Senate Transportation Committee promising that the business plan would be ready on time. But recent statements by the Authority suggest that it is using the budget delay as an excuse not to prepare the plan. But the Authority has always been less than forthcoming with the Legislature. Apparently, they had no intention of completing the business plan on time because they know that the system envisioned by Prop 1A simply makes no economic sense. Moreover, with California’s budget crisis, we simply can’t afford it.

As California falls into recession, now is not the time to take on a minimum of a $20 billion debt costing the state’s general fund more than $650 million each year.