2010 - %3, January

How to Make an Offshore Wind Grid

| Mon Apr. 5, 2010 6:39 PM EDT

There's enough offshore wind power to meet the energy needs of the entire human population. Now a new study proposes how an offshore wind grid could make that fickle power reliable.

Currently wind turbines provide power only as constant as the wind. But the winds could be made effectively steadier by choosing the best locations and then connecting them with a shared power line—even a single line. This according to U of Delaware and Stony Brook U researchers in an new (open access) paper in Proceedings of the National Academy of Sciences. The research, from the abstract:

"Based on 5 yr of wind data from 11 meteorological stations, distributed over a 2,500 km extent along the U.S. East Coast, power output for each hour at each site is calculated. Each individual wind power generation site exhibits the expected power ups and downs. But when we simulate a power line connecting them, called here the Atlantic Transmission Grid, the output from the entire set of generators rarely reaches either low or full power, and power changes slowly. Notably, during the 5-yr study period, the amount of power shifted up and down but never stopped. This finding is explained by examining in detail the high and low output periods, using reanalysis data to show the weather phenomena responsible for steady production and for the occasional periods of low power. We conclude with suggested institutions appropriate to create and manage the power system analyzed here."

Lead author Willett Kempton of the U of Delaware's College of Earth, Ocean, and Environment and director of its Center for Carbon-free Power Integration says:

"Our analysis shows that when transmission systems will carry power from renewable sources, such as wind, they should be designed to consider large-scale meteorology, including the prevailing movement of high- and low-pressure systems."

The ideal configuration is a north-south transmission line, to fit with the storm track that shifts north or south along the east coast weekly and seasonally. At any one time a high or low pressure system is likely to be producing wind power somewhere along that line.

No wind turbines are presently located in US waters, though projects have been proposed off several Atlantic states.
 

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Fear and Loathing in Mississippi

| Mon Apr. 5, 2010 4:31 PM EDT

By now, you may have heard of Constance McMillen. She's the 18-year-old senior and out lesbian who scandalized Itawamba County Agricultural High School in Fulton, Mississippi, by opting to attend the school's senior prom with her girlfriend, another Itawamba student—a prospect that seems to have terrified school administrators. (Also scary to the locals, apparently, was the fact that McMillen wanted to wear a "men's" tuxedo.)

The case has become a worldwide cause celebre. But for all the media attention directed at McMillen, the story's not really about her. It's about a homogenized school district trying to preserve a down-South culture so exclusive and mean-spirited, it seems like a caricature ripped from a child's book report on To Kill a Mockingbird. And McMillen's not the only victim.

The school tried to bar McMillen and her girlfriend from the dance. The ACLU sued on the students' behalf. Rather than relent, the school district chose to shut down the prom. According to the local news, anti-gay protesters even hung up signs at the school reading, "What happened to the Bible belt?" and "Gomorrah."

As it turned out, the Itawamba school district was preparing to act very Old Testament.

Coffee Conservatives

| Mon Apr. 5, 2010 3:15 PM EDT

A few days ago I heard the term "coffee conservative" for the first time. I didn't get it until it was explained to me. And now, here's the Raleigh News & Observer to explain it for the rest of us:

To join the Coffee Party in Raleigh, you can't be a screamer, a name-caller, a loud-mouthed zealot or somebody whose idea of politics translates to jabbing a sign in the air, red in the face. All you need are some manners, a good listening ear and a caffeine jones.

Inside a month, this politeness-first political movement has jumped from one meeting at the Hillsborough Street Cup A Joe to five coffee chats scattered across the Triangle. Nationwide, the Coffee Party USA has drawn nearly 200,000 supporters, sipping java and talking turkey in 47 states.

A coffee conservative, then, is a conservative who's not a tea partier. Someone who remains interested in actual policy and doesn't feel the urge to rant tirelessly about decline of the west and the imminent tyranny that Barack Obama is bringing down on us. It's your phrase of the day.

Breaking Up Is Hard To Do

| Mon Apr. 5, 2010 1:09 PM EDT

Steve Randy Waldman argues that obsessing over leverage and capital requirements is a lost cause:

Bank capital cannot be measured. Think about that until you really get it. “Large complex financial institutions” report leverage ratios and “tier one” capital and all kinds of aromatic stuff. But those numbers are meaningless. For any large complex financial institution levered at the House-proposed limit of 15×, a reasonable confidence interval surrounding its estimate of bank capital would be greater than 100% of the reported value. In English, we cannot distinguish “well capitalized” from insolvent banks, even in good times, and regardless of their formal statements.

....Regulation by formal capital has a proud and reasonably successful history, but has been rendered obsolete by the complexity of modern financial institutions. The assets and liabilities of a traditional commercial bank had straightforward, widely acceptable book values. For the corner bank, discretionary modeling mattered only in setting credit loss reserves, and the range of estimates that bank officers, external auditors, and regulators would produce for those reserves was usually pretty narrow (except when all three colluded to fake and forbear in a general crisis). But model complexity overwhelms and destroys regulatory capital as a useful measure for large complex financial institutions. We need either to resimplify banks to make them amenable to the traditional approach, or come up with other approaches more capable of reigning in the brave new world of banking. 

I'm way out of my league arguing about this, but I have a good reason — about which more below. First, though, the argument.

Steve is, of course, right that "regulatory capital" is a surprisingly ephemeral concept. It's hard to measure and it's hard to know even what to measure. (Read his whole post to get the entire gruesome story.) Hell, it's not even entirely clear what the real purpose of bank capital is. And yet, I'm not so sure that measuring capital adequacy is quite as doomed an enterprise as Steve thinks. For example: this hasn't been making the rounds lately, but last year there was a little boomlet in discussion about the value of tangible common equity as a measure of bank solvency. Why? For exactly the reason Steve writes about. Regulatory capital, as it's currenty defined, failed miserably during the credit crash of 2008. Basel II was a disaster, as was the U.S. near-equivalent that allowed banks to judge risk using their own internal models. And as Steve points out, Lehman Brothers was, technically, very well capitalized the day before it collapsed in a heap.

But TCE is a much simpler concept, and much easier to measure. It is, if you want to be simplistic about it, much closer to a measure of "actual money." And over the decade between 1995-2005, TCE ratios dropped dramatically at large banks. I don't know exactly what Lehman's number was before it imploded, but I think it was somewhere in the vicinity of 2.0. That's probably around half of what it was a decade earlier, and quite possibly a third to a quarter what it should have been given the greater risk and complexity of modern banks. If regulators had focused more on the steady drop in TCE during the boom years, the meltdown of 2008 might have been substantially ameliorated.

Now, that's hardly the whole picture. Capital adequacy is a ratio, and even if regulators focus more heavily on TCE they still have a problem with forcing banks to properly value the asset side of their balance sheets. Steve goes into all the reasons that's hair-raisingly difficult, but there are ways of making that simpler too. What's more, there are other rules that, although they don't directly address capital adequacy, have a big effect on it. Reining in off-balance-sheet vehicles is an obvious one, as are rules that put limits on shadow funding sources. More transparent derivative trading would help too. Put all this stuff together and it would go a low way toward making the entire banking system safer. Not perfect, but better.

So why am I wading into this argument in the first place? Because Steve's take is that since trying to govern leverage is hopeless, the only way to make the financial system safer is to radically simplify banking and break up big banks. But that's a counsel of despair. If you think capital adequacy is tough to regulate, what makes you think that we can radically simplify the entire structure of the modern banking system? And if banks will fight tooth and nail to oppose limits on leverage (and they will), what makes you think they'll be any less tenacious about resisting efforts to break them into little pieces?

My take is that that's hopeless. There are things we can do to make banking simpler, but there's just no way that we're going back to the 70s. Not. Gonna. Happen. And the chances that Congress — which is barely willing to approve even watered-down consumer protections — will break up banks the way Teddy Roosevelt broke up Standard Oil? Forget it.

It's useless to declare a problem unsolvable and then suggest instead that we tackle a problem that's even more unsolvable. I don't have much hope that Congress and the Fed are going to crack down on leverage in a way that's anywhere near as broad or as strict as I'd like them to, but there's at least a chance of making progress on this front. If we throw up our hands and declare it impossible, we're effectively giving up on financial reform entirely.

Why Diss Lindsay Lohan for Tackling Child Trafficking?

| Mon Apr. 5, 2010 12:54 PM EDT

Hey everyone, I'm Lindsay Lohan, and this is Lindsay Lohan's Indian Journey (BBC3). India's, like, this crazy place in maybe Asia? The people are sooo cute, and real skinny. Also they're mad drivers like me – maybe they all do tons of cocaine too. But this isn't about drugs or driving (for once!). Or who I'm dating or not dating. It's about child trafficking, which is this massive issue out here.


That is not the opening voice-over of Lindsay Lohan's Indian Journey, but the more puerile of two scathing Guardian articles (plus a blog item) about it within the last seven days. Alright, it's weird that LiLo is the host of a BBC documentary about child trafficking. And the inarticulateness in the clip below isn't even the least compelling commentary she offers during the course of the film:



Still. I'm going to have to side against the haters on this one.  I'm not really qualified to judge whether Lohan is genuinely interested in learning about child trafficking or is using the issue to scrub her ditsy image, but even the latter still does the service of raising awareness. In the doc, we go to the slums; we look at how globalization and economic "progress" have exacerbated demand for underage slaves. We meet children whose parents give them up to traffickers for the extra income, sometimes repeatedly, talk with very young rape victims, hear more kids talking about being beaten than we can count. "In fact, it would be [hard] to argue that the BBC had produced a bad documentary here," admits the Independent. "Who knows what their motive for choosing Lohan as their star was? To raise awareness among a demographic—supermarket-tabloid readers—who wouldn't otherwise have taken an interest? To generate publicity? To boost ratings?"

Well, yes. Consider how many more people watched Lindsay Lohan's Indian Journey than would have Learn About Child Trafficking With John Davies. Who? Right. As I've mentioned before, Thailand, for example, has a problem with abusing refugees, but it took Angelina Jolie's involvement for the issue to really explode into the news. And I'm gonna guess, that these two stories snarking about Lohan is way more headlines than the Guardian gives child trafficking in a typical week.

 

McCain the Maverick Suffers Amnesia

| Mon Apr. 5, 2010 12:44 PM EDT

Newsflash: John McCain is no maverick—and has never been one. From a David Margolick Newsweek article:

"Maverick" is a mantle McCain no longer claims; in fact, he now denies he ever was one. "I never considered myself a maverick," he told me. "I consider myself a person who serves the people of Arizona to the best of his abilities."

Has McCain become detached from reality? Now that he's facing a tough challenge in the GOP primary for his Arizona Senate seat, the veteran senator is depicting himself as a Sarah Palin conservative, not a "maverick"—a term that for many suggests "a Republican who's willing to buck his party by working with liberal Democrats on such issues as campaign reform, climate change, tobacco restrictions, banning torture, and immigration reform." That sort of maverick label won't help McCain in a race in which his conservative loyalties are being questioned by Tea Partiers and others. Distancing himself from his good, ol' straight-talkin' mavericky days is one thing, but denying that he ever said he considered himself a maverick is  darn foolish. McCain might as well claim he never was in Vietnam. It's ridiculous to have to factcheck the guy on this, but here goes.

During his 2008 acceptance speech at the Republican convention, McCain said:

You know, I've been called a maverick; someone who marches to the beat of his own drum. Sometimes it's meant as a compliment, and sometimes it's not. What it really means is I understand who I work for. I don't work for a party. I don't work for a special interest. I don't work for myself. I work for you.

Weeks later, on Larry King Live, on October 29, 2008, McCain remarked,

Sarah's a maverick. I'm a maverick. No one expected us to agree on everything.

Is it worth Googling and Nexising any further? Probably not. No doubt, there are other instances in which McCain embraced the maverick banner. But even without any additional examples, J.D. Hayworth, the former GOP House member challenging McCain in the primary, has an easy-to-make ad. Cue ominous music: "In 2008, John McCain said, 'I'm a maverick.' Now, he says, 'I never considered myself a maverick.' Which is it? And what's worse? To deny you called yourself a maverick—or to forget you did?"

With this overly-calculated and desperate remark, a desperate McCain has made a hard reelection bid even harder.

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Catch Mother Jones' Hollywood Debut

| Mon Apr. 5, 2010 12:34 PM EDT

Do you watch CBS’ The Good Wife, the series partly inspired by the Eliot Spitzer prostitution scandal? Me neither, but I will tomorrow night! Why? Because apparently there’s going to be a “Mother Jones” reporter on the case. Drama, excitement, Sex and the City's Chris Noth AND smart, fearless journalism - what a great combo. Are you curious how MoJo will hit Hollywood? If so, check your local listings or go to the CBS website and have a watch. 

Exxon's Income Tax: $0 [UPDATED]

| Mon Apr. 5, 2010 12:26 PM EDT

[UPDATE: ExxonMobil's spokesman contacted Mother Jones to dispute this story, offering additional information concerning its US income tax liabilities for 2009. That information had been added to the end of this post.]

So, good news and bad news. The good news is, oil megacorporation ExxonMobil had such a profitable year in 2009, it contributed $15 billion to the world's tax coffers.

The bad news: Not a cent of that went to the IRS.

ExxonMobil, the world's second-largest company, says it actually paid out 47 percent of its profits in taxes, but not to the good ol' capitalist US of A. Says Forbes in a report on all the taxes of the US's top 25 firms (with added emphasis):

Exxon tries to limit the tax pain with the help of 20 wholly owned subsidiaries domiciled in the Bahamas, Bermuda and the Cayman Islands that (legally) shelter the cash flow from operations in the likes of Angola, Azerbaijan and Abu Dhabi. No wonder that of $15 billion in income taxes last year, Exxon paid none of it to Uncle Sam, and has tens of billions in earnings permanently reinvested overseas.

By contrast, the nation's largest corporation, Wal-Mart, paid $7.1 billion globally in taxes, and the lion's share of it—$5.9 billion, or 83 percent—went to the US government.

The most hilarious part is ExxonMobil still finds a way to bitch about its lot in life. The corporation's website includes an issues page on "industry taxes," which threatens that energy innovation is already on the ropes because of excessive taxes, and it will be forever consigned to the dustbin by any new taxes on windfall profits (or, we'd assume, plans like President Obama's to close the offshore earnings loopholes that saved ExxonMobil from the IRS this year). "While our worldwide profits have grown, our worldwide income taxes have grown even more. From 2004 to 2008 our earnings grew by 79 percent, but our income taxes grew by 130 percent," ExxonMobil's flacks wrote, presumably while playing the world's smallest—and most expensive—violin.

Not that this should shock anybody. In 2008, the New York Times discovered that one in four of the US's largest corporations regularly pay no income tax to the IRS, and billions are lost. Exxon's not alone: The Forbes article points out that General Electric avoided paying any income tax last year on profits of $10.3 billion. In addition to offshore tax shelters, GE had another ace in the hole: It submitted a record-breaking 24,000-page tax return. God bless the IRS's auditors; I'd have paid billions not to have to read that thing.

[Update: Alan Jeffers, ExxonMobil's media relations manager, contacted Mother Jones to respond to this story, confirming that he had submitted a signed comment on this Web page (see way below). He first sent us an email, which states:

It is incorrect to say that ExxonMobil did not pay any U.S. income tax in 2009. In fact, we expect a significant U.S. federal income tax liability for 2009, although our tax return will not be filed until later this year. Our tax installments overpaid our 2008 U.S. federal income taxes and we used that excess in part to pay our 2009 estimated taxes. The amount stated in our 10-K filing with the SEC, which Chris [Christopher Helman, who originally reported on this story for Forbes] told me he based his story on, includes expenses or credits recorded during 2009, and can represent items from previous years or expectations for subsequent years. It is not our actual tax bill.

In a subsequent phone conversation, Jeffers told Mother Jones he "really had to dig in with our tax guys just to really explain what was going on here." He stressed that "the activity in that report"referring to the 10-K, an annual summary of company activity that must be submitted to the Securities and Exchange Commission"does not represent our tax bill," which has not been settled, since the company has not yet filed its 2009 IRS return. He added that, just as an individual might see a refund or not have to pay additional income taxes when they file, the firm could conceivably show a surplus or a zero on the "total income tax" line. When an individual gets a refund from the IRS, that doesn't mean she got off scot-free: It means she overpaid her taxes throughout the year. Jeffers said the same principle operates for ExxonMobil.

Jeffers, however, declined to discuss what ExxonMobil's actual US income tax liabilities might bein 2009, or in any yearexcept to say that it wasn't zero. "We don't disclose our tax bill; we're not required to," he said. "Just like most corporations and individuals, we disclose what we're required to."

Which leaves the figures in ExxonMobil's 10-K largely unexplained: Even if the firm overpaid taxes and earned a refund, it still wouldn't show up as a zero or a positive revenue in cashflow—unless the paid tax liabilities are concealed elsewhere in the report. And it doesn't explain why ExxonMobil's figures are so out of wack with its peer corporations, like Wal-Mart, cited in the original story above, or Chevron, which listed $200 million in US income tax on the same line in its 10-K, Forbes reported.

In any case, the original story is wrong in this respect: According to the 10-K, a screenshot of which is provided below, ExxonMobil didn't have a zero-tax liability in 2009; it was actually owed $46 million by the IRS, against $15.1 billion in foreign taxes owed. As Jeffers says, that may not be the case; but it's what ExxonMobil told the SEC, its shareholders, and the world. And since the firm refuses to share its actual tax numbers with the public, it's all we have to go by.]

The Calm Before the Storm?

| Mon Apr. 5, 2010 11:32 AM EDT

So how's the housing market looking? Well, prices seem to have stabilized and foreclosure rates are down. Hooray! But Mark Gimein warns that the news is not actually as happy as the realtors' PR machine would like you to believe:

Consider, for instance, California. In the first quarter of 2009, according to the Mortgage Bankers Association, banks started foreclosures on 2.15 percent of all mortgages (that is, roughly one in 50). In the last quarter — the latest period for which data are available — that was down to 1.34 percent, a sizable drop....

But if you conclude from this that more folks have gotten their arms around their mortgages, think again. The number of new foreclosures may have dropped, but the number of people seriously behind on their mortgages has risen — from 4.75 percent of mortgage holders all the way up to 6.93 percent, an increase of close to 45 percent....Thanks to some combination of government pressure, genuine efforts at loan modifications, and reluctance to seize houses and try to sell them in a dismal market, banks are simply letting more debtors fall behind without foreclosing.

....The Realtors' association happily reports that housing prices are rising because of tightening “inventory” — the trade term for “fewer houses for sale” — but underneath this is the scary reality that there are ever more folks seriously behind on their loans and waiting for lenders to take their houses and condos. This is something that lenders are reluctant to do because they still have no one to sell them to. The housing market looks stable only because lenders are avoiding flooding it with foreclosed properties.

There's something more fundamental at work too: housing prices may have stablized recently, but they've done so at a level quite a bit higher than their pre-bubble value. Now, I've long thought that when the housing crash is finally over, prices might actually end up somewhat higher than their historical trend rate, but even if I'm right (never a sure bet) my guess is that prices might end up 10-20% higher, not 30-40% higher, which is where they are now. Bottom line: the housing market still has a ways to fall, and when the foreclosure moratorium finally ends it's likely to spark another 20% fall in housing values. Or maybe more. The fat lady hasn't sung yet.

John Kasich and Lehman

| Mon Apr. 5, 2010 11:22 AM EDT

Maybe it's too early in the election cycle, but I am surprised that Democrats haven't done more to tie the GOP to Wall Street. Perhaps it's because the Dems get plenty of money from investment bankers and don't want to upset donors. In any case, Ohio Gov. Ted Strickland, who is running for reelection this year, seems to be the exception. Strickland's opponent, former GOP Rep. John Kasich, spent over half a decade as a managing director at Lehman Brothers—the collapse of which helped trigger the recession that's hitting Ohio particularly hard. Strickland has been slamming Kasich's affiliation with the investment bank.

Strickland's strategy seems to be working. The Columbus Dispatch asked Kasich to release his tax returns for all eight years he was at Lehman, but so far the candidate has only released his 2008 return and a 2009 financial disclosure statement. They show that Kasich made $1.4 million in 2008—including $265,000 as a Fox News contibutor and $590,000 (his bonus was $432,000) from the doomed Lehman.

A Kasich spokesman told The Hill that the campaign was releasing the information "primarily to show that he did not profit from Lehman Brothers' demise." But that's not really the point of the Strickland campaign's attack. Kasich's background gives Strickland a simple story to sell to voters. While Ohio was suffering through the Bush years and into the "Great Recession," Kasich was on Wall Street, raking in the dough from a firm that participated (as almost all of them did) in the enormously risky bets that drove the economy to ruin. It's not that Kasich profited from Lehman's collapse. He wasn't short-selling his own bank's stock (as far as we know.) It's that he made his fortune and got out while everyone else paid the price for his firm's bad behavior.

Journalists will likely push Kasich to release the rest of his returns—the limited disclosure definitely makes it seem like he's hiding something—and then to try to force the candidate to go beyond talking about pay and explain what, exactly, he was doing at Lehman. Kasich claims he was not a top decision-maker at Lehman. So was he the classic ex-politico at the investment bank, a la Harold Ford, basically a lobbyist in disguise? Or was he doing something else entirely?