HT: The Political Assault on Climate Skeptics | Cato Institute.
Richard Lindzen on back when periods of warming were climate optima
12 Mar 2015 1 Comment
in economic history, economics of bureaucracy, environmental economics, global warming, Public Choice, rentseeking Tags: Anti-Science left, climate alarmism, green rent seeking, Richard Lindzen
NZ taxpayers made a $20 million profit on its $30 billion state owned enterprises portfolio!
11 Mar 2015 Leave a comment
in economics of bureaucracy, industrial organisation, politics - New Zealand, privatisation Tags: privatisation, state owned enterprises
KiwiRail is such a dog that the Treasury reports on the rate of return to the taxpayer on the state owned enterprises portfolio by excluding KiwiRail from its calculations of rates of return.
The Treasury doesn’t do similar adjustments for state owned enterprises that are performing unusually well, so total shareholder return figures should be reported without this KiwiRail exception. If you buy a dog, you should own up to the fleas it spreads to the rest of your portfolio.
Trying to pretend that KiwiRail is just not there, or survives on the largess of someone other than the one and only New Zealand taxpayer, does no one any favours. This KiwiRail exception will have to apply for at least 10 years to the annual commercial portfolio report of the Treasury. I want to know the total shareholder return, including KiwiRail every year without exception or special pleading.
That total shareholder return of -8.2% in 2012 is worthy of comment too:
The portfolio generated a net loss after tax of $1.8 billion driven by a restructuring of KiwiRail’s balance sheet and reductions in bottom line results for Meridian and Solid Energy, affected by hydrology and coal market deterioration respectively.
It’s time for the government to wash its hands of Solid Energy and let it go bankrupt – updated
11 Mar 2015 1 Comment
in economics of bureaucracy, politics - New Zealand, survivor principle Tags: corporate welfare
Government owned mining company Solid Energy lost $182 million last year. It is already received nearly $200 million in corporate welfare in bailouts from the New Zealand taxpayer. It’s time to call a halt.
The Christchurch-based coalminer is negotiating with banks in a bid to reduce its $320 million debt. In 2013, its annual revenue dropped by a third to $631 million.
Solid Energy invested heavily on a strategy that energy prices were going to go up and up. That investment strategy was against the market sentiment of that time, much less afterwards and the collapse of oil prices.
While Prime Minister John Key said on March 2 that it was not the Government’s preferred option to put more taxpayer cash into Solid Energy, Minister of Finance Bill English flatly ruled out cash, loans or guarantees. I hope Bill English wins that political struggle at the Cabinet table for the sake of the long-suffering New Zealand taxpayer.
What is worse, the government has indemnified the directors of Solid Energy against unspecified liabilities thus giving them an open-ended cheque-book, from what I can see, to trade while insolvent:
State Owned Enterprises Minister Todd McClay confirmed last month that the Crown has offered an indemnity to the board of Solid Energy last year, but would not comment on what it was.
Asked if directors had raised concerns with him that they might be trading while insolvent, English said: “Any director of a company like this has that question uppermost in their mind. They need to be sure all the time that they’re not trading while insolvent.”
Directors’ duties regarding trading while insolvent is the last line of defence against financial irresponsibility. There are both civil liability and criminal penalties for trading while insolvent under company law.
Solid Energy has already been a black hole for nearly $200 million in taxpayers’ money as well as considerable bank write-offs of loans.
The company appeared before the Finance and Expenditure Select Committee of Parliament this morning. It told MPs the company was solvent and marginally cash positive, but looking at another significant loss this year.
It should be a matter of policy that the government, any government, should not indemnify directors of any company, be they government owned or not, for breaches of directors’ duties. It’s a matter of the rule of law and of governments not privileging itself in the marketplace at the expense of the taxpayer.
What is the point of having a State Owned Enterprises Act and setting up these businesses as companies with a duty to be as successful as a company not owned by the government if they don’t have to obey the most fundamental safeguards in company law when push comes to shove?
If these indemnities have indeed been issued by the government for breaches of directors’ duties regarding insolvency, and it seems as though they have been, what is the Crown liability to creditors if Solid Energy is indeed trading while insolvent? These indemnities may allow the creditors to pierce the corporate veil and sue the New Zealand government.
In the revenge of directors duties, the directors of banks and any other creditor will have a director’s duty to sue the New Zealand government for all it can get as a result of these indemnities.
At a minimum, the New Zealand government will have to settle out of court or go all the way to the Supreme Court because hundreds of millions of dollars are involved from the bank write-offs, past and present.
Naturally, the ideological blinkers of the opposition party in New Zealand prevents it from saying the obvious, which is calling for the Solid Energy to be put in receivership. The Labour Party spokesman on state owned enterprise attacked the stewardship of the Minister of Finance as a shareholding Minister, but had nothing to say in terms of solutions, including putting the company into receivership.
The Green Party did a little bit better in 2013 when its spokesman talked about a need for a transition to sustainable jobs – the Green party code for layoffs:
“The National Government need to take responsibility for their mismanagement of Solid Energy and cut their losses,” said Mr Hughes.
“The banks that made risky loans to Solid Energy need to bear the cost of their mistakes”. “Coal is not going to be the fuel of our future if we are to stabilise our climate”.
“New Zealanders and Solid Energy workers need a just transition into more sustainable jobs – jobs that don’t fry the planet.”
“The longer this Government effectively denies climate change, the more taxpayer money will go to subsidising coal and its foreign backers.”
Things are getting desperate when the Greens find a corporate welfare so appalling that they actually oppose it, if only because of support for lower carbon emissions. That is one green hypocrisy too many if it supported a bailout of a coal miner.
Bureaucracy also landed on the Moon too
25 Feb 2015 1 Comment
in economic history, economics of bureaucracy, economics of regulation, law and economics, technological progress Tags: conspiracy theorists, moon landing, moon landing hoax
Yet another way to beat the share market
24 Feb 2015 Leave a comment
in economics of bureaucracy, financial economics, Public Choice, rentseeking Tags: political connections, share price event studies
Over the ten trading days following the announcement of Timothy Geithner as Treasury Secretary, financial firms with a connection to Geithner experienced a cumulative abnormal return of about 12% relative to other financial sector firms. This reversed when his nomination ran into trouble due to unexpected tax issues.
That is what Daron Acemoglu, Simon Johnson, Amir Kermani, James Kwak, and Todd Mitton found recently.
Geithner had important social connections from his time as president of the Federal Reserve Bank of New York. He knew some people in finance very well – including those at large and small firms – but some others he did not know at all. This spike in share prices for connections to Tim Geithner was somewhat special as the authors explain:
when Henry (Hank) Paulson became Treasury Secretary in May 2006 – there is no evidence of a positive impact on the stock price of connected firms.
The argument put forward explaining the value of these connections had nothing to do with any suggestions of impropriety whatsoever. What happened was the value of connections spiked in a crisis such as the global financial crisis in 2008:
it was entirely reasonable for market participants to suppose that immediate action with limited oversight would have to be taken, and that officials would rely on a small network of established confidantes for advice and assistance. In fact, this is exactly what happened while Mr Geithner was at Treasury.
When the going gets tough, the tough only have time to ring friends and associates for advice and new staff.
Déjà vu all over again: Sovereign Funds, a History of Bad Timing Version
20 Feb 2015 Leave a comment
in economics of bureaucracy, fisheries economics, rentseeking Tags: New Zealand superannuation fund, sovereign wealth funds, state owned enterprises
Josh Lerner analysed about 2,600 sovereign fund investments over the last 25 years, to find that:
these funds are “trend chasers” rather than good market timers — they are likely to invest at home when domestic equity prices are higher, and invest abroad when foreign prices are higher. This tendency to shun assets when their prices are low has taken its toll on the returns at these funds…
sovereign fund investments made in a fund’s home country tend to do worse than foreign investments, at least in the short term. Industry price-to-earnings ratios of domestic investments tend to drop in the first year, while international investments have a positive change in the first year. Moreover, when politicians are involved in sovereign funds’ decision-making, more money is funnelled to poorly performing domestic deals
What were they thinking? NZ government super fund loses the lot on loan to already failing bank in one of the PIGS.
20 Feb 2015 Leave a comment
in economics of bureaucracy, entrepreneurship, financial economics, politics - New Zealand Tags: active investing, corruption, euro crisis, Index of Economic Freedom, junk bonds, passive investing, Portugal, risk diversification, state owned enterprises
A Portuguese bank on the verge of collapse – what were they thinking?
That would have been the response of many newspaper readers this morning upon learning the New Zealand Superannuation Fund has lost nearly $200 million in taxpayers’ cash on a "risk-free" loan it provided to Lisbon-based Banco Espirito Santo (BES) on July 3.
The loan – part of a US$784 million credit package US investment bank Goldman Sachs put together through its Oak Finance vehicle – was made exactly one month before Portugal’s central bank broke up BES and split the country’s biggest lender into two, with one part holding the good assets and the toxic assets placed in the other.
Unfortunately, the Oak Finance loan is now stranded in the so-called "bad bank" following a retrospective law change by the Bank of Portugal.
Christopher Adams: What were they thinking? – Business – NZ Herald News.
This is what the 2015 index of Economic Freedom has to say about Portugal on the rule of law:
In 2013, the OECD expressed concern over Portugal’s reluctance to crack down on foreign bribery, particularly in regard to its former colonies Brazil, Angola, and Mozambique.
Since 2001, Portugal had officially acknowledged only 15 bribery allegations, and there had been no prosecutions. The judiciary is constitutionally independent, but staff shortages and inefficiency contribute to a considerable backlog of pending trials.
It’s not easy to be green: the cost of fossil fuels divestments to the New Zealand superannuation fund
17 Feb 2015 Leave a comment
in economics of bureaucracy, energy economics, environmental economics, environmentalism, financial economics, global warming, Public Choice, rentseeking Tags: efficient market hypothesis, fossil fuel disinvestment, Global disinvestment day, Green Party of New Zealand, index linked investing, privatisation, state ownership
The Green Party of New Zealand wants the New Zealand superannuation fund to sell its $676 million in fossil fuel investments. For those not in the know, this government investment fund is worth about $25 billion and is funded by present taxes to pay for the universal old age pension in New Zealand. Its current investment strategy seems to rely heavily on index linked funds that minimise management and trading costs.
The Government uses the Fund to save now in order to help pay for the future cost of providing universal superannuation.
In this way the Fund helps smooth the cost of superannuation between today’s taxpayers and future generations.
In common with the endowment funds of the American universities, that $676 million is about 2% of the total New Zealand superannuation portfolio of about NZ$25 billion.
Any portfolio manager risks considerable fees if she must monitor the entire portfolio because 2% is of dubious moral stature.
The main cost of divestiture is compliance costs to prevent fossil fuel investments drifting back into the portfolio through the routine day to day investments of other companies within their portfolios as these other firms expand into new businesses or diversified. The entire portfolio must be monitored for this risk.
American universities found that fossil fuels divestment rules out indexed linked funds as a class, along with their low management and trading fees. Ethical investors must move to actively managed investment funds which are perhaps a third more expensive in management fees.
If a move to a fossil fuel free portfolio rules out passive indexed linked funds, that is a major risk to future returns of the New Zealand superannuation fund. Would this fossil fuels disinvestment including selling the recently acquired Z petrol station network by the New Zealand superannuation fund?
Z Energy now owns and manages these businesses, which include:
- a 15.4 per cent stake in Refining NZ who runs New Zealand’s only oil refinery.
- a 25 per cent stake in Loyalty New Zealand who run Fly Buys
- over 200 service stations
- about 90 truck stops
- pipelines, terminals and bulk storage
As usual, in the course of argument for disinvestment by the government investment fund, the Green Party makes an excellent argument for the privatisation not only of state owned enterprises but of the New Zealand superannuation fund.
Rather than have one victory at a time, the Greens want the NZ superannuation fund to use the funds from the disinvestment to reinvest in pet projects of politicians. The green party co-leader said:
Money released from divestment can be reinvested in the rapidly growing renewable energy and energy efficiency sectors, helping to hasten the transition of our economy to a low-carbon future.
This makes government investment funds the playthings of politicians so they can never match the returns of a genuinely privately owned investment fund.
Utopia, you are standing in it! 
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