My morning reads:

Random Thoughts: Navigating the Year-End Stock Market Stretch (Minyanville)
• Poor management, not union intransigence, killed Hostess (LA Times)
• The end of the world is nigh—and here’s who stands to profit (Quartz)
• Two Moves Made During Crisis Show Why Mark Carney Is One of the World’s Shrewdest Central Bankers (Business Insider)
Heavy technology: The process of technological diffusion over time and space (VOX)
• Offshore secrets revealed: the shadowy side of a booming industry (The Guardian)
• Mortgage Interest Deduction, Once a Sacred Cow, Is Under Scrutiny (DealBook) see also Economists, Obama administration at odds over role of mortgage debt in recovery (Washington Post)
• The Great Oil Fallacy (The National Interest)
• CO2 Hits New High; World Could Warm 7°F by 2060 | Climate Central (Climate Control) see also World’s Largest Investors Call For More Decisive Action By Governments on Climate Change (Ceres)
• 6th Annual ABA Journal Blawg 100 (ABA Journal)

What are you reading?

>
California Bonds Get Another Look

Source: WSJ

Category: Financial Press

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

12 Responses to “10 Tuesday AM Reads”

  1. BusSchDean says:

    Re: Hostess….apparently unions are not to blame for all company ills. I guess we will need to update our knee-jerk script that over-paid CEOs can do no wrong. Of course in Detroit the unions and management virtually held hands, adversarial though they may be, as they skipped down the road to bankruptcy.

  2. ellwood2011 says:

    That Hostess article is written by someone with zero understanding of finance. His article notes that Hostess had nearly $1 Billion of unfunded post-retirement obligations. That is $200 million more than the article says they owed to those evil hedge funds and pe funds. Does he not understand the implications for the company of that amount of post-retirement obligations? No wonder they did not have any funds to invest in their business. He faults management for not funding those benefits as they went along. Hello? Where would that funding have come from? Not operations – they went into bankruptcy withOUT funding them. No outside investor was going to write a billion dollar check. How are unions not equally responsible for acquiescing in that unfunding? How long did they let it build up? This is a situation where liquidation appears to have been inevitable and probably should have happened in the first bankruptcy but the unions – who endorsed the first bankruptcy even though it increased the debt load by 40% as the article says, seem to have cared more than anything about keeping their members’ jobs so they rolled the unfunded liability along hoping for a miracle. The poor retirees had nothing but company risk and the union did nothing to protect them.

  3. theexpertisin says:

    Companies get the union they deserve.

  4. rd says:

    Re Mortgage Interest Deduction

    An example used is “He assumes a household earns $110,000 and has a $300,000 mortgage on which it pays $17,500 a year.” Only interest on the loan is tax deductible, so this implies a 5.8% interest rate on the mortgage. You have to have fairly poor credit to have a 5.8% interest rate on a 30 year mortgage these days.

    If there is any time to eliminate the mortgage interest rate deduction, it is today with mortgage rates at mult-generational lows and like to be so for at least a couple of more years.

    I think the biggest impact of eliminating the mortgage interest rate deduction is another impact that is not even being talked about. There is another article in Barry’s list discussing underwater homeowners. At present, they are paying high (probably 6%-8%) interest rates from 5+ years ago on a mortgage that they can’t refinance. Losing the mortgage interest rate deduction would probably make their current home ownership completely unaffordable for many of them and they would likely move into default and foreclosure.

    This would probably be the last great wave of foreclosures in the housing crisis and would take the rest of Obama’s second term to complete the process, at which point the housing debt hangover would have been cleaned up and the next president would start off with a relatively clean slate economically like Reagan and Clinton had early in their first terms. This would also free up many of these people that are currently house-bound to become mobile again, taking new jobs in other areas which might start to re-allocate labor better around the country.

  5. S Brennan says:

    Hey…thanks for the link to “The National Interest” it’s good to read factually grounded comment on the world.

    I disagreed with their unsupported contention that the deficits of the 60′s cause inflation in the 70′s…were that a true cause, then the 80′s would have been far far worse for inflation, however, you can’t stop the big lie when it is repeated over and over through the decades.

    That said, I found it interesting that “Big Oil’ is a lot smaller than say financial institutions…as in ~ 1/6, or “the American Healthcare delivery system” as in ~ 1/4. It’s a lot easier to drive a stake through a vampire squid when you are not looking at them through smoky mirrors.

  6. DeDude says:

    Nice solid work on the multiplier of spending on highway projects (it is at least 2). Also note that it is higher than most government spending (usually studied as it relates to military spending). So if you reduce military spending and increase highway spending with a similar amount you can get economic growth, or you can reduce deficits and retain economic activity if you only use part of the savings on highway spending. Maybe its time to decide that we should fight fewer wars and repair more bridges.

    http://www.frbsf.org/publications/economics/letter/2012/el2012-35.html

  7. S Brennan says:

    Dedude,

    The National highway system was sold as defense, the “National Interstate and Defense Highways Act of 1956″, or if you prefer “Dwight D. Eisenhower National System of Interstate and Defense Highways”

    If you looking for sound bite here’s mine:

    “INFRASTRUCTURE IS DEFENSE”

    Don’t cut DoD research and development, stop useless wars and redirect DoD spending into dual use. DoD is the only thing that keeps US manufacturing on life support until Wall Street/ DC can take a moment to pull it’s collective head out of it’s butthole.

  8. BusSchDean says:

    elleood: spoken like a finance guy. When management accepted the bankruptcy terms (and their salaries) they accepted the challenge of growing the company even with the financial tin can tied to their tail). They failed and in that regard the author is not wrong. Sometimes…despite all complaints from the finance department, a company needs really good product development and marketing.

  9. Conan says:

    Here is your outside the box idea of the day:

    A lamp that absorbs one ton of carbon per year! That’s like 150 or 200 trees!!! Install it anywhere, on the roads in parks, where ever.

    http://grist.org/list/this-lamp-absorbs-more-co2-than-a-tree/

  10. ellwood2011 says:

    Holman Jenkins has a very good column Wednesday WSJ that shows that Hostess liquidated because the Bakers’ Union wanted to get out from under the Teamsters’ high cost labor contracts which was burdening the company. The bakers expect to be hired by the buyer, who will use its own distribution system and avoid the Teamsters’ costs.

    @Bus Sch Dean, yes I am a finance guy which is why I observed the reporter knew nothing about finance. It’s clear a company of this size could not service $1B in post-retirement obligations, carry any funded debt, and invest adequately in its business. The “management” that took the company out of chapter 11 the first time is no longer there so I don’t see the relevance of its views. We don’t know their motivations anyway. They may have had bonuses tied to coming out, or they may have just been marking time until they could get another job. IMO, the company should not have come out of the first reorganization and we all seem to be in agreement on that. I don’t know what happened and I gather you don’t either, but it’s entirely possible they were not allowed to liquidate by the local judge because of the loss of hometown jobs. A lot goes on under the surface in these big chapter 11 cases and you should have someone on your faculty who knows that.