May 06, 2009

Using Lehman as a blueprint for TXDOT

I think it's a super good idea to give the State the ability to create their own investment bank. With all the good people out of work as a result of the financial meltdown most of them played a part in causing, we're sure to get some top notch talent, like the folks from AIG Financial Products Group in London who overwrote their capacity by something like trillions of dollars.

As you could probably tell, I'm a little disturbed about the craptastic Transportation Bank that Senators Carona, Ogden and Nichols are creaming themselves over. I get like that when people, we'll call them SENATORS, think they're being clever but are, in reality, making some really stupid decisions. If some of the worlds best run and managed (as laughable as that may be) insurance and financial companies got themselves into trouble with credit enhancements. Which leads me to ask what makes the Texas Senate think that this Transportation Revolving Fund is going to be different? It is, after all, going to be doing the exact same thing as an investment bank. The only difference is it'll be taxpayer money at risk. The other important difference is that, much like the SBOE, it'll be run by incompetent appointees instead of incompetent privately hired bankers.

How can I be sure they'll be incompetent? Well, 39% will be making the appointments... and he wouldn't know a good investment banker from a used car salesman.

Just let that, for a moment, sink in. This is a taxpayer funded bank that, in some cases, will have access to funding from the state run pension plans. See, if they can't get private investors interested, they can just pull money from the pensions. And, of course, taxpayers will ultimately be on the hook when this does, inevitably, fail.

Sorry, it's not that I don't have a sense of optimism about this proposal. I think it could work in a perfect world, one in which the law of unintended consequences doesn't exist. However, our Senators are like children playing with nukes. Seriously, and this isn't to be mean but, EVERY SINGLE STATE SENATOR IS MASSIVELY OUT OF THEIR DEPTH ON THIS. And no, that's not at all an unfair criticism.

I'm not calling you stupid, just ill informed and incapable of even understanding just how far off the rails this thing could go in a relatively short period of time.

You really want to get a look at how badly this could all go? Take a look at this NYT piece on Lehman Bros. When they couldn't sell anymore they started using their own money, just like the revolving fund. And when things went south because they weren't pricing things properly, the entire company got pulled down. That's what will happen here and Lehman was relatively good about not writing enhancements on the debt they sold. Orange County, CA is another case that could readily be duplicated by this revolving fund. Only with us, if we include pension money, we could be looking at hundreds of billions in losses.

The most ridiculous thing about all this is that it's a bandaid on the real problem... it's covering it over and hoping it will go away without fixing it. EOW has piece up about Rep. Pickett's desire to change over the local option tax/toll plan and make it at the MPO level which would keep WilCo from having a lower gas tax than Travis Co. This is better that the local option but it's still only a stop-gap measure for the real solution, indexing the state gas tax.

It would be great if we could get past political orthodoxy and ideological purity (taxes are not, as some of you think, always bad or confiscatory... tolls are a tax and you love those). It would also be great if y'all were more interested in your constituents than your campaign contributors. But neither is possible, so the issue will never get resolved as you people maneuver and manipulate to try and find still more esoteric solutions.

Posted by mcblogger at May 6, 2009 02:50 PM

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