Saturday, October 30, 2010

Legalizing Recreational Drugs -- Opening Pandora's Box

Empowering recreational drug developers by legalizing marijuana and, eventually, other substances, will set us on a course of massive recreational drug innovation. That's the bad news. It gets worse from there.

In Quest for 'Legal High,' Chemists Outfox Law


ANTWERP, Belgium—When the housing market crashed in 2008, David Llewellyn's construction business went with it. Casting around for a new gig, he decided to commercialize something he'd long done as a hobby: making drugs.

But the 49-year-old Scotsman didn't go into the illegal drug trade. Instead, he entered the so-called "legal high" business—a burgeoning industry producing new psychoactive powders and pills that are marketed as "not for human consumption."

Mr. Llewellyn, a self-described former crack addict, started out making mephedrone, a stimulant also known as Meow Meow that was already popular with the European clubbing set. Once governments began banning it earlier this year, Mr. Llewellyn and a chemistry-savvy partner started selling something they dubbed Nopaine—a stimulant they concocted by tweaking the molecular structure of the attention-deficit drug Ritalin.

David Llewellyn is part of a wave of chemically savvy entrepreneurs who see gold in the gray zone between legal and illegal drugs.

Nopaine "is every bit as good as cocaine," says Mr. Llewellyn, who has lived in Antwerp on and off since the late 1980s. "You can freebase it. You can snort it like crack." Still, he emphasized, "Everything we sell is legal. I don't want to go to jail for 14 years."

Mr. Llewellyn is part of a wave of laboratory-adept European entrepreneurs who see gold in the gray zone between legal and illegal drugs. They pose a stiff challenge for European law-enforcement, which is struggling to keep up with all the new concoctions. Last year, 24 new "psychoactive substances" were identified in Europe, almost double the number reported in 2008, according to the Lisbon-based European Monitoring Centre for Drugs and Drug Addiction, or EMCDDA.

The problem is also touching U.S. shores. A new synthetic drug similar to marijuana is increasingly popular, for instance. Some states have started banning it. But many of the other substances and stimulants vexing Europe are less of an issue in the U.S., according to a spokeswoman for the Drug Enforcement Administration.

Designer Fashions

Among the 'legal highs' that have appeared in recent years:

Mephedrone. Also known as Meow Meow, Drone and M-Cat. Similar to amphetamines such as speed. It has been responsible for at least three deaths in Europe. Recently banned in most European countries.

Naphyrone. Also known as NRG-1. Similar to amphetamines. Banned this year in the U.K.

MDAI. Similar to MDMA, or ecstasy. Still legal in many countries.

Spice. A synthetic cannabinoid that is similar to cannabis. Sprayed on herbal leaves and smoked. Recently banned in most of Europe and many U.S. states.

BZP. Belongs to a class of drugs called piperazines, which mimic the effects of MDMA, or ecstasy. Piperazines are used in industry to make plastics, resins, pesticides and brake fluid.

BZP was once investigated as a potential antidepressant, but the work was abandoned when it was found that the drug had stimulant properties similar to amphetamines. Now banned in many countries.

"The legal high phenomenon is very much European," says Roumen Sedefov, head of supply reduction and new trends at the EMCDDA. New substances tend to hit Europe before the U.S. and other markets, he says, in part because European consumers are more accustomed to buying drugs online. Strong trade links between Europe and southeast Asia, where many of the drugs are made, also play a role, he said. Web sites, no matter where they are based, often market new drugs to Europeans, pricing their wares in euros or British pounds, he said.

European authorities blame mephedrone for the death of three young people in the U.K. and Sweden in recent years. They say it may have contributed to more than 30 additional deaths in the U.K.

The products Mr. Llewellyn sells aren't banned substances. Because he and others market their wares as "not for human consumption," his business is technically legal. Still, authorities don't like what he's doing. Drug-enforcement officials are scrambling to spot and ban harmful new drugs faster. Many have banned substances like mephedrone and naphyrone in recent months, giving them the "class B" status assigned to amphetamines and other drugs.

But with their resources stretched, police say the new drugs aren't as high a priority as fighting "class A" drugs, such as heroin and cocaine.

As he scurries to stay ahead of the law, authorities have put speed bumps, not roadblocks, in his path. Mr. Llewellyn says Belgian customs officials recently raided one of his storehouses and seized his chemicals, threatening to use environmental laws to shut him down. And he says he may have to move one of his production labs from the Netherlands because authorities there are planning to outlaw the use of certain lab equipment without a professional license.

A spokesman for Dutch police said he didn't have any information on Mr. Llewellyn. Belgian customs didn't respond to requests for comment.

Other than that, however, Mr. Llewellyn's business is cruising along largely unimpeded. He and eight employees make drugs in a pair of "underground" labs—one in Holland and a new, $190,000 lab in Scotland. He hawks his wares online at, taking payment by bank transfer. He advertises some of the drugs by their formal chemical name and some by nicknames like Euforia or XT.

Mr. Llewellyn says he expects governments to catch wind of Nopaine soon and ban it. Anticipating the move, he says he's got dozens of other products ready to go, including a drug similar to the horse anesthetic Ketamine and something else he claims to be "the closest thing to Ecstasy that ever existed." By the time officials crack down, he says, "we are going to bring out something else."

His products sell for about €20 ($28) a gram, or €4,000 to €5,800 ($5,500 to $8,000) a kilo. By contrast, a gram of cocaine costs roughly €50 to €70 ($69 to $97) in Europe, according to the EMCDDA.

Many users buy small amounts of the legal stuff online, while large wholesalers buy in bulk and sell it on to dealers. They, in turn, peddle the drugs in nightclubs. Mr. Llewellyn travels frequently to promote his latest products to the biggest wholesalers, whom he declines to name.

He and his chief chemist get ideas for new drugs by scanning scientific literature. They pay particularly close attention to new papers published by scholars known for researching mind-altering, psychoactive substances.

David Nichols, a pharmacologist at Purdue University, has been especially valuable, Mr. Llewellyn says. Through his work studying brain receptors, Dr. Nichols has developed a range of psychoactive substances. His papers give a full description of the drugs he's using, including their chemical makeup. This provides Llewellyn and others with a roadmap for making the drugs.

Dr. Nichols says he's well aware of this fan club. "The drugs we make often end up on the black market, and it's very troubling to me," he says. Particularly worrying is that the drugs are rarely tested in humans before hitting the street. Random people sometimes write to him to ask for help in making certain chemicals, he says. He doesn't reply out of caution.

"When people use this stuff chronically, on a weekly basis—suppose it produces liver cancer?" he asks. Also of concern are effects on the kidneys and bone marrow. Most of the designer drugs haven't been tested in humans at all, let alone in large clinical trials. Dr. Nichols says he himself only ever carried out animal tests of the compounds that others are now copying and selling.

Mr. Llewellyn and his colleagues make many of their products with the help of a rotary evaporator—a piece of lab equipment resembling a food processor that heats and evaporates liquid chemicals, turning them into powders. To outfit his new lab in Scotland, he ordered custom-made, stainless-steel equipment from a welder. He says he didn't purchase the equipment from a commercial supplier because it would have asked questions about why he was buying gear normally used for industrial chemical production.

Recent deaths attributed to legal highs like Meow Meow have drawn attention to the drugs in some parts of Europe. Mr. Llewellyn says he stopped selling mephedrone when countries started banning it, although he still scoffs at the idea that the drug is dangerous.

To try to prove his point before European countries began banning mephedrone, he snorted half a gram of it on one of Belgium's evening news programs. "I took a gram, cut it in half, put it in a line and I sniffed it," he says. "They couldn't actually show the sniff but they showed everything else." Afterwards, he says he felt pleasantly buzzed.

Others have had darker experiences with the drug. One teenager in central England started using mephedrone last year when he was offered it at a party. His mother says he was soon addicted, and became aggressive and wired—staying up for days at a time before crashing and refusing to get out of bed. He lost his part-time job and got kicked out of school. After one heated confrontation over Christmas, she kicked him out of the house.

"It had a massive, big effect on the family. I had a nervous breakdown," the mother says.

Her son would buy the powder online, or get it from friends, she says. "It was like he couldn't live without it." After about a year, he managed to quit the drug, she says. Her son declined to comment.

Many U.K. nightclubs search patrons upon entry and place any suspicious substances in so-called "amnesty bins" that are regularly emptied by police. When they see anything potentially new, police often forward the substance to John Ramsey, a toxicologist at St. George's, University of London, who keeps a vast database of new drugs.

Dr. Ramsey and his team specialize in identifying new substances, and have seen a "dramatic increase" in recent years, he says.

"Probably five years ago, the appearance of a new drug was notable—we'd all get together and talk about it—whereas last month, we found six," Dr. Ramsey says. A few were similar in structure to mephedrone and naphyrone, while another was identified as desoxypipradrol. A stimulant, it is similar to pipradrol, a drug once prescribed for weight loss and other uses that fell out of favor because of its potential for abuse.

Police also hear about new drugs from emergency rooms. This summer, a hospital in northwestern England phoned local police after six people in a single week reported taking something called "Ivory Wave." They came to the hospital "paranoid and extremely agitated," with extremely fast heart rates, says cardiologist Kate Willmer, who helped treat them. It took four members of staff to restrain one young woman, who was eventually sent to a mental institution, where she is still being treated, Dr. Willmer said.

James Brokenshire, minister for crime prevention at the U.K.'s Home Office, says police are encouraging hospitals to keep them informed about new drug threats. Law-enforcement agencies also monitor Web sites for signs of new drugs, and are stepping up visits to head shops to keep track of what's being sold. Most sellers of legal highs advertise them as "plant food," "pond cleaner" or "bath salts" not meant for human consumption, as a legal figleaf to protect them from any liability.

Narcotics experts say many of the novel drugs are manufactured in China, where they say lax regulation makes it easy for companies to produce and export a cornucopia of chemicals. Les Iversen, chairman of the U.K.'s Advisory Council on the Misuse of Drugs, which advises the government on new substances, says customs officials at Heathrow Airport recently seized a large shipment of white powder from China that was labelled "glucose" but contained mephedrone.

China also supplies raw ingredients to manufacturers located elsewhere. Mr. Llewellyn says he buys his raw ingredients online from Chinese suppliers, who charge rock-bottom prices and ask few questions about his business. The powders and liquids arrive by plane in 1-kilogram sacks and 25-liter drums and go to a warehouse in Glasgow before being shipped to his labs.

Chinese officials say the country is taking steps to control the flow of new drugs. On September 1, China began regulating mephedrone as a "category I psychotropic substance," which means anyone importing or exporting it needs a special license. In a written statement, China's State Food and Drug Administration said it has "strengthened monitoring of the situation in the country," and is ready to work with other countries to "exchange information, share resources and jointly respond to new emerging problems of drug abuse."

Mr. Llewellyn, meanwhile, is unfazed. He boasts that his safety testing method is foolproof: He and several colleagues sit in a room and take a new product "almost to overdose levels" to see what happens. "We'll all sit with a pen and a pad, some good music on, and one person who's straight who's watching everything," he says.

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Tuesday, October 26, 2010

George Soros? Is he Cheech? Or Chong?

For some reason George Soros believes the way to reduce a problem is to make it a bigger problem.

He, like a growing number of others, believes the biggest beneficiaries of today's anti-marijuana laws are the smugglers who move pot over the Mexico-US border. He claims that legalizing marijuana in the US would end smuggling and drug violence in Mexico.

Why? Legalizing marijuana consumption in the US changes no laws in Mexico. Moreover, if pot were legal in the US, then consumption would rise and Mexican exporters would most likely see an increase in demand. How would better market conditions in the US lead to less smuggling and safer streets south of the border?

Moreover, if pot were legal in the US, then, as Soros suggests, Congress would get into the pot business through regulation and taxation. If the US government were to regulate and tax pot, then the same US government that is fighting pot smugglers today, would find itself fighting pot smugglers in the future. But the motive in the future would be to protect our stream of tax revenue, which would be substantial, just as it is from tobacco.

Americans are already angry that we send billions of dollars to middle east nations for oil even though we have substantial reserves here. But our best domestic reserves are located in places some people consider sacred. Like the Arctic National Wildlife Refuge. Hence, pot growing would face local restrictions.

There are still parts of America where liquor is restricted. Thus, we know pot will face varying levels of acceptance and disapproval. But it's certain the government will not tolerate the illegal arrival of smuggled untaxed pot. Neither will Mexico stand aside and allow smugglers to rule border towns. Today, the US levies a tariff on ethanol imported from Brazil. The tariff is high enough to discourage importation, which, in turn, secures the ethanol market for US ethanol producers. When it comes to imports, Congress believes in protectionism. Of course, protectionism can only be practiced when the product in question is legal in both the country of origin and the country of destination.

Why I Support Legal Marijuana

We should invest in effective education rather than ineffective arrest and incarceration


Our marijuana laws are clearly doing more harm than good. The criminalization of marijuana did not prevent marijuana from becoming the most widely used illegal substance in the United States and many other countries. But it did result in extensive costs and negative consequences.

Law enforcement agencies today spend many billions of taxpayer dollars annually trying to enforce this unenforceable prohibition. The roughly 750,000 arrests they make each year for possession of small amounts of marijuana represent more than 40% of all drug arrests.

Regulating and taxing marijuana would simultaneously save taxpayers billions of dollars in enforcement and incarceration costs, while providing many billions of dollars in revenue annually. It also would reduce the crime, violence and corruption associated with drug markets, and the violations of civil liberties and human rights that occur when large numbers of otherwise law-abiding citizens are subject to arrest. Police could focus on serious crime instead.

The racial inequities that are part and parcel of marijuana enforcement policies cannot be ignored. African-Americans are no more likely than other Americans to use marijuana but they are three, five or even 10 times more likely—depending on the city—to be arrested for possessing marijuana. I agree with Alice Huffman, president of the California NAACP, when she says that being caught up in the criminal justice system does more harm to young people than marijuana itself. Giving millions of young Americans a permanent drug arrest record that may follow them for life serves no one's interests.

Racial prejudice also helps explain the origins of marijuana prohibition. When California and other U.S. states first decided (between 1915 and 1933) to criminalize marijuana, the principal motivations were not grounded in science or public health but rather in prejudice and discrimination against immigrants from Mexico who reputedly smoked the "killer weed."

Who most benefits from keeping marijuana illegal? The greatest beneficiaries are the major criminal organizations in Mexico and elsewhere that earn billions of dollars annually from this illicit trade—and who would rapidly lose their competitive advantage if marijuana were a legal commodity. Some claim that they would only move into other illicit enterprises, but they are more likely to be weakened by being deprived of the easy profits they can earn with marijuana.

This was just one reason the Latin American Commission on Drugs and Democracy—chaired by three distinguished former presidents, Fernando Henrique Cardoso of Brazil, César Gaviria of Colombia and Ernesto Zedillo of Mexico—included marijuana decriminalization among their recommendations for reforming drug policies in the Americas.

Like many parents and grandparents, I am worried about young people getting into trouble with marijuana and other drugs. The best solution, however, is honest and effective drug education. One survey after another indicates that teenagers have better access than most adults to marijuana—and often other drugs as well—and find it easier to buy marijuana than alcohol. Legalizing marijuana may make it easier for adults to buy marijuana, but it can hardly make it any more accessible to young people. I'd much rather invest in effective education than ineffective arrest and incarceration.

California's Proposition 19, which would legalize the recreational use and small-scale cultivation of marijuana, wouldn't solve all the problems connected with the drug. But it would represent a major step forward, and its deficiencies can be corrected on the basis of experience. Just as the process of repealing national alcohol prohibition began with individual states repealing their own prohibition laws, so individual states must now take the initiative with respect to repealing marijuana prohibition laws. And just as California provided national leadership in 1996 by becoming the first state to legalize the medical use of marijuana, so it has an opportunity once again to lead the nation.

In many respects, of course, Proposition 19 already is a winner no matter what happens on Election Day. The mere fact of its being on the ballot has elevated and legitimized public discourse about marijuana and marijuana policy in ways I could not have imagined a year ago.

These are the reasons I have decided to support Proposition 19 and invite others to do so.

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Monday, October 25, 2010

Cuba -- Soon to be a nation of Tax Evaders

If Cubans can build rafts and sail them to Florida, they can outsmart Castro's tax collectors. Unfortunately, the overbearing weight of a communist dictatorship crushes the creativity out of most Cubans. They must do what they can do to survive, which means they cannot do what they would like to do and thrive. The endless support for the regime takes most of the little they have. And the great fear of the regime that its citizens are not loyal has stopped the government from allowing the development of a fishing industry and an offshore oil & gs drilling business. There's no chance a suspicious government would allow some its most valuable citizens a chance to cross the Gulf in a work boat pointed north into the open waters.

Cuba self-employed to pay taxes up to 50 percent

Oct 25, 1:41 pm

HAVANA (Reuters) – Cuba has set income tax rates at 25 to 50 percent for its soon to be expanded private sector, with the biggest earners paying the most taxes, according to official decrees published on Monday.

The rates will range from nothing for those making 5,000 pesos -- equivalent to $225 -- or less a year to 50 percent for those in the highest bracket, which is more than 50,000 pesos, or $2,252.

The new tax rates came out in the Official Gazette as the government prepares to cut 500,000 workers from state payrolls and issue 250,000 new licenses for self-employment to create new jobs in President Raul Castro's biggest economic reform so far.

Those making more than 5,000 pesos will have to pay taxes, starting at a rate of 25 percent and rising from there as income increases.

The cash-strapped government is looking to the self-employed to increase tax revenues to help pay for expensive social programs such as free health care and education.

Last week the government, in a story in Communist Party newspaper Granma, warned that tax scofflaws "will feel the weight of the law imposed upon them by those mandated to enforce it, the National Tax Office."

The gazette, where the government publishes in thick legalese its new laws and decrees, is not usually a hot seller, but on Monday in Havana people could be seen lining up at newsstands to buy copies, then quickly leafing through them on the street.


Many Cubans have expressed interest in opening their own businesses, with the hope of earning more than the country's $20 a month average salary.

Currently, about 85 percent of the country's labor force of more than 5 million works for the state. Castro, who took over from his ailing older brother Fidel Castro in 2008, wants to trim that number and cut costs.

As of the end of 2009, there were only 143,000 licensed self-employed, although thousands more worked for themselves illegally.

Reaction on the street to the thick decrees, which came out in two separate editions of the gazette, was mixed.

Antonio Soria, a shoemaker working for the state, said he intends to start his own business and views it as a chance to help both himself and the state.

"As a private shoemaker I can retire and have financial support for the future," he said.

"This is a way to contribute to the state's income. Remember that health care and education are free and now that we have the chance to have small businesses, we have to help the country."

Transport worker Ibrahim Fernandez said he supports the private sector expansion, but worried taxes will be too high to encourage small businesses.

"From what I've been able to understand, the topic of the licenses has a defect, which is that they are overcharging taxes. Very expensive, the taxes," he said.

In last week's Granma story, the government outlined a new tax code it said was friendlier to small businesses because while it requires new taxes, it also allows bigger tax deductions.

For the first time since Cuba nationalized small businesses in 1968, the self-employed will be able to legally hire workers.

The regulations issued on Monday said they would have to pay a labor tax amounting to 25 percent of the average salary for their work.

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Good News for Bank Investors

It's looking like a new phase in the consolidation of the banking industry is beginning. Two months ago First Niagara (FNFG) struck a deal to acquire New Alliance Bank (NAB). Now it appears that BankUnited is about to sell equity and begin a takeover campaign of its own. As a bank located in the South, it has lots of weak targets to acquire. The FDIC -- therefore, the taxpayers -- will appreciate the help.

BankUnited to file for IPO this week:

October 25, 2010

NEW YORK (Reuters) - BankUnited, owned by some of the world's most powerful private equity firms, plans to file for a public offering this week, looking to raise roughly $500 million, two sources familiar with the matter said on Monday.

BankUnited plans to use the proceeds from an initial public offering and a secondary offering to buy other banks, one of the sources said.

Private equity firms, including Wilbur Ross's WL Ross & Co, Carlyle Group (CYL.UL), Blackstone Group (NYSE:BX - News) and Centerbridge Partners, bought the assets of failed BankUnited FSB in May last year from the Federal Deposit Insurance Corp. The firms put $900 million in the bank and installed former North Fork Bank head John Kanas as CEO.

The deal, attractive for loss protections from the FDIC, led to a surge of other private investors looking to enter the U.S. banking sector. But it was also followed by tighter regulations, humbling investors' aspirations.

The planned offering would make BankUnited the first major U.S. bank bought by private investors during the recent financial crisis to go public.

BankUnited's existing shareholders plan to sell a small percentage of their holdings, the source said.

The idea is to "raise a little bit of new capital and then the existing shareholders will sell enough to create a decent sized float in the stock," the source said.

BankUnited, based in Miami Lakes, Florida, sees the U.S. Southeast as its primary market but also plans to eventually branch into New York, the source said. The bank has about $11 billion in assets and more than 75 branches.

Morgan Stanley (NYSE:MS - News), Bank of America Corp (NYSE:BAC - News), Deutsche Bank (XETRA:DBKGN.DE - News) and Goldman Sachs (NYSE:GS - News) are underwriting the offering, the source said.

BankUnited declined to comment. The sources are anonymous because the plans are not yet public.

Another source previously told Reuters that an IPO would come at the end of 2010 or in the first quarter of 2011, at the earliest.


Thursday, October 21, 2010

Chevy Volt -- The New Edsel? The New Dead Cell

Despite the early statements from Chevy stating the Volt was powered by electricity and had a gasoline engine on-board to run a generator, the automotive world has learned the truth. The gasoline engine in the Volt IS conntected to the drive train and it WILL provide direct power to the wheels. Thus, the Volt is a hybrid, of sorts.

No matter what it is, there's no doubt it's too expensive. A few people will buy them and stick them in garages and wait for them to become collector's items. Like the DeLorean. They'll become valuable because so few will sell to people who actually want to drive them. Unfortunately for Chevy, GM and the Obama administration, the failure of this car might presage the coming of GM's Chapter 22, a second bankruptcy.

Volt Fraud At Government Motors

10/19/2010 06:55 PM

Green Technology: Government Motors' all-electric car isn't all-electric and doesn't get near the touted hundreds of miles per gallon. Like "shovel-ready" jobs, maybe there's no such thing as "plug-ready" cars either.

The Chevy Volt, hailed by the Obama administration as the electric savior of the auto industry and the planet, makes its debut in showrooms next month, but it's already being rolled out for test drives by journalists. It appears we're all being taken for a ride.

When President Obama visited a GM plant in Hamtramck near Detroit a few months ago to drive a Chevy Volt 10 feet off an assembly line, we called the car an "electric Edsel." Now that it's about to hit the road, nothing revealed has changed our mind.

Advertised as an all-electric car that could drive 50 miles on its lithium battery, GM addressed concerns about where you plug the thing in en route to grandma's house by adding a small gasoline engine to help maintain the charge on the battery as it starts to run down. It was still an electric car, we were told, and not a hybrid on steroids.

That's not quite true. The gasoline engine has been found to be more than a range-extender for the battery. Volt engineers are now admitting that when the vehicle's lithium-ion battery pack runs down and at speeds near or above 70 mph, the Volt's gasoline engine will directly drive the front wheels along with the electric motors. That's not charging the battery — that's driving the car.

So it's not an all-electric car, but rather a pricey $41,000 hybrid that requires a taxpayer-funded $7,500 subsidy to get car shoppers to look at it. But gee, even despite the false advertising about the powertrain, isn't a car that gets 230 miles per gallon of gas worth it?

We heard GM's then-CEO Fritz Henderson claim the Volt would get 230 miles per gallon in city conditions. Popular Mechanics found the Volt to get about 37.5 mpg in city driving, and Motor Trend reports: "Without any plugging in, (a weeklong trip to Grandma's house) should return fuel economy in the high 30s to low 40s."

Car and Driver reported that "getting on the nearest highway and commuting with the 80-mph flow of traffic — basically the worst-case scenario — yielded 26 miles; a fairly spirited backroad loop netted 31; and a carefully modulated cruise below 60 mph pushed the figure into the upper 30s."

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Killer Asteroids -- Coming Soon to a Planet Near You

Well, it's believed that an asteroid hit Earth and killed the dinosaurs. Thus, the next victims are probably us. Unless -- and there's always an "unless" when it comes to unprovable, long-shot predictions -- unless we spend a lot of money on defense against asteroid strikes.

Does protecting Earth from the impact of interstellar icebergs like asteroids and comets mean changing Earth's orbit? Or do these asteroidologists and cometologists believe we can blast the approaching masses into smithereens? Or, is it possible that planetary preparedness will mean abandoning the site of impact? Once we see them coming, we'll have no trouble identifying where they will hit. Then all we have to do is get out of the way.

Planetary Defense Coordination Office Proposed to Fight Asteroids

Oct 20, 10:30 am

A new report calls on NASA to establish a Planetary Defense Coordination Office to lead national and international efforts in protecting Earth against impacts by asteroids and comets.

The final report of the Ad-Hoc Task Force on Planetary Defense of the NASA Advisory Council was delivered to the Council this month, proposing five recommendations that suggest how the space agency should organize, acquire, investigate, prepare, and lead national and international efforts in planetary defense against near-Earth objects.

"This was a very important step in the process of the United States Government defining its role in protection of life from this occasional, but devastating natural hazard," former astronaut Russell Schweickart told "Happily, in the instance of asteroid impacts, this is a natural disaster which can be prevented...only, however, if we properly prepare and work together with other nations around the world."

Schweickart, who served as co-chair of the task force, said the new report and its recommendations to NASA combined new information with previous studies from the past decade.

The task force met in July to discuss the need for a planetary defense office at NASA. Their final report was submitted to the space agency on Oct. 6.

"With the support of the Administration and the Congress, the U.S. will be in the position of being able to work with and provide leadership in protecting life on Earth from these preventable cosmic disasters," he said.

The task force's five recommendations are:

Organize for Effective Action on Planetary Defense: NASA should establish an organizational element to focus on the issues, activities and budget necessary for effective planetary defense planning; to acquire the required capabilities, to include development of identification and mitigation processes and technologies; and to prepare for leadership of the U.S. and international responses to the impact hazard.

Acquire Essential Search, Track, and Warning Capabilities: NASA should significantly improve the nation's discovery and tracking capabilities for early detection of potential NEO impactors, and for tracking them with the precision required for high confidence in potential impact assessments.

Investigate the Nature of the Impact Threat: To guide development of effective impact mitigation techniques, NASA must acquire a better understanding of NEO characteristics by using existing and new science and exploration research capabilities, including ground-based observations, impact experiments, computer simulations, and in situ asteroid investigation.

Prepare to Respond to Impact Threats: To prepare an adequate response to the range of potential impact scenarios, NASA should conduct a focused range of activities, from in-space testing of innovative NEO deflection technologies to providing assistance to those agencies responsible for civil defense and disaster response measures.

Lead U.S. Planetary Defense Efforts in National and International Forums: NASA should provide leadership for the U.S. government to address planetary defense issues in interagency, public education, media, and international forums, including conduct of necessary impact research, informing the public of impact threats, working toward an internationally coordinated response, and understanding the societal effects of a potential NEO impact. 

Funding needs

The seven-person Ad Hoc Task Force on Planetary Defense was established in April and reported to the NASA Advisory Council. The NAC provides the NASA Administrator with counsel and advice on programs and issues of importance to the space agency.

The Fast Fix

The NASA Advisory Council has approved the task force report. However, there's still a long way to go in the sense that there is no obligation on the part of the NASA Administrator to follow the recommendations.

Still, the seven-person team writing the report has elevated the NEO issue, helping to better identify how NASA should further address planetary defense.

The task force was chaired by Schweickart and fellow former astronaut Thomas Jones, with other members representing academia, a space research institute, and NASA itself.

In the final report, the task force found that a planetary defense program plan is likely to require an annual budget of approximately $250 million to $300 million per year during the next decade.

That funding would be needed to meet the Congress-mandated search goal of spotting 460-feet (140-meter) wide NEOs, as well as to execute selected NEO characterization missions; develop and demonstrate NEO deflection capabilities; and develop the analytic and simulation capacity necessary for NASA's planetary defense role.

"Once the search for potentially hazardous objects is substantially complete, the task shifts to ongoing monitoring and catalog maintenance," the report states.

After flight demonstrations of the primary deflection concepts are completed, further experiments would be integrated into scientific or exploration missions. The planetary defense program budget could then recede to operations and maintenance levels, approximately $50 million to $75 million annually, the report explains.

The task force report "strongly recommends" that the cost of NASA planetary defense activities be explicitly budgeted by the administration and funded by the Congress as a separate agency budget line, not diverted from existing NASA science, exploration, or other mission budgets.

Driving philosophy

As explained in the task force report, the "driving philosophy" behind the national and international defense against NEOs should be, "find them early."

Early detection of NEOs – especially those larger than 140 meters in size – is key to mounting an effective and cost-effective planetary defense effort. An adequate search, detection and tracking capability could find hazardous objects several years or decades before they threaten impact.

Early detection and follow-up tracking of hazardous NEOs eliminates any need for a standing defense capability by mission-ready deflection spacecraft with their high attendant costs, the report points out.

While the task force report underscores the importance of NASA taking a leadership role in planetary defense, there's no obligation by NASA leadership, or the White House to follow the recommendations.

The next shoe to drop on dealing with the NEO issue is expected to come mid-month by the White House Office of Science and Technology Policy. It has been deliberating on how best the U.S. government should move out on in-coming NEOs hazardous to Earth.

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Tuesday, October 19, 2010

Batteries Included -- For A Shocking Price

The cost of a battery for an electric car is over $15,000. Such a huge price is guaranteed to harm sales of new electric vehicles and promises to end the possibility of a secondary market for used electric vehicles.

Worse, it appears GM is banking on the success of electric vehicles -- its Chevy Volt -- to finance its recovery from bankruptcy. But it's far more likely GM will head into a Chapter 22 -- a second bankruptcy -- due to it's unreasonable expectations for the success of its electric car.

High Battery Cost Curbs Electric Cars

Unlike Other Devices, Power Packs May Not Enjoy Major Economies of Scale


The push to get electric cars on the road is backed by governments and auto makers around the world, but they face a big hurdle: the stubbornly high cost of the giant battery packs, which can account for half the cost of an electric vehicle.

Both the industry and government are betting that a quick takeoff in electric-car sales will drive down the battery prices. But a number of scientists and automotive engineers believe cost reductions will be hard to come by.

Unlike with tires or toasters, battery packs aren't likely to enjoy traditional economies of scale as their makers ramp up production, the scientists and engineers say.

These experts say increased production of batteries means the price of the key metals used in their manufacture will remain steady—or maybe even rise—at least in the short term. They also say the price of the electronic parts used in battery packs as well as the enclosures that house the batteries aren't likely to decline appreciably.

The U.S. Department of Energy has set a goal of bringing down car-battery costs by 70% from last year's price by 2014.

Jay Whitacre, a battery researcher and technology policy analyst at Carnegie Mellon University, said in an interview the government's goals "are aggressive and worth striving for, but they are not attainable in the next three to five years." He predicted "it will be a decade at least" before that price reduction is reached.

Current industry estimates say the battery pack in the all-electric Nissan Leaf compact car coming out in December costs Nissan Motor Co. about $15,600.

That cost will make it difficult for the Leaf, which is priced at $33,000, to turn a profit. And it also may make the Leaf a tough sell, since even with federal tax breaks of $7,500, the car will cost almost twice the $13,520 starting price of the similar-size Nissan Versa hatchback.

Nissan won't comment on the price of the battery packs, except to say that the first versions of the Leaf won't make money. Only later, when the company begins mass-producing the battery units in 2013, will the car be profitable, according to Nissan.

The Japanese company believes it can cut battery costs through manufacturing scale. It is building a plant in Smyrna, Tenn., that will have the capacity to assemble up to 200,000 packs a year.

Other proponents of electric vehicles agree that battery costs will fall as production ramps up. "They will come down by a factor of two, if not more, in the next five years," said David Vieau, chief executive officer of A123 Systems of Watertown, Mass., a battery maker that recently opened a plant in Livonia, Mich.

Alex Molinaroli, president of Johnson Controls Inc.'s battery division, is confident it can reduce the cost of producing batteries by 50% in the next five years, though the company won't say what today's cost is. The cost reduction by one of the world's biggest car-battery makers will mostly come from efficient factory management, cutting waste and other management-related expenses, not from any fundamental improvement of battery technology, he said.

But researchers such as Mr. Whitacre, the National Academies of Science and even some car makers aren't convinced, mainly because more than 30% of the cost of the batteries comes from metals such as nickel, manganese and cobalt. (Lithium makes up only a small portion of the metals in the batteries.)

Prices for these metals, which are set on commodities markets, aren't expected to fall with increasing battery production—and may even rise as demand grows, according to a study by the Academies of Science released earlier this year and engineers familiar with battery production.

Lithium-ion battery cells already are mass produced for computers and cellphones and the costs of the batteries fell 35% from 2000 through 2008—but they haven't gone down much more in recent years, according to the Academies of Science study.

The Academies and Toyota Motor Corp. have publicly said they don't think the Department of Energy goals are achievable and that cost reductions are likely to be far lower. It likely will be 20 years before costs fall 50%—not the three or so years the DOE projects for an even greater reduction—according to an Academies council studying battery costs. The council was made up of nearly a dozen researchers in the battery field.

"Economies of scale are often cited as a factor that can drive down costs, but hundreds of millions to billions of ... [battery] cells already are being produced in optimized factories. Building more factories is unlikely to have a great impact on costs," the Academies report said.

The report added that the cost of the battery-pack enclosure that holds the cells is a major portion of the total battery-pack cost, and isn't likely to come down much.

In addition, battery packs include electronic sensors and controls that regulate the voltage moving through and the heat being generated by the cells. Since those electronics already are mass-produced commodities, their prices may not fall much with higher production, the study said.

Lastly, the labor involved in assembling battery packs is expensive because employees need to be more highly trained than traditional factory staff because they work in a high-voltage environment. That means labor costs are unlikely to drop, said a senior executive at one battery manufacturer.

When car makers began using nickel-metal hydride batteries, an older technology, in their early hybrid vehicles, the cost of the packs fell only 11% from 2000 to 2006 and has seen little change since, according to the Academies study.

Toyota executives, including Takeshi Uchiyamada, global chief of engineering, say their experience with nickel-metal hydride batteries makes them skeptical that the prices of lithium ion battery pack prices will fall substantially.

"The cost reductions aren't attainable even in the next 10 years," said Menahem Anderman, principal of Total Battery Consulting Inc., a California-based battery research firm. "We still don't know how much it will cost to make sure the batteries meet reliability, safety and durability standards. And now we are trying to reduce costs, which automatically affect those first three things."

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Friday, October 15, 2010

Whither Solar Power?

With respect to the obvious natural barriers resulting from the realities of chemistry and physics, what can we expect from solar power? Can it compete with conventional power sources?

Is First Solar Facing an Efficiency Wall?

By Michael Kanellos,

October 15, 2010

Thin film solar panels made from the material might only ever achieve efficiencies of 12 to 13 percent, says Damroder Reddy, CEO of CdTe l start-up Solexant. First Solar is already producing solar modules at 11.2 percent, and General Electric (NYSE: GE) says it will be comparable or better than that when it comes out with its own CdTe solar panels next year. Solexant, which has raised over $41 million and plans to build a 100 megawatt factory in Oregon, will start to hit 12 percent efficiencies in late 2012.

While some analysts will grouse that efficiency isn't the most important metric to look at when evaluating a solar technology, it is important. Very important, in fact. Boosting efficiency increases the power output of panels and the overall productivity of a factory. High efficiency modules also command higher premiums. A plant that produces modules with a 15 percent efficiency will simply generate more cash than an equivalent one that churns out the same number of panels with a ten percent efficiency.

Hitting an efficiency wall essentially takes away one of the tricks available to a company to undercut its competitors, so, yes, this is a big deal. It's sort of like forcing a rodeo clown to wear a truss. In crystalline silicon, maximum efficiency is close to 25 percent.

SunPower (Nasdaq: SPWRA) already produces modules at 23 percent. To get around this looming problem, it has developed a concentrator, which will effectively allow its high efficiency panels to generate more power. 3M has unveiled a film that can nearly double the power output of solar panels at a relatively cheap price, and without some of the complexities of standard concentrators.

Cad tel panels do not work well with concentrators, says Reddy.

Manufacturers of copper indium gallium selenide (CIGS) solar cells are already hitting efficiencies of 12 percent in production, and labs have developed CIGS cells that hit 20 percent efficiencies. Through a combination of factory improvements, mass manufacturing and efficiency increases, these companies hope to start hitting the 85 cents per watt sort of prices soon and drop from there.

So what will happen? Cad tel manufacturers will have to focus on dropping the balance of systems and manufacturing costs. First Solar is down at 76 cents per watt on modules coming from the factory today. Solexant says it will make its cad tel panels on flexible substrates instead of glass on roll-to-roll processes, which will be far cheaper. The capital costs for one of its 100 megawatt factories is $40 million: that's low compared to many other options. Glass-less panels also cut transportation costs.

When and if Solexant has enough capacity to produce 300 megawatts or more worth of modules a year, production costs could drop to 50 cents a watt, he said.

First Solar has shown that costs can be wrung out of manufacturing processes at a steady clip. It also says demand outstrips current supply for its products, and that it will expand to 2.7 gigawatts by 2012. Business is good. But it does appear that the cad tel industry could be entering a difficult era. Crystalline manufacturers and CIGS makers both seem to have headroom when it comes to their respective technologies. Cad tel mostly will have to look down, and there are only so many molecules you can skin out of the system.

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Throwing a Curve -- It's a Mind Game?

Researchers have concluded that curve-ball pitchers are master illusionists, tricking batters the same way magicians always have. In the experiment discussed below, scientists studying the curve ball decided to look at the batter's brain rather than the actual movement of the ball.

Though they may be right about ways in which the brain is fooled, it would have been a lot more useful if they had studied the movement of a ball thrown by a curve-ball pitcher. Surely it's possible to plot the movement of a baseball in three dimensions as it travels from the pitcher's hand to the catcher's glove.

Baseball Curveballs `Break' Only in Batters' Minds, Scientists Suggest

Oct 13, 2010 5:00 PM

San Francisco Giants pitcher Tim Lincecum’s curveball, which helped him win two Cy Young awards, doesn’t break near home plate. It just appears to move when the batter switches modes of seeing, scientists suggested.

The break, which appears to be a sudden change from the ball’s curved path, may come from the way the human eye shifts between central and peripheral vision, according to the research, released today by the journal PLoS One. The scientists explained the “rise” in a fastball the same way.

The work is the first to explain the break and rise as illusions, according to the authors. Previous explanations include the idea that the hitter underestimates a ball’s speed, said Zhong-Lin Lu, a neuroscientist at the University of Southern California in Los Angeles.

“The brain is tricked,” Lu said in a telephone interview.

He and his group used a flash animation of a descending circle with a moving shadow that mimicked spin. When five observers stared directly at the circle, it fell straight, and when they focused their vision on something else, the ball appeared to move to the side of the screen. That’s because the brain couldn’t process both the spin and the vertical motion, Lu said.

The researchers used the observers’ reports to figure out the size of the break. If the eye is off the curveball by about 10 degrees, the size of the break is about a foot, Lu said.

A fastball “rises” for the same reason, even though in reality, the ball is dropping, he said.

Middle Two Degrees

The illusion is possible because the eye is structured to best perceive the middle two degrees of an image, using so- called central vision. The area covered is about the size of a thumb when a person holds their arm directly in front of them, Lu said.

Anything outside that is peripheral vision. Most distortion that appears when objects go from central to peripheral vision isn’t something people notice; the shift is usually seamless, the authors wrote in their paper.

“When we look at a big field, everything looks continuous, you don’t see a break between the two visions,” Lu said. “That’s an illusion.”

Many batters tend to switch to peripheral vision when the ball is about two-thirds of the way to the home plate. That type of vision isn’t as good at sensing motion, and the brain gets confused by the combination of velocity and spin, and doesn’t track the ball’s trajectory well, according to the scientists. When the batter switches to central vision as the ball arrives back at the plate, the ball is in a different spot than the batter expected, Lu said.

“What happens in baseball is that the curveball comes out of the pitcher’s hand and gives the batter two motion signals,” Lu said. “If you take your central vision of the ball, the periphery vision gets confused and can’t separate the signals. You combine them.”

The Break

The perceived abrupt change when the central vision focuses again on the ball is the break, Lu said. Batters can be trained to keep their central vision on the ball for the entire pitch, so they aren’t vexed by the shift in vision, Lu said.

Lincecum, 26, is listed as the probable starter for the Giants against the Philadelphia Phillies in the first game of the best-of-seven National League Championship Series on Oct. 16. He won the last two Cy Young awards, the highest honor for pitchers, in Major League Baseball’s National League.

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Wednesday, October 13, 2010

GM Price Talk -- Confusion Takes Hold

If the government plans on getting its $50 billion back from GM, the company's stock has to sell for at least $134 a share. But the chairman has said he expects to see the IPO shares priced between $20 and $25. Thus, he must have plans for a split before the stock hits the market.

The bigger question is how many shares can the company sell? And, of course, the valuation. It's already been announced that GM hopes its employees will buy shares too, which means they'll become stock touts hoping to get more people into the same hot water in which they're about to immerse themselves.

What are GM shares worth? Ford trades for about 8 times 2011 earnings. Does GM deserve a similar multiple? What will GM earn in 2011?

GM chairman predicts $20 to $25 share price in IPO

GM Chairman Whitacre predicts share price of $20 to $25 in initial public stock offering

Wednesday October 13, 2010

DETROIT (AP) -- When General Motors Co. sells stock to the public, it will be priced from $20 to $25 per share, Chairman Ed Whitacre predicted Wednesday.

Whitacre told reporters at an event in San Antonio, Texas, that the automaker's initial public offering would take place sometime in November.

"It's going to be somewhere in the $20 range, $20, $25, something like that," Whitacre said, according to WOAI-TV and the San Antonio Express-News.

GM had not previously announced a date or price for the IPO, although it had been tentatively set for next month. The automaker is waiting for U.S. regulators to sign off on its proposed plan to sell shares.

Whitacre, who stepped down as GM's CEO Sept. 1 but remains chairman, said it was too early to give an exact price for the stock's debut. He said that the IPO would be successful because GM is making a profit and has great cars and trucks.

GM became a private company last year after filing for bankruptcy protection. The U.S. government became the largest shareholder when it gave the company $50 billion to help it survive. The government hopes to recoup that investment by selling its 61 percent stake over time. That stake amounts to just over 300 million shares of GM stock.

It's unclear just how many of those shares the government will offer in the initial stock sale. Whitacre's replacement as CEO, Dan Akerson, has said it will take many sales over a couple of years for the government to fully unload its stake.

The government hopes to sell a small number of shares at first, then more in follow-up sales. The success of those sales depends on whether GM's financial situation keeps improving and its stock price rises.

GM's other shareholders, the Canadian and Ontario governments, a union health care trust fund and former GM bondholders, also are expected to sell some of their stakes.

Many investors had been waiting for GM to announce the share price, which traditionally is done in a filing with the U.S. Securities and Exchange Commission. GM had previously refused comment on the IPO price, saying that it was in a legal "quiet period" before the sale.

Neither the SEC nor GM would comment on Whitacre's statements, which one IPO analyst called a trial balloon to see how investors would react to the price.

GM has an estimated 550 million shares outstanding, and they have been valued by a government bailout watchdog at around $133.78 per share. The company would have to issue more shares before the IPO to bring the price down to the $20 to $25 range. The move, called a split, would give shareholders around five to seven new shares for every share they now own.

SEC rules do not stop executives from talking about share prices, but Whitacre's remarks were ill-advised, said Peter Henning, a law professor at Wayne State University in Detroit who worked as an attorney in the SEC's enforcement division.

Market conditions could change and GM could announce a lower starting price, which would be seen by investors as a sign of weak demand, Henning said.

"It's probably not a good idea to speculate when you're in the quiet period," he said. "It's probably not something that would ever draw any kind of enforcement action or even an investigation. I think it was probably just an off-the-cuff remark."

Scott Sweet, managing partner of IPO Boutique, a stock offering research firm, said Whitacre's statement could alienate some investors who wanted to pay a lower price. Some investors, he said, are comparing GM's share price to Ford Motor Co., which has made more money than GM this year and is further along in its turnaround plans. Ford shares closed Wednesday at $13.64.

"Someone should have muzzled him on that statement," Sweet said. "The price range may have been put out as a trial balloon to see who laughs, who cries, or who says 'Great, it's cheap.'"

Once GM gets the OK from the SEC to proceed with the sale, it will go on a two-week worldwide "road show" to offer the stock to big investors such as mutual, hedge and pension funds. The U.S. Treasury Department has said that individual investors will also get a chance to buy GM shares.

GM will set a price range before the road show, and it will reveal the final sale price on the day before the sale.

The automaker will not sell any common stock itself, but will sell preferred shares to raise money to pay down debts and fund pension plans. Preferred shares behave like bonds because they offer a set dividend. GM's preferred shares will be converted to common stock in 2013.

The automaker made $2.2 billion in the first half of the year, and should post its third-straight quarterly profit in early November.

GM repaid the Treasury Department $6.7 billion earlier this year, and the government hopes it can get back the remaining $43 billion in the stock sale.

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Scammers of the World will Unite around ObamaCare

Obama created a generous healthcare plan. However, it's so generous it's guaranteed to attract more than just a band of Armenian scammers bilking US taxpayers out of $100 million or $200 million. The new program promises to reward scammers on a far grander scale.

Inasmuch as illegal aliens will get coverage, it will be impossible to track the flood of claims made for services never rendered. Moreover, with the expansion needed to accommodate the anticipated 45 million additional patients, a large number of fraudulent service providers will emerge. No doubt they see the huge rewards ObamaCare is promising.

Dozens Arrested in Medicare-Fraud Scheme

An Armenian-American organized crime ring based in New York and Los Angeles allegedly bilked federal health-care programs for tens of millions of dollars using stolen doctor and patient identities, law-enforcement authorities said Wednesday.

In New York, prosecutors charged more than 40 people with fraudulently billing Medicare for more than $100 million as part of a nationwide health-care fraud sweep that included arrests in Ohio, New Mexico, and Georgia.

Federal Bureau of Investigation agents arrested 20 people in New York early Wednesday and others were taken into custody around the country, said Richard Kolko, a spokesman for the agency's New York office.

The Armenian group allegedly stole the identities of doctors and patients and used their names to file reimbursement requests from Medicare for procedures that weren't performed at clinics across the country that didn't exist.

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Tuesday, October 12, 2010

GM -- Wants employees to become owners

These days management and the US Treasury want GM employees to show some good will and buy stock in the restructured car company. Other than buying a token amount, why would employees stick their necks out now, when the company has unfunded pension liabilities of $27 billion? Is $27 billion of company IOUs supposed to mark an improvement?

Is this new company willing and able to fund those debts? Or is the company more or less back to where it was?

Is there any reason to believe the new GM is a venture with good long-term prospects?

GM workers get chance to buy stock in public sale

General Motors gives workers, retirees and dealers chance to buy GM stock in public stock sale

October 12, 2010, 5:35 pm

DETROIT (AP) -- General Motors' employees, retirees and car dealers will get a chance to invest in their company when the automaker's stock is sold to the public.

GM sent letters to workers and dealers in the U.S. and Canada on Oct. 5 giving them the opportunity to buy shares when the initial public offering takes place. The deadline to register for the sale is Oct. 22.

Employees and dealers will be able to buy the stock at its offering price, which has not been set. A government watchdog's estimate is $133 per share, although the stock will most likely be split and offered at a cheaper price. Workers, retirees and dealers must invest more than $1,000 to buy stock, but the minimum and maximum number of shares a person can buy is still being determined, the letter said.

Like other investors, employees and retirees can sell their shares at any time after GM's stock starts trading in markets. GM has about 600,000 employees and retirees in the U.S and Canada.

The automaker is planning to hold the IPO in mid-November, but no firm date has been set.

News of GM's letter became public on Tuesday, the same day that new GM CEO Dan Akerson met in New York with Treasury Secretary Timothy Geithner. Both men emerged from the meeting in the afternoon without talking to reporters.

The U.S. government is GM's largest owner. It holds a 61 percent equity stake in the company, which it got in return for giving GM $50 billion to get through bankruptcy last year. The government hopes to get its money back by selling shares in the IPO and through several follow-up offerings. GM has repaid the government $6.7 billion, but it may take several years for the government to recoup its remaining $43 billion investment.

GM's other shareholders -- the Canadian and Ontario governments, a union health care trust fund and GM's old bondholders -- also can sell stock in the initial stock sale. Just how many shares each owner intends to sell has not been made public.

The automaker's letter to employees says no shares can be bought or sold until U.S. and Canadian regulators sign off on the stock sale plan, which is under review. Once regulators accept it, GM will go on a two-week worldwide "road show" to officially start wooing larger investors such as mutual, hedge and pension funds.

GM needs to get a strong showing of interest from employees, retirees and dealers to help sell its IPO to big investors as well as individual investors, said Scott Sweet, managing partner of IPO Boutique, a stock offering research firm.

"They can parlay that into a very strong statement that (GM) employees believe in management and the product, and through all that they've gone through, they're still with (the company)," Sweet said.

GM employees will probably have to pay the entire amount of their IPO investment about the time of the sale, Sweet said.

The government likely will sell a small portion of its shares at first, hoping that GM will keep making money and the stock price will rise ahead of subsequent sales.

In New York on Tuesday, Geithner and Akerson left their meeting at the Federal Reserve Bank of New York just before 3 p.m., steering clear of reporters assembled outside.

Ron Bloom, the Obama administration's senior counselor for manufacturing policy, also left the building around the same time.

The Treasury Department said Akerson and Geithner met for the first time at GM's request. Both Treasury and GM said there would be no comment after the meeting.

It's likely the men discussed the size of the initial public offering and how much common stock the government wants to sell in November.

Ed Whitacre, GM's chairman and former CEO, has said the company needs to shed government ownership quickly. The bailout and derogatory "Government Motors" moniker are hurting the company's sales and image, he has said.

Akerson, who took over leadership of the company from Whitacre on Sept. 1, has said it could take a couple of years to sell all the stock. A relatively small initial sale is likely, $10 billion or less.

GM will not sell common shares, but it plans to offer preferred stock to raise money for pension payments and to retire debt. Preferred shares behave like bonds because they pay a set dividend. They will be converted to common shares in 2013.

GM's old shareholders were wiped out when it went through bankruptcy protection last year after piling up billions in losses. The automaker has shed much of its debt and old factories. The new GM earned $2.2 billion in the first half of the year and is expected to have a profitable third quarter.

Still, problems remain. GM's pension plans currently are $27 billion short of their obligations.

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Google Search for Expensive Wind Power

The article states the cost of wind energy produced at sea is 50% higher than wind energy produced on shore. Meanwhile, wind energy produced on shore is far more costly than electricity produced by conventional methods, like coal combustion.

The punishing cost of wind power raises a question. What's the true purpose of building the transmission system?

Inasmuch as it was stated that initially the 350-mil cable will permit the transmission of less expensive electricity from southern Virginia to places where where electricity is costly, including northern New Jersey.

In other words, the real value of this transmission system is its capacity to permit the arbitraging of electricity pricing. But that will create its own problems. The existence of the undersea cable will lead to the construction of more conventional -- coal-fired -- power stations in places like southern Virginia. The wind turbines will become nothing more than a red herring, a diversion from the real purpose.

Why would the residents of northern New Jersey consent to pay a huge premium for electricity produced from wind when they can buy electricity from southern Virginia for much less? The power company has a fiduciary responsibility to provide electricity at the lowest cost.

We've been down this road with the natural gas industry. The big pipelines that carry natural gas from the Gulf of Mexico and the mid-American gas fields were once able to make great deals for themselves by selling gas to utility companies. But the pricing favored the pipelines rather than the customers. As a result of massive lawsuits, the industry was restructured and now the pipelines are common carriers charging a flat rate for delivery. Consumers pay the market price for the gas rather than the marked up price contracted by the pipeline companies.

With this experience behind us, there's no basis for billing utility customers high prices for electricity produced from wind when much cheaper power is available.

Offshore Wind Power Line Wins Praise, and Backing

WASHINGTON — Google and a New York financial firm have each agreed to invest heavily in a proposed $5 billion transmission backbone for future offshore wind farms along the Atlantic Seaboard that could ultimately transform the region’s electrical map.

The 350-mile underwater spine, which could remove some critical obstacles to wind power development, has stirred excitement among investors, government officials and environmentalists who have been briefed on it.

Google and Good Energies, an investment firm specializing in renewable energy, have each agreed to take 37.5 percent of the equity portion of the project. They are likely to bring in additional investors, which would reduce their stakes.

If they hold on to their stakes, that would come to an initial investment of about $200 million apiece in the first phase of construction alone, said Robert L. Mitchell, the chief executive of Trans-Elect, the Maryland-based transmission-line company that proposed the venture.

Marubeni, a Japanese trading company, has taken a 10 percent stake. Trans-Elect said it hoped to begin construction in 2013.

Several government officials praised the idea underlying the project as ingenious, while cautioning that they could not prejudge the specifics.

“Conceptually it looks to me to be one of the most interesting transmission projects that I’ve ever seen walk through the door,” said Jon Wellinghoff, the chairman of the Federal Energy Regulatory Commission, which oversees interstate electricity transmission. “It provides a gathering point for offshore wind for multiple projects up and down the coast.”

Industry experts called the plan promising, but warned that as a first-of-a-kind effort, it was bound to face bureaucratic delays and could run into unforeseen challenges, from technology problems to cost overruns. While several undersea electrical cables exist off the Atlantic Coast already, none has ever picked up power from generators along the way.

The system’s backbone cable, with a capacity of 6,000 megawatts, equal to the output of five large nuclear reactors, would run in shallow trenches on the seabed in federal waters 15 to 20 miles offshore, from northern New Jersey to Norfolk, Va. The notion would be to harvest energy from turbines in an area where the wind is strong but the hulking towers would barely be visible.

Trans-Elect estimated that construction would cost $5 billion, plus financing and permit fees. The $1.8 billion first phase, a 150-mile stretch from northern New Jersey to Rehoboth Beach, Del., could go into service by early 2016, it said. The rest would not be completed until 2021 at the earliest.

Richard L. Needham, the director of Google’s green business operations group, called the plan “innovative and audacious.”

“It is an opportunity to kick-start this industry and, long term, provide a way for the mid-Atlantic states to meet their renewable energy goals,” he said.

Yet even before any wind farms were built, the cable would channel existing supplies of electricity from southern Virginia, where it is cheap, to northern New Jersey, where it is costly, bypassing one of the most congested parts of the North American electric grid while lowering energy costs for northern customers.

Generating electricity from offshore wind is far more expensive than relying on coal, natural gas or even onshore wind. But energy experts anticipate a growing demand for the offshore turbines to meet state requirements for greater reliance on local renewable energy as a clean alternative to fossil fuels.

Four connection points — in southern Virginia, Delaware, southern New Jersey and northern New Jersey — would simplify the job of bringing the energy onshore, involving fewer permit hurdles. In contrast to transmission lines on land, where a builder may have to deal with hundreds of property owners, this project would have to deal with a maximum of just four, and fewer than that in its first phase.

Ultimately the system, known as the Atlantic Wind Connection, could make building a wind farm offshore far simpler and cheaper than it looks today, experts said.

Environmentalists who have been briefed on the plan were enthusiastic. Melinda Pierce, the deputy director for national campaigns at the Sierra Club, said she had campaigned against proposed transmission lines that would carry coal-fired energy around the country, but would favor this one, with its promise of tapping the potential of offshore wind.

“These kinds of audacious ideas might just be what we need to break through the wretched logjam,” she said.

Projects like Cape Wind, proposed for shallow waters just off Cape Cod in Massachusetts, met with fierce objections from residents who felt it would mar the ocean vista. But sponsors of the Trans-Elect project insist that the mid-Atlantic turbines would have less of a visual impact.

The hurdles facing the project have more to do with administrative procedures than with engineering problems or its economic merit, several experts said.

By the time the Interior Department could issue permits for such a line, for example, the federal subsidy program for wind will have expired in 2012, said Willett M. Kempton, a professor at the School of Marine Science and Policy at the University of Delaware and the author of several papers on offshore wind.

Another is that PJM Interconnection, the regional electricity group that would have to approve the project and assess its member utilities for the cost, has no integrated procedure for calculating the value of all three tasks the line would accomplish — hooking up new power generation, reducing congestion on the grid and improving reliability.

And elected officials in Virginia have in the past opposed transmission proposals that would tend to average out pricing across the mid-Atlantic states, possibly raising their constituents’ costs.

But the lure of Atlantic wind is very strong. The Atlantic Ocean is relatively shallow even tens of miles from shore, unlike the Pacific, where the sea floor drops away steeply. Construction is also difficult on the Great Lakes because their waters are deep and they freeze, raising the prospect of moving ice sheets that could damage a tower.

Nearly all of the East Coast governors, Republican and Democratic, have spoken enthusiastically about coastal wind and have fought proposals for transmission lines from the other likely wind source, the Great Plains.

“From Massachusetts down to Virginia, the governors have signed appeals to the Senate not to do anything that would lead to a high-voltage grid that would blanket the country and bring in wind from the Dakotas,” said James J. Hoecker, a former chairman of the Federal Energy Regulatory Commission, who now is part of a nonprofit group that represents transmission owners.

He described an Atlantic transmission backbone as “a necessary piece of what the Eastern governors have been talking about in terms of taking advantage of offshore wind.”

So far only one offshore wind project, Bluewater Wind off Delaware, has sought permission to build in federal waters. The company is seeking federal loan guarantees to build 293 to 450 megawatts of capacity, but the timing of construction remains uncertain.

Executives with that project said the Atlantic backbone was an interesting idea, in part because it would foster development of a supply chain for the specialized parts needed for offshore wind.

Interior Secretary Ken Salazar, whose agency would have to sign off on the project, has spoken approvingly of wind energy and talked about the possibility of an offshore “backbone.” In a speech this month, he emphasized that the federal waters were “controlled by the secretary,” meaning him.

Within three miles of the shore, control is wielded by the state. Nonetheless, if the offshore wind farms are built on a vast scale, the project’s sponsors say, a backbone with just four connection points could expedite the approval process.

In fact, if successful, the transmission spine would reduce the regulatory burden on subsequent projects, said Mr. Mitchell, the Trans-Elect chief executive.

Mr. Kempton of the University of Delaware and Mr. Wellinghoff of the Federal Energy Regulatory Commission said the backbone would offer another plus: reducing one of wind power’s big problems, variability of output.

“Along the U.S. Atlantic seaboard, we tend to have storm tracks that move along the coast and somewhat offshore,” Mr. Kempton said.

If storm winds were blowing on Friday off Virginia, they might be off Delaware by Saturday and off New Jersey by Sunday, he noted. Yet the long spine would ensure that the amount of energy coming ashore held roughly constant.

Wind energy becomes more valuable when it is more predictable; if predictable enough, it could replace some land-based generation altogether, Mr. Kempton said.

But the economics remain uncertain, he warned, For now, he said, the biggest impediment may be that the market price of offshore wind energy is about 50 percent higher than that of energy generated on land.

With a change in market conditions — an increase in the price of natural gas, for example, or the adoption of a tax on emissions of carbon dioxide from coal- or gas-generated electricity — that could change, he said.

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Monday, October 11, 2010

Post Office Follies

For reasons that defy logic and renounce sanity, the government cannot keeps its hands of the business world. Most recently Washingtton became the largest shareholder of General (Government) Motors and believes, against all odds, that investors will buy the government's share of GM for a premium.

Why bother? The money's in getting the government to maintain its hold on the businesses it's in. The Post Office, for example. There's no doubt delivering the mail is profitable -- in the right hands. FedEx, UPS, DHL, Airborne Express and others have proven the point many times. But the government loses a bundle running the Post Office.

Is anyone happy about that? At least one company is: Pitney Bowes. In addition to Pitney Bowes there are many other businesses that profit in less obvious ways. The Post Office rents some of its facilities. Landlords know the P.O is good for the rent. Moreover, the postal service buys a lot of vehicles and those vehicles use a lot of fuel.

As they say, Neither Rain Nor Sleet Nor Gloom of Night Will Keep the Postal Service From Losing Billions. Meanwhile Obama says pumping money into the economy is the way to stimulate it and modernize it. Through the Post Office taxpayers are pumping billions of dollars into the economy. Paying more and getting less. Isn't the lesson of the Post Office enough to convince him that money is not the answer. Is he too blind to see that competition is the force that's needed?

Yes. He's too blind to see.

Post Office Shows Where U.S. Is Headed

To understand where the advocates of big government will take this country, look at the U.S. Postal Service.

Start with the fact the Postal Service is a great jobs machine, employing 712,000 people at an average annual compensation, including wages and benefits, of $83,000.

Those hefty pay checks are a great source of political contributions for Democrats. In 2010, almost 90 percent of the approximately $4 million contributed to campaigns by postal unions went to Democrats. Take a guess where much of the opposition to reform comes from.

But high-priced labor, which accounts each year for about 80 percent of costs, leads to high-priced mail services, and even higher costs for taxpayers. Over the past 10 years, the price of a stamp has risen from 33 cents to 44 cents, exceeding the inflation rate at a time when computerization should have been leading to big cost savings. Even so the Postal Service lost about $6 billion this year and by its own projections it will drop a cool $238 billion over the next decade.

By 2020, the last year in the projections, the Postal Service will be losing $33 billion annually.

If its losses level off and it continues to lose that much each year, the Postal Service will lose $550 billion from 2010 to 2030. If the growth rate of losses projected over the next decade continues until 2030, it will lose more than $1 trillion in that span. The fiscal black hole that the Postal Service has become is no small potatoes, even in government terms.

Broken Model

In April 2010, the Government Accountability Office released a report that analyzed the operations of the Postal Service and concluded that, “USPS’s business model is not viable due to USPS’s inability to reduce costs sufficiently.”

A 2007 GAO study looked at the Postal Service’s use of facilities, and concluded that, “A 2005 contractor assessment of 651 randomly selected postal facilities revealed that two-thirds of these facilities were in less than “acceptable” condition, including 22 percent that were rated “poor.” Inspection of one facility in Dallas led the inspector to recommend that the building be immediately evacuated.

The decaying buildings provide a handy visual clue to the quality of service. Unfortunately, we don’t know how bad the service is, because the Postal Service collects data on its own service quality, but it refuses to make the data public. Isn’t it nice that your tax dollars pay for data that you’re not allowed to see?

It’s in the Mail

The Postal Service’s ability to lose mail is, of course, legendary. Here is an example of how bad it has become: last week the American Postal Workers Union had to postpone their national election of officers because so many of the ballots were lost in the mail.

The Postal Service is able to survive because U.S. law protects it with not one but two monopolies.

First, it is the only entity that is allowed to deliver many types of mail. There are a few exceptions that have allowed FedEx Corp., United Parcel Service Inc. and bicycle carriers to flourish, but low- cost, high-volume letters are walled off from competition from other providers.

Second, the Postal Service actually has a legal monopoly over your privately owned mailbox. You bought it, but if another company starts to use it as a receptacle for letters, they are violating federal law.

Legal Cover

This organization has withstood political pressure for some time, in part because Postal Service advocates have argued that the monopoly is necessary because of the national objective of providing universal service. If we want to have everyone on the postal grid, they say, then the grid will be impossible to support with private markets.

This argument, of course, is specious. It would be trivial to fully privatize postal delivery with guaranteed universal service. We need only write regulations that require firms that compete for postal business to provide universal service.

The Democrats will never let us do that, of course. The political might of the public employee unions is just too great.

As with the stimulus, the American left finds itself far to the left of even the statist Europeans. Countless other nations have recognized the possible large benefits from privatizing the postal business. In 2005, Cornell University economist R. Richard Geddes reviewed the academic literature on postal reform for the distinguished Journal of Economic Perspectives, and reported that “comprehensive postal reform has been ongoing in other countries for decades.” Countries that have introduced major reforms include Germany and Sweden.

A U.S. Gain

Reforms tended to have, he reported, three characteristics. First, they would “corporatize” or privatize postal operations. Second, reforms have tended to reduce delivery monopolies. And third, regulators have guaranteed the continuation of universal service.

The possibility for real gain in the U.S. is enormous. The Postal Service owns or operates 33,000 facilities nationwide, and owns 219,000 vehicles. If we were to auction it off to private investors, the bids would likely be enormous. FedEx and UPS, for example, have a combined market capitalization of almost $100 billion. Given that, how much might a private bidder offer for the right to start a business with the Postal Service’s footprint? The $100 billion mark might be a good first guess.

Which means we have two paths to chose between. On one, we continue to operate the Postal Service, and watch it lose hundreds of billions of dollars. Along the other, we sell it to a private contractor, avoid those losses while cashing a nice big check.

If the Tea Party activists want to fix the country, they should start by privatizing the Postal Service. If we can’t fix that, then it is hard to imagine how we will ever fix anything.

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Wednesday, October 06, 2010

Legalize Drugs says Professor Moron, uh, Miron

In another outbreak of stupidity, a Harvard professor has urged legalization of recreational drugs. You know. Heroin, cocaine, crystal meth and marijuana, to name a few.

Every time one of these crackpots erupts in favor of drug legalization, the response from the sane people is near silence. Why? The reasons to oppose legalization are plain as day.

If recreational drugs were legal, advertising of the those drugs would become ubiquitious. Omnipresent. Relentless. Why? Because advertising works. Thus, the use of powerful substances, many of which are highly addicting, would soar.

Imagine the number of sporting events sponsored by recreational drug makers. The stadiums on which their names appear.

But that's far from the worst of it.

Every drug legalization crackpot mentions the potential for tax revenue and the further benefit of reduced law enforcement spending to catch drug criminals. Great.

That's another way of saying the government becomes a partner to drug sellers whose business is selling addicting substances to hapless consumers. As everyone should know, drug dealers want your money. All of it. When a drug consumer is addicted, he willingly forks over all he's got. He'll keep paying until he's broke or dead. But the only time he'll truly stop spending is when he's dead.

We already know the government exploits partnerships with sellers of addictive products. Tobacco. It's true that cigarettes cost little to make. Marketing expenses raise the price to consumers. But a pack of Marlboros sell for $12 in NY City convenience store. Why? Federal, state and local taxes. Everyone wants a piece of this pie, and no one objects to extracting as much money as possible from the pockets of tobacco addicts. It's politically safe to exploit addicts.

Is this what we want from our government? A platform for peddling crystal meth or cocaine from which every state and municipality extracts its piece? There are about 50 million cigarette smokers in the US. The number is declining, partly because people, after almost 50 years of anti-smoking campaigns, are getting the message.

But what does it say if we reverse our moral position by legitimizing the use of dangerous addictive substances for the sake of increasing tax revenue and, astonishingly, claiming that somehow unrestricted access to newly legalized recreational drugs will make a bad situation better?

If we legalize the sale of heroin, cocaine and crystal meth, etc., we have opened the door to the most vile of all possibilities -- enslavement of the population by a government driven by visions of the revenue stream it can extract from helpless addicts. Truly an unholy alliance between government, human weakness and commerce.

Wait. It gets worse. For guidance, drug legalization crackpots like to look at alcohol. But alcohol, the molecule that intoxicates drinkers, contains a specific number of carbon, hydrogen and oxygen atoms. Whether in beer, wine or liquor, that intoxicating molecule is the same. Recreational drugs fall into a different and far more dangerous form of chemistry.

They are limited only by the creativity of the scientists who develop them. Do we want to live in a nation, a world, where scientists are suddenly motivated to create addicting substances that will induce people to spend all their money? If you want dystopia, drug legalization will do it.

In the corporate world, could there be a more sought-after product than one that is so addicting that consumers will do anything to get it? Talk about brand loyalty.

The pharmaceutical industry is credited with regularly creating miracle drugs, the drugs that save lives, defeat death. Do we want the same brilliant people to design drugs for sinister, mercenary and destructive purposes?

Meanwhile, what would legalization of recreational drugs do for the prescription drug industry in general? Vicodin? If heroin were legal, then what reason would remain for selling Vicodin by prescription? Or any other painkiller?

What would legalization mean for imports? Cocaine and heroin are imports. I suppose, if they were legalized, some smart scientists would develop plants capable of thriving somewhere in the US. Till then, is there an argument to support the importation of heroin made from opium poppies grown in Afghanistan? Should we fund the muslim terrorists who are killing American troops? Should we enrich the narco-terrorists in Colombia? There's no reason to think other nations would surrender their national interests to coca or poppy growers.

Moreover, there's no reason to think the violence on the Mexican side of the Mexico/US border would decline if the US were to legalize drugs.

What would drug legalization do for tourism? Consider the wine industry. First, has the growth of the wine industry led to lower prices for wine? No. Second, wine tours are common. Drug legalization would mean the return of opium dens. Drug tourists would come to the US on dope-smoking excursions and for tours of drug laboratories where visitors would sample the goods, just like they do at the Jack Daniels distillery, at breweries and wineries.

As consumers became inured to the effects, what would they do to increase and intensify their highs? Would it surprise anyone to see a surge in intravenous drug use? It's the obvious step. Of course pharmaceutical companies would do their best to create even more potent products. How would the law regulate these legal drugs?

Then there are social consequences. Legal or not, as with alcohol, employers would have to take a stand against on-the-job recreational drug use. Municipalities would have to prosecute drivers operating vehicles under the influence.

Furthermore, legal use of recreational drugs will undoubtedly cut different paths through different socio-economic and racial groups. Substance abuse is already a big problem in minority neighborhoods. There's already a disturbing link between drug use and prostitution. Drug legalization would make it even easier for exploiters to enslave young girls and put them to work on the street. At the same time, the exposure to disease would multiply. They would face the usual risk of contracting venereal diseses. But their risk of contracting AIDS would increase as a result of contact with johns and with IV drug use their exploiters would likely encourage.

Meanwhile, what would legalization do to the price of drugs? As pricing of alcohol suggests, some drugs would sell for very little, and some would sell for a lot. Reputation, snob appeal, product quality, all of the elements of consumerism would result in a range of prices. Majorska or Grey Goose.

Is it conceivable that abuse of currently illegal substances would subside if the substances were both legal and less expensive? The thought is folly.

Just Say "Yes!" Legalizing Drugs Is Good for Society ... and the Economy, Harvard Prof. Says

Oct 06, 2010

California residents will vote in November on whether or not to legalize marijuana. If they do vote "yes," says Harvard economics professor Jeffrey Miron, that should only be the beginning.

All drugs should be legalized nationwide, Miron says. Pot, cocaine, LSD, crystal-meth --- you name it.

"Legalizing drugs would save roughly $41.3 billion per year in government expenditure on enforcement of prohibition. Of these savings, $25.7 billion would accrue to state and local governments, while $15.6 billion would accrue to the federal government," Miron claims in a recent Cato Institute report he co-authored.

According to their website, "The report also estimates that drug legalization would yield tax revenue of $46.7 billion annually, assuming legal drugs were taxed at rates comparable to those on alcohol and tobacco. Approximately $8.7 billion of this revenue would result from legalization of marijuana and $38.0 billion from legalization of other drugs."

But won't we become a nation of drug addicts?

No, says Miron. Walk down any city street and you can already buy legal drugs in multiple establishments: Caffeine at Starbucks, nicotine at the supermarket, alcohol at bars and restaurants. And we're not ALL addicted to all of these drugs.

Our current drug policy doesn't work, Miron observes. Despite ~$40 billion spent on enforcement and prosecution, drug use is still widespread. Meanwhile, because the products are illegal, they're dangerous, low-quality, and unregulated, and they generate zero tax revenue.

Legalizing drugs would solve those problems, Miron says. It would help close the budget deficit. And it would eliminate a bizarre double standard, in which Americans are encouraged to drink and smoke themselves to death -- while guzzling addictive coffee and tea -- but become criminals if they dare to get stoned.

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Tuesday, October 05, 2010

TARP -- Delivering as Promised

It's tough to argue with success. The TARP program was created in a time of great national peril. But the people who devised it and executed it, working under enormous pressure, wagering the highest stakes in history, appear to have taken a series of steps that have worked. The plan might have a few flaws, but it worked. Let's keep that in mind.

Treasury's TARP, AIG Bailout Costs Fall to $30 Billion

Friday, October 1, 2010

The price to taxpayers of the bailouts and financial rescue of 2008 and 2009 continues to fall sharply. In figures to be released later today, the Treasury Department will report that the final net cost of the TARP is expected to be about $50 billion,Yahoo! Finance has learned. Add in expected returns from Treasury's interest in insurance company AIG, and the final net cost will be closer to $30 billion.

The news of the shrunken cost, which comes on the two-year anniversary of the legislation that created TARP, represents a dramatic improvement. It highlights the resilience of the markets, as well as the folly of short-term financial projections. In August 2009, the TARP cost was projected to be $341 billion. In its mid-session review, released in August of this year, the Office of Management and Budget projected the total cost would come to $91 billion.

In an interview this morning, Treasury Secretary Timothy Geithner credits several forces with bringing the cost down. Strong action by the Central Bank to guarantee assets and intervene in markets was vital.

"This worked only because it was combined with the creativity and the force of the Fed," he said. A modest recovery in the economy "from a period in which people thought it would be the end of the world" helped reflate assets and markets. And the Bush and Obama administrations pursued a policy that combined broad-based asset guarantees with tough pressure for banks to recapitalize on their own.

The figures, which are based on current market prices, likely won't do much to bolster the popularity of the program. Geithner won't be asking his predecessor, Henry Paulson, to join him for a victory lap around the Mall in Washington.

In the fall of 2008, Congress authorized the government to spend up to $700 billion to shore up the quaking financial system, and it is common for critics to refer to TARP as a $700-billion program. But the full amount was never spent. The TARP had several components. (The full roster and details can be seen here.) Some components were designed as pure expenditures rather than investments, such as the nearly $30 billion earmarked for the Home Affordable Modification Program (HAMP).

Apart from the funds spent on housing, Treasury now doesn't expect to lose money. In the central component of the TARP, the capital purchase program (CPP), Treasury purchased shares of preferred stock in hundreds of banks. Of the $205 billion invested in banks through the CPP, $153 billion has been paid back. With dividends ($16 billion) and the sale of warrants Treasury received ($6.9 billion) bringing in more cash, the program is on a glide path toward break-even.

In the TARP Two Year Retrospective, published today, Treasury now projects a profit of $16 billion on the CPP and other programs to aid banks. Geithner argues that the choices made by the Obama administration in early 2009 — to avoid full nationalization, subject banks to stress tests, and push them to raise capital — were central to this outcome.

"Preemptive nationalization would have been vastly more costly," he said.

Two huge wild cards remain. First, AIG. The insurer received more than $180 billion in support from Treasury and the Federal Reserve, including $69 billion in TARP funds. AIG last week issued a plan to extricate itself from the various financial relationships it has with the Fed and the Treasury. The centerpiece is a plan to convert Treasury's preferred shares into common stock representing about 92 percent of AIG, and then sell it slowly over time.

If it succeeds, Treasury will ultimately see gains of $16 billion on its holdings in AIG. Of course, while several TARP exits have come more quickly than expected, these plans rest on market conditions remaining favorable for some time.

In the first half of 2009, Geithner said, the government figured it would take five to eight years to extricate itself from AIG. Today, he concedes it could be a matter of years, "but in the low single digits." Treasury should complete its sales of Citi stock by the first quarter of 2011.

Second, there's the $81 billion invested in the automobile sector, most of it in General Motors and related entities. Of that, $67 billion remains outstanding, and GM's upcoming initial public offering is likely to make only a small dent. Treasury now expects that it will ultimately lose $17 billion on its efforts to aid the auto industry.

"The returns we'll get from our investments in banks and AIG will be more than enough to cover the money we'll lose in autos," said Geithner.

While Geithner, Paulson, and those who argued that the net costs of TARP would be a fraction of their original advertised cost have been vindicated, the Treasury secretary suggests profits aren't the proper measure to use when evaluating TARP.

"I don't like to focus too much on just the accounting cost," Geithner said. "We weren't in the business to make money. Even if they had lost much money, that would have been the right thing to do."

Instead he points to metrics such as the speed at which the price of borrowing came down in 2009, the resumption of economic growth in the second half of 2009, and the speed with which banks raised private capital to replace public funds.

"I think it's an excellent record for careful financial stewardship."

These figures likely won't do much to rehabilitate the popular image of TARP. Americans generally regard the program as having been conceived in sin, and attitudes against it have hardened.

Through TARP, the government still has a portfolio of $184 billion in "investments" it never wanted — in banks, car companies, AIG, and vehicles created to purchase toxic assets. And even with profits in TARP's core programs, taxpayers will be saddled with other bailout-related costs, such as the assumption of the debt of Fannie Mae and Freddie Mac.

More broadly, the benefits of TARP, which was sold as a way to get credit flowing again, haven't always been apparent to most Americans. Treasury has been engaged in a campaign to educate the public about the net cost and impact of TARP. But at a time when Wall Street firms are performing well and unemployment remains high, it remains a difficult sell.

TARP has been an enormous success from a policy perspective — it saved the financial system and averted a second Great Depression at a very low price to taxpayers. But politically, like the assets it was designed to remove from banks, it remains toxic.

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