Author Archive

In the NY Times this weekend they had an article about a one man show by Danny Hoch. The topic of his show was gentrification, and how it impacted natives of New York City. In the article they reviewed him and he had the following quote:

“I did a lot of community arts work through the 90’s, really believing that we were making a difference socially…. Within the last 10 or 15 years, those communities have virtually been erased.”

On a seemingly unrelated line, there is a history of the neighborhood that I live in, the River North neighborhood in Chicago. Here is a link to a document summarizing River North history, notably its time as a manufacturing area called “Smokey Hollow”. This article summarizes the demographic changes in the Near North neighborhood of Chicago by decade.

These types of documents talk about the history of a neighborhood as if it was continuous, with links between each era. However, the reality of urban areas like River North (and the New York of Mr.Hoch) is really quite different. Aside from some projects just north of Chicago Avenue near Cabrini Green, the neighborhood has turned over to a degree that most US residents would find astounding. There are literally no individuals living in River North that were even here ten to fifteen years ago.

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The housing bust has been well chronicled elsewhere and I won’t add much to it by summarizing it; let’s assume that readers of this blog know the outlines (and details) of the story. But while everyone has learned the (often bitter) lesson that housing doesn’t always go up, it also comes down, they haven’t fully digested other elements of the financial picture. High LEVERAGE on a flat or declining investment makes the “buy” vs. “rent” even more skewed away from “buying”.
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While I dream about owning a Nissan GTR that I saw at the Chicago auto show, in reality I drive an old Nissan Altima about 10 years old. That damn car will run forever since I take decent care of it and my frugal nature won’t let me replace it without a valid reason.

As I drive around in my older car, however, I can’t help noticing all of the expensive cars out on the street. Right now it is Saturday night here in Chicago in River North, and lots of people are “cruising” up and down the major streets, seeing and being seen, in their tricked out cars.

The situation is the same even when I visit a poorer neighborhood. A relative of mine moved to Beverly, in the south side of the city, and no matter how you drive to get there, you need to go through some pretty rough neighborhoods. New and expensive cars are ubiquitous, even there.

Let’s think a bit about car economics. If you use $25,000 / loan at 48 months as a starting price point, and the average rate of 6.5%, you are paying about $600 / month.

However, that “minimum payment” model has gone belly up. Here’s why.
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Encyclopaedia Britannica is the venerable institution that prints all of those bound volumes that you had at your house (or your grandparent’s house) when you were a kid. Interestingly enough, their headquarters is right here in River North Chicago, and I walk by the building often on my way to work (it is on LaSalle Street, just North of the Chicago River.

When I mention Brittanica, the first thing that most people say is “Are they still in business?” This was Dan’s exact question when I mentioned that they are headquartered here in Chicago.

Early on, when the web was first starting up, many companies had the idea that capturing information would be a big money maker. For example, Microsoft has an encyclopedia called “Encarta” that was big news back in the ’90s, when it was battling Brittanica for leadership. About this time Microsoft also started up their online movie database “Cinemania” which was also popular for a while as an attempt to create valuable content.

People did pay for content back in the early days, when the web was somewhat of a novelty. I remember a good friend who bought Cinemania and loved it, since he was a giant movie buff, and he got a big kick out of being able to search through all the data and reviews and see some clips, as well. I think at the time if you mentioned that this all would be on the web, it seemed pretty far fetched, especially since home high-bandwidth broadband was a long ways away and we were stuck with dial up (remember all those AOL CDs in the mail?).

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I started working in Chicago in the early ’90s. At that time, we had a hangover from the ’80s building boom, with a number of completed but vacant buildings. Our firm moved in at 161 N Clark Avenue, the Chicago Title and Trust Building, which was almost totally empty at the time. I remember walking through the floors and around the halls to get a 360 degree view of the city. Later Accenture (the consulting firm) moved in and ultimately the building seemed to get totally filled up.

After the ’80s building boom which tailed off in the early ’90s, Chicago construction went dormant. Nothing significant seemed to get built for a few years since no one could put an economic case together for more building while so much was vacant.

In the late ’90s and into the ’00s, Chicago construction boomed again. Per this Chicago Tribune article,

For a decade now, Chicago has been on an astonishing building binge. Since 1998, developers here have completed or started construction on more than 195 high-rise buildings, according to the Emporis building database. (A high-rise is defined as a building at least 12 stories tall.) That’s more high-rises than there are in all of Detroit (132), St. Louis (106) or Milwaukee (83).

But now it is all grinding to a halt. Some sky scrapers are stalled for lack of funding:

Work also is frozen at 111 W. Wacker Drive, home to Chicago’s other stalled supertall skyscraper, the Waterview Tower and Shangri-La Hotel. (To be considered “supertall,” a skyscraper needs to be at least 1,000 feet high.) … the project is stuck on the 26th floor, its exposed concrete frame looming over Wacker … (the project requires more) than $300 million in construction financing to finish the job.

Here is a view of the construction of the Shangri-La from my window… note the other building still under construction on the left.

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Recently I met up with Dan in Madison to watch the Illini vs. the Wisconsin Badgers (we lost). Dan and I talk a lot via the web but usually only see each other a few times a year (during Bears games) but we correspond a lot. Any reader of this blog knows that Dan is quite the fitness fanatic / zealot and has really done a lot to get in tremendous shape over the last few years.

Seeing Dan reminded me of some research that I saw on friends… from this BBC article

“Fat Friends Can Boost Your Size”

The work, by scientists at the University of Warwick, Dartmouth College, and the University of Leuven, is being presented to an economics conference in Cambridge Massachusetts. They suggest choices about appearance, on which decisions such as job offers or being deemed attractive are based, are determined by the choices others around you make. So, if people around you are fat, it is permissible for you to be fat too.”

Thus hanging out with Dan reminds me that while I am getting a bit smaller, I have a long way to go. One thing that isn’t helping is the AMAZINGLY large portions of food that are dispensed to me continuously. Above is a photo of food from a local Italian restaurant (a chain) called Maggianos - these is one HALF order of pasta and meatballs with a HALF order of stuffed mushrooms. We take the 1/2 order and cut it into essentially quarters and it is still too much food (we won’t get those mushrooms again… they expanded like balloons in my stomach). This is for two people. Who needs to eat that much food?

Maybe if I had different friends…

Cross posted at LITGM

The Citizen’s Utility Board or “CUB” is a non-profit group that represents the consumers of the state of Illinois against the interests of the electric, gas and telecom utilities. Their web site is www.citizensutilityboard.org and I recently joined their membership ranks so now I see their periodic newsletter. David Kolata is the Executive Director of CUB (his photo is on the article, above).

HISTORY OF CUB

CUB was started in the mid-80’s. While there are many elements to CUB, the most relevant was their opposition to the big electric rate hikes that ComEd (now Exelon) was pushing through in the 1980’s, as their giant nuclear plants, plagued by cost overruns, came on line.

How the “rate setting process” works is that the utility will come forward and request a hike in rates, as well as the changes in rates by customer classes (business, residential, etc…). The Illinois Commerce Commission (ICC) typically decides whether or not the rate hike will be allowed and how much of the utility’s request to grant. CUB was established to represent the citizens of the state and generally this means fighting to keep the rate increase as small as possible. Typically the utility asks for $100M, CUB says give them nothing (or they owe us a refund), and then the ICC makes a decision somewhere along the continuum.
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A recent article in Business Week is titled “Managing by the Numbers” and it focuses on IBM’s attempt to build a system to assign staff to appropriate engagements around the world. Rather than relying on manual processes, a central planning group is gathering capabilities for each of their employees and attempting to let the computer match skills to opportunities.

I have a lot of experience in consulting at a number of different organizations. If you are interested in the challenges (and opportunities) of running or being part of a professional services organization, I suggest that you read “Managing the Professional Services Firm” by David Maister.

The types of examples given in the book are staffing a web services engagement in the Philippines; there is an expensive (high ranking) consultant on the bench (meaning - unassigned and not currently earning income for the firm) in a faraway country vs. a less skilled (and cheaper) local consultant who could also be assigned to the job - which to choose? This is the type of “problem” that the program is supposed to solve. The implied conceit is that consultants are interchangeable, and you can just build a team out of individual skill sets, have them show up at the work site, and pull off the engagement.

When I worked at one of the large consulting firms, in order to save space, they went to a “hoteling” concept. Since consultants were usually on the road and not in the office, some bean counter figured that it would be cheaper to not give anyone a permanent office and just have them occupy whatever space was available on the occasion that they had to work in town. The company did attempt to link your phone to your location and sometimes even had a nameplate ready for you, along with a little cart for your office supplies, so you were able to get started working with a minimum of effort. The company only had to have office space for the people likely to show up, which was maybe 25% of the total staff on a given day, saving them in rent money.

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While visiting Alaska we toured the capital city Juneau. Juneau lies on a small flat section of land among towering mountain peaks and is very scenic. Along the water front huge cruise ships were moored, disgorging tourists to wander the local shops. So what catches MY eye…

A plague commemorating the USS Juneau, of course. The USS Juneau was a US light cruiser of the “Atlanta” class, and was relatively small in size. “Light” cruisers at the time generally carried 6 inch guns, and “Heavy” cruisers carried 8 inch guns (for comparison, battleships carried guns in the 14 to 18 inch range). The Atlanta class light cruisers had five inch guns, in twin mount turrets, and in some ways were just larger destroyers. On the other hand, they were revolutionary in that they were Anti-aircraft cruisers, similar to the British “Dido” class, which performed valuable duties especially protecting the Malta convoys which ran through heavy Axis air attack routes.<

While I knew this right away it probably isn't common knowledge that the Juneau was the ship that, in a way, inspired the movie "Saving Private Ryan". The Juneau was the ship where the famous five Sullivan brothers all served as sailors. The Juneau was sunk by the Japanese off Guadalcanal in late 1942; the ship was struck by one of the powerful torpedoes and it sank quickly. Three of the brothers died when the ship sank and the other two died at sea while awaiting rescue. I did not realize it until I read the wikipedia site that the situation of the survivors was comparable to that of the Indianapolis, which was immortalized in “Jaws”, in that they were adrift at sea for several days before they were rescued, and that is why only ten survived out of a compliment of 700 sailors.

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I can walk to work from a few different directions and I took a detour and headed south on LaSalle street. Just north of the Chicago River there is a refurbished office building with a large photo essay on the Eastland disaster. The S.S. Eastland was a passenger ship that capsized in 1915 and killed 845 passengers along the Chicago River (near where this building stands today). The exhibit is called “A Day Unlike Any Other”.

What does this essay say about America, and why are we “A Lucky Country”? As a history buff, when I see any date from the time period 1914-1918 only one thing leaps to mind - World War One. While the United States did participate in World War One, we declared war in 1917 and only had sizable forces on the ground for the 1918 German spring offensive and the subsequent Allied counterattack.

Thus while 1915 is “A Day Unlike Any Other” (and even the wikipedia page on this date, July 24, points to the Eastland disaster) in America, let’s put this in perspective.
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In the media and in political circles there are debates on how electricity should be generated - while renewables are popular conceptually they don’t provide base load (reliable) power, and are responsible for a minuscule portion of our total electricity generation in the United States. In this fantasy “debate”, nuclear power has apparently had a mythical renaissance as public opinion among some greens notes that it emits little of the emissions that supposedly cause global warming.

Presidential candidates and others make pronouncements on nuclear power, such as John McCain’s call to build 45 nuclear reactors by 2030. Obama isn’t calling for a specific number of
nuclear plants, but doesn’t dismiss plans outright.

WHO CAN BUILD A PLANT

All of these discussions, and phony debates, ignore a critical element - nuclear plants don’t get built because politicians or activists want them (or even because we are running out of power) - nuclear plants get built:

1) when the regulatory climate in a particular state allows for recovery and financing of these costs
2) when individual utilities are financially strong enough to incur the debt and raise the cash to see through the 10+ year process from site selection through actually powering up the reactor and delivering power into the grid
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I was reviewing headlines and saw this stark headline on the BBC News Africa section titled “Guineans Mark 50 years of poverty“.

Fifty years ago the country of Guinea on the West (duh… I said East originally, sorry I am directionally challenged) coast of Africa achieved independence from France.  Celebrations were recently held to mark this anniversary and the BBC correspondent heard the cries of “fifty years of poverty”.  The article goes on to interview a man at a train station who laments that the trains used to run when the French ruled the country but now they have collapsed like everything else as the country runs low on electricity and other elements of a civilized society.

Guinea took their opportunities for independence and squandered them with 2 brutal dictatorships over the last 50 years as strongmen systematically looted the mineral rich country and let the infrastructure collapse.  This is a sad story since the country has access to the ocean and a coastline as well as mineral wealth.  Unfortunately it shares borders with failed states and risks becoming one itself as the strongmen wind down their time in power, with no likely successors in sight.

In college I remember reading articles, books and novels about how horrible colonialism was and certainly this is not something that anyone would willingly embark on in this day and age.  I don’t remember, however, seeing how a country that has been independently managed for fifty years managed to do it so badly, in the aptly summarized “fifty years of poverty”.  For many years the blame was always on the formal colonialist rulers for this or that, the borders, or how one ethnic group was favored over another.

At some point, likely today for Guinea, this doesn’t make sense any more.  From the fact book, the average life span of a Guinean is 54 years old; so they don’t have any memory of the former French rulers while they were in power.  At some point they need to look at how they have mismanaged their country and hopefully find a way to change it from within.

I will wait in vain for colleges to re-appraise their brutal picture of colonialism with a more nuanced picture, contrasting the infrastructure development and investments during colonialism with the asset stripping, infrastructure decay, and utter chaos that came after they left.

Warren Buffett, the famed investor, owns a holding company named Berkshire Hathaway. Berkshire Hathaway invests in a number of industries where Berkshire’s leadership believes that they can make money over the long term.

Berkshire Hathaway made a lot of its money in the insurance business (GEICO). They like the steady returns and solid, understandable business model behind insurance. Also, due to Berkshire Hathaway’s AAA rating (VERY few US companies have this rating), they have a very low cost of capital which gives them a significant cost advantage against competitors.

The US utility industry (electricity) is an area where Berkshire Hathaway has made investments over the years. Berkshire Hathway bought up a group of Iowa utilities (where I used to work) that were rolled up into a company called MidAmerican Energy. Berkshire Hathaway has a very long time horizon (other CEO’s have to hit immediate earnings targets and are impatient) and thus they can be opportunistic, holding on to their (vast) cash until the right target comes along. Berkshire Hathaway jumped on Pacificorp, which had previously been bought up by Enron, when Enron’s finances imploded.

Recently Berkshire Hathaway bought up Constellation Energy, which is the electrical utility with nuclear plants that serves Maryland and Baltimore. Constellation Energy had a large energy trading arm that was intertwined with Lehman; when Lehman went bankrupt Constellation was going to be forced to put up more collateral and faced a downgrade in their credit ratings. Their stock plunged from $100 / share in early 2008 to as low as $13 before Berkshire Hathaway agreed to buy them; the stock is now at $26 / share and the company is worth $4 - $5 billion.

Constellation Energy was one of the “dreamer” companies that was thinking about taking advantage of US government tax breaks to re-invest in nuclear power. As I have noted previously, don’t bet on any of these plants getting built (maybe TVA builds one and someone else another one; this is not going to even cover those plants at end-of-life and being retired from service, much less constitute a renaissance in nuclear power).

Per a September 26, 2008 Wall Street Journal Article titled “Buffett Could Reshape Nuclear Power Industry” -

“Warren Buffett’s decision to rescue Constellation Energy Group Inc. gives one of the nuclear power industry’s biggest skeptics some important clout in deciding its future.”
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When I first started working after college I was an auditor for a “Big Six” public accounting firm. Through the (bad) luck of the draw, I was assigned to work on utilities and government institutions. Since utilities are distributed across the United States geographically (unlike finance which is concentrated in New York, for example) I had to travel across the midwest in order to serve my clients.

On one of my first trips I sat next to a couple, a mother and a young son. After a while we started talking a bit on my way to Sioux City Iowa (to see Iowa Public Service, which has since been bought up by Berkshire Hathaway as part of MidAmerican Energy). They asked me why I was traveling to Iowa (a good question, actually) and I said that I was an accountant working for the local power company. The child piped up and said:

“Are you the man who turns off the power?”

The mother was embarrassed and we immediately changed the subject but clearly their family had their power cut off for non-payment at some point in the past and that is how the child knew of the power company. We had some stilted conversation from then on but the encounter has stuck with me for years.
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I just got around to watching a few Conan O’Brien shows on my tivo and I saw this amazingly hilarious interview that Triumph the Insult Comic Dog conducted with Ralph Nader.

I love the moment when Triumph pans the camera around to the “media” that is there to interview Nader… some guy from Madison (Dan?) of course, and Triumph asks if they are going to compare their “Pure Prairie League” album collection.

Responding for Jonathan’s request for more sexy iguana photos… from Puerto Rico!

As far as a partisan democrat, no one is more dyed-in-the-wool than the former mayor of San Francisco, Willie Brown.  I saw