Carl from Chicago

Business executive interested in history, economics, taxation and energy policy.

Expectations… and the Productivity of the Service Economy

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Recently I needed to go to the post office in downtown Chicago for a certified letter. Yes, it would seem, the post almost writes itself… the lines were long and, in the middle of it, one of the two employees wandered off to take a break or something. The guy next to me, an older guy, was about to lose his mind with rage. He said “this must be how it is under communism” and seethed with rage. My response was that the selection of employees was essentially designed to “employ the unemployable” in the name of limiting social unrest as a thinly disguised government work program. At one point, an actual competent employee came in and took all the people in line to self-service machines and helped me personally, for which I was thankful. The entire process, which should have been simple, took over an hour.

I was in a local sandwich shop called “Corner Bakery” (which I usually call “Corner Confusion”) where you order in one place and they give you a tag to put on your table, and then you wait for your sandwich to come to you. This sort of process always scares me, because the shop is big and there is a patio outside, so they don’t know where you are sitting and it just seems like they could miss you. Well, this time they found me… a waiter who didn’t speak English very well came over and set my sandwich in front of an older guy and gave him my sandwich (one was flat bread so it should have been obvious which was which). The other guy was about to go apoplectic with rage but I had been watching the whole thing, just assuming that it would be screwed up, and I calmly got up and switched sandwiches with the guy (I was watching him, too, to make sure he didn’t take a bite out of it). He was in mid rant but I didn’t care, I just wanted lunch.

Often I go by McDonalds for coffee (I don’t like Starbucks very much, although I usually go there just because it is preferred by others and I don’t care very much overall) and it is part of the rest of my order. There are two dimensions for my coffee – “black” and “large”. I have learned through hard experience to wait until the clerk is ready to receive this complex and easily forgotten information; you’ll just have to repeat it five more times. It is beyond expectations that you could ask for your order (like a number “9” or something and AT THE SAME TIME say “large coffee, black”) without having to repeat it later. But you need to stay on it, or you never know what you’ll get.

Through myriad travels and eating out continually for years I have three expectations for the US service sector, so that I am never disappointed:

1) they know nothing
2) they do nothing
3) they annoy me

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The Return of the Risk Premium

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Back in early 2007 I wrote an article about the bond market that noted the lack of a “risk premium” for corporate bonds. The “base” rate for corporate bonds is what the US government pays for treasuries of equivalent duration – at the time I wrote that article corporate bonds with good credit were paying only 1% higher than treasuries and “junk” bonds only 4% higher than treasuries. The conclusion of my post was that it made no sense to take on all the known and unknown risks of these bonds for a paltry 1% incremental return (or 4% in the case of the riskiest assets).

Per this article in August 16, 2008’s WSJ titled “American Express Joins the Payees”:

“American Express Credit Corp. joined the growing list of highly rated financial institutions that are paying steep financing costs when they raise money in the bond market… the premium to compensate investors for perceived risk was 4.25 percentage points over treasury rates.”

These financial institutions are finally offering returns that might be worth considering, given their high risk (as Bear Stearns showed us all, and that Fannie Mae and Freddie Mac would have if the government would have allowed them to go under without their now-explicit guarantee).

Here is the kicker, though:

“From credit-card issuers to investment banks to commercial lenders, financial firms are looking to raise capital to offset potential losses.”

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So Goes Illinois, So (Likely) Goes the Nation

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BACKGROUND ON ILLINOIS

Illinois is a pretty middle-of-the-road state, as far as politics goes. The state is basically split into three parts – machine-driven, Democratic Chicago, the Republican suburbs, and mostly-Democratic (but far more conservative than Chicago) downstate.

Over the years there has been a balance of sorts between the Democrats and the Republicans; the Republicans usually held the governors office and the Democrats held one or both of the state legislative bodies.   In Illinois there are also myriad governmental units, from massive counties like Cook County (the home of Chicago, O’Hare and many suburbs), to the City of Chicago, to large suburbs like Naperville at approximately150,000 residents, which also wield power, clout, and jobs.   These bodies are run by the same general principles listed above; Chicago is always Democratic (although Bernie Epton almost captured 50% of the vote against Harold Washington in the 80’s as a Republican), and the suburbs almost always Republican.   Our House seats in congress are heavily gerrymandered; here is my take on my local representative in a post titled “Making Sure My Vote Doesn’t Count“.

However, in recent years, the Republicans in Illinois reminds me of Will Rogers famous quote “I am not a member of any organized political party; I am a Democrat”.   The Republican party in Illinois has famously exploded; some examples include:

– We hound our incumbent Republican senator, Peter Fitzgerald, out of office (by fellow Republicans) in 2005 for having the temerity to appoint Patrick Fitzgerald, a non-corrupt, non-machine outsider, as US Attorney for Illinois, who actively goes after corruption including…
– Governor Ryan, who as an ostensible Republican, lets everyone off death row, is convicted for corruption (by Patrick Fitzgerald, above), and sent to prison
– For Peter Fitzgerald’s open seat, Jack Ryan is nominated, who seems to be a rich and viable candidate (can self-finance).   He is married to a famous actress (don’t want the traffic) and in his divorce information comes out that he took her to s*x clubs and other items that lead to him withdrawing from the race.   He is replaced by…
– Alan Keyes, who is pretty much bonkers and not even from Chicago, who is blasted out of the election by Obama.   Even I had to think twice before I’d vote for Keyes…

After all this, I have pretty much given up on the Republicans in their current state.   There are many opportunities for them to come back as an anti-corruption party, given all of the scandals and onerous problems in the state, but as of late they remain moribund.

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Puffins

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In addition to posting about taxes and energy and business and other random musings occasionally I update one of my other sites about… PUFFINS.

The site is at www.puffinmovies.com and there are no advertisements there, just pictures and movies of puffins (kid friendly, obviously).   I was on a trip to Atlantic Canada to see them and also to Alaska where I was able to get some tufted puffins on video.

I am classifying this post under “humor” because the puffins make me laugh – especially download the videos of the puffins where you can here their little feet click-click-click on the rocks.