Wednesday, June 2, 2010
Cat shows backbone
Stupid Beast, who is so timid that passing pickup trucks make her hide under beds, faced down a dog this morning. It was a very nice young black Lab who wanted to make friends, but Stupid Beast wasn't having any of that. She did the arch back, fluff up fur and menacing growl bit so effectively that she drove the poor Lab right off the property. The dog was so impressed he failed to even bark.
How have the mighty fallen.
According to Fox Business News, the Caterpillar company will buy the Electromotive Division (EMD) from a pair of vulture capitalist firms for a measly $820 million. EMD is the company that made the diesels that replaced steam locomotives on US railroads in the 1950s. EMD started out in the 1920's making gas electric rail cars. They were what we would call a system integrator today. They bought the car bodies, the electric traction motors, the generators and the Winton distillate engines from suppliers and put them together to make self propelled rail cars. Gas electrics sold pretty well, plenty of railroads had thinly traveled routes that a single car train could serve. Compared to getting down to the roundhouse four hours before train time to light the fire and raise steam, a gas electric was simplicity to operate, you just hit the starter button and it was running.
As the Winton engine people squeezed more power out of the engines, the gas electrics gained enough oomph to pull a trailer car, yielding a two car train. Then in the middle 1930's the Electromotive Corporation built the two prototype streamline trains, the Burlington's Zephyr and the Boston & Maine's Flying Yankee. These were sensational trains, all stainless steel, ultra modern styling, fast, great looking interiors and they gained a lot of publicity. Somewhere along the line, the Electromotive Corp was bought by General Motors and became the Electromotive Division (EMD).
In the late 1930's, just before WWII, EMD introduced the first passenger and freight diesel road locomotives. In 1941, after Pearl Harbor, the War Production Board, faced with endless demands for guns and tanks and aircraft and all the logistics needed to supply American, British and Russian armies, decided that the scarce and high tech diesel engines should go into submarines, landing craft, transportable electric plants and other munitions. The railroads were told to haul the wartime traffic with steam engines. Of which there were plenty, and Baldwin, Alco, and the railroads own shops were all set up to make plenty more. Net result, EMD's road diesels ran through out WWII and by VE day all the bugs had been worked out.
After VJ day, the traditional steam locomotive makers, Baldwin and Alco, along with GE and Fairbanks Morse introduced road diesels, but they didn't stand a chance against the seasoned and debugged EMD models. In less than 15 years the railroads scrapped all the steamers and replaced them with new EMD diesels. That was a tremendous piece of business. EMD, and parent company GM, made money hand over fist doing it, and EMD dominance of the US locomotive market lasted well into the 1980's.
For reasons unclear to me, competitor GE stayed in the locomotive business and gradually pulled ahead of EMD by the mid 1980's. Could be of course that brain dead GM senior management screwed things up, I don't know that story, but it is likely. In 2005, as GM was sliding down the tubes, they sold EMD to couple of vulture capital firms. And now the capital firms sold out to Caterpillar.
I wish the new owners every kind of luck. They have a great name, 33000 locomotives in service, and $1.8 billion yearly sales. Caterpillar bought the place for only 1/2 the yearly sales numbers.
As the Winton engine people squeezed more power out of the engines, the gas electrics gained enough oomph to pull a trailer car, yielding a two car train. Then in the middle 1930's the Electromotive Corporation built the two prototype streamline trains, the Burlington's Zephyr and the Boston & Maine's Flying Yankee. These were sensational trains, all stainless steel, ultra modern styling, fast, great looking interiors and they gained a lot of publicity. Somewhere along the line, the Electromotive Corp was bought by General Motors and became the Electromotive Division (EMD).
In the late 1930's, just before WWII, EMD introduced the first passenger and freight diesel road locomotives. In 1941, after Pearl Harbor, the War Production Board, faced with endless demands for guns and tanks and aircraft and all the logistics needed to supply American, British and Russian armies, decided that the scarce and high tech diesel engines should go into submarines, landing craft, transportable electric plants and other munitions. The railroads were told to haul the wartime traffic with steam engines. Of which there were plenty, and Baldwin, Alco, and the railroads own shops were all set up to make plenty more. Net result, EMD's road diesels ran through out WWII and by VE day all the bugs had been worked out.
After VJ day, the traditional steam locomotive makers, Baldwin and Alco, along with GE and Fairbanks Morse introduced road diesels, but they didn't stand a chance against the seasoned and debugged EMD models. In less than 15 years the railroads scrapped all the steamers and replaced them with new EMD diesels. That was a tremendous piece of business. EMD, and parent company GM, made money hand over fist doing it, and EMD dominance of the US locomotive market lasted well into the 1980's.
For reasons unclear to me, competitor GE stayed in the locomotive business and gradually pulled ahead of EMD by the mid 1980's. Could be of course that brain dead GM senior management screwed things up, I don't know that story, but it is likely. In 2005, as GM was sliding down the tubes, they sold EMD to couple of vulture capital firms. And now the capital firms sold out to Caterpillar.
I wish the new owners every kind of luck. They have a great name, 33000 locomotives in service, and $1.8 billion yearly sales. Caterpillar bought the place for only 1/2 the yearly sales numbers.
Tuesday, June 1, 2010
Ratings Agencies, Welfare for Wall St.
Used to be, companies and state and local governments could just issue bonds. You know, written deals that said "You give me cash, I promise to pay it back, with interest over the next umpteen years." If the bond issuer seemed solvent, people bought the bonds. If the issuer was unknown or had a bad rep, the bonds didn't sell.
Then Congress got into the act. To issue bonds now, the issuer must get a rating agency like Standard & Poor or Moody's to "rate" the bonds. You know AAA or ABA or PUREJUNK. This was supposed to "protect" investors from unscrupulous junk bond dealers. Trouble is, the ratings agencies are less scrupulous than the junk bonders. The ratings agencies happily rated sub prime mortgage backed securities AAA. The defaults on AAA rated sub prime bonds caused Great Depression 2.0
Needless to say, this is pure gravy for the ratings agencies which now get a cut on every bond issued. The issuers have to pay the agencies for the rating. Needless to say, the issuers shop around for the best rating. If Moody's won't give me AAA maybe Standard and Poor's will.
It's welfare for Wall St.
Then Congress got into the act. To issue bonds now, the issuer must get a rating agency like Standard & Poor or Moody's to "rate" the bonds. You know AAA or ABA or PUREJUNK. This was supposed to "protect" investors from unscrupulous junk bond dealers. Trouble is, the ratings agencies are less scrupulous than the junk bonders. The ratings agencies happily rated sub prime mortgage backed securities AAA. The defaults on AAA rated sub prime bonds caused Great Depression 2.0
Needless to say, this is pure gravy for the ratings agencies which now get a cut on every bond issued. The issuers have to pay the agencies for the rating. Needless to say, the issuers shop around for the best rating. If Moody's won't give me AAA maybe Standard and Poor's will.
It's welfare for Wall St.
Monday, May 31, 2010
A little bit of American Exceptionalism
Was reading John Keegan's book The Second World War. Keegan states that the only place where Japanese conquerors encountered resistance was in the Phillipines. The Americans had established some rapport with the Filipinos before the war. After the 1941 Japanese invasion the Filipinos remained loyal to the Americans in ways that French, Dutch, and British colonies did not. A US submarine bringing supplies to the Filipino resistance was pleasantly surprised to find a solid town dock, all the lights in town blazing, a native band playing on the dock ,and pretty dancing girls, all to welcome the submarine ashore.
Seems like the Americans did things right that other colonial powers neglected.
Seems like the Americans did things right that other colonial powers neglected.
Saturday, May 29, 2010
Deepwater Horizon poorly organized
Friday's Wall St Journal described the chaos and lack of organization aboard Deepwater Horizon when the well blew. A young technician radioed "Mayday, Mayday, We have an uncontrollable fire aboard." The rig skipper reprimanded her for exceeding her authority. To which the technician replied "Sorry Sir." The blowout preventer could not be closed until a committee of the top BP and Transocean executives met and gave the OK. Several workers mentioned a lack of firefighting equipment, pumps, sprinklers, hoses. The explosion put electrical power out.
The sinking of the platform made well control enourmously more difficult. There should have been plenty of fire fighting equipment. There also should be been a watch officer on duty 24/7 with the authority to close the blow out preventer, call the crew to fight fighting stations, maneuver the platform, order abandon ship, and what ever else is needful. No way a committee, woken sudden from sleep, confronted with fire and explosion, can make any kind of decisions, let alone the right decisions until it's much too late.
The sinking of the platform made well control enourmously more difficult. There should have been plenty of fire fighting equipment. There also should be been a watch officer on duty 24/7 with the authority to close the blow out preventer, call the crew to fight fighting stations, maneuver the platform, order abandon ship, and what ever else is needful. No way a committee, woken sudden from sleep, confronted with fire and explosion, can make any kind of decisions, let alone the right decisions until it's much too late.
Friday, May 28, 2010
Wall St Journal on the BP oil spill
The Thursday Wall St Journal had a very good article about what went wrong. Looks like it really is BP's fault. The well was behind schedule and over budget. To save time and money the BP manager cut short the mud circulation procedure ("bottoms up" in oil field lingo). Best practice is to pump all the mud up from the bottom and inspect it for natural gas. If gas is detected in the mud, the well has a leak. BP only ran the bottoms up procedure for an hour, where as 12 to 24 hours is needed. Then BP skipped a leak test after cementing in the drill pipe, even though the cementing contractor Halliburton warned of trouble. The BP manager, an inexperienced man, had to overcome objections to his shortcuts by the other contractors on the rig.
The underground gas pressure is high, because of the 13000 feet of rock sitting on top of the oil/gas deposit. When BP pumped the drilling mud out of the well, the gas forced its way up the drillpipe onto the drilling platform and caught fire. To add insult to injury, the last ditch safety device, the blowout preventer failed to close off the well. So, we have two errors of judgment on BP's part, combined with a faulty blowout preventer and the result is horrendous.
The underground gas pressure is high, because of the 13000 feet of rock sitting on top of the oil/gas deposit. When BP pumped the drilling mud out of the well, the gas forced its way up the drillpipe onto the drilling platform and caught fire. To add insult to injury, the last ditch safety device, the blowout preventer failed to close off the well. So, we have two errors of judgment on BP's part, combined with a faulty blowout preventer and the result is horrendous.
Wednesday, May 26, 2010
Wall St Banks cook the books
According to a front page story in the Wall St Journal, the big banks reduce their short term borrowing at the end of each quarter to make the end of quarter balance sheet look better. Bank of America, Deutsche Bank and Citigroup are named. They call it "window dressing".
Why do we care? Simple, a bank's ratio of debt to capital in a good measure of the bank's soundness. Too much debt, too little capital, and any small setback, like a loan default can break the bank. Bank runs out of money and has to fold. Investors in the bank loose all their money and FDIC pays off the depositors.
According to the Journal article, the banks are engaging in deceptive practices to could suck in unwary investors.
We REALLY REALLY need to clean up the accounting business in this country so that published financial documents mean something. In this case, the rules ought to be changed to require the banks to publish their average debt, averaged over the entire quarter, not just their debt on one special day out of the quarter.
Why do we care? Simple, a bank's ratio of debt to capital in a good measure of the bank's soundness. Too much debt, too little capital, and any small setback, like a loan default can break the bank. Bank runs out of money and has to fold. Investors in the bank loose all their money and FDIC pays off the depositors.
According to the Journal article, the banks are engaging in deceptive practices to could suck in unwary investors.
We REALLY REALLY need to clean up the accounting business in this country so that published financial documents mean something. In this case, the rules ought to be changed to require the banks to publish their average debt, averaged over the entire quarter, not just their debt on one special day out of the quarter.
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