TradecoHoldco

Killing it like a hooker in Hong Kong

The US needs to become a nation

I’ve been thinking about this for a while, and one thing that has become clear in the past decade is that the US needs to centralize some of the functions that are currently administered by the states.

The op-ed in the NYT about national standards for education has some of this flavor:

Each of these seemingly unrelated developments is part of a crazy quilt created by one of America’s most cherished and unexamined traditions: local and state control of public education…

Our lack of a national curriculum, national teacher training standards and federal financial support to attract smart young people to the teaching profession all contribute mightily to the mediocre-to-poor performance of American students, year in and year out, on international education assessments. So does a financing system that relies heavily on local property taxes and fails to guarantee students in, say, Kansas City the same level of schooling as students in more affluent communities.

In an era with more technology, it is possible to standardize and administer larger areas from the center.It might have been impossible for a administrator in Washington to oversee a school district in Texas when a stagecoach journey would take two weeks, but with telephones and flights, and especially modern CRM and ERP systems, it is possible.

Furthermore, standardization matters more now, because that same student from Texas is ever more likely to find himself working in Washington rather than Texas. So sharing the standard body of knowledge allows for less frictional unemployment and deadweight losses.

The same argument can be applied to most licensing programs. It is ludicrous that the US has medical licensing on a state basis. It is basically entrenched local doctors protecting their interests from outsiders.

The only area it may make sense is in the legal profession, where state laws differ to a great degree and are based on the community’s normative standards of decency.

Insurance, banking and many other areas are rife for centralization. The only fear is that is that currently states have acted as a check and balance. For eg, the Justice Department is controlled by the administration, and if in a Republican administration, Justice refuses to take action against say the insurance industry, then Democratic controlled New York’s attorney general can take action instead. This is precisely what happened in the Eliott Spitzer-George Bush years.

So how do can you have centralization and yet have the same check and balance? It’s a real conundrum. Perhaps what you could is have the power to appoint and fund a shadow bureaucracy. I.e if you have a Republican president, then the Democrats can appoint and fund an alternative Justice Department, with the same access to information and power to sue, but not the power to administer or rule making ability. Ie prevent selective enforcement by allowing both parties the right to enforce.

March 22, 2010 Posted by | Uncategorized | , , , | 1 Comment

Unreasonable Investment Expectations (I)

I have a friend who just joined the newly set up Asian division of an international investment firm. So I went out to lunch with him to figure out what they want to do. Let’s call my friend Pa.

Me: So what sectors are you guys looking at?

Pa: Infrastructure, pan Asia.

Me: Ahh, so developing stuff, greenfield power plants and all?

Pa: Nope, we’re only doing developed assets. No greenfield.

Me: What’s your return hurdle?

Pa: Mid to high teens.

Me: Ahh, and are you taking small stakes?

Pa: Nope, we want majority stakes in these firms.

Me: Ok which countries in Asia again?

Pa: Japan, Korea, Taiwan, Singapore. No India, no Indonesia. China is a maybe.

Wow, I mean wow. I was sitting there thinking, I wish I could find someone willing to give me a fixed deposit with high teens interest. I mean wtf? Have you forgotten that there is a relationship between risk and return expectations?

It’s funds like these that litter the Asian infrastructure scene now. These idiots went out and did fundraising making all these promises, and then sit in Singapore and Hong Kong rejecting deal after deal after deal. They complain about dealflow, and take their management fees off the top.

See these guys were all setup to emulate Macquarie, who in the pre crisis days played this game better than anyone. Lever, relever, management fees, listing at IPO, more management fees.

But those days are long gone. Anyone who owns infrastructure with mid teens equity cash flows is sitting on it like being glued to your seat during a Jenna Jameson money shot.

So you want mid teens infra returns, I have one word for you pal. Develop. Another word being Greenfield.

I met a guy in India last year, who bought a developed airport, in a non-competitive negotiated bidding process. If all went well and he got reasonable tariff increases, he would get 12%.

There is a direct parallel between these infra funds, and the venture capital funds left over from the Internet bubble era. Both raised money based on bubble expectations, and then proceeded to invest when those expectations were gone. It’s taken over 10 years, but it looks like finally over the next 2-3 years, those venture funds will die out. So I hope all those investors in infra funds are prepared for a long wait to see nothing much come of their great expectations.

(Yes and I did throw in Jenna Jameson in there to see how many hits I can get from people searching for “Jenna Jameson infrastructure”

March 9, 2010 Posted by | Uncategorized | , , , , | Leave a comment