Populist movements don't build themselves ...

... It doesn't matter what the "horse race" outcome of the campaign is, if we fight the campaign. Fighting it, we learn how to fight. Learning how to fight political battles, we become citizens again. Becoming citizens again, we reclaim the Republic that lies dormant beneath the bread and circuses of modern American society.

Monday, March 30, 2009

Friday, March 27, 2009

An HSR Station Grows at Transbay (SF) (pt 2)

Burning the Midnight Oil for Living Energy Independence

crossposts: Docudharma, ProgressiveBlue, The European Tribune

This is "part 2" of A Train Station Grows at Transbay ... Hopefully not a Bonsai (pt. 1)

In Part 1, an effort was made to try to fit 8 High Speed Rail (HSR) trains per hour (tph), plus up to 8 Caltrain tph, into the proposed "train box" design for the Transbay terminal, which has 3 island platforms with a total of 6 platform tracks.

Cast of Players

The Transbay Terminal is a transit/development project, so they have their own organization, the Transbay Joint Powers Authority. They have a staff of seven, including a principle engineer.

The California HSR Authority (CHSRA), is the small commission that has been responsible for pushing the California HSR through the planning phase. According to their testimony at the meeting (I think it is the executive directory, Mehdi Morshed), two years ago, they were pushed into doing everything possible through contractors, and they only have a staff of three, and it would seem do not have a principle engineer. They are also completely broke ... they have been running on IOU's to their contractors, because of the California state budget crisis, and are waiting on bond sales to be cleared to be able to actually pay some bills.

Caltrain is the rail service that runs between San Jose and San Francisco on right of way and track that was bought from a former private owner. They operate under a board of directors with three members representing the city and county of San Francisco, three members representing the San Mateo County, and three members representing Santa Clara County.

So north to south along the Caltrain line, that's San Francisco, Silicon Valley (San Mateo County), and San Jose (Santa Clara County). The representative from San Mateo and Santa Clara are from area transit authorities.

Why 8 HSR tph

Why 8 tph? I argued that 6 trains per hour could well be the commercially desirable mix of services when the San Diego stage opens.

This is of course a "peak" in the service schedule. That is, if a "regular" middle of the day schedule is 3 trains per hour, that implies about 6 trains per hour during the period of peak demand for intercity travel.

Beyond that, are special services, a possible extension to Las Vegas, the "commuter overlay", possible complementary Rapid Rail services along the coast ... all of which ought to be able to take advantage of the investment at the TBT in intermodal connections to BART and Bay Area buses ... and indeed, some of which would be taking advantage of the intermodal connection with Caltrain.

Which is how I arrived at 8tph as a target ... a foreseeable peak number of services, plus capacity for two more, for further expansion of rail services.

On Squeezing a Size 8 Schedule in a Size 6 Train Box

The California HSR Authority has requested an assured 40 minutes at the platform for their services. In overseas European HSR experience, this is a little short for HSR turn-around, but there is at least one German service that has operated on a 34 minute turn-around. Given the extreme operational inflexibility of the proposed train station design, best overseas practice plus six minutes for contingencies ... a medical emergency, a deep clean of a seat, swapping out a broken coffee maker ... seems to be a reasonable request.

8 trains trains per hour at 4 platforms means 30 minutes at the platform, including time for train movements.

However, in the abstract, 40 minutes at the station can be squared with under 30 minutes at a platform by having the trains "somewhere other than the platform" for the "extra minutes". Part 1 was chasing down the possibility of using the "tail tracks" included in the original design (red lines in above map of tunnel track route) as that "somewhere else". Trains would arrive at a dedicated arrival platform, then move to the tail track for restocking food and drinks, taking out the trash, etc., then move to a dedicated departure platform, then leave.

Standing between the abstract and the real are the limits of the site itself. There are building foundations in the way of connecting the outermost track to the tail tracks, and swapping the HSR platforms around to the innermost tracks looks very much like a design problem without an effective solution.

So ... under an assumption of 8 tph for the HSR, and the platform dwell requested by the California HSR Authority, more than four platforms are needed.

A Puzzle Box

OK, so here's the train box ... where to put two extra platforms?

One idea is to put them on the Mezzanine. Now, this would make the Mezzanine skinnier, so it may require re-arranging the access ... but, following Focus on: SF Transbay Transit Center (Clem at the Caltrain HSR Compatibility Blog):
The dominant pedestrian flows, especially for Caltrain, come from the center of San Francisco, which lies along the flank of the station (unlike traditional European terminals, which are often oriented toward the city center). Vertical access to the station platforms should be oriented perpendicular to the station, towards Market Street, to make use of the inherent horizontal reach of stairs and escalators to bring passengers closer to their destinations. Funneling all passengers through a grand entrance, concourse, fare gate, etc., all along the skinny axis of the building, while perhaps architecturally spectacular, does nothing for passenger throughput. Caltrain monthly pass holders need to get from the street to the platform, pronto, without any scenic detours.

... so abandoning the grand entrance along the long axis of the Mezzanine may not be that bad.

As well, bringing the Caltrain Platform up to the Mezzanine allows for passenger access and egress all along the platform. If Caltrain is to be limited to only two platforms at what is hyped as the "Grand Central Station of the West", at least give their passengers convenient access to those platform.

So under the "Caltrain on the Mezzanine", a Grand Entry could be replaced by escalators and stairs, aligned along the short axis, with access available at either end. One side can be a "main" Caltrain access, with manned information and ticket booths and assistance for passengers with special needs, and the other side a secondary Caltrain access, with automatic ticket machines and platform gates. In between would be the HSR section.

There is, however, something sacrificed in this option. The current plan seems to be to defer the tail tracks until some later date. And one way to increase the operational flexibility of the station is to replace the tail tracks with a loop that extends underground back to the original rail tunnel tracks ... so that departing services do not have to fight for tracks with arriving services.

This "Caltrain on the Mezzanine" approach closes off both of those options ... neither trail tracks or a loop back track is possible, since the Mezzanine does not extend the full length of the train-box. The balance of the space at that level is occupied by a Greyhound terminal.

"Caltrain on the Mezzanine" would certainly represent an increase in the cost of the train-box, since the Caltrain services will require more headroom than the Mezzanine currently provides for. Still, adding that additional height to the Mezzanine level seems like the least expensive way to bring the TBT train-box up to spec.

Hit the TBT with a Two by Four

The Caltrain on the Mezzanine shifts the squeeze from the main platform level onto the Mezzanine level.

So, what is the impetus to squeeze? Well, the deeper you dig, the more expensive. Indeed, the cost projection on the TBT says $390m to include the original train-box as part of the original foundations, $490m to add the original train-box later, and an incremental $300m to $700m to add a second, three island level to the train box.

The "Two by Four" option tries to economize on the cost of digging deeper by narrowing the box ... instead of "Two by Six", six platform tracks at three island platforms, duplicated on two levels, four platform tracks at two side platforms and one island platform, duplicated on two levels.

With the original train box, three rows of support columns have to run through the train box to the foundation, to support the building above. With the "Two by Four", only the central row of columns is required, with the outer rows of support columns sitting above the side of the box.

One advantage of this layout is that if the Caltrain platforms are located at the central island of the top level, the option of later extension to tail tracks or a loop-back track is retained.

With four platforms at two levels, it is also possible to remove some the cross-service interference. If the split between upper and lower tracks occurs at the top end of the tunnel under 2nd street, the there could be an access track and an egress track for each level, with the switching from the tunnel tracks to the platforms as short as possible, to reduce the time that one train movement blocks another platform.

And of course, with two levels, a train movement at the top level will not interfere with a train movement on the bottom level. Suppose that the train movement plus safety separation is 3 minutes. Then 8 HSR tph and 8 Caltrain tph can be scheduled to arrive across an hour as:


With this schedule, as long as the HSR services heading to one of the two top level platforms are scheduled in one of the "even" slots, there is space in the schedule for the HSR service to arrive, then a Caltrain service to clear the platform, then the next Caltrain service to arrive on that platform. While this is a constraint on flexibility, four out of six HSR platform tracks can operate with no interference at all with the Caltrain services.

There is another project cost saving in this design, as it fits comfortable with one access track and one egress track for most of the length of the tunnel, as described in Focus on the Transbay:
Oversized DTX Tunnel. Despite the high level of train traffic, a simple two-track tunnel into the station would do just fine. Because trains are limited to the same homogeneous speed by the sharp curves, a two-track tunnel could easily support 15 to 20 trains per hour, each way, or far more than the terminal could feasibly handle. The third track makes the tunnel needlessly expensive, and requires fancy construction techniques like the New Austrian Tunneling Method (NATM).

A two track tunnel also provides some minor easing of the problem of the very tight curves in the original design:
While curve radii at the location of the TTC itself are dictated by the street grid and surrounding building foundations, the two curves in the DTX tunnel approach (to turn from 7th onto Townsend and from Townsend onto 2nd) are much sharper than they need to be, and beyond the capability of some off-the-shelf high speed trains. High speed trains aren't MUNI street cars and won't turn on a dime; they are longitudinally stiff to provide good stability at high speeds.

In addition to the overall placement of the curves in the access tunnel, part of the tight radius of the curves is the (expensive) design decision to provide a three track tunnel. So shifting to a two-track tunnel, can also help ease the very tight curves in the original TBT design.

How Much is Enough?

As discussed in Part 1, there would seem to be substantial efforts on the TBT side to "talk down" the capacity that needs to be provided, as well as sidestep the problems in actually using the train-box as originally designed, in order to avoid being on the hook for a more expensive train box.

However, the current discussion is in the context of applying for Federal stimulus funds allocated to rail projects. If it is possible to design a better train-box, it would surely be possible to apply for the funds to build that train-box. If an inadequate train box is built because there was no way to obtain the funds for a better one, that is one thing. If an inadequate train box is built because of a refusal to apply for the funds to build a better one, that seems far harder to excuse.

Saturday, March 21, 2009

A Train Station Grows at Transbay ... Hopefully not a Bonsai (pt. 1)

Crossposted at Progressive Blue, Docudharma, The European Tribune, and soon at Agent Orange.

Burning the Midnight Oil for Living Energy Independence

I was able to get an interesting look into the proposed future of Intercity Travel in the Bay at the Transbay Terminal (TBT) in San Francisco.

Senate Info Hearing on High Speed Rail in California

Note that I am not trying to give "objective reporting" on this issue but rather to give vent to my reaction to watching the hearing online ... see The Troubling Discord Between Transbay and High Speed Rail Authorities for a less hot under the collar reaction.

One piece of information is that in California, when one public authority has the funding for sufficient staff and another doesn't, and it comes to a fight, it is considered fair game for the staffed up authority to toss up spin and red herrings and biased analyses, confident that the other authority does not have the capacity to answer promptly.

Late on in the piece is the technical guy from the Transbay Terminal (TBT) project putting in all sorts arguments against changing the design of the TBT "train box", without concern or regard for whether the arguments would be considered fair or impartial by a disinterested third party. He compared:
  • the station stopping time at a through platform to the station stopping time at a terminal platform;
  • the terminal turn-around for a regional rail service running between San Jose and San Francisco with a long distance rail service for a train that arrived from Anaheim/LA (or even, in Stage 2, San Diego); and
  • the number of services on single routes in Japan and Europe with the number of services for the main northern terminal for multiple routes in California

He wasn't the only one with tricks up his sleeve ... one of the Senators asked after the terminal capacity at Anaheim. The answer, by the way, was six platform tracks for what is supposed to be the secondary Southern Terminus when the full system is complete ... two more than the TBT proposes for HSR, at what is supposed to be the primary Northern Terminus.

How many HSR services should be allowed for?

On the other hand, the California High Speed Rail Authority (CAHSRA) seems to be making claims that are difficult to support. They seem to have asked for an ability to support 12 trains per hour (tph), with 40 minute platform dwell times, claiming that they need 9 to 10 platform tracks.

First, the basic math ... 12tph with 40 minute platform dwells, inclusive of headways, is 8 platforms.

More fundamentally, though, where are 12 trains per hour coming from? That is a technical requirement for through stations, because the HSR line is designed to permit trains to pass at five minute intervals, and along the line, you cannot allow one service to block the next in line.

For the terminal station, the question is the number of services that might start or end at the station. For the California HSR system:
  • LA and the Bay is the backbone transport market for the HSR system ... there could well be demand for one LA/Anaheim Express and, half an hour later, one LA/San Diego Express
  • Running Express Routes drops off very useful trip pairs, so there will be demand for a Semi-Express, and the likelihood is that the hour that supports two Bay/LA Express services will support a Bay/LA/San Diego Semi-Express.
  • The Central Valley will be within three hours by an all-stops HSR to both LA and the Bay ... and within two hours of one, the other, or both. So in addition, one all-stations LA/Anaheim HSR service per hour providing access to and from the CV ... bearing in mind that while this is a smaller transport market, the HSR will grab a larger share of the total market

So this is 4 trains per hour ... 1 train per hour on four distinct services ... without even considering a Fresno special, or a spur at Mojave for Las Vegas.

And when the 400 seat single level, single set trains start filling up, its better for building ridership to increase frequency than to increase capacity. 2 LA/Anaheim Expresses per hour, split the all-stops CV into Express Fresno then all-stops to LA and all-stops to Fresno and Express to LA, and a mix of Express LA/San Diego and Express to LA then all stops to San Diego, and we are already at 6tph.

Indeed, as blogger DoDo on the European Tribune notes, the service schedule that the HSR ridership modeling is based upon (pdf) implies up to 8 trains per hour at the TBT.

Twelve trains per hour may be aiming too high, but six trains per hour clearly risks aiming too low.

Given the massive cost of building more capacity after the original foundation has been laid, the capability for eight (8) HSR trains per hour seems to be a perfectly reasonable expectation for the primary northern terminus for the system.

Following the trail of red herring

Now, when someone deploys deceptive comparisons and unbalanced comparisons, I have a reflex reaction ... a pile of red herring is normally used to cover something up.

And that something seems to be is a design flaw.

The TBT "train box" includes two "tail tracks", allows trains to get off the platform, either for overnight parking or for non-passenger operations like restocking and cleaning, without using up space in the tunnel.

What this means in theory is a train can arrive at an arrival platform, unload passengers (which is a very quick operation, since trains have far fewer passengers per door than airplanes), move to the tail platform to make room for the next train, get trach unloaded, seats needing deep cleaning looked after, food and beverage restocked, and then get move to the departure platform.

And the TBT tunnel access is designed with three tracks, which eliminates all sorts of potential bottlenecks:
  • Both Caltrain and HSR services arrive in the TBT on the central track
  • A Caltrain service departs from the Caltrain island platform using the "inner" tunnel track, which opens up the platform for an arriving Caltrain service
  • After the departing Caltrain service has left, the arriving Caltrain service switches over to the "inner" track to get to the Caltrain island platform
  • HSR services run directly to the central arrival island
  • Passengers depart the HSR services, the train goes to the tail track for restocking and to clear the platform for the next service, from the tail track to the departure platform, then depart using the "outer" tunnel track

This is a system that allows three different islands to be accessed with little interference, because only two islands receive incoming trains, and because each type of service has its own dedicated departure track ... so they can arrive in sync, dwell in station for different lengths of time, and leave on their own schedule.

In particular, it allows the HSR trains to be in the station for over 40 minutes, while only occupying the platforms for 30 minutes each, raising the capacity of four platforms from six trains per hour to eight trains per hour.

This also makes it easier to organize efficient movement of passengers, since passengers are either leaving or arriving at each HSR platform ... there isn't a the problem of departing passengers getting in the way of arriving passengers.

With this approach, 4 platform tracks support 8 trains per hour ... which is to say, adequate to the needs of the planned HSR system with enough spare capacity to allow for some growth.

The Design Flaw

The design flaw ... for supporting 8tph, that is ... may not jump out at you, but its in the picture, taken from the 2003 "locally preferred option" design for the TBT Environmental Impact Report. The right hand side is the tunnel from the present end of the rail line. The left hand is the turn to the tail tracks.

Now, the HSR platforms have to be designed for long trains ... once the capacity is filled with 8 car, 400 seat trains, they can be extended to 16-car, 800 seat trains, and then by moving to bi-level trains, 1400 seat trains. That means a 1,320 foot long platform. That means that the bottom two islands are for the HSR and the top island is for Caltrain. The bottom two platforms need to be stretched a bit, and the middle one straightened somehow ... but the TBT technical person said that that had been fixed up.

So, stepping through the pictured design:
  • Counting access tracks, three tunnel tracks split up to make six platform tracks. So far, so good.
  • For Caltrain to operate as described above, a switch will have to be added so Caltrain services can get from the middle tunnel track to the "inner" tunnel track which leads to the Caltrain platform. And since the outbound train has to leave the Caltrain platform before the inbound train can arrive, that will work just fine.
  • The two Caltrain platform tracks are connected directly to the Caltrain exit track, so that will work just fine.
  • For the HSR trains to operate as described above, the central island is the arriving platform, connected directly to the tunnel track that brings trains in. That will work just fine.
  • That leaves the bottom island as the departing platform. The two platform tracks at this island are connected directly to the HSR exit track, so that will work just fine.
  • And the tail tracks ... are not connected to the bottom platform track. Instead, the bottom platform track comes to a dead end. That is not just fine. Indeed, assuming that the TBT has the staff that they likely know all of this already, that might be what the pile of red herring is supposed to cover up.

What can be done to straighten up the mess? One approach is to swap the Caltrain platform from top to bottom ... and trim a substantial piece from the front (right hand side) of the bottom platform. In fact, trim enough from the front that the switch between the two platform tracks is after the single tunnel track has rounded the corner.

Note that this is just a rough sketch

Trimming off the front of the bottom island allows the middle island to straighten up. Straightening up the middle island allows the top island to straighten up.

The middle island can be straightened up a bit by extending the tail track directly from the middle platform, with switches connecting the top island, which gives more room before the platform track must bend to form the rail track.

This might not be enough for 1320 ft. of straight platform, but it'll be a lot closer ... and, after all, the CAHSRA is probably overstating how much straight platform they need, since the platform only needs to be straight for the passenger car portion. A little bit of bend for the driver cars at the front and rear of the train can be tolerated. If this can get 1200 ft. of straight platform with a 60 ft. curved part on either side, that certainly seems like it ought to be OK.

So, if both sides are wrong, who is going to admit it?

The question that puzzles me the most is not the technical one ... as tight a squeeze as it may be ... but the political one. The TBT authority have made public claims that present a picture of basically being ready to go, except for the fantastical demands of the CAHSR authority. The CAHSR authority has made fallen into the trap of making an ambit claim that they will have to strain to support ... but if that costs them the political argument, the fact that the TBT train box is an inadequate design is likely to be lost in the collapse.

The only player that strikes me as having the opportunity to say, "wait a minute, here's a fix that won't cost all that much to implement" is Caltrain. But ... under the solution above, they are giving up a 900 ft. platform, connected to the tail tracks, for what could end up being a 800 ft. platform, with only one connection to the tail track, and that connection only available when the closest HSR platform track is empty.

To Be Continued ...

Anyway, that's the puzzle. But there's another possibility ... one which might be of more appeal to Caltrain ... so I am going to end this with an ellipses.


Thursday, March 19, 2009

For lack of a better term, call it Capitalism

also at Progressive Blue and Docudharma

Burning the Midnight Oil for the Beauty Platform

Johnny Venom, in an extended comment on a Robert Oak post at The Economic Populist, says (note ... much good stuff snipped, so click through):
My take on all this madness

What's happening here is the collision of several realities:

1. You had institutions, who years if not decades, believing the hype they built themselves to sell to their clients. ...

2. That you can't simply create your own damn financial instrument to meet a client's needs. ...

3. Derivatives products work when they are designed well and implemented on a regulated environment. ...

4. Many of these items will never be liquid. This brings us to today. The reality of the situation is that we now have to be discriminating between those derivatives that are somewhat liquid and those that aren't. The former can have mark to market, but there needs to be a proper exchange for these things. Both the CME and ICE are going to have such a thing, and these banks should be made to trade them on it to get these things off their books. As for the iliquid ones, well unless our goal is to bankrupt these banks in some attempt to punish them, we will have to facilitate either a suspension of FASB 157 for these or some hybrid. ...

5. Banks holding on to these illiquid derivative step children, that must be re-engineered, will have to realize they won't get all their money back. ...

6. Lastly, new accounting rules and financial regulations must be in place to keep in check the establishment of new positions. ...

Regarding the highlighted section, I had this response:
The goal is to have a functioning banking system ...
... composed of banking operations each of which have a balance sheet that enables it to raise funds if a credit-worth borrower walks through its doors.

Regarding bankruptcy:
As for the iliquid ones, well unless our goal is to bankrupt these banks in some attempt to punish them, we will have to facilitate either a suspension of FASB 157 for these or some hybrid.

... having those banking operations is of far more important to the economy than the identify of those operations. If given money center banks are in reality insolvent, and need a fiction to avoid bankruptcy, then what we need rather than a fiction is a process for reconstituting a functioning, soundly financed banking operation from out of that mess.

Given those sound banking operations, we can leave the original shareholders and bondholders to sort out the mess under normal bankruptcy proceedings.

What this will mean, of course, is that those holding shares in bank who were playing these games ... the beneficiaries of dividend payments that should have been retained as contingency reserves and paper capital gains that they did not realize by selling the shares because they hoped for the magic roller coaster ride that always ends up at a higher point than it starts at ... they'll most likely get wiped out. Most bondholders will become equity owners of the shell of the former banking operation. If the assets regain some value they will get some return, even if they end up taking some losses on those bonds (depending on when they bought in).

And, of course, the first step toward maximizing the prospect that those dubious assets will regain some liquid value is to provide the economy with a functioning banking system, composed of banking operations with sound balance sheets.

What would we call such a process of risk-takers who made bad judgements experiencing financial losses, with the owners of insolvent firms losing all that they put into the firms and the lenders to insolvent firms receiving some but not all of their money back?

What would we call the process of bringing insolvent banks into receivership, reconstituting a sound banking operation from the morass, and leaving the original owners carrying the bag?

Now, it may not be Capitalism in fact, where the government uses the power to issue money to insure financial firms from loss ... and which may just as easily be called Wall Street Socialism.

But for the myths told about "risk taking entrepreneurs" ... there is no drama in the tales unless the risks are real risks with real consequences for failure.

So, this alternative, in deference to the myth, and for lack of a better term, I'm going to call it "Capitalism".

Forgotten Years (Blue Sky Mining, 1990)

Few of the sins of the father,
   are visited upon the son
Hearts have been hard,
   our hands have been clenched in a fist too long
Our sons will never be soldiers,
   our daughters will never need guns
These are the years between
These are the years that were hard fought and won
Contracts torn at the edges,
   old signatures stained with tears
Seasons of war and peace,
   these should not be forgotten years
Still it aches like tetanus,
   it reeks of politics
How many dreams remain?
   this is a feeling too strong to contain

Tuesday, March 17, 2009

Burning Fires

Citizens's Energy (organization site)
Cheyenne River Lakota Sioux Developing 120 MW Wind Farm by Megan Treacy (EcoGeek)
HUD and DOT Announce Joint Sustainable Communities Initiative by Yonah Freemark (the TransportPolitic)
Home-Heating Mirrors by Hank Green (EcoGeek)

Turning Good Bank / Bad Bank on its head

But, where's the discussion? Discussion normally takes place at a community blog where this is crossposted. Presently: The Economic Populist, Docudharma, Progressive Blue, The European Tribune, coming on My Left Wing, and even Agent Orange.

Burning the Midnight Oil for the Beauty Platform

The problem with the "Good Bank / Bad Bank" (see also Dr. Seuss version) plan is, of course, ... {drum roll}

... in order to "rescue" banks that distributed a massive amount of contingency reserves as if it was income ... by pretending that massive downsides did not exist ...

... we "have to" reward the people who proved to be grossly incompetent in the core competency for senior executive management of a bank.

Except, as Joe Stiglitz points out, we don't have to at all.

In other words, there is good and bad in the Good Bank / Bad Bank plan. And if we reverse who ends up with the Good Assets and who ends up with the Bad Assets, we can have all of the Good, and avoid most of the Bad.

The Good, the Bad, and, yes, its all Ugly

The good is the clearing up the mess, establishing going concerns that can lend when consumers and small and medium business demand for credit begins to ride, and the restoration of confidence in the banking system.

The bad is the rewarding of the incompetents who ran the banks into the ground, and the message that a big enough bank cannot fail if they fail alongside other big enough banks.

OK, now, suppose we do it this way. Bank examiners do "stress testing", which is to say, a real world audit instead of the fantasy audits that we have been doing in order to avoid official recognition of the depths of the problem. And banks that are in too much financial peril to be allowed to continue operating as they have been doing ... are put into receivership.

Now, the US government strips out the liabilities that we wish to protect ... the account liabilities ... and takes over the "good" assets. If that is a net plus, the government pays the original bank for the positive net assets. If that is a net minus, the government makes up the difference with the new Good Bank, and takes a compensating Senior claim in the old Bad Bank.

Then the residual of the old Bad Bank is run through ordinary Chapter 11 proceedings ... in most cases the shareholders will be zeroed out, the bondholders will become shareholders, the new shareholders are quite likely to sack the old senior executive management, and the old Bad Bank will see what they can do to recover whatever value can be had in the trash that forms their asset base.

In normal economic conditions, the government would sell this Good Bank to an existing sound bank ... but these are not normal economic conditions. And some Americans have been deeply indoctrinated in the idea that Government can't do something like banking as well as the Private Sector (presumably setting aside what the largest banks have been doing for over a decade under the category of "a few bad apples").

But there are ways to finesse that ... for example, ChrisCook at the European Tribune suggests a bank restructure on the basis of a Capital Partnership. In the context of a New Good Bank / Bad Old Bank system, a good bank could buy into a stake in the gross revenue of the Good Bank, and operate the bank for a fee as the managing partner.

Do pay attention to why this is cheaper ...

Why is this cheaper than Trash for Cash? Because what "we" - consumers and businesspeople - need from the banking system is for deposit liabilities to be backed up by sound assets, and for there to be sufficient confidence in the operational banking system so that banks with credit-worthy borrowers applying for loans can raise the funds to grant the loans.

To the extent that there is a shortfall between deposit liabilities and sound assets ... that shortfall must be made good.

But making good any other shortfall ... that is not first and foremost protecting the ability of the bank to provide depository services. Rather, it is about first and foremost protecting the senior executive management from the consequences of their gross incompetence and sheltering shareholders from the perils of buying shares in companies that have been distributing contingency reserves as if they were income.

And rather than being a long term service to the economy, that protection of senior executive management and shareholders from the consequences of grossly incompetent strategy is a long term disservice.

So, in short, pay what must be paid to keep the banking operations available in service to the real economy.

However, unlike the series of proposals coming out of the Finance Sector, don't pay a dime to shelter the senior management and shareholders from gross incompetence in strategic management. Strip out the good, and leave them with the trash.

Oh, and, yes, we can stop the damn Bonus money

Final point, since its a hot button issue at the moment ... doing this means that we no longer have to keep AIG alive as a zombie CDS writer in order to avoid toppling banks and wreaking havoc on the economy. We will have an operational banking that does not need Credit Default Swaps written by AIG to paper over their insolvency.

So the last institution we can put through the process is AIG itself. And then the nonsense of "we have to pay millions of dollars in 'Performance Bonuses' to the people who brought us to the point that we are insolvent except for government assistance" goes away. Those idiots who did the idiocy as a group of mythical lemmings jumping over the same cliff, one after the other, thinking they were getting a free ride until they hit the mythical coastal rocks below ... they are "creditors" of an insolvent institution, and can get in line with the other creditors to get pennies on a dollar if that. But the insolvent institution won't be doing their business any more ... the CDS division can just collapse, and the actual insurance divisions will be perfectly solvent firms once stripped out from under the AIG senior management ... they the "brightest men in the room" in the sense of being the biggest bunch of flaming idiots around would also be redundant employees and can be sacked, at which point their golden parachutes become ... yes ... a creditors claim on an insolvent institution.

And they can get their penny stock in the "Bad American International Group", and stand in line with the other stakeholders in the Finance Sector Created and Government Supported Financial Stupidity of the Reagan EraTM ... without being in line to get any of the money from the actual "Good American Insurance Group" still in operation.

Wednesday, March 4, 2009

Liquidity Solves Liquidity Crises: We Need Solvency to Solve a Solvency Crisis

Burning the Midnight Oil for a Brawny Recovery

Courtesy of Matthew Yglesias:
Reader A.M. wants answers I can’t really provide:

We should recapitalize the banks with printed money.

Well, no, we shouldn't ... at least, that is not the main route to a solution.
Printing money solves a liquidity crisis, which is a shortage of liquid assets by solvent firm.

Printing money does not solve a solvency crisis, because money from the Fed does not generate income for commercial banks. The fundamental problem of the commercial banking system is that that they pursued higher income by pretending that high risk, high yield assets were low risk, high yield assets, and so the contingency reserves that they should have been building up based on the massive systemic risks in their portfolios were instead distributed as if it was profit income.

What we need are commercial banks that are both solvent and liquid and that not only can but will lend to business and consumers once the recession bottoms out so that it is possible for injections in addition to government spending to be pumped into GDP.

And we need to do it on the basis of stable leverages and growing incomes … growing leverage on the back of stagnant income has been tried and has been found wanting.

For reference, see further discussion by Jerome a Paris in contemplating the following graph, and what it means about the US economy:

Monday, March 2, 2009

The 110mph Triple-C passenger train: Ohio, Now Is The Time

Burning the Midnight Oil for a Brawny Recovery

This is information from the Midwest High Speed Rail Blog, Ohio Proposed Budget Includes Developing Passenger Rail Between 4-5 Cities (who themselves give a h/t to Transportation for America):
As part of a two-year, $7.5 billion proposed budget, Ohio plans to continue developing passenger rail service connecting four cities Cleveland, Columbus, Dayton and Cincinnati (DispatchPolitics) - and possibly including a link to Toledo. Rail advocacy group All Aboard Ohio supports the so-called "3-C" plan and describes it here.

More System maps here

From the DispatchPolitics article, the static:
The rail element of the budget did not sit as well with some state representatives. Until Amtrak completes a study of potential ridership and revenue this summer, state officials don't know how much the train system would cost.

Of course, in the Financial Viability chapter of the Ohio Rail Development Commission planning for the Ohio Hub, the Triple-C corridor is the strongest corridor, projected to be able to gain revenues 180% of operating costs as the core of the Ohio Hub and MidWest Rapid Rail System is brought online ... so waiting for the Amtrak ridership analysis to confirm that its a strong corridor seems to be a delaying tactic, precisely so the politicians can say things like:
"I'm not saying that I'm opposed to passenger rail, but show me the numbers," said Rep. Cheryl L. Grossman, R-Grove City."

... assuming that their constituents are ignorant about the volume of numbers that have already been produced.

The most important point, here, is that this is a seed project. The Triple-C is such a good corridor for 110mph Rapid Rail that it should quickly achieved an operating surplus. Then the operating surplus can be used to fund state bonds to provide a state match to Federal funding down the track, to continue building out the entire system.

And of course, because of the geography of the US and the history of Chicago as a rail hub, the complete Ohio Hub project fills in the missing link between the Empire Corridor in New York and Keystone Corridor in Pennsylvania and the Mid-Western Rapid Rail System centered on Chicago and extending into Indiana, Michigan and Ohio to its east; Wisconsin, Minnesota, Iowa, Missouri and Kansas to its west; and the Amtrak corridor to Memphis and NOLA to its south.

If the well-practice bullshit and delaying tactics of HSR denialists is allowed to prevail, its not just an Ohio issue ... it will slow the growth of Rapid Rail connections in an areas stretching from New York State to Kansas.