As April 15th looms again (it seems to come every year), all the same old articles appear about taxes, budgets, deficits, government spending, and the inequities in the universe.  This year, Ben Casnocha sent me a link to an article from the LA Times titled Tax and spend with a twist with a note saying "I think you expressed a similar sentiment awhile back."

Indeed I did.  I dutifully pay my taxes every year, yet I feel helpless when I think about how the government spends my tax receipts (and all the other tax receipts they get – which appears to be about $1.2 trillion this year according to the LA Times article.)  Yeah, I know I can vote (I do) and I can get involved in influencing my little corner of the universe (I try), but I don’t feel like I have any impact on how any of this money gets wasted spent.

A college friend mentioned the idea to me 20+ years ago that everyone should get a line item allocation when they paid their taxes.  His idea was that you’d essentially create your own spending plan for your taxes and the government would have to honor it. 

While I love the "vote my taxes" idea, Adams and Hamilton wouldn’t like this very much since it shifts a lot of power back to the individual. So, how about an intermediate step – a category allocation that the government has to publish in aggregate.  Everyone gets to allocate their taxes across 20 categories when they pay their taxes.  The IRS aggregates all this information anonymously and publishes the macro data.

Step one would be to get this information out there.  Let’s show our politicians how "the country" thinks about how our tax dollars are spent.  Guns?  Butter?  Or maybe education.

Happy day before tax day.

Today’s NY Times has a clearly written article describing what’s really going on with Auction Rate Securities titled It’s a Long, Cold, Cashless Siege.  There’s a lot of confusion going around about what ARS are and how they work so it’s nice to finally see "the simple stories" appearing.  If you are curious about how these things really work or if you are interested in another straightforward story, Fred Wilson has one of the best first person accounts up on his blog titled Our Run In With Auction Rates And What It Taught Me About Markets.

When the auctions first started failing a few months ago, a close friend mentioned to me that he had most of his liquid cash tied up in ARS.  For him, it was a good news / bad news story as he needed access to the cash, but was able to borrow against it at a much lower interest rate that his ARS reset to (in almost all cases, if the auctions fail, the interest rates get reset higher – sometimes much higher.)  So – while he’s now borrowing against his own money (er … ok) he’s at least making some points on the spread.

I hadn’t ever heard of ARS so I sent a note to the firm that manages my bond portfolio and asked "do we have any ARS."  It turns out that we only had one – a Denver International Airport bond that reset to an interest rate 150% higher than it was previously paying.  The amount of cash tied up didn’t impact me so I was / am perfectly happy to get the higher interest rate while the bond is illiquid.

A couple of days later I got a note from Silicon Valley Bank – where a number of our portfolio companies bank – announcing that they don’t have any auction rate security exposure with any of their clients.  It hadn’t occurred to me that our portfolio companies might have any of their money tied up with ARS since our default investment policy for portfolio companies is "keep your money in 100% liquid things like money market and treasuries."  So I sent out a note to a couple of banks to check.  Simultaneously, I heard from one of our companies (not one that I was on the board of) that they did have a bunch of their money in ARS’s.  This prompted me to dig in a little deeper, especially with that particular bank.

Since most of the companies I’m on the board of bank at either SVB or Square 1, my investigation was easy.  Square 1 – like SVB – has no ARS exposure so all of those companies were fine.  I had one company that banked at the same place that our other portfolio company did (which it turns out – had half of their cash tied up in an ARS – unbeknownst to them since the bank has provided it as part of the "as safe as cash" investment opportunities.)  A couple of days and several emails and a phone call later, I determined that (a) the company I was on the board of had no exposure, and (b) the bank was trying hard to convince people that there was no issue, yet they were doing it by dodging the direct question until you asked them verbally.

In the middle of all of this, a TechCrunch article came out titled 20% Of Valley Startups Can’t Get To Their Cash.  While this alarmed me at first, it didn’t tie with the results of my investigation into our portfolio.  Either my companies are all brilliant at cash management (unlikely), I’m incredibly lucky (possibly), or most of our companies bank with folks that didn’t get tangled up in ARSs (true – SVB and Square 1.)

My personal cash in the ARS is still in it (the auction hasn’t restarted) and I’m happily getting 150% of the interest payment I was getting before.  The bond doesn’t come due until 2010 (and I usually hold individual bonds through to maturity) so check back in a couple of years to see if this has worked its way through the system. 

Marc Andreesen has a scathing but brilliant post up today titled Congratulations, you’re paying Jimmy Cayne’s marijuana bills!  I love Marc’s analysis of what Bear Stearns would have been worth if the Federal Government hadn’t backstopped the deal with a $29 billion loan.

The US taxpayer is loaning Bear Stearns and JP Morgan Chase, Bear Stearns’ acquirer, $29 billion — just revised from $30 billion, simultaneous with JP Morgan Chase raising its acquisition price for Bear Stearns to $10/share from $2.

Without that $29 billion of taxpayer money, Jimmy Cayne’s stock would be worth $0/share, and if you multiply that by 5.66 million shares, the total would be $0.

The $29 billion taxpayer loan is almost certain to lose money as it is being used to backstop stinky assets on the Bear Stearns balance sheet — the same assets whose plummeting fall in value catalyzed Bear Stearns’ effective bankruptcy.

It is virtually certain that taxpayers are going to take some loss on that $29 billion loan.

When we do, we will have the immense satisfaction of knowing that the first $61.3 million of those losses represent a direct cash transfer from US taxpayers to Jimmy Cayne.

It will be interesting if Cayne comes to this same conclusion and gives the $61m back to the government after some of the $29 billion (say – the first $61m) gets vaporized.

This was so predictable.  As I mentioned in my post from a few weeks ago titled Can I Have Some More Crack Please?  I am not a macroeconomics guy.  I don’t watch the market nor do I watch TV news.  However, I do get WSJ.COM alerts (mostly for my own amusement to see what they think is worth emailing out alerts about.)

Here was today’s:

Feb. 5, 2008

The Dow Jones Industrial Average plunged by 370 points, or 2.9%, as investors’ anxiety about a possible recession flared following a bleak reading on the U.S. services sector and cautionary language about the economic outlook from a Federal Reserve official. It was the worst performance of the year so far for the blue-chip average in both point and percentage terms. Other major benchmarks also sold off dramatically. The S&P 500 Index plummeted by 3.2% and the Nasdaq Composite Index dropped 3.1%.

I guess the crack high has worn off and it’s time for another hit.  Rate cute anyone?

Great advice from Julie Alexandria on WallStrip to all the big thinkers in Davos who are Scornful of US Policies and worried about the impact of the fall of the "wounded giant."  To you, Julie says "Eh screw it.  Let’s dance."

I loved George Soros’ quote: "“The current crisis is not only the bust that follows the housing boom. It’s basically the end of a 60-year period of continuing credit expansion based on the dollar as the reserve currency.”  Is the US finally having it’s post-Edwardian England moment?

I’m not a macroeconomics guy – never have been, never will be.  I don’t watch CNBC, Bloomberg, CNN, or even Fox News.  When I was on the board of several public companies, I used to hit refresh on my My.Yahoo home page about 371 times a day – I no longer have a My.Yahoo home page (or any public company board seats – never again.)

I’ve learned that the day to day macro stuff doesn’t impact what I do.  It’s just noise.  And I have more than enough things that I chose to focus on, so I do my best to consciously filter out the noise.

Unfortunately, I made the mistake of listening to CNBC (or Bloomberg – how’s that – I’m not even sure which one it was) while I squeezed in a run on a treadmill before dinner tonight in Boston.  Here’s the great insight that I heard from an "interest rate expert economist dude."

"I was expecting the 0.75% rate cut next week at the FOMC meeting.  It’s great that the Fed stepped up and did the emergency rate cut today.  Now we need to see what next week brings.  I think the market has already priced in another 0.25% to 0.50% rate cut next week at the FOMC meeting."

So what’s he’s really saying is "thanks Mr. Fed – can you now give me some more crack next week when the crack you just gave me gets used up?"

My friend Ben Casnocha recently wrote a paper for school – he’s got an adapted version up on his website titled Analysis: H-1B Visa Issue in America.  He dug up a deliciously moronic quote and summary from a CRS Report for Congress titled Immigration Reform: Brief Synthesis of Issue. 

"Those opposing increases in temporary workers assert that there is no compelling evidence of labor shortages."  Norman Matloff of UC Davis, a forceful critic of H-1B expansion, says that U.S. companies do not import foreign workers to fill a labor shortage. If there were truly a shortage, starting salaries for grads with bachelor’s degrees in computer science or engineering would be rising (they are not), and technology companies wouldn’t hire only 2% of their job applicants as they wouldn’t have the luxury to be so picky.  And they don’t want more foreign workers in hopes of recruiting the best and brightest, according to Matloff. The average H-1B visa employee earns in the $65,000/yr range, far below what top talent commands. Rather, they want more foreign workers because they can pay them less to do the tasks currently done by domestic workers. (The law requiring employers to pay the "prevailing wage" is largely ignored in the industry.) In short, an increase in cheap H-1B talent would probably displace the American IT worker.

Aha – I’ve got it.  Let’s make sure we only hire American’s and keep everyone else out of the country.  And technology companies – stop being so damn picky with your hiring.  If you’d just hire people that weren’t as smart, you wouldn’t need non-Americans. 

Gross.

And – if you need more for your inner cynic, how about the article in today’s Rocky Mountain News titled Clouds hover in ethanol sky.  E85 (assuming you can find it) apparently costs 78% less than regular unleaded gas but gets 71% less per gallon.  Since it’s 85% ethanol, it presumably is less polluting (assuming that the total ethanol lifecycle consumes less energy than gasoline) but doesn’t save the consumer any short term money. 

My partner Seth Levine has a good post up titled 1980’s all over again with a link to a very interesting Merrill Lynch report titled 1980’s Redux.  I was in high school in Dallas, Texas for the first third of the 1980’s and then college in Cambridge, Massachusetts for the rest of it.  I started my first company in 1987 – on the heals of the Massachusetts Miracle and the beginning of the late 1980’s recession which was painful for Massachusetts, but I was too young and naive to notice.

In college in 1984, I remember arguing with my future business partner Dave Jilk about Texas real estate.  At the time people were minting money buying up land in Texas (especially Dallas – where I had come from) and the development activity was endless.  If you know anything about the Texas real estate crash (which was tightly linked to the S&L crisis) you know that I was wrong – very wrong – when I told Dave stupid things like “Dallas real estate will go up in value forever.”  Dave was a few years old than me and had the appropriate response – he just laughed at me and told me I was wrong.

Of course, the 1980’s, were followed by the 1990’s, which by 1992 were starting out on a rocking good economic time that didn’t end until the early 2000’s.  But – everything’s a cycle, and the real winners in a cycle understand how to play the first derivative of the curve.

Then again, I’m not a macro guy and have no clue about any of this stuff.  But I liked Seth’s 1980’s hair cut.

Atlas Shrugged is one of my favorite books of all time (right up there with Zen and the Art of Motorcycle Maintenance: An Inquiry Into Values.)  While I’m not a hard core mega-Objectivist, Atlas Shrugged and The Fountainhead both spoke loudly to me at critical points in my life and have had a hand in shaping the way I think about the world.

Atlas Shrugged just turned 50 and I expect there will be plenty of chatter about it.  There’s an update on the continued effort to make a movie about it and an excellent op-ed in the Wall Street Journal by Brian Doherty titled Rand and the Right.  It’s short, pointed, and ends strong:

“Why does she matter to modern politics? It’s not like she is around for conservatives to seek her endorsement. But it is worthwhile for political activists to remember that Ayn Rand was utterly uncompromising on how government needed to respect the inalienable right of Americans to live their own lives, and of American business to grow, thrive, innovate and improve our lives without niggling interference.

Her message of political freedom was enthusiastic, and optimistic, and immensely  popular. No major American political party has embraced her message in full. But millions of Americans have voted for her with their pocket books, and hundreds of thousands continue to do so every year.

On the 50th anniversary of her greatest novel, her advocacy of the still “unknown ideal” of truly free market capitalism is something that America, and the conservative movement, needs to reconsider.”

If you’ve either never read Atlas Shrugged or haven’t read it in a long time, you might give it a shot before the next election cycle gets into full swing.

My long time friend and first business partner Dave Jilk sent me an email with the quote of the week in it – “The Plural of Anecdote is Not Data.”  Perfect – brilliant.  After responding that it would find the light of day in a future blog post, he responded that he tracked the attribution down to a guy named Frank Kotsonis (a pharmacologist), apparently in The Clinical Evaluation of a Food Additive: Assessment of Aspartame of which Kotsonis was an editor.

A little time poking around on Google uncovered a much more complex attribution issue summarized in the post The Matthew Effect.  I didn’t end up with a definitive attribution, but I increased my affection for this quote.