Category Archives: “Economic Brownfield”

Infrastructure And The Economy

The Wall Street Journal had an article on July 17-18 titled “Roads to Ruin: Towns Rip Up the Pavement.”

The story highlights the practice of converting paved roads to gravel instead of repaving them in order to save money.

This is yet another example of our (national) inability to maintain our infrastructure.

I believe that the current state of our national infrastructure represents a “silent crisis.”  It is not one which receives a lot of press or attention, yet is very significant for a variety of reasons.

Apart from the obvious risks posed to citizens from decrepit, crumbling infrastructure there are other broader issues.   The longer one waits to fix the existing infrastructure, the higher the cost.  Needless to say, at this time there is not trillions of dollars available to make the needed repairs.  As such, one is led to wonder when such repairs will be made.  Even if the trillions of dollars needed were suddenly available, such repairs can’t be made in a short time period due to a variety of factors.

Of course, it is easy to let such repairs “slide”, since the costs are high and few currently seem concerned about the issue.

The state of the infrastructure can also be examined from an economic standpoint.  I view the deteriorating infrastructure as being both a symptom of as well as a contributor to the “economic brownfield” condition that I described in the article “America’s Economic Future – ‘Greenfield’ or ‘Brownfield’?”

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SPX at 1093.67 as this post is written

Economic Impact Of Policies

On May 18 The Wall Street Journal had an article on a new lead-paint law titled “New Lead-Paint Law Heavy on Budgets.”

This law serves as a good example of an important issue I wrote of in my May 2009 article “America’s Economic Future – ‘Greenfield’ or ‘Brownfield’?”

In that article I wrote of the need for policies to be thoroughly assessed with regard to overall economic impact, compared with whatever “societal good” the policy purports to accomplish.

A thorough discussion of the benefits and costs of this new lead-paint law would be exceedingly lengthy and complex.  However, I believe that this lead-paint law, if thoroughly analyzed from an “all things considered” standpoint – taking into account both “societal good” as well as economic impacts – would be found to be (far) suboptimal in many respects.  Of particular concern is that this is yet another law that disproportionately (negatively) impacts small businesses.

While one may dismiss this new law as one that is limited in nature and thus relatively insignificant, it is important to note that it is just one example among many in which inadequate overall analysis was conducted.   Cumulatively, these poorly analyzed policies are very significant in determining whether America’s economic future will be that of a “greenfield” or “brownfield.”

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SPX at 1064.88 as this post is written

Largest Employers

Crain’s recently came out with their list of the largest Chicago-area employers.  What I found notable was that the top 5 employers are various government entities (federal, state and local).

Of course, this situation is not unique to the Chicago area.  Many states have a large percentage of their total jobs as government jobs.

While many might be indifferent to this situation – assuming that a “job is a job” – from an overall economic standpoint it is troubling on various fronts.

One such front that deserves special attention is that which I discuss in the “America’s Economic Future: ‘Greenfield’ or ‘Brownfield’?” article.

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SPX at 1161.65 as this post is written

America’s Economic Future

As a follow-up to yesterday’s post, here is a passage from Larry Summers’ March 13, 2009 speech that speaks of the importance of economic strength in achieving broader societal goals:

“Our single most important priority is bringing about economic recovery and ensuring that the next economic expansion, unlike it’s predecessors, is fundamentally sound and not driven by financial excess.
This is essential. Without robust and sustained economic expansion, we will not achieve any other national goal. We will not be able to project strength globally or reduce poverty locally. We will not be able to expand access to higher education or affordable health care. We will not be able to raise incomes for middle class families or create opportunities for new small businesses to thrive.”


Our national goal to achieve a sustainable recovery (or what I frequently refer to as “Sustainable Prosperity”) has been and will continue to be a challenge, given various underlying fundamentals.

In order to achieve “Sustainable Prosperity” we will need to have a solid focus on planning our economic future and its dynamics.  Toward this end, I wrote an article in May of last year titled “America’s Economic Future – ‘Greenfield’ or ‘Brownfield’?” which can be found listed along the right-hand side of the home page.  That article, as well as others I have written, explores some of what I believe are pivotal issues that lack recognition with regard to our economic future.

All of my articles are also listed and summarized at this link:

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SPX at 1075.51 as this post is written

Tax Breaks And The Economic Greenfield vs. Economic Brownfield Concept

Here is a recent story from BusinessWeek, “Will Tax Breaks Boost Jobs?”

As seen in my article (with italics added for emphasis) “America’s Economic Future – ‘Greenfield’ or ‘Brownfield’ ?”

One way to determine whether an economic “greenfield” environment exists is whether businesses are thriving and multiplying naturally – with an indicator being that they are choosing and wanting to locate their operations and sales territories in a specific location without needing to be artificially induced to do so through various incentives or coercions. However, this indicator has to be viewed in the overall economic context, as there may be circumstances that can serve to override casual observations.”


One of the reasons I started this blog is because I felt that this economic ‘greenfield’ vs. ‘brownfield’  concept is not understood; yet has massive implications for our economic future.

As seen in the BusinessWeek article, that states and regions have to engage in bidding wars to attract and/or retain businesses (and jobs) is likely a “red flag.”  While it is easy to dismiss these “bidding wars” as “the way things are,” perhaps the critical question, in the larger context, becomes “Is this the way things should be?”

SPX at 953.18 as this post is written

The Global Economic Future

One of the questions I received when I first started this blog is why I didn’t choose to discuss the global economic future, as opposed to America’s Economic Future.

This is a good question.  In essence, I do believe its focus is on the global economic future, as not only is the United States (obviously) the largest economy, but its economy and its characteristics are so pivotal to those of the rest of the world.  Perhaps as importantly, the United States seems to have attained global leadership with regard to how to best “manage” an economy, as well as how to “fix” The Economic Crisis.  It is evident that many global economies, especially the more developed ones, have adopted (to varying degrees) the same philosophies and actions that the United States has as far as overcoming The Economic Crisis.

As such, I believe an economic discussion that focuses on the United States can in many ways be extended to other countries as well.  The main issues of this blog, such as Sustainable Prosperity, Economic Greenfield vs. Economic Brownfield, etc. are certainly pertinent and applicable to countries and regions worldwide.

SPX at 921.23 as this post is written

An Economic Brownfield Facet

I am posting a letter from Guy Haselmann, as I believe it is very well-written and illustrates how actions can promote an Economic Brownfield environment.   My comments will follow the letter:


To the Editor, May 6, 2009

The Obama administration is creating the next future crisis. Their handling of the Chrysler situation is irresponsible, injudicious, and will have monstrous ramifications. The President libelously scolded investment managers who owned Chrysler bonds for not taking the government’s “deal”. Some fund managers have even gotten death threats. Obama said the managers should “sacrifice like everyone else” and be “patriotic”. Personally, I find this outrageous. Let me explain.

A buyer of a corporate bond is really just a lender of money to the company, who in return for his money receives a “fair” interest rate from the company. Bonds are safer than stocks, and therefore lower yielding, because if the company runs into problems the bond holder gets paid back first. All investors understand that there is a clearly identifiable capital structure which dictates an investor’s priority position to getting paid back.

Anyone who lends money expects to be paid back. But, realizing there is the chance of default, a lender charges a certain interest rate that, in theory, compensates for the risk. In a corporate bankruptcy, there are often plenty of assets left that can be sold to pay back lenders (bond holders) in the order of their capital position, so while the common stock maybe worthless bondholders typically get some money back.

Investors, such as hedge fund and pension managers, bought Chrysler Bonds on behalf of their clients. Every investment manager has a fiduciary responsibility to protect and invest their client’s money to the best of their ability. The hedge fund manager did not accept the administration’s “deal”, plain and simply, because it was unfair, as they could have received much more in bankruptcy court.

Obama abused his power. He had no right to “steal” money from bondholders, and in turn, give it to the labor unions and then call the managers selfish. From what I have seen, hedge fund managers are typically some of the most philanthropic people in society. If you gave your money to a financial advisor, and rather than preserving your capital in a time of crisis, the advisor decided to “be patriotic” by giving it to a labor union, how would you feel? Would you be angry?

The Bush administration did something similar by stripping away the assets assigned to the senior secured bond holders of Washington Mutual, and then giving those assets to J.P. Morgan to help facilitate their takeover of the company. This horrendous decision served to exacerbate the financial turbulence last September. The decision turned the capital structure upside down, i.e., the common stock maintained value, while the senior most lenders were wiped-out. It resulted in a chaotic and broken financial market place.

Most market pundits blame the failure of Lehman brothers as the tipping point of market upheaval. I believe that the ignoring of Delaware corporate law and the decimation of the priority of the capital stack was the true catalyst which destroyed market liquidity, accelerated selling pressures, and made the rules of investing too unpredictable for rational investors.

The precedent being set by government will have unintended consequences and serve to change the behavior of bond investors going forward and ultimately cause a crisis of significant proportion. You see, trillions of dollars of corporate, municipal and sovereign debt will mature and need to be rolled-over (re-issued) in the next several years. By changing the rules of investing and instilling questions as to the true state of the hierarchy of the capital structure pay back, investors will forever price risks differently. Rather than demanding, say, a 6% yield for a corporate bond, an investor may now demand 16%. Such a re-pricing will make debt servicing prohibitively too expensive for many businesses to raise capital and consequently have a deep negative effect on the broader economy. Unfortunately, those most in need of funds will be unable obtain them.

The ultimate result of the Chrysler mess will mean bankruptcy for many smaller businesses, an economy that cannot grow as fast as desired, and a less efficient capital market and one which has wider spreads between borrowers of different credit quality. Any person or company without impeccable credit will now find it difficult to find a loan at a reasonable rate. And tragically, if foreign investors start to question the depth and safety of our capital markets, September 2008 will look like a mere hiccup.

Guy Haselmann, CAIA

Principal, Gregoire Capital LLC


My comments:

This letter illustrates how actions and policy decisions can create an Economic Brownfield.  Our economy has been dependent upon cheap and plentiful credit for years; and with the onset of The Financial Crisis, this need has only grown more acute.  Actions (both already taken as well as contemplated) that restrict credit and/or make it more expensive will make an environment that makes it harder for businesses to exist and prosper.

During times of stress, like those presently encountered, it is easier to lose track of the “bigger picture,” i.e. what type of environment (Economic Greenfield v. Economic Brownfield) is being promoted by various decisions.


As background on the Economic Greenfield v Economic Brownfield topic, here is my article “America’s Economic Future – ‘Greenfield’ or ‘Brownfield’?”

SPX at 944.96 as this post is written

In Ben We Trust?

I will comment frequently on Ben Bernanke, due to his position, but perhaps more importantly, because of his stated theories, beliefs, and ideologies.  It seems to me that the handling of The Financial Crisis certainly has the “fingerprints” of Ben Bernanke all over it.  In fact, I believe that perhaps no other person’s ideologies have ever played such an outsized role in the U.S. economy (and various other global economies) than those of Ben Bernanke.  In my opinion, the U.S. economy (and many financial markets) since The Financial Crisis, can be viewed as an ideologically-levered extension of Ben Bernanke’s beliefs and understandings.

Is this a good thing?  It gets back to two central themes of this blog; are we heading toward Sustainable Prosperity? And will America’s Economic Future be one of an Economic Greenfield or Economic Brownfield?

As for me, I will let my writings speak for themselves with regard to our handling of The Financial Crisis.   As one can guess, I do respect his background, and believe that he has an exceedingly difficult position; but I don’t necessarily concur with many of his theories, interpretations, or actions.

SPX at 939.35 as this post is written

Perverse Effects

I saw this story in The Wall Street Journal a few days ago, titled “The New Resume: Dumb and Dumber”

It says a lot about our current economic climate when people feel compelled to understate their credentials in order to appear more attractive for available positions.

While it is unknown as to how widespread this type of behavior is, it is nonetheless significant and telling.  We do know for a fact that there is a significant problem with “underemployment” in this country – and by “underemployment” I am speaking of the generalized concept, not how the government officially classifies, and measures, it.

Without writing a long paper on this subject, I will summarize by saying that in the “larger scheme of things”, this type of seemingly perverse behavior of understating credentials hints of an “economic brownfield” environment.

For those unaware of the “economic brownfield” concept, here is my article on the subject:

SPX at 939.5 as this is written