Howzit Howard

Is the governor trying to help or hurt rail?

Governor Lingle, whose signature is required before the environmental impact statement on Honolulu rail, says her review of the matter will be "thorough." I do not automatically assume this means she's decided to throw a monkey wrench into the matter. Given her experience with Hawaii Superferry, in which opponents successfully persuaded a judge that corners were cut in the environmental review process, the governor could actually be moving to protect the city from making the same mistake. City officials are worried that this is not the case for two reasons. First, Lingle is raising issues that state agencies could have raised when they offered comments during the EIS process but didn't. Second, Lingle is raising financial issues not related to the EIS. Financial issues would, of course, be very much on the governor's mind. She's got a devil of a financial crisis, not of her making or the legislature's, and she's been having trouble getting some people to realize the money simply isn't there for valued state services. Rail is different, though, a long-term project whose financial requirements will mostly come outside this economic slump, even if the recovery is as slow as predicted. It also will create local jobs and local spending that could hasten recovery. Writing in the Honolulu Advertiser over the weekend, Sean Hao reported that "more than half a dozen state agencies submitted comments and concerns" during last spring's environmental study without raising the concerns the governor mentions now. But the most interesting part of the article was, for me, the very last sentence, a quote from state transportation director Brennon Morioka, who said, "the more credibility the document has, the better chance it has in standing up in a court of law." It's a good point. A careful reading of it by the governor, especially if it doesn't take too long, could be a good thing. But by this point I think we all realize that nothing, including a careful gubernatorial review, will prevent further court challenges. The people who oppose rail have made it manifest through their actions and words that this battle will never be over. If something has not been reviewed, they will complain that it has not been reviewed. But if it has been reviewed, they will complain that it has not been adequately reviewed. The most frequently heard complaint of late, that the city did not adequately consider other ways to build rail, is baseless. The city plainly did. The complainers just don't agree with the results.

Every citizen ' s duty: understand the crisis

Hawaii state tax revenues are now down almost a third from what they were in the good times that came before this recession. Did you know that? I'm running into a lot of people who have strong opinions about the players in this crisis but don't know that. It seems to be easier to blame the crisis on someone's incompetence, venality or some other evil trait, than to actually read up on the crisis and try to understand it. If this persists as the shallow view of the emergency on the part of a majority of the electorate, it will almost certainly lead to solutions that aren't the best. The best behavior, I suspect, would be to avoid attacking the players - the legislature, the governor, the unions, the employees, the business community - and focus on the math. Because people who don't bother to understand the math are coming with "solutions" that are nothing of the sort, there being insufficient funds for them. Perhaps it would be helpful to again try to dispel some myths about bad behavior by the key figures in the crisis:

• Governor Lingle began cutting spending on her own a year and a half ago, and took a voluntary pay cut at the beginning of 2009. I still get email from people wondering why the governor's pay isn't cut. It was.
• The legislature, after getting an official estimate from the Council on Revenues on how much tax revenue to expect in the current fiscal year, passed a smaller budget than that amount. Revenues then fell even more. The legislature actually tried to be frugal.
• Union leaders have demanded more for their members than there is money to pay for, but it is their job to pursue the best deal for their members, not to roll over and play dead.
• The business community, currently opposing any tax increases, has tried to minimize layoffs, with many operating at a loss until better times. But many have gone out of business altogether in this crisis.

The economy will start to improve minimally in 2010, most economists think, but county governments, whose property tax revenues lag actual recession by a year due to the reassessment process, will have the sort of crisis in 2010 that the state government is having now. This isn't over. One of the newspapers had a headline that said "Teachers want..." in reporting the teacher's union demand that the state not simply wipe out in-service days to cover Furlough Fridays. One union official said he was waiting to see if the state government was committed to education. The grammar of the headline, and of the union leader's comment, require comment. A demand by the teacher's union does not automatically mean a demand by teachers. Union negotiations always start with demands for more than will finally be agreed to. What teachers want and what their representatives initially ask for should not automatically be considered synonymous. Second, a commitment to education does not automatically equal more money for teachers. To argue otherwise is another form of Napoleon's "L'etat, c'est moi" or the old "What's good for General Motors is good for the USA." This is always the case, but especially in a fiscal crisis where there simply is not enough money. Any teacher who thinks this crisis can be resolved without some pain is not a good student of the crisis. No one benefits from this emergency. Government workers can take no comfort at all except from the fact that in many parts of the private sector it is worse.

The truth about Black Friday

There are bargains galore on Black Friday, if your idea of "galore" is "last year's models." In good times and bad, the widespread practice of retailers is to put a premium price tag on the newest merchandise and slash prices on last year's fashions and gizmo models that are about to be discontinued. Black Friday, so called because of the usually mistaken view that it is the day on which a store's accounts swing from the red to the black, is basically a clearance sale. You can see the new stuff. You can buy the new stuff. If you think there will be short supplies and fights for the last ones, you may want to buy the new stuff. But if you go to the store Friday expecting real deals, it will be the older merchandise that is priced to move. There will always be exceptions, and a smart store will do some very high profile exceptions, but this is the general lay of the land. How much of an opportunity Black Friday is, depends on your financial constraints, and on how fashion-conscious are the people for whom you're shopping. For example, are you buying last year's video game for a child whose classmates will recognize it as such and send him home telling you that you bought something old? But if you see no problem in buying last year's car when it's price is reduced to make way for this year's car, then there are flat screens and laptops with your name on them. If you're more concerned about crowds than cash, be advised that most big box retailers already put their deals online at 7 p.m. Wednesday, HST. The single biggest price war this season will be Amazon versus Wal-Mart. Want a simple way to see which high-end stores won't have any deals to speak of? The ones that don't want to encourage bargain-hunting are the ones that open at 8 a.m. when the big boxes are opening before dawn. Are you a procrastinator? The single most important difference this year, from your perspective, is that retail chains this year have been forced to be more frugal in ordering merchandise, so the risk is greater than usual that they will run out of something altogether before you rouse yourself to go get it.

You engage in some reflection when you ' re aged to perfection

A few years after graduating from high school I returned there and was surprised to find that girls of the same age I had dated now looked like children, and the only ones I was attracted to were teachers. This was an "am I really this old" moment, possibly my first. Many men have another one when they find themselves attracted to someone much younger and suddenly realize that if the other person knew, she would be appalled. This is the real reason older men have better manners. They don't want to see horror on someone else's face! Certain milestones make us think about how far we've come, which often is just another way of saying, how much we've aged. Apart from the obvious ones like birthdays, we may take stock when we see our one-year-older relatives at Thanksgiving. Career milestones do it, too. Stacy Loe is retiring from television just shy of her 20th anniversary in the profession so she can spend more time with her young son Cole. Given this and her recent on-air visit to her old high school, she may be feeling older, though she can still pass for twentysomething. Paul Udell told Stacy of his own "am I really this old" moment, a visit to New York on which someone offered her seat on the subway. It was Stacy's retelling of his story that made me decide to write this, because there is a positive side to such aging moments, something to be thankful for on Thanksgiving, and Udell is a good example of it. Udell has been retired for years but he could slip into the anchor's chair tomorrow and be better than any of us. He's got personality and wit he hasn't used yet. Who cares what his age is? (I don't know what his age is.) And he's not the only one. Lyle Galdeira was one of the smoothest anchors I ever watched and working outside television has only partially grayed him! And Dan Cooke came back from his own hiatus better than ever. The good news is that if you keep your bad health habits down to a few, see a doctor when you're sick, and brush your teeth enough to keep them in your head, you can feel as good in your middle ages as you did in your youth. This is no small thing. It is one of the most important unique features of modern times compared to times past. In Roman times, 40 years was considered a reasonably good life, and 60 years a long one, and I'm not just talking about emperors. By the 1700s, people could live in their eighties - Haydn did - but dying before middle age was still exceedingly common. As recently as the early 1900s, a part of almost everyone's childhood was losing a brother or sister to illness, and the only reason more people didn't die of cancer was that they died of something else first. If you lived into middle age it was probably without your teeth, and every large household had someone who was partially crippled or hobbled by something. And me? At 56 I feel stronger than I did at 16, despite have grown heavy and gray. Even the illness that put me in the hospital early this year has not changed that. It's true that I never smoked, but the awful bachelor's diet of my youth has only slightly improved in recent years, and that mostly because of the happy accident of moving to a place where the fish and vegetables are good. The reason those "am I really this old" moments are so striking is precisely because we do not feel our age. This is a good thing. It may be an economic bad thing that some older people have to keep working, but I prefer to look forward to the very real possibility that I can work for decades more if I want to.

The role of bankruptcy and foreclosure in setting up an economic rebound

One of the scariest things about becoming an adult is finding out how little the financial world has to do with math. But one particular aspect of our economic crisis that we all tend to view in human terms is being driven almost entirely by arithmetic. It has to do with foreclosure as an investment opportunity. Usually I harp on the first point: how psychology drives markets more than price, and thus is affected by subjective and sometimes even irrational factors like how many unemployed people you know or how much CNBC you watch. But the one part of the crisis where we do see the human factor, bankruptcies and foreclosures, has a vital mathematical component that bears watching. To understand this, you need only to understand one key fact about home foreclosures and one key fact about corporate bankruptcies. Foreclosures put homes into the hands of lenders who (1) aren't in the business of actually buying and selling homes, so they want to get them off their balance sheets as soon as possible, and (2) can afford to sell for less because they already made some money from the payments the borrower made before he began to fall behind. So a home sold at foreclosure typically sells for a third less than the regular market price. Bankruptcies put companies into the hands of bankruptcy judges, who try when possible to save the enterprise, and its jobs, and its products or services, by wiping out old debt and giving the enterprise a fresh start. The typical mechanism for this is to pay off the company's lenders with new stock, in place of money it hasn't got. The lenders, who (1) aren't in the business of owning companies and (2) can deduct their losses, either sell the stock, or, more often, move even faster, selling their IOUs to someone who actually does want that stock. We've seen investors buying homes are foreclosure, intending to flip them when the market improves. And just this month we've seen a good example of an investment firm buying debt in order to have future stock in a company that will emerge from bankruptcy. Cerberus Capital is moving to be a major shareholder in Hawaiian Telcom, paying millions for some of its debt. Investors shopping for deals like this - homes at one third off, cheap stock in a bankrupt company that may have future promise - are putting their money into this instead of something else. With bargains like this, why pay full price for a different investment? Investment capital we need for recovery won't be available until these bargains are exhausted. When Hospitality Advisors held its annual hotel industry briefing Friday at the Halekulani, the mainland speakers addressed this topic, suggesting that Hawaii loan defaults, like those on the mainland, are understated and will have to move through the pipeline before real economic growth can resume. We think of foreclosures and bankruptcies in human terms - we hope for a way to save the house, to save the company and the jobs it supports. And we should. But when it can't be prevented, it's better for this stuff to happen as a fast as possible, to get us to the point where these bargains are gone and investors stop thinking like vultures and begin looking for investments that grow the economy.

Will Wall Street mess us up again? At this point, bank on it

Congress is still struggling with the problem of what to do to try to prevent another financial market meltdown like we had last summer. It is hampered by members' lack of understanding of the underlying issues and strenuous efforts by banking lobbyists to get the least possible change. Although most Hawaii banks are prudent, and thus in good financial shape, the leaders of thousands of banks still don't get it. They still think the crisis just happened, but was not their fault, and they're still eager for quick profits even under the same conditions that produced the meltdown. This is what you, and Congress, and bankers themselves, need to understand about the situation. Don't worry, you'll be able to follow it, because I won't need a single number to outline it. Ready? Here we go. Financial institutions today see loans and more exotic financial instruments as products to be marketed and sold, with sales people compensated with bonuses tied to sales. They are human. They do what it takes to maximize their bonuses. CEOs of these institutions, who are compensated with bonuses tied to profits and stock prices, accept these sales, persuading themselves that the risk is acceptable. They are human. Nothing will change this except rules that change the behavior. And no rules will change the behavior except rules that reduce the profit motive. Regulating specific financial instruments won't work because financial institutions will then invent new financial instruments that circumvent the rules. Congress is trying very hard to control this - the Senate draft of regulatory legislation runs to more than 1,000 pages - but it won't work because banks know banking better than Congress does. So what do they do? The whole of the banking business is based on margin. Banks lend out money that you deposit and make a profit on it while you're not using it. They are required to keep a certain percentage of money on hand, for people who need their own money and ask for it, but it is not 100%. It is not 50%. It is not even 20%. The solution to this crisis is to raise the margin requirements for exotic financial instruments, and apply this to anyone who sells them whether they are an actual bank or not. That's it. Nothing less than this will reduce risk for real, and nothing more is necessary. Financial institutions will make less profit if they have t0 keep more money sitting around. But if all of them have to do it, they won't have to explain to shareholders why they're being more prudent than a competitor and thus reducing dividends. I think other countries can be persuaded to go this route because it doesn't actually tell financial institutions what they can or can't do. It doesn't prevent invention of new financial instruments. It simply imposes a uniform rule that reduces risk. Tell me where I'm wrong. If we don't do this, we will one day have another financial meltdown. Even the current one can rekindle. We have more than 8,000 banks in America of which a tenth have enough non-performing loans to be in danger of failing,, and more than 100 have failed in the past year or so.

 

 

The lesson of the police chief ' s selection

The process by which Louis Kealoha was selected to be Honolulu police chief makes me rethink my view about "the appearance of impropriety" versus actual impropriety. To explain, let's start with a common situation involving motorists and traffic cops. When you're ticketed for running a red light, you might challenge it by telling a judge that the light was still amber as you crossed under it. Absent a traffic cam, it's your word versus the officer's. But in many places it's illegal to cross an intersection when the light is yellow. The idea is not to cite people for running a yellow light, but to remove the opportunity for argument when you run a red light. Someone wants to simplify the system and eliminate a lot of fuss. Similarly, in many states it is illegal to cut across a parking lot to evade a red light. I've never been a fan of slamming someone for "the appearance of impropriety" because, in my years in Washington, I saw appearances used to slam people who hadn't actually done anything improper. For years I've said we should worry less about the appearance of impropriety and more about impropriety. The Honolulu Police Commission acted questionably, even suspiciously, though not necessarily improperly, by altering its procedure for choosing a new chief in the middle of choosing one. At the point in the process where it customarily weeds out candidates to focus on the four highest-scoring candidates, the commission chose instead to consider the six highest, a change which incidentally put the only female candidate into the finals. Christine Camp, the businesswoman who chairs the commission, has since said it was her idea. She told the City Council she thought more choices would be better. Trouble arose as soon as it was heard that the process had been altered while it was still going on. Suspicion arose that commission members were gaming the system to influence the outcome. The most widespread speculation was that La Camp was manipulating the process in favor of the female candidate. Camp says choosing a woman on anything other than merit would fly in the face of everything she believes. Having interviewed her a few times over the years, I find that credible. In the event, the commission chose Kealoha, who was one of the top four. One could suggest that this settles everything, proving nothing improper was intended, but I've already heard two people speculate that the commission dropped a plan to choose the female candidate when the flap arose. Let's sort out what we know for sure, as opposed to what we may think we know. We don't know if the change in procedure was back-engineered to facilitate an outcome. We don't know if someone had an ulterior motive. So what do we know? We know for sure that government processes have been gamed in the past. People are suspicious in new situations because of what is known to have happened in past situations. And we know this is not Christine Camp's fault. She didn't cut corners on Superferry, for example. But we also know that it is human nature to be suspicious of anything government does. I can let a glib dismissal by Camp pass if she's simply embarrassed by the flap and hopes it will blow over, which it well may. But neither she nor any of us should miss the lesson here, which is that any change of procedure when a procedure is already underway will inevitably be interpreted in the most negative light by those outside the process, and a reasonable view of these things compels a personal policy of leaving a process alone to avoid loss of faith in the process. Fix it before next time, if you want, sure, but don't change it in mid-stream. The hassle of public suspicion and doubt is a bigger problem than any failing of the original pocedure was. Why do something whose principal effect is to make people think you cut across a parking lot to dodge a light?

The two eager American suitors of Japan Airlines

Delta Air Lines said Wednesday it would offer $1 billion to Japan Airlines if JAL will quit American Airlines' OneWorld alliance and join Delta's SkyTeam alliance instead. American immediately said it would offer that much for JAL not to quit OneWorld. What's so valuable about being in an alliance with an airline that is seeking its fourth bailout in eight years from the Japanese government? Why would anyone hand $1 billion to a company that runs an annual defifit of twice that much?  Japan has the world's largest economy after America itself. It has half the population of America on land the size of California. Japan is, economically speaking, bigger than it looks. And JAL is the largest Japanese airline, twice the size of its nearest competitor All-Nippon Airways. Codesharing alliances like OneWorld and SkyTeam are not mere clubs. Member airlines funnel traffic to each other, and share revenue from transfers. DAL and AMR are offering $1 billion to JAL in hopes of making a lot more than that in revenue from being allies in the future. It's probably worth mentioning, furtively, that Delta might also be feigning interest in an alliance shift that it doesn't expect to achieve, in order to drive up the cost of its arch-rival American keeping JAL in the codeshare fold. After all, Delta these days includes Northwest, which has always had the most extensive of flights to and from Japan; it is the busiest non-Japanese airline at Narita, and after United Airlines it has always been the busiest U.S. carrier through Asia. It has a cargo hub in Anchorage that handles loads of Japanese air cargo bound for the contiguous 48 states. I've mentioned that JAL's financial problems could affect Hawaii connections, even though JAL executives have personally assured local tourism executives that they won't. The explanation is that the Japanese government, in return for the next bailout, is making noises about demanding the replacement of the executives making these assurances. If that happens, Hawaii will depend on its ability to make money for the airline, and on the airline's ability to accept a few empty seats until better times. So far it appears that the outcome of all this will be as follows:

1. American will keep JAL in the OneWorld alliance, pumping cash into JAL in return.
2. JAL will get a fourth bailout from the government in Tokyo.
3. New executives will agree with the current ones that Hawaii is a moneymaker.

But you need to know that it's not certain yet, and that other outcomes could occur.

How the economic slump affects coffee sales

Hawaii grows more than 8 million pounds of coffee a year. Thousands of acres are planted with coffee trees, ranging from brand new to more than a century old. How are Hawaiian coffee sales affected by the economic downturn of the past year? In any situation where people try to conserve their financial resources, there will be some price points that suffer because people switch to buying something less expensive. If you sell the less expensive choice your sales could actually improve. I recently mentioned a possible example of this in which a clerk at a Bose store speculated that people were buying top-of-the-line Bose speakers, radios, headphones, and so forth as a less costly alternative to going on a cruise. It later occurred to me that my father did this in my childhood. Under pressure from Mother and us six kids to quit smoking, he finally told us all he would quit on his vacation. That June he took three weeks off, quit a heavy smoking habit cold turkey on the first try, and spent much of the vacation napping on the couch. Because we weren't spending money traveling somewhere, Dad was able to buy a trunkload of backyard toys to keep us occupied, including a badminton set and a croquet set which both gave us pleasure for years. Jim Wayman, president of Hawaii Coffee Co., the firm behind the Lion and Royal Kona coffee brands, has described something similar from his own business in the current downturn. Some people who used to buy two $5 lattes a day, deciding $50 is too much to spend per week on coffee in a recession, have begun spending $20 a week buying his 100% Kona coffee in bags at the grocery store. "They saving money," he said, "and upgrading to the best coffee in the world." This isn't helping everybody, though, because there are other households that formerly bought pure Kona on a regular basis and now they've stopped for economic reasons. Overall Kona coffee demand is down, and with it the price. Other Hawaiian coffees, which are premium-priced but always less than Kona, have also seem demand slacken off, ameliorated in some cases by households that economize by switching from Kona to non-Kona Hawaiian coffees that may not taste as good as Kona but still taste better than commodity coffee does. The overall trend is still for leaner times. This year's Kona coffee crop is one of the smaller ones, both in total volume and average bean size, but Kealakekua coffee grower Tom Greenwell, whose family has farmed or ranched in South Kona District since the 1800s, says this year's harvest tastes really good. All farming is trickier than it looks but coffee is an especially complex business because the consumer is particular about flavor and there are countless ways the product can go wrong. Coffee growers, for example, argue about the comparative merits of sun-drying versus putting the beans in commercial dryers. Machine drying is faster and less labor-intensive, but some Japanese and European buyers like to advertise sun-dried products, and some processors feel that partial sun-drying produces beans that won't stick to the inside of the drum once they're put in the commercial dryers. The coffee tree is a fruit tree. It flowers in the spring. Sometimes the timing of rain can trigger multiple flowerings on a single tree. It gets tired after a few years but comes back to life if you pare it way back. It's sensitive to sunlight and likes shade. It needs rain, but not too much and not too little and not at the wrong times. The fruit of a coffee tree is called cherry, but unlike real cherry, where you eat the outside and throw away the pit, with coffee you throw away the outside and roast the pit and brew a beverage from it. A little stress doesn't bother a coffee tree and indeed causes it to divert nutrition into the fruit. The Kona coffee harvest begins in September and runs through March. But the outlying months are not a big part of the harvest. February and March put together can account for less than 3% of the total crop. The heaviest part of the harvest tends to be in October and November, and most years half the crop has been harvested by now. This year the bell curve has been even more extreme. Roger Kaiwi, general manager of Captain Cook Coffee Co., says 35% of the likely crop this season was harvested in a period of two weeks in early to mid-October. Some Kona processing plants were running 24/7 in that period and still couldn't handle it all. He estimates that almost 90% of the likely harvest has already come in as I write this Tuesday night. For so much of the crop to happen in so short a time means special financial as well as logistical challenges. Wayman's company had to come up with more cash in less time than usual to acquire the product he needed. Growers are finding that some of their buyers are slow pays in this economy. On the other hand, it was easier to find harvest labor because (1) some laborers couldn't find work in California and came here to pick, and (2) some local construction workers couldn't find their usual work and did this instead.

Most emphatically not just an empty tux

Maurice Ravel won the Paris Conservatory's Prix de Rome only after years of losing to more conservative composers. When the judges finally deigned to give it to him, he turned them down. But Ravel's own music wasn't that progressive, and Erik Satie famously cracked, "While Ravel rejects the Prix de Rome, all his music accepts it." The Hawaiian musician Willie K bought a tuxedo for his performance with the Hawaii Youth Symphony on Sunday evening, and made self-deprecating jokes all evening about it. But while his remarks suggested he was just a local boy who's out of place in a penguin suit, his performance showed that he may be one of the greatest musical polymaths of our time. Willie wowed the crowd at last year's annual fundraiser concert by performing "O Solo Mio" and scatting, a tricky jazz vocal technique, which he learned in his youth after hearing an impressive scat by Ella Fitzgerald. I knew he was coming back at the Youth Symphony gala this year but I didn't know what he could do that would be more amazing than that. This is what he did. He sang opera arias in the style of Pavarotti, and produced the same piercing tenor for which Italy's greatest schoolteacher-turned-opera singer was famous. He sang "Unforgettable" with Pauline Wilson and sounded like Nat King Cole. Can two voices sound more different than Pavarotti and Cole? Then, in "Danny Boy," he produced an Irish tenor that was a discrete third kind of voice. I might add that "Danny Boy" was arranged for the orchestra by Neil McKay based on a tape Willie K made on ukulele to show what his ideas were for the song, and the result was the first truly fresh arrangement of the much-performed song in many years. At this point I don't think it would surprise me if Willie K showed up one year having composed an opera. Willie K and Lehua Heine also performed together, singing "Vivo per lei" in a McKay arrangement, and I mustn't forget some excellent performances by the Hawaii Youth Symphony I itself, including Shostakovich's "Gadfly" suite.  This orchestra is almost twice as large as most symphonies and the sound they put out is awesome. Willie K epitomizes a truth about most musicians in Hawaii - whatever kind of music they're best known for, they like to "stretch" -  a favorite word of HYS Maestro Henry Miyamura - and explore other musical genres. And any musician will tell you that this kind of exploration and busting out is good for all musics. Willie K gets it, and he's happy to support the Hawaii Youth Symphony whether you think he listens to Shostakovich CDs or not. At a time when the Honolulu Symphony is struggling to figure out how it can survive, it is good for all of us to remember that our children need exposure to Hawaiian music, classical music, jazz, and every other kind of music.