DM&E Financing revisited.

[Anonymous]

.

Congrats AG, you've just been nominated for membership in the Fratricidal Order of the Ilks!

Hey  that's quite an honor, coming from you especially.

[Anonymous]

The costs of entry are extraordinarily high for a railroad. Government assistance -- extraordinary government assistance in the form of free land,

You and Milton Friedman were not the best of friends I take it?
The  land wasn't "free",  it was stolen from the Native Americans

[Anonymous]

FM-

I'm not against DME moving into the PRB. I'm against your terminology, which is backwards. BNSF is being pro-capitalist, because they want to maximize profits. DME is being anti-capitalist, (socialist), if they use Government money to lower BNSF's and UP's profits.

     To the extent that DM&E is not going to produce any *new wealth*.  They are going to use a big government loan to *redistibute the wealth*.

Is anything getting through?

Didn't BNSF and UP also use "big government" to also "redistribute the wealth"?

None of you has yet explained or justified the apparent hypocrasy of your positions, which seems to boil down to this synopsis.....

The federal aid for BNSF and UP over the years is akin to true pro-capitalism, free market, hot dogs, apple pie, God Bless the USA, etc.....

...But....

The federal aid for DM&E is conversely akin to anti-capitalism, communism, command market, redistribution of wealth, Death to America The Great Satan, etc......

Rather ironic, wouldn't  you say, especially given BNSF's special service over the last decade to the heirs of Chairman Mao?

[Anonymous]

idiotic nonsense

....and we see that when the NIMBY's run out of substance, they turn to these cheap tricks.

Congrats AG, you've just been nominated for membership in the Fratricidal Order of the Ilks!

[Anonymous]

Since we've already established that the current PRB denizens used Taxpayer money to build their version of the PRB rail kingdom (from which they are extracting some hefty profits),

     I'm not sure that I agree with you on this point.  You say that UP and BNSF used taxpayer money to get into the PRB?  Give me some more details on that please.  Did I miss their $2.5B loans?

This was posted a while back in this thread, but here it is again.....

http://www.gotrac.org/index.cfm?page=267

"In fact, parts of the Burlington Northern Santa Fe (BNSF) and Union Pacific (UP) coal hauling lines were built with FRA loans like the one that DM&E has applied for. In today’s dollars, the FRA loan for the UP line alone was $1.5 billion."

So yes, they used Taxpayer money to get into PRB.  No, not $2.5 billion.

Hey, costs of construction is a lot more today (greater than the general rate of inflation)than back in the 70's!  You know, because of the greater NIMBY factor today than back then.

Did I mention that BNSF is the NIMBY in this case?

[Anonymous]

The existing Western lines all got their starts through extraordinary government benevolence (unprecedented before or since), couldn't be economically justified at the time, shafted their private investors through corruption and bankruptcy, kept entirely their government largesse, and they dominate the railroad scene today -- having put their privately financed rivals out of business or absorbed them. Coincidence?

Who is complaining about DM&E?

     And that would be a case for approving the DM&E loan?  In my opinion, that's a little "out there".  With that kind of logic, you could justify having a 3rd party rob a bank and give you the money, becaus I had robbed the bank?

     You and Dave both seem to be saying that we need to give DM&E the loan simply to *get back* at BNSF and UP for all the *wrong* they've done.  It's sort of like saying a vote for DM&E is a vote against BNSF.  I'd rather see DM&E succeed on it's own merit.

Sometimes I wonder just where and how you end up with your particular POV on these issues.  Correcting injustice is not *getting back* at someone.  And the *wrong* such as it is was committed by the regulators in allowing the creation of this subsidized duopoly known as UP and BNSF.

Why is it *wrong* to right a wrong?

[Anonymous]

 

What?  Is Matt Rose from Wyoming?

Then I remembered - After Matt Rose's tenure at BNSF is done, he'll probably be working  in Washington D.C.......

 

FM-

Would you agree BNSF's shareholders are paying Mr Rose to run their railway as profitably as possible, and he has been doing a good job of that ? Shouldn't it be the system you don't like, not the people that implement it ?

I would say BNSF's shareholders are, like shareholders of most US corporations, mostly ignorant of the intrinsicallities of operating the business, and thus defer to managerial insiders.  I'm sure the Enron shareholders felt the same way, until the inevitable finally occured.  Don't BNSF shareholders read the news like everyone else?

It could be that most of the non-Pacific Rim BNSF shareholders are short-timers, e.g. maximizing the short term gain, then getting out before BNSF's actions result in re-regulation or worse.

The fact that BNSF has now injected itself into public policy debate on the NIMBY side of things shows me a company that is sweating the fact that it's government sanctioned fiefdom may be coming to an end.

[MichaelSol]

The existing Western lines all got their starts through extraordinary government benevolence (unprecedented before or since), couldn't be economically justified at the time, shafted their private investors through corruption and bankruptcy, kept entirely their government largesse, and they dominate the railroad scene today -- having put their privately financed rivals out of business or absorbed them. Coincidence?

Who is complaining about DM&E?

     And that would be a case for approving the DM&E loan?  In my opinion, that's a little "out there".  With that kind of logic, you could justify having a 3rd party rob a bank and give you the money, becaus I had robbed the bank?

No, what I am suggesting is that in that instance the bank robber "you" [a generic term] should be the last person criticizing someone else for robbing a bank.

The point being that if the government is going to sanction bank robbery, it needs to be consistent and not discriminate in favor of a privileged class of railroads, er, bank robbers.

     You and Dave both seem to be saying that we need to give DM&E the loan simply to *get back* at BNSF and UP for all the *wrong* they've done.  It's sort of like saying a vote for DM&E is a vote against BNSF.  I'd rather see DM&E succeed on it's own merit.

The costs of entry are extraordinarily high for a railroad. Government assistance -- extraordinary government assistance in the form of free land, as well as loans and interest guarantees -- made the surviving railroads possible in the first place, and upset for all time the notion that the privately financed railroads might survive. The playing field was altered permanently by those government gifts.

Continuing a policy of assisting railroad startups is mitigation for the prior policy that inadvertently created a duopoly, with all its attendant impacts.

I don't like the idea in principle, but the principle was already corrupted by the government land grants that made possible the surviving Western railroads.

 

[Anonymous]

The DME loan shold be approved because it grows America's economy, creates jobs, and benefits American consumers. For the same reason, the CREATE plan should go ahead as well.

 

How many newly created jobs are actually certain?

[nanaimo73]

The existing Western lines all got their starts through extraordinary government benevolence (unprecedented before or since), couldn't be economically justified at the time, shafted their private investors through corruption and bankruptcy, kept entirely their government largesse, and they dominate the railroad scene today -- having put their privately financed rivals out of business or absorbed them. Coincidence?

Who is complaining about DM&E?

     And that would be a case for approving the DM&E loan?  In my opinion, that's a little "out there".  With that kind of logic, you could justify having a 3rd party rob a bank and give you the money, becaus I had robbed the bank?

     You and Dave both seem to be saying that we need to give DM&E the loan simply to *get back* at BNSF and UP for all the *wrong* they've done.  It's sort of like saying a vote for DM&E is a vote against BNSF.  I'd rather see DM&E succeed on it's own merit.

The DME loan shold be approved because it grows America's economy, creates jobs, and benefits American consumers. For the same reason, the CREATE plan should go ahead as well.

 

[Murphy Siding]

The existing Western lines all got their starts through extraordinary government benevolence (unprecedented before or since), couldn't be economically justified at the time, shafted their private investors through corruption and bankruptcy, kept entirely their government largesse, and they dominate the railroad scene today -- having put their privately financed rivals out of business or absorbed them. Coincidence?

Who is complaining about DM&E?

     And that would be a case for approving the DM&E loan?  In my opinion, that's a little "out there".  With that kind of logic, you could justify having a 3rd party rob a bank and give you the money, becaus I had robbed the bank?

     You and Dave both seem to be saying that we need to give DM&E the loan simply to *get back* at BNSF and UP for all the *wrong* they've done.  It's sort of like saying a vote for DM&E is a vote against BNSF.  I'd rather see DM&E succeed on it's own merit.

[MichaelSol]

And what is the "worst" that may come to pass?  That we the taxpayers get to own our own railroad for a change?  And this is bad because..........?

     Because we the taxpayer owned Penn Central and Conrail in the past, and Amtrak in the present.  Given that a *repo* DM&E would be competing with private lines, I think a lot of people would judge this to be the "worst" that may come to pass.

Well, isn't that in a grand tradition of railroading -- Illinois Central's huge land grants; GN's land grants and the St. Paul & Pacific's bankruptcy; NP's land grants and its bankruptcy; UP's land grants and its bankruptcy.

The existing Western lines all got their starts through extraordinary government benevolence (unprecedented before or since), couldn't be economically justified at the time, shafted their private investors through corruption and bankruptcy, kept entirely their government largesse, and they dominate the railroad scene today -- having put their privately financed rivals out of business or absorbed them. Coincidence?

Don't you think the Western railroad scene would have looked entirely different today if the mostly privately financed railroads had expanded westward as it made economic sense: North Western, Burlington, Rock Island, Milwaukee?

Who is complaining about DM&E?

 

[Anonymous]

idiotic nonsense

[Murphy Siding]

And what is the "worst" that may come to pass?  That we the taxpayers get to own our own railroad for a change?  And this is bad because..........?

     Because we the taxpayer owned Penn Central and Conrail in the past, and Amtrak in the present.  Given that a *repo* DM&E would be competing with private lines, I think a lot of people would judge this to be the "worst" that may come to pass.

[Murphy Siding]

FM-

I'm not against DME moving into the PRB. I'm against your terminology, which is backwards. BNSF is being pro-capitalist, because they want to maximize profits. DME is being anti-capitalist, (socialist), if they use Government money to lower BNSF's and UP's profits.

     To the extent that DM&E is not going to produce any *new wealth*.  They are going to use a big government loan to *redistibute the wealth*.

[Murphy Siding]

Since we've already established that the current PRB denizens used Taxpayer money to build their version of the PRB rail kingdom (from which they are extracting some hefty profits),

     I'm not sure that I agree with you on this point.  You say that UP and BNSF used taxpayer money to get into the PRB?  Give me some more details on that please.  Did I miss their $2.5B loans?

[nanaimo73]

 

What?  Is Matt Rose from Wyoming?

Then I remembered - After Matt Rose's tenure at BNSF is done, he'll probably be working  in Washington D.C.......

 

FM-

Would you agree BNSF's shareholders are paying Mr Rose to run their railway as profitably as possible, and he has been doing a good job of that ? Shouldn't it be the system you don't like, not the people that implement it ?

[Anonymous]

I suppose that DM&E is the "absolute fool" in your metaphor, wherein the entry of DM&E into the PRB will end up destroying all three railroads?

Such pedanticism!

(*sigh*)  It was you asking how increased competition could be deemed 'anti capitalist', and I merely accomodated you with a reply.

Now you are trying to wage a war of semantics because you resent it?

"Absolute fool" were the words used by the quoted source

We could just as easily ues the expression 'misguided competition serves anticapitalist ends' and be just as accurate.

I think what Matt Rose is (rightly) getting at, is that using Taxpayer money to cut the profit out of hauling PRB coal will do more harm than good.

Clearly, his bias in rooted in his position as a competitor of DM&E, but that doen't mean he is necessarily wrong.

Man oh man, do you ever read what you've just typed before you hit the "Post" button?

Since we've already established that the current PRB denizens used Taxpayer money to build their version of the PRB rail kingdom (from which they are extracting some hefty profits), why is it now harmful to do the same for The New Kid on the Block?

You seem to be supporting the idiotic notion that We the Taxpayers need to supply aid (financial and legal) to prop up a rail duopoly into profitability, and if we now add new (and badly needed by consensus) competitive capacity to the Holy Kingdom via the same finacial and legal avenues, we're heading for Railroad Armeggedon.

Subsidies for Monopolies - it don't get no stupider than that. So much for all that "pro-capitalist" crap.

[Anonymous]

Could Dave Smith be a socialist, without knowing it ?

What now, your Larry Kauffman impression?

[Anonymous]

Say, in two years, someone from Wyoming will be out of a job. His former company could afford, and build, this new DME line. Perhaps DME should hire him as their vice President.  

What?  Is Matt Rose from Wyoming?

Then I remembered - After Matt Rose's tenure at BNSF is done, he'll probably be working  in Washington D.C.......

......as a lobbyist for Shanghai Widget Ltd. 

[nanaimo73]

That is one war I have not read a lot about. Then again, it wasn't much of a war, was it.

Say, in two years, someone from Wyoming will be out of a job. His former company could afford, and build, this new DME line. Perhaps DME should hire him as their vice President.  

[Murphy Siding]

Who's Mr Gridley ? A replacement for Louis Rukeyser ? Horace Greeley ?

Could Dave Smith be a socialist, without knowing it ?

     I was going to raz you about your American history, but then, maybe that's not a priority in Canadian schools?

     During the Spanish-American War, Around 1899(?) the American fleet steamed into Manilla Harbor, The Phillipenes, to take on the Spanish fleet.  The Spanish fleet was mostly old, small, *pea-shooters*.  American admiral Thomas Dewey was said to be so underwhelmed by the Spanish fleet, that he simply turned to his gunnery officer, and said "You may fire when you are ready, Mr. Gridley".  It was a short, one-sided battle.

[Anonymous]

  All he thinks he has to do differently, is buy the plant at a much cheaper price-like at a liquidation sale.  If it's a workable business, the process repeats, until someone buys the plant cheaply enough to make it work.  Who's to say this isn't what's going on here, only on a grander scale?  

     If  UberDM&E were to go under, the plant wouldn't just sit there.  No one would sit still for that.  What would be the options?  A fire sale?  A Penn Central? A Conrail?  No one is quite sure.  There, I believe, may be part of the problem.

Doesn't DM&E have like 6 years before they have to start making payments?

That would suggest to me that any failure is likely to be 6-8 years down the road.

how long will a railway hold up under heavy coal use?

What a theoretical receiver ultimately takes over might have a value far below $1.5B

[nanaimo73]

Who's Mr Gridley ? A replacement for Louis Rukeyser ? Horace Greeley ?

Could Dave Smith be a socialist, without knowing it ?

[Murphy Siding]

And what is the "worst" that may come to pass?  That we the taxpayers get to own our own railroad for a change?  And this is bad because..........?

They would get to own a railroad  who's prospects for running profitably were so poor that it couldn't attract private investment to build it's own plant,.. for one

A railroad that even with a gov't loan, STILL  couldn't earn it's own keep (remember, we are assuming failure here because you posed the 'what if?")...for another

And, because deferred maintenance is the early refuge of a declining railroad, if such a failure did materialize, my heartfelt suspicion is that the condition of the repossessed plant would  end up being fit for the scrapper only.

In a nut shell, if this is such a great deal, then why isn't private money just dying to jump into it?  That is the litmus that I  use to validate my related concerns.

Here is why I suspect they (private sources of capital) are not overly enthusiastic.

Let's assume that once the plant is rebuilt with the $2.5B, that it ends up being worth $3B.  Just as a given, OK?

That still assumes that a buyer could be found with an interest in paying $3B to buy then  operate it.

Something just tells me that if DM&E trys their best, and fails.. lets say that the Borg decides to undercut the rate structure and DM&E (in consequence)  never gets traction to build market share...how many buyers would be jumping at the opportunity to stick their head in the same barrel?

My guess is very few. Not for the full $3B anyway.

So, the value of the repossessed collateral becomes a fraction of the assumed value up front

Shrinkage on a massive scale. with Joe Taxpayer holding the bag.

     I had in mind that the $2.5B investment would leave a plant worth at least $2.5B, if the railroad failed.  Now I have my doubts,and wonder if this is part of the reason that private investors seemingly had doubts. In our city, I can point out several businesses that started up new, and went through 2 or 3 sets of owners before settling down and becoming profitable(?). My old boss ran his business profitably until he died at 91 and was a very sharp financial man.   I asked him how there always seemed to be a new set of owners to jump in, where the old ones had just failed.  What he said made perfect sense to me.  For every investor who's going broke, there's another investor (the greater fool theory(?) ) who thinks he can make it.  All he thinks he has to do differently, is buy the plant at a much cheaper price-like at a liquidation sale.  If it's a workable business, the process repeats, until someone buys the plant cheaply enough to make it work.  Who's to say this isn't what's going on here, only on a grander scale?  

     If  UberDM&E were to go under, the plant wouldn't just sit there.  No one would sit still for that.  What would be the options?  A fire sale?  A Penn Central? A Conrail?  No one is quite sure.  There, I believe, may be part of the problem.

[Murphy Siding]

Hi Murph,

I really want to straighten our favorite spud out on capitalism, could you let us know when we can wreck your thread ?

     Well.......I've been biting my tongue a lot, hoping to forgo another round of open access discussions.  To tell you the truth, though, I have a lot of opinions about capitalism and competition. (As they relate to railroads, of course).

     You may fire when you are ready Mr. Gridley.

[Anonymous]

I suppose that DM&E is the "absolute fool" in your metaphor, wherein the entry of DM&E into the PRB will end up destroying all three railroads?

Such pedanticism!

(*sigh*)  It was you asking how increased competition could be deemed 'anti capitalist', and I merely accomodated you with a reply.

Now you are trying to wage a war of semantics because you resent it?

"Absolute fool" were the words used by the quoted source

We could just as easily ues the expression 'misguided competition serves anticapitalist ends' and be just as accurate.

I think what Matt Rose is (rightly) getting at, is that using Taxpayer money to cut the profit out of hauling PRB coal will do more harm than good.

Clearly, his bias in rooted in his position as a competitor of DM&E, but that doen't mean he is necessarily wrong.

[Anonymous]

     Come on AG- quit dragging this out.  Call the STB now, and give them your approval, so we can get this show on the road.

LOL! I'm sorry Murph, but with the pursuit of bin Laden consuming so much of my consulting time, and negotiating with the extraterrestrials...I've had so little time for the truly important things. 

[solzrules]

And what is the "worst" that may come to pass?  That we the taxpayers get to own our own railroad for a change?  And this is bad because..........?

They would get to own a railroad  who's prospects for running profitably were so poor that it couldn't attract private investment to build it's own plant,.. for one

A railroad that even with a gov't loan, STILL  couldn't earn it's own keep (remember, we are assuming failure here because you posed the 'what if?")...for another

And, because deferred maintenance is the early refuge of a declining railroad, if such a failure did materialize, my heartfelt suspicion is that the condition of the repossessed plant would  end up being fit for the scrapper only.

In a nut shell, if this is such a great deal, then why isn't private money just dying to jump into it?  That is the litmus that I  use to validate my related concerns.

Here is why I suspect they (private sources of capital) are not overly enthusiastic.

Let's assume that once the plant is rebuilt with the $2.5B, that it ends up being worth $3B.  Just as a given, OK?

That still assumes that a buyer could be found with an interest in paying $3B to buy then  operate it.

Something just tells me that if DM&E trys their best, and fails.. lets say that the Borg decides to undercut the rate structure and DM&E (in consequence)  never gets traction to build market share...how many buyers would be jumping at the opportunity to stick their head in the same barrel?

My guess is very few. Not for the full $3B anyway.

So, the value of the repossessed collateral becomes a fraction of the assumed value up front

Shrinkage on a massive scale. with Joe Taxpayer holding the bag.

AG:  I would have to say that thus far this is the most convincing argument you have made.  Now, at least I can see your point of view. 

Got's to go, there's deer that need shooting.

 

[Anonymous]

Here we have a gov't lending agency with a good track record supplying low interest loans to create good paying jobs and they are still out to screw us, right?  How many layers of oversight do you want? 

My friend, I believe you would try and spite poor little red riding hood, for wondering why grandmama had such an enthusiastic fire in her eyes, wouldn't you?


You can disagree with me all you want, which is fine.

I don't really consider the FRA to be a lending agency. It is not their field of expertise, is it?  I always considered these loans to be a subsidiary of socialism they operate on the side.

Since the FRA is primarily a railroad related entity, I hardly call them neutral. To me "neutral" might  be some panel put together  of a few investment bankers from wallstreet, a couple economist university professors, and maybe a journalist or two, just to make sure that no redflags and being ignored as a matter of convenience.

I feel just in pointing out that it's the DM&E's  insistance that their loan application be treated as a secret, that is  functioning as a first red flag here. It's not like curiousity came unsolicited.

Nor is anyone trying to unlock proprietary contract terms DM&E has with it's existing customers, so the attempt to dismiss  the interest in the application as  compromising their  "secret",  appears  a convenient ruse.

"What have they got to hide?", becomes a question begging an answer, all by itself.