From the San Francisco Chronicle

Pension spiking (e.g., retroactive increases in pension benefits or pre-retirement promotions that qualify workers for bigger pension benefits), has been a major trend in California since our dot-com boom. It has saddled state and local governments with serious fiscal problems ever since (e.g., Orange County has a $2.7 billion pension deficit, and a 2005 review of California’s biggest government agencies found pension, health care and workers’ comp commitments more than $100 billion under-funded), even leading to bankruptcy by the city of Vallejo.

100 billion dollar short fall in one state. That is not pocket change.

From the Daily Express….

Britain is “quite simply running out of power” and blackouts are almost inevitable within the next few years.

This is the stark warning from the head of an energy think-tank who believes power cuts could be serious enough to spark civil disorder.

You might be thinking “Sure you can find a head of a think-tank who will say just about anything. But there is little more to this then hot air. From latter on in the same article….

Only last Thursday, National Grid issued an urgent call for power after a series of power station breakdowns. Suppliers were asked to bring all their available generating capacity online, including costly oil-fired stations.

In May, hundreds of thousands of people in Cleveland, Cheshire, Lincolnshire and London suffered blackouts when seven power stations were closed.

The electricity industry estimates it needs to spend £100billion on new stations to ensure supplies.

The “retirement” of a string of nuclear and coal-fired power stations will see 37 per cent of the UK’s generation disappear by 2015, partly because of EU environmental directives.

That last part is the real kicker. But it also might not happen.

I suspect that the UK government may just ignore EU directives when it comes time to take 37 percent of their power off line. Still, they are having problems without EU intervention and I suspect those problems will just get worse.

Infrastructures costs is one of those hidden bombs in modern society. We built it in the past for far cheaper then we can build it today, even accounting for inflation. And when we pay for it to be rebuilt we will also have to be dealing with all the cost associated with an aging demographic.

From the Knowledge Problem…..

According to the US Department of Energy, “The Strategic Petroleum Reserve exists, first and foremost, as an emergency response tool the President can use should the United States be confronted with an economically-threatening disruption in oil supplies.”

In response to disruptions caused by Hurricane Gustav, the DOE has indicated a willingness to release reserves from the SPR. Unfortunately, due to a continuing power outage – also caused by Hurricane Gustav – the DOE is unable to pump oil from storage.

The original rational for the strategic petroleum reserves was the fear of limited war that disrupted oil supplies. So it does not surprise be that the SPR can’t operate without power. Its still kind of funny though.

From the New York Times….

Now the new managers of Fannie and Freddie will have to decide how they want to run enterprises controlled by the government. Lowering fees and buying large numbers of mortgages would serve as an economic stimulus, but could increase the ultimate cost to the government if the housing market gets worse. Raising fees, and being cautious in lending, could prolong the housing slump. Being generous in restructuring loans could help borrowers, but cost the enterprises money.

Henry M. Paulson Jr., the Treasury secretary and former chief executive of Goldman Sachs, tried to assure the public that the enterprises would follow both courses, an indication that the need to serve multiple masters remains. On one side, he promised that “the primary mission of these enterprises now will be to proactively work to increase the availability of mortgage finance, including by examining the guaranty fee structure with an eye toward mortgage affordability.”

On the other side, he said Fannie and Freddie “will no longer be managed with a strategy to maximize common shareholder returns, a strategy which historically encouraged risk-taking.”

It may not be easy to take less risk while lending more and charging lower fees.

A bit too understated, but otherwise spot on.