Category: Budget

So Not Shocking…JFS Cost Skyrockets

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The cost of the JSF for Australia has apparently $AUS75 million to $AUS131 Million* (the Australian dollar is about $0.95 US).

It’s still cheaper than the F-22, which law forbids them to get anyway, which clocks in at an eye-popping $355 million (US).*

I think that a number of nations will start considering alternatives, either US (F-15, F-16, F-18E/F) or foreign (Typhoon, Rafale, Gripen,Flanker Family), when the full cost is made known.

Additionally, I think that for non-US (and non-UK) forces the support costs may be higher because their own militaries will not be able to maintain some of the systems, as they will not be given sufficient information on the aircraft’s highly integrated avionics.

But wait, there’s more!!!!

Lockheed is looking to change the accounting structure in order to generate a sh$#load more costs:

The JPO currently bills each of the three major F-35 contractors separately. This unique arrangement is designed partly to limit the amount of overhead feeds charged by each of the contractors, which can amount to hundreds of millions of dollars over time.

Lockheed’s proposal, however, would bundle all of the industry team’s charges into a single billing process for submitting to the JPO for payment.

Each charge submitted by BAE and Northrop would include a discrete fee to cover their own overhead costs. Lockheed would then add its own overhead for the aggregated bill. Since Lockheed would be charging an overhead fee on top of fees already charged by BAE and Northrop, the JPO would be paying a “fee on a fee”, Wood says.

She adds that the JPO estimates the current structure has saved $850 million already, so making a change for the full-rate production phase could dramatically increase the programme’s overall costs.

So if you read anyone who says they have a handle of the actual cost of the F-35, don’t believe them.

*There are a number of ways to price aircraft, and I believe that both are total program cost divided by number of aircraft. I’ve heard quotes at about 1/2 as much for the F-22.

Cost of ‘Stealth’ Housing Bailout: $1.43 Trillion

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Steve Liesman at CNBC Runs the numbers on the housing bailout to this point:

Federal Reserve $446 B Term Auction Facilities, $150 B, Bear $29 B, $14 B Discount Window to Banks, Repurchase Agreements $88 B, Swap Lines to Euro banks $65B, Treasuries lent out for liquidity boost $100 B
Federal Home Loan Bank $274 B Advances to member banks
Fannie and Freddie $621 B
FHA $90 B Added since October
Total $1431 B

Ouch.

The Problem With Pakistan

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Is that the entire country resembles the German Imperial Navy circa 1913. The Kaiser’s naval officers would end each meal with the toast, “Der tag,” meaning “The Day,” referring to the day that a final epic confrontation with the British Grand Fleet.

Well, if we look at the problems with Pakistan, whether it’s misappropriation of funds intended for anti-terror operations, or the support given by the Pakistani security service, the ISI, which continues to support the Taliban in order to ensure that the influence of India in Afghanistan is minimized.

It’s why Pakistan is fundamentally unreliable as an ally in the war on terror. The Pakistani military, and to a lesser extant Pakistani civilian leadership is fixated on the prospect of war with India, even though, as both are nuclear powers, anything beyond fierce border clashes is unlikely.

Well, it looks like Bush and His Evil Minions™ have decided to double down with the “War with India” dead enders who have been supporting the Taliban and preventing meaningful action against al Queida. They are proposing that $230 million in anti-terror aid, roughly 2/3 of all anti-terrorism funds, be transferred to upgrades of the Pakistani F-16 fleet.

These F-16s have no role in operations against the Taliban or against al Queida. They are purposed almost exclusively for use against India.

By releasing this money for upgrades, we are reinforcing bad behavior, and encouraging the Pakistani military to provide a safe haven to al Queida and for elements of the Pakistani security apparatus to act as the primary sponsor for the Taliban.

JSF Pricing

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And you thought that hedge funds and derivatives were complex.

So Lockheed-Martin is trying to set realistic prices for the F-35 (paid subscription required), so that it can finalize deals, particularly with countries on board the program who have not yet made official decisions to purchase the fighter.

The most recent estimates are the CTOL at $49.5 million, STVOL at $69.3 million, and the carrier variant at $64.5 million, and I don’t believe any of that. I would be surprised if the CTOL variant is less than €50m and the STOVL and CV versions were under €65 million, and I expect the dollar to fall against the Euro a lot over the next 5-8 years.

In any case, L-M is looking for a “consortium buy”, where the partners in the program lock in the price by paying for jets in 2011 that are delivered after 2014, think of it as a stealthy Brooklyn bridge purchase.

Of course LM officials maintain that their cost models are “more reliable” than of past fighter programs…which honestly is not saying all that much.

The idea is to lock the partners into multiyear procurement when the US Congress won’t allow the US military to do so until the aircraft is certified for full rate production.

Only that certification comes in 2014 at the earliest, so they want to have multi year pre-paid contracts to buy in 2011, for delivery in 2014, even though that is the earliest date one can expect to have the aircraft certified for full rate production.

When you add to this the fact that the system will be highly integrated, and customers will find it very difficult to install their own upgrades (the Israelis are already in talks on this), I think that this will be much more expensive than they are claiming here.

I could be wrong, but it’s tough to be wrong when you expect cost overruns and schedule slips in a major defense contract.

Barney Frank Looks for Limits on GSE Bailout

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Well, the head of the House Financial Services Committee is saying that there limits on executive pay and dividends as a quid pro quo for any deal being done.

He’s talking about inserting language into the bill which would require regulatory approval of senior executive pay, and that any government purchased stock would be first in line for dividend payments.

Additionally, he’s looking at language to explicitly tie any monies involved in the bailout to the Federal Debt limit, which is responsible thing to to.

I think that Frank is one of the 10 best congresscritters out there.

California Runs Out of Money for Fire Fighting

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Two weeks into the new fiscal year, California has already spent 1/3 of its firefighting budget for the year, and in the home of Proposition 13, the money is not there to cover this.

They are not talking about surcharges on insurance in fire zones and similar methods to cover current and expected shortfalls in the firefighting budgets.

I don’t know how any of this will make it through the state house, where you need a super majority, which requires Republican votes, and they have pretty much pledged to vote against all taxes, and their districts disproportionately benefit from the firefighting efforts.

Bush Vetoes Fair Doctor Pay to Protect HMO Executives

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Bush objects to the fact that subsidies for private insurers to participate in Medicare, more accurately a license to skim and further bankrupt the fund, have been reduced to avoid a doctor pay cut, and so he has vetoed the bill.

Well, it looks like its time for an override vote, and the text for the attack ad writes itself, so I would say that it’s better than 50/50 that the veto will be overridden.

If it isn’t, watch as doctors, facing already low fees being cut by 10.6%, reduce services, and patients scream….at Republicans.

Krugman Nails it Again

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Toady, he’s writing about the Medicare vote, and he writes about the underlying issues, not the drama of Kennedy showing up to break a filibuster.

Specifically, he notes that in 2003, Bush and His Evil Minions™ got the so called Medicare Modernization Act though congress, and a big part of it was a very poison pill, large subsidies for the private insurer run Medicare Advantage.

Because these plans are heavily subsidized, they suck money out of the program, making a fiscal crisis even worse.

Because these plans require larger premiums, they also exclude the poor.

So you create a two tiered system, where the rich tier sucks the marrow out of the poor tier.

Basic Republican social programs: Reverse Robin Hood.

Krugman is also far more sanguine about the possibility of real reform next year, because the Dems held together, and the Republicans caved when hit with the full force of the AMA over the July 4th weekend.

Me, I’m more of a pessimist. My goals are less extreme. Just remove the preemption clause from ERISA, and let the states compete, and businesses will migrate to places where they aren’t shafted by the healthcare system.

Republicans Will Cave on Medicare Funding

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The Republicans are holding up a Medicare funding plan which reduces subsidies to private insurers offering “Medicare Advantage” in order to raise doctors fees in the stand, and the AMA is taking out ads targeting the Republicans opposing this.

You see the Republicans believe that they only way to bring efficiency to the medical market is to bring in private enterprise, but private enterprise is much less efficient than basic Medicare, so they need subsidies to compete.

The reality is that the Medicare advantage program is about two things:

  • Ideology trumping reality.
  • Republithugs getting donations from insurance companies.

Bush is promising a veto, and doctors are already shutting down practices or no longer accepting new Medicare patients, so this will get ugly quickly.

If the Dems have any brains, they will fold their arms, and say, “this is the deal”, and let the Republicans founder.

USAF May Have Improperly Lobbied Congress on BRAC

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It appears that they lobbied Senators Ted Stevens (R-AK) and Daniel Inouye (D-HI) to insert language allowing the services to veto joint bases decisions made by the commission.

Once again, it looks like the USAF’s real core competency is gaming the federal budget process.

According to the article, it looks like the USAF then used this language to blackmail the other services at joint bases more control and more of the budget.

$2 billion in Unaccounted Aid in Pakistan

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Typical. Money that was supposed to be spent on counter-terrorism was spent on…lord knows what.

Of course Pakistan has been spending our money down south, to counter the Indians, as opposed to up north, where the Taliban is, anyway.

Once again, I am compelled to make the repeat the wisest thing that I’ve read this century:

But it does inspire in me the desire for a competition; can anyone, particularly the rather more Bush-friendly recent arrivals to the board, give me one single example of something with the following three characteristics:

  1. It is a policy initiative of the current Bush administration
  2. It was significant enough in scale that I’d have heard of it (at a pinch, that I should have heard of it)
  3. It wasn’t in some important way completely f#$@ed up during the execution.

Seriously. I’ve yet to see anything wiser yet, and I’m using the loose definition of the 21st century which includes the year 2000.

Economics Update

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I missed this when it was announced late Friday afternoon, but two moremonoliners hit junk status, FGIC and XL Capital and XL Financial.

I wonder when all of the monoliners will be junk rated, and I also wonder why this is not true now.

This means more than just that these insurers can no longer realistically write policies. These downgrades come with significant penalties, as MBIA’s statement that’s it downgrade will force it to make $4.7 billion in payments to creditors.

When they got downgraded, the terms of their loans changed.

In energy we have oil up despite the Saudi meeting, and retail gas prices falling. Hopefully this will bring a few months of stability at the pump.

The dollar strengthened, largely on crappy growth in the Euro zone, which would suggest that the ECB will hold off rate hikes for a while.

In real estate, we have Lehman predicting more losses for Fannie Mae and Freddie Mac, which should come as no surprise at all.

After when ¼ of Bay Area home sales in May had been in foreclosure, and statewide home sales hit a 13-year low, it’s not like there will be a whole bunch of players making money.

It’s why George W. Bush’s ownership is becoming a Pwnership society, with home ownership falling to below where it was when he announced the initiative to get people to buy houses.

BTW, if you think that this won’t effect you, you are wrong. We now have an estimate of properties falling by $1.46 Trillion, which, by my quick envelope calculation, means that state and local governments are looking at revenue shortfalls on property taxes on the order of $1.5 billion/month.

Obama’s Donut Hole Social Security Tax

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He is proposing restarting the tax for incomes above $250,000.

I’m not too fond of the donut hole he is proposing, but I understand the politics here.

There are a lot more voters between (IIRC) $104K and $250K, but a lot more money above 250K.

One thing that needs be done though is that the definition of “wages” needs to be expanded, or a lot of these folks will move “wages” to dividends and capital gains.