This Article Originally was Published here: http://www.wealthdaily.com/articles/the-right-way-to-fund-solar-power/3923

Regardless of your stance on government spending and subsidies, I'm sure we can agree on one thing...

The solar industry has been sputtering and jerking around like a jalopy with misfiring cylinders.

I don't think I even need to mention Solyndra.

In theory, all of the parts are there: Technology and installation costs are headed lower, and installations have been going strong in spite of the economic downturn.

Still, solar can't seem to come close to standing on its own.

Subsidies on the federal, state, and local levels continue unabated; at the current pace, they'll be in place for countless years to come.

Luckily, every once in a great while someone comes along and, with a minor tweak, turns a sputtering hunk of junk into a working machine.

When it comes to solar's woes, a former Moody's Investors Services CEO, CEO of the Export-Import Bank of the United States, U.S. Ambassador and Executive Director of the Asian Development Bank may be that person...

His name is John A. Bohn, and he's currently the CEO of Renewable Energy Trust Capital, Inc.

The Problem

Before we get to the fix, we should first define the problem.

To put it in simple terms, renewable energy subsidies aren't giving much bang for the buck.

Here's a look at data from the Congressional Budget Office, a nonpartisan government agency tasked with figuring out what half-baked proposals will actually do to federal spending and revenue:

Tax preferences are defined by the CBO as special tax rates and deductions, tax credits and grants in lieu of tax credits. The total bill for the 2011 fiscal year (the closest year with official data) came to $20.5 billion, while the Department of Energy’s spending programs totaled $3.5 billion.

(Note that this doesn't include state and local programs that create subsidies for solar power that fuel-based power sources certainly don't enjoy.)

With the incredibly small amount of power solar is actually providing to the U.S. grid, this is a serious discrepancy and dependency issue.

According to the Energy Information Administration, total energy from all renewable sources accounted for 9% of total U.S. energy in 2011. Solar accounted for 2% of that 9%.

That minuscule .18% of total energy is absurdly expensive.

The Institute for Energy Research calculated the subsidies for each energy source normalized to the amount of energy produced, in dollars per megawatt hour ($/Mwhr). In 2011 $0.64/MWhr was given for fossil fuels, $0.82/MWhr for hydro, $3.14/MWhr for nuclear, $56.29/MWhr for wind, and $775.64/MWhr for solar.

I know solar is in its infancy and subsidies are designed to even out the market, but we're still way off the mark when it comes to the bloated use of government funds for solar's development...

It will take years to get things in order with the current system.

The Fix

This brings us back to Renewable Energy Trust Capital, Inc. and John A. Bohn.

The company recently asked officials at the IRS to classify solar farms as one of the types of properties that may be included in real estate investment trusts, or REITs.

REITs are a kind of security that sells like a stock and invests in real estate directly, either through properties or mortgages.

They have a unique tax structure that greatly reduces taxation at the corporate level, but they must meet stringent guidelines for what they own — and they must return at least 90% of their taxable income to their investors.

In essence, the whole point is to create access for small investors in corporate real estate. Everything from timber, data centers, mobile phone towers, and commercial leases to power lines and natural gas pipelines are currently acceptable to the SEC to maintain this special business designation.

A solar REIT would own and operate power plants that convert sunlight into electricity, just as standard REITs acquire buildings and other assets.

As the solar energy sector works now, investors simply don't have access to solar power generation; they are only able to invest in solar power companies.

Needless to say, that hasn't turned out well for a vast majority of small investors who were burned as Chinese firms created a supply glut right as the recession hit.

So, instead of high-risk growth positions in struggling companies, investors would have access to guaranteed returns from solar power generation contracts that are often several decades long and lock in set rates for electricity.

Free Market Solution

This isn't going to solve the entire subsidy problem, but it will allow relatively safe and constant returns for small investors and provide a potentially massive influx of private capital — which, in turn, will reduce the need for the government to prop up solar firms and spur production as supply increases to match higher demand.

That sounds like a win-win solution for everyone. Solar growth picks up, federal subsidy spending goes down, and investors have access to a safe and stable way to profit from solar power through REIT dividends.

Exactly how profitable it could be depends on a solar REIT's portfolio of properties, but if they end up looking like other REITs, we're talking about some strong income investment plays...

To give you an idea, REITs returned an average 28% in 2012.

For now, we'll just have to watch and see how the IRA and federal government react to the proposal.

Let's hope they make the right decision and allow investors and the free market to spur growth instead of federal dollars.

For Your Prosperity,

Adam English
for Wealth Daily

This Article Originally was Published here: http://www.wealthdaily.com/articles/the-right-way-to-fund-solar-power/3923

According to the most recent Gallup poll, Americans are wildly unhappy with the Obama Administration and our country's present state of affairs.

Earlier this week, as many as 60% of American reported that they didn't tune in to watch the TV broadcast of the 57^th Presidential Inauguration. Although some of those individuals watched coverage online, various bloggers, tweeters, and even reporters seemed disappointed with Barack Obama's speech on Monday.

Coinciding with this event, the new Gallup poll reveals that Americans are the most pessimistic they've been since the Carter Administration in 1979. Only 39% of our nation's constituents – less than four-in-ten – retain an optimistic view of America.

Interestingly enough, Americans do believe we'll encounter better days. They are much more optimistic regarding their predictions of where the U.S. will be in five years (48% positive).

On the other hand, Republicans aren't so sure about the future. They claim our best days are long gone. Additionally, 71 percent say members of today's youth will not have better lives than their parents.

Their optimistic counterparts, the Democrats, aren't on board regarding this matter. Comparatively, 66% of Democrats firmly believe that members of America's youth will have better lives than their parents.

Psychologists would suggest that the negative-Nancys among us might simply be wearing rose-tinted glasses, thus remaining “nostalgically positive about the past” compared to the present. But the negative feelings cannot be ignored... 

Amidst all the negative ratings recorded in the Gallup pool, 10% say the country will be “the worst they can imagine” in five years' time. And very few Americans still believe our economic system is the best...

From Gallup:

The challenges President Obama faces as he begins his second term in office are evident from the fact that less than four in 10 Americans rate the nation's current situation on the positive end of a zero to 10 scale and that slightly less than half project that the state of the nation will be positive in five years. Both of these assessments are among the more negative Gallup has measured since the Eisenhower administration. The bright side for the Obama administration is that the current low assessments leave much room for improvement.

We are currently in the relatively brief interim when systemic risk has apparently been eliminated by financial alchemy. This cannot last for purely ontological reasons.

We can summarize the Central State/Banks' "fix" to the 2008 global financial meltdown as one gargantuan expansion of debt, the risks of which have been distributed to taxpayers and what's left of the private financial system.

As noted in yesterday's entry on risk, growth and security ( The Grand Tradeoff of Risk/Innovation/Growth and Financial Security), risk cannot be eliminated; it can only be suppressed temporarily or transferred to others. 

The Central States and their Central Banks have suppressed the risks created by this unprecedented expansion of debt with what amounts to financial alchemy: the States issue new debt (sovereign bonds) and the Central Banks buy the debt with newly created money. The sovereign bonds then sit on the Central Bank balance sheets as assets.

Presto-Magico, interest rates remain near-zero, enabling further expansion of sovereign and private debt. Risk appears to have been eliminated, since the Central Bank balance sheet is not exposed to any market influence. Theoretically, the Federal Reserve balance sheet could expand from $2.9 trillion to $29 trillion, and the risk of such expansion would not be priced into the market or economy.

But since risk cannot be eliminated, it can only be distributed, what is actually happening is the Central Banks are distributing the risks of their alchemy to the entire economy.

The same can be said of expanding sovereign debt arising from unprecedented fiscal deficits and subsidies/guarantees issued to every politically potent constituency, cartel and fiefdom: the risks of all this vast expansion of State debt is being distributed to future taxpayers who must ultimately foot the bill.

The risks are currently being masked by the near-zero interest rates engineered by the financial alchemy described above.

One interesting feature of risk is that it shares dynamics with pressurized systems: If you increase the pressure in a home's water supply system, eventually the weakest element will burst, relieving the pressure. Which joint is the weakest is not easy to identify until after the fact. 

In many cases, the weakest element is perceived as the safest. Case in point: the rapid expansion of risk, credit and leverage in the 2000s ended up blowing apart the mortgage market, the very element that was widely assumed to be low-risk and "safe."

We can expect a similar systemic blowout in what is currently considered "safe," for example municipal bonds and sovereign debt. As noted yesterday, in focusing on econometric data such as GDP or corporate profits, we lose sight of the truly key system dynamics. Yes, by all means "follow the money," but even more importantly, "follow the risk."

The key institutional delusion of Central States and Banks is that risk that is distributed is magically contained. Economist Joseph Stiglitz characterized this convenient delusion as an "intellectual bubble" in Crisis, Contagion, And The Need For A New Paradigm (Zero Hedge). He summarized the delusion as this: by "spreading risk, diversifying risk, risk is contained."

Risk cannot be contained, it can only be masked for a time. In the long view, we are currently in the relatively brief interim when systemic risk has apparently been eliminated by financial alchemy. This cannot last for purely ontological reasons, and history is overloaded with examples of financial alchemy that blows up in the faces of the erstwhile magicians.

Ultimately, this leads to this question: is the Central State too big to fail, or too big to survive? The conventional view is that the State is so big that it can absorb essentially infinite amounts of debt, guarantees, backstops and promises without risk.

If we understand any debt-dependent state and economy is a pressurized financial system in which the pressure (risk) is constantly rising, then we must conclude that Central States and Banks are not too big to fail, they are too big to survive.

Distributing risk does not contain or eliminate it; it simply increases the pressure in the system and the ferocity of the ultimate blowout. 

*Post courtesy of Charles Hugh Smith at Of Two Minds.

In what will undoubtedly be seen as another indication of how draconian France's top income tax rate is, former French President Nicolas Sarkozy is gearing up to flee across the English Channel.

Details of the planned move were uncovered during a police raid on Sarkozy’s Paris mansion in June. An early blueprint of a house that would be built in London's affluent South Kensington district were discovered in computer files.

Sarkozy is apparently planning to create a new private equity fund that would raise 1 billion euros with the help of French entrepreneur and political advisor Alain Minc as well. Sarkozy has recently met with a number of prominent figures in finance worldwide.

The French publisher Mediapart, which broke the story, suggested that Sarkozy's plans would create a conflict of interest because of an investigations into questionable campaign donations and because a former French president should not choose the UK as a base to make his fortune.

While leaving the country while an investigation is underway could be considered a cause for concern, outrage over a former politician moving to support a potential business is misplaced.

The punitive taxation of a wealthy politician and his wife as they attempt to create a new business is clearly a consequence of the ­priorities of the new socialist government headed by President Francois Hollande.

Sarkozy will now join the ranks of several high-profile people who have fled the country and are under intense criticism for the move. Bernard Arnault, the luxury goods magnate and France’s richest man has left, along with Gerard Depardieu.

This Article Originally was Published here: http://www.wealthdaily.com/articles/banks-post-profit-on-home-loans/3927

The four largest U.S. lenders—Wells Fargo & Co. (NYSE: WFC), JPMorgan Chase & Co. (NYSE: JPM), Bank of America Corp. (NYSE: BAC), and U.S. Bancorp (NYSE: USB)—collectively posted about $24.4 billion in revenue from home loans over 2012, with expenses exceeding $21.7 billion for loan repurchasing and settlements.

Clearly, riding on Federal Reserve help and that of the government, mortgage revenue from these leading lenders is once again greater than the costs of bad home loans and foreclosures.

Homeowners have also been exploiting the historically low borrowing costs right now as the Fed keeps interest rates near zero and the White House aggressively pursues refinance-help programs.

Bloomberg reports:

“They’ve come out from the self-inflicted gunshot wound to the head and are now starting to recover due to a government- induced set of policies and programs,” said Clifford Rossi, a former risk manager and managing director at Citigroup (C) Inc. who’s now at the University of Maryland’s Robert H. Smith School of Business. Policies intended to assist homeowners serve “to help the banking segment significantly,” he said.

Over 2012, banks generally stood to earn in record numbers from mortgages. Last week, mortgage rates were 3.4 percent against 4.74 percent some two years back.

Altogether, bad loans and mortgages have cost these banks more than $84 billion since 2007, per Bloomberg’s data. And as costs spiraled out of control and people began taking notice, these four incurred an additional $16 billion in costs in the second half of that period.

Thus far, Wells Fargo has performed better than the rest; it was responsible for one in three mortgages as of last September., with a 24 percent rise in Q4 profits.

In the fourth quarter, profits rose 24 percent and net gains amounted to $2.8 billion. Wells Fargo saw $11.6 billion in income from mortgages alone last year.

There is clear evidence that the housing market is on the upswing again. Zillow notes that home values have gone up by more than $1.3 trillion since 2011, and those figures are expected to go up further.

Over 2012, 4.65 million homes were purchased—the most since 2007.

The trend will almost certainly continue for a while.

This Article Originally was Published here: http://www.wealthdaily.com/articles/banks-post-profit-on-home-loans/3927