Friday, July 25, 2008

Pay him now, so we can pay him later

By Howard Troxler, Times Columnist

Published Wednesday, July 9, 2008 6:59 PM


You and I — let's call us "schmoes" — will now be paying $224-million to Warren Buffett — let's call him "one of the richest guys in the world."


The state of Florida decided the other day to ask Buffett to take our money, which he no doubt will.


Now, what are we buying? A nice chunk of his company, Berkshire Hathaway? No.


We are buying the right to borrow money from him later, in case a really big hurricane (or series of hurricanes) hits Florida this year.

If we get Andrew-sized damage, then Buffett agrees to lend us up to $4-billion by buying our bonds.

(The state says there is about a 3 percent chance of that happening.)


If we don't get that hit — well, we're out the $224-million. But we'll have had the security of knowing his money was there for us.

This is why Warren Buffett is one of the richest guys in the world, and we are schmoes.


In the lingo of the market, what Florida is buying is called a "put option." We are buying the right to borrow money later. This is one big honker of a put. We are paying top dollar for it, too.


The decision was made last week by Gov. Charlie Crist, by Florida's chief financial officer, Alex Sink, and by Attorney General Bill McCollum.

The governor is always cheerful, but Sink and McCollum were not.


"This is not a good deal overall," McCollum said. But he called it "the only responsible choice at the moment."


"We waited until the last minute," Sink said, noting Florida is already more than a month into the hurricane season. "We're not thinking ahead. This is not the way to run policy."


Here is the immediate problem: Florida has a hurricane catastrophe fund, called the "Cat Fund," that kicks in if a storm is bad enough.

But we would have to borrow most of that money, and pay it off by future assessments on insurance policies.


In theory, this works.


In practice, we are at the mercy of the markets. We might not be able to borrow that much on the spot. So we looked around for safe options and came up with Buffett.


I asked Dr. Jack E. Nicholson, director of the Cat Fund, if this was the ideal way to do things.


He said no, but it is the right thing to do now. There has been a lot of upheaval in the state's investment setup —there was a big scandal; you might have heard of it. Florida has been racing in recent months to redo things.


With more time, the state could line up its options earlier. Maybe we wouldn't be paying top dollar to Warren Buffett for a put option at the last minute. Maybe.


Here's another thing: Earlier this year, Sink proposed changing the rules for the Cat Fund to reduce Florida's exposure by $3-billion or so. But the Legislature didn't like it because it might have led to a small increase in premiums.


Oh, and here's one more thing: The governor, a "let's pay later" fellow, decided we will pay Buffett out of what cash we have in the Cat Fund now, instead of dunning everybody's insurance policy.


Nicholson sounded like a guy I could kid, so I told him: "If we get that storm, you'll be the smartest guy in the world. If we don't, you'll be the idiot who gave $224-million to Warren Buffett for nothing."


He said that for Florida's sake, he hopes he is the second guy instead of the first. I hope so, too.

Thursday, July 24, 2008

From Fast Company...

July 23, 2008

"Within five years, technology will obliterate the need for business travel."


Apart from becoming more and more unpleasant, recently business travel is also becoming far less necessary. With videoconferencing technologies improving and fuel prices rising, more businessmen and women seem to be choosing the option to stay put and use new technology to cut down on travel.


Companies too are making an active effort to limit employees’ air travel for the duel-pronged benefits of cutting costs and being environmentally friendly. AT&T has reportedly reduced employee air miles by 15% through video conferencing and Web meetings, while Accenture plans to have 22 video conferencing rooms installed around the world by the end of this year.




Thursday, July 17, 2008

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Does Your Airline Captain Want More Fuel?

How about YOU?

WASHINGTON - The pilots union for US Airways said Wednesday the airline is pressuring pilots to use less fuel than they feel is safe in order to save money.

The union also paid for a full-page ad in Wednesday's USA Today addressed to "our valued passengers." The ad accuses the airline of "a program of intimidation to pressure your captain to reduce fuel loads."

Ray said soaring jet fuel prices have sent all the airlines scrambling to find ways to cut the weight of airliners because the heavier the plane, the more fuel the plane burns. US Airways, based in Tempe, Ariz., has recently removed movie players, redesigned its meal carts and replaced glassware with plastic to cut weight.


But US Airways recently crossed the line when it ordered eight pilots who requested "an extra 10 to 15 minutes worth of fuel" to attend training sessions, or "check rides," that could put their pilot licenses in jeopardy, Ray said. The pilots were supposed to report for their training sessions Wednesday, he said.

"We feel they're trying to set an example," Ray said. "Captains shouldn't be intimidated into thinking, 'If I say I need this fuel, they may send me for a check ride.' ... Cutting peanuts off the plane, that's one thing. But cutting a captain's fuel level below his comfort, that's another thing."

US Airways spokesman Morgan Durrant said the decision to bring in the eight pilots for extra training was not meant to be punitive. "That's totally not true," he said.