leave it to de Bever?

I'm back in Alberta for the next month and should have some blogging opportunities that I haven't had since leaving at Christmas. It has been a month since the Alberta budget was announced and at the time the Wildrose Alliance proposed "saving" $2.41 billion by cutting capital spending in the current year. A point in need of emphasis is that this "spending" is not, in fact, spending in the economic sense because although it would reduce the bleeding down of a line item on the asset side of the balance sheet, the money is going back into another line item on the same (asset) side. The REAL issue is the conversion of investment into consumption, not the conversion of investment into other forms of investment. On that front, Wildrose has had little to say, leaving it to others to take the government to task with regards to REAL spending. On March 19 the Calgary Sun published an op-ed by Marcel Latouche, head of the Institute for Public Sector Accountability, where Latouche observed that "close to 60% of some governments’ operating costs are made up of wages and benefits" and that "the taxpayer can no longer suffer the burden of increasing labour costs while financing the huge pensions required in the coming years as a large number of baby boomer civil servants retire." The Alberta Federation of Labour discovered a provincial politician associated with IPSA, and he wasn't Wildrose but Progressive Conservative. Indeed, the AFL wrote to the premier demanding that PC MLA (and Housing and Urban Affairs Minister) Jonathan Denis "publicly disassociate himself from the IPSA."

But maybe Wildrose still has a point, namely that it is better that public money remain in the form of a financial asset (i.e. a fund managed by Alberta Investment Management) than a physical asset? Perhaps, if Wildrose actually advanced that thesis with some supporting argument. In fact, there is ongoing concern that AIMCo has interpreted its hard won mandate to operate at arm's length from the client (government) to mean its transparency obligations to the client are limited. With respect to due diligence, the record is less than perfect, an example being AIMCo failing to discover until too late the ownership interest that a party to a Mississauga property transaction had despite the fact that the person's sharing of a last name with Mississauga's mayor, who was also pushing the deal, should have raised suspicions that the person was not a "simple real estate agent" but the mayor's son with a conflict of interest.

AIMCo CEO Leo de Bever came to Edmonton in 2008 after two years as Chief Investment Officer for AIMCo's equivalent in Victoria territory, Australia: the Victorian Funds Management Corporation. De Bever was halfway through his contract at the time he left for Alberta. In 2007, VFMC put a billion Australian dollars into a fund that, under a previous name, had been sanctioned by Australian securities regulators in 2002 and 2003 and moreover had several shady directors. A PwC valuation later concluded that the investment had lost more than 40% of its value, and a law firm's review of VFMC's due diligence claimed that "Investigations lacked rigour and consideration of key matters seemed to be superficial or non-existent." Yet an Australian newspaper observed this month that VFMC "made headlines in 2008 when some of the biggest ever public sector bonuses were paid to executives who presided over the losses."

Now in the interests of full disclosure, I've repeatedly applied for positions within AIMCo (not least because they are the dominant employer of financial analysts in Edmonton) and their apparent unwillingness to hire me may lead some to conclude I'm just jealous of those whom AIMCo has hired for big bucks. But given that an opposition member in the Victoria assembly (who is now Treasurer for the territory) once said "we have grave concerns about the way the VFMC is being managed", one has to wonder how an Alberta opposition party can be so unconcerned with the way AIMCo is being managed that it recommends money remain under its managment over being converted into a physical asset and then markets the recommendation as deficit reduction. Is a new bridge certain to still be there for the Alberta's next generation whereas a financial asset would not be? Not necessarily. The point is rather that it this is a question worth considering.

Image credit: Ron Tandberg

UPDATE:

Liberal MLA Hugh MacDonald, who has easily been the most effective MLA on the Heritage Fund committee, questioned the government about the size of bonuses and costs ultimately paid by the taxpayer last December and again this month,

nuclear nervousness

13 months ago I traveled through what I would call the northern part of Japan's main island but which the Japanese call the east, including through Sendai, the coastal capital of Miyagi Prefecture. Westerners are rarely found around here, at least at this time of year. Sendai has known destruction before, as the "Sendai City War Reconstruction Memorial Hall" explains in its review of the American bombing of the city in July 1945. I then took a break from the February snow in Japan's north to fly down to tropical Okinawa, where I stayed at a capsule hotel for about $30 a night until I found a different place which was more like $20. I was woken up early in the morning by the sensation that a gigantic dog had taken my capsule in its teeth and was shaking it. Since the hotel's WiFi was still working and I had my smartphone with me, after some minutes I learned from the US Geological Survey website that the epicentre of this earthquake was just 80 km away.

What astounded me was that the Japanese literally won't get out of bed for anything less than a 7.0 earthquake. Tremors are a regular fact of life for the Japanese, and it accordingly did not surprise me to see Japanese supermarket workers being more concerned about bottles breaking than about building integrity on YouTube. It was only after the intensity of the tremors rose and lasted for an unusual long duration that locals would have become especially concerned.

I've been to Japan twice now and I've come to really love the country. It has endured a disaster but of the many individual catastrophes that occurred in the wake of the earthquake and tsunami, a particular disaster is receiving far more attention than a proportionate and rational perspective would provide.

I'm talking nuclear, of course. Noo-klee-ur! The very word that sends a chill down some spines.

Now I'll grant that the situation at the Fukushima I power plant has deteriorated substantially, as the amount of radiation released on March 15 was non-trivial and it has been acknowledged that containment integrity at Unit 2 has been partly damaged. I could make some observations here about the situation at Fukushima, such as calling attention to the fact the station apparently kept humming despite a massive earthquake (it was the tsunami that has caused its problems), the fact that newer plants are not as dependent upon external power sources to maintain their cooling systems, whether from the grid or portable backup, the fact most experts contend that - especially after several days have passed - a full meltdown remains highly unlikely, or the fact that the problems are essentially problems of the sort an oil refinery could face in a no power situation (explosions from flammable but otherwise non-toxic gases, short-lived fire at a unit with waste material that released some environmentally harmful toxins). At issue is not the facts on the ground in Fukushima, but the reasonableness of the popular reaction to them. As one authority (among many) has observed, people "don't have a particularly good grasp of the science of radiation and tend to over-exaggerate the risks."

Consider the history of nuclear accidents.

The number of people who ultimately became sick because of the Three Mile Island accident? Zero.

In 1987 in Goiânia, Brazil, a radiation scare resulting from an old nuclear medicine source being scavenged from an abandoned hospital caused more than 130 000 people to overwhelm hospital emergency rooms. Ultimately just 250 were found to be contaminated through the use of Geiger counters and just 20 showed signs of radiation sickness and needed treatment.

In 2005 a team of 100 scientists produced a 600 page report for a consortium of UN agencies on the legacy of Chernobyl. Although an accident on Chernobyl's scale is not conceivable in a developed democracy (where all reactors have containment vessels) the team found that even in Chernobyl's case,

By and large... we have not found profound negative health impacts to the rest of the population in surrounding areas, nor have we found widespread contamination that would continue to pose a substantial threat to human health, within a few exceptional, restricted areas.

More importantly, however, is the finding that "the largest public health problem created by the accident” is the psychological impact. This is partially attributed to a lack of accurate information. 20 years after the accident, the greatest problems are identified as negative self-assessments of health, belief in a shortened life expectancy, lack of initiative, and dependency on assistance from the state.

The hysteria over nuclear power, in other words, didn't just aggravate the health problem, it practically constituted the whole health problem in and of itself!

UPDATE:

The Washington Post cites a radiation expert who notes that of more than 80 000 survivors of the Hiroshima and Nagasaki blasts, about 9000 subsequently died of some form of cancer. But only about 500 of those cases could be attributed to the radiation exposure the people experienced.

The average amount of radiation that victims in Hiroshima and Nagasaki were exposed to would increase the risk of dying from lung cancer by about 40 percent, [the expert] said. Smoking a pack of cigarettes a day increases the risk of dying of lung cancer by about 400 percent.

Meanwhile, this Slate column makes the same argument I do but with a better turn of phrase and some more facts. Charlie Martin at PJM has more in this general vein.

EPA guidelines for workers in emergency situations are radiation doses of 10 rem (100 mSv) when protecting "valuable property" and 25 rem (250 mSv) when protecting populations. What does a 25 rem dose mean? According to the EPA, it means one's lifetime risk of cancer would increase by 1% on average (from 20% to 21%). Compare this 1% increased risk for workers at the Fukushima site to the reality of worker fatalities on the Deepwater Horizon rig last year, and keep in mind that no Fukushima worker in Japan has yet reportedly received a dose even this high, never mind the general public. Although there was a reading of 400 mSv/hr at one location in the plant at one particular point in time, at the same point in time the level was more than 10 times lower just 50 meters away.