Explaining Southern California's economy

If BYD is in trouble in China, what does that mean for its HQ in Los Angeles?

BYD-DowntownLA-MDB

Matthew DeBord

BYD — it stands for "Build Your Dreams" — built a future in Downtown L.A., home to its North American HQ. Unfortunately, it's enduring something of a nightmare with its business at home in China, even with billionaire Warren Buffett invested.

BYD is a Chinese company that has one big thing going for it: It counts Warren Buffett as an investor. But beyond that, the carmaker/batterymaker/solar manufacturer has been enduring a rough ride. It's seen a massive decline in earnings this year, while Buffett has seen his 10 percent stake, purchased in 2008, fall to substantially less than its 2010 peak value of $1.2 billion. BYD (it stands for "Build Your Dreams") executives have been heading for the exits.

There are some complex, interpersonal, inside-Berkshire Hathaway questions about how Buffett and his longtime partner, Charles Munger, came to be involved with BYD. But there's no question about how Los Angeles came to be home to BYD's North American headquarters, opened Downtown about a year ago, in a corridor that's jammed with auto dealerships.

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Occupy LA: Time to go — peacefully

Los Angeles Dismantles Occupy LA Encampment

Kevork Djansezian/Getty Images

Occupy LA protesters demonstrate on the front lawn of Los Angeles City Hall after the midnight deadline set by city officials to shut down the encampment expired on November 28, 2011 in Los Angeles, California. Los Angeles Mayor Antonio Villaraigosa on Friday gave the protesters outside City Hall until 12:01 am Monday to dismantle their campsite and leave. This morning, although some arrests were made, police have not yet cleared the camp.

Los Angeles Dismantles Occupy LA Encampment

Kevork Djansezian/Getty Images

LOS ANGELES, CA - NOVEMBER 28: Los Angeles Police Officers in riot gear deploy around the Los Angeles City Hall after the deadline to dismantle the occupy campsite expired on November 28, 2011 in Los Angeles, California. Los Angeles Mayor Antonio Villaraigosa last week gave the protesters outside City Hall until 12:01 am today to dismantle their protest campsite and leave. (Photo by Kevork Djansezian/Getty Images)

Los Angeles deadline for dismantling Occupy LA Encampment passes

Kevork Djansezian/Getty Images

LOS ANGELES, CA - NOVEMBER 27: Occupy LA protesters block the streets around Los Angeles City Hall before the midnight deadline by Los Angeles city officials to shut down the encampment on November 27, 2011 in Los Angeles, California. Los Angeles Mayor Antonio Villaraigosa on last week gave the protesters outside City Hall until 12:01 am today to dismantle their protest campsite and leave. (Photo by Kevork Djansezian/Getty Images)

Occupy LA

Mae Ryan/KPCC

Mike Ferry yawns after a long night showing down with the police

Occupy LA

Michal Czerwonka/Getty Image

A member of Occupy LA camps out in a tree after the midnight deadline set by city officials to shut down the encampment expired in front of City Hall in downtown on November 28, 2011 in Los Angeles.

Los Angeles Dismantles Occupy LA Encampment

Michal Czerwonka/Getty Images

LOS ANGELES, CA - NOVEMBER 28: Members of the Los Angeles Police Department wearing riot gear ride on the sides of trucks after the midnight deadline set by city officials to shut down the encampment expired in front of City Hall in downtown on November 28, 2011 in Los Angeles. Los Angeles Mayor Antonio Villaraigosa last week gave the protesters outside City Hall until 12:01 am today to dismantle their campsite and leave. This morning, although some arrests were made, police have not yet cleared the camp. (Photo by Michal Czerwonka/Getty Images)

Occupy LA

Mae Ryan/KPCC

Protestors check out the police helicopters above OccupyLA


Of all major U.S. cities with Occupy movements, LA has been by far the most calm — and the city government has been the most accommodating. The City Council voted early on to support the movement, while Mayor Antonio Villaraigosa has affirmed the protesters right to assemble, as well as nodded favorably toward their cause. The city also gave the movement a lot of time to prepare for what was supposed to be a departure today from its encampment at City Hall.

But they're still there. And filing a lawsuit to stick around.

To borrow a line from "Gladiator," some people should know when they're conquered. Or, more accurately, when they're been treated with kid gloves for an exceptionally long period of time. To its credit, LA is taking the sluggishness of the Occupy departure/non-departure in stride. That's consistent with how the city has dealt with Occupy so far.

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Infrastructure bank: Good for Los Angeles – and the USA?

We won’t know until he actually gives the speech, but there’s been speculation that when President Obama lays out his jobs plan in September, he may resurrect the idea of establishing a national infrastructure bank.

What, you may ask, is an infrastructure bank? Well, it’s what it says it is: a public bank that invests in infrastructure, such as bridges, roads, rail lines, ports, and even energy projects and things like broadband capacity. Here’s how theWhite House presented the idea:

The Administration’s six year plan would invest $30 billion to found a National Infrastructure Bank (I-Bank).  The I-Bank would leverage this Federal investment by providing loans and grants to support individual projects and broader activities of significance to our Nation’s economic competitiveness.  For example, the Bank could support improvements in road and rail access to a West Coast port that benefit farmers in the Midwest, or a national effort to guarantee private loans made to help airlines purchase equipment in support of the next generation air traffic control system (NextGen).  A cornerstone of the I-Bank’s approach will be a rigorous project comparison method that transparently measures which projects offer the biggest “bang for the buck” to taxpayers and our economy.  This marks a substantial departure from the practice of funding projects based on more narrow considerations. 

If $30 billion sounds relatively modest, that’s because it is. It’s seed money, which the I-Bank could them use to attract private capital. And there's private capital out there. For example, Goldman Sachs runs a $10 billion infrastructure fund.

Leverage ratios for the I-Bank's initial $30 billion could vary, but let’s say it’s something like 25:1. That’s $750 billion to spend on projects that would put potentially thousands of currently unemployed Americans to work building stuff that would yield a long-term return in capital. Take it to 50:1 and you’re looking at $1.5 trillion.

The I-Bank would function something like a national venture-capital  firm -- albeit one that’s not necessarily interested in making huge returns off its investment, but rather by providing the basis for private sector investors to put their capital to work on infrastructure (and, not incidentally, create jobs). The tricky part would be in working out the relationship between the independent government committee that would oversee the fund -- and choose the projects that have the biggest bang for the buck -- and the private investors who might, you know, have their own ideas. Or have better ideas than politicans who want to steer money toward their constituents.

OK, now you know what it is. So how would it be very good for LA? Two reasons: first, because it would provide a means to accelerate development of Mayor Villaraigosa’s public transit goals; second, because it would enable private investors to get in on big freeway or port improvement projects. Now, you can see why there might be some wrangling over this. Mass-transit projects and freeway-improvement projects could benefit entirely different voting constituencies. This is where some -- but only some -- of the I-Bank debate has been concentrated.

In other respects, the I-Bank has caught the attention of supporters on both sides of the political spectrum, and in between. Hard-core free marketers don’t like it. But Reason Foundation’s Robert Poole -- whose experience with California and Los Angeles transportation is extensive -- sorta kinda does. Moderates and moderate conservatives, including Big Idea folks like Felix Rohatyn and Fareed Zakaria, love the plan, because it offers a tasty compromise: a public solution to both the unemployment problem and the crumbling-infrastructure problem that involves private money.

Robert Dove, a managing director at the Carlyle Group, a private equity firm, did a pretty convincing job of defining the way a national infrastructure bank would operate. Here's his Congressional testimony:

Congress should look at the infrastructure bank as a true bank that must make difficult credit decisions. The institution’s primary purpose is to lend to large projects with longterm maturities at a small margin over its borrowing cost. The bank would provide a project with a base of capital that could then attract, either at the same time or later, outside private investment that we need to support our nation’s infrastructure. The bank should cover its costs, but not operate as a profit-making venture. The purpose of the bank should be to utilize its expertise to attract additional investment from the private sector for public infrastructure priorities, rather than replacing existing funding from government institutions.

The point he makes at the end is important: the bank would bring money into the process that wouldn’t otherwise be there. It wouldn’t be a way to cut federal spending, but rather a means enable federal money to have a greater impact.

Photo: Wikimedia Commons

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