Directions

Brief Remarks of Robert Barone to the EDAWN Directions Conference

Reno, Nevada

Friday, February 6, 2009

Last year, I stood before this conference and indicated that two things needed to be done for the general U.S. economy: 1) stop the downward spiral in housing prices by giving a 15% tax credit to all primary home purchases; and 2) address the irrationality in the “mark to market” accounting rules which have artificially made the capital crisis in our financial system much worse than it needed to be.

Now that Bear Stearns, Lehman Bros., Fannie Mae, Freddie Mac, Washington Mutual, Merrill Lynch, and Wachovia Bank have failed, and AIG, Citibank and Bank of America are all but zombies (i.e., ghosts of their former selfs), these two actions are finally being considered.

I want to very briefly give you 4 forecasts which, if you invite me back next year, we can analyze when we meet: 1) our RE markets will still be a problem, although the price deterioration should have stopped by then; 2) gaming revenue will be relatively flat, perhaps up a smidge; 3) the federal budget deficit will be more than $1 trillion; 4) and the price of gold will be higher than it is today.

Because you will undoubtedly hear from our panelists all of the reasons that our economy is in the fix that it is in, I am going to take us in some other directions. “Directions” – that’s a good word – and it happens to be the name of our conference. From its name, we can deduce that it is the intent of this meeting to figure out the directions that are available to us as a business community.

In the 1930s Depression, leaders in this state (Nevada) had the vision to give the state a new direction – they legalized gambling, and that single decision has sustained this state and has led to 75 years of prosperity here. Today, we need to be equally bold in guaranteeing our future prosperity. I have three such proposals. But before I give you the specifics, I want to say that if we don’t stop looking to Washington D.C. to solve our problems, they will never go away. In yesterday’s Reno Gazette, there was a story that indicated that state aid in the so called Stimulus plan required that the state raise an additional $500 million. Clearly, the folks in D.C. don’t understand that when the people don’t have money, you can’t raise taxes and have to cut spending.

Ok – let me get specific. The first proposal is short-term in nature and can potentially bring huge amounts of cash to our state coffers. The other two are longer-term in nature. Here they are:

1) Accept the Yucca Mountain nuclear waste repository on the condition that we get paid handsomely by those asking us to house their nuclear waste. Within a few years, this can solve our state’s budget crisis.

2) The state of California is, itself, a zombie. They believe that the only way to solve their budget woes is through revenue enhancement; translated, that means higher taxes. Silicon Valley folks would love to bring their businesses to Nevada, and California is driving them out. Their chief complaint about our state is that our University System doesn’t produce enough graduates with the skill sets that they need. So, let’s take some of the Yucca Mountain revenue and build such a capability in our education system.

3) Just as our 1930’s leaders recognized that U.S. consumers were hungry for gaming, we should recognize that today, U.S. consumers are hungry for affordable and clean energy. Nevada has an abundance of sunshine, wind and geothermal, and we can use those renewable resources to build renewable energy power stations. We also have an abundance of open space and rural communities that would gladly accept clean coal, nuclear power plants, and new oil refineries, and relish the jobs these industries would create.

These are the directions I believe we should take.

http://www.rgj.com/article/20090206/NEWS18/90206033&OAS_sitepage=news.rgj.com%2Fbreakingnews