OWNERSHIP: Rejoinder to Mike Gravel

["William B. Ryan" <william_b_ryan@hotmail.com>]

I thank Mike Gravel for his contribution to our
discussion.

This was the wording of the AGSOC ballot initiative
which was rejected by the voters:

"This measure establishes a general stock ownership
corporation (AGSOC) in Alaska. It will be a private
corporation owned by Alaskans. Shares will be
distributed without charge to Alaska residents who
wish to become stockholders. The corporation will not
be subject to income tax and this is expected to
enhance its financial success. Shareholders will be
subject to taxes on their share of the corporation's
taxable income, whether or not it is distributed to
them, and may not deduct corporate losses, if any.
The corporation will borrow money for investment and
repay loans from income."
http://www.gov.state.ak.us/ltgov/elections/initbal.htm
--
1.  [Ryan]  The wording appears to be confusing and
contradictory in several respects.  It says "the
corporation will not be subject to income tax" but
that "shareholders will be subject to taxes on their
share of the corporation's taxable income..."  But
the preceding sentence just said that none of the
corporation's income is taxable.  Then follows this
kicker:  "whether or not it is distributed to
them..."  In other words, the purchasing power in the
hands of shareholders is to be decreased through
taxation against income which they may never have
received except possibly in the form of an unrealized
capital gain.

Is there any other way to interpret this?  If not,
what is the logic behind it?  It baffles me.
--

2.  [Ryan]  The Senator objects that I am "totally in
error."  If I am in error it is error in precision.
I said that the royalties were to be invested in the
purchase of the pipeline.  He describes the
investment process this way:

"My plan called for the purchase of British
Petroleum's (BP) 1/6 interest in the pipeline by
assuming their bonds and a cash payment, [which would
have been funded by] the proceeds of a loan or
additional bonds that would be secured with the
collateral of a 'take or pay contract' with the state
for moving its royalty oil through the pipeline to
Valdez."

It is true that the royalties are not directly
invested.  But the loan is collateralized by the
contemplated tariff income to the pipeline through
its "take or pay contract" with the state.  The state
has the option to take some of its royalties in kind,
which it does.  That oil is transported through the
pipeline generating tariff income to the pipeline.
I'm not quite sure what "take or pay" means within
this context but I suspect that it means if the state
chooses to take none of its royalties in kind but all
of it in cash, the state would be obligated to pay
the pipeline the equivalent amount to what the
tariffs would have been if the state had opted to
receive its royalties in kind.

That money from state royalties is pledged as
collateral against the loans.  It is what in finance
parlance is called an "offset."
--

3.  "This arrangement would have produced a cash flow
sufficient to amortize all the debt and produce a
profit sufficient to initially pay out $300 to each
Alaska shareholder of the AGSOC."

[Ryan]  Maybe.  It had been a certainty there would
have been no need for collateral.
--

4.  "The wealth in question was created by the
capital ownership in the pipeline through the use of
credit -- that's the way the rich folks do it."

[Ryan]  The pipeline had already been created by
credit.  All the GSOC would have done is transfer the
ownership of the already existing capital to new
owners.  The original owners would have cashed out.
--

5.  "It [referring to the Permanent Fund] also is a
dwindling asset depending on the nature of the funds
investments. All production tools a[re] dwindling
investments."

[Ryan]  I'm not sure what to make of this.  Bad
investments decline in value.  Good investments
increase in value.  The important point is that the
Permanent Fund is diversified and is prohibited from
spending principal.  The oil that is the basis of the
pipeline's profits is a depleting resource.  The
"production tool" is the pipeline which depreciates
and must be maintained.  Unlike most tools, it
becomes worthless once the oil is totally depleted.
Future income is projected into the current value of
the tool when sold.  There is nothing gained in
purchasing that tool from the present owners unless
you think you can do a better job with that tool than
the present owner and thereby extract additional
profit.  Only that additional profit would be net
income to you.  You would have paid the old owners
for the rest.  And that is risk.  And here is a
another problem with the proposal as I see it.  The
GSOC wouldn't even have the opportunity to do a
better job because it was purchasing only BP's then
one sixth interest.  That could not have been the
controlling interest in terms of managerial policy.
It could only have been a passive investment so there
would have been no opportunity for entrepreneurial
input.  It's got "boondoggle" written all over it.
--

6.  "The AGSOC would be controlled by
citizen/shareholders directly empowering each
individual economically. The Fund is controlled by
representative government -- with the entire
undemocratic shortcoming that entails -- a small
gaggle of politicians and their well paid investment
advisors."

[Ryan]  This is not worthy of comment--particularly
in light of the actual history of the Permanent Fund
for the past quarter century.  http://www.apfc.org/
--




          ---in reply to---

>From : "Senator Mike Gravel"
To : <william_b-ryan@hotmail.com>
CC : <thirdway@cesj.org>, <ownership@cog.kent.edu>,
<socialcredit@topica.com>,"Rodney Shakespeare"
<rshakes@globalnet.co.uk>
Subject : Alaska General Stock Ownership Corporation
(AGSOC)
Date :  Wed, 30 Apr 2003 14:46:49 -0400

Dear William B. Ryan:

I don't know the source of your information, but you
are totally in error about what I was trying to do in
the late seventies in Alaska with respect to a
portion of the pipeline in Alaska. I hope you will
make an effort to correct the dissemination of this
false information.

My plan called for the purchase of British
Petroleum's (BP) 1/6 interest in the pipeline by
assuming their bonds and a cash payment, [which would
be funded by] the proceeds of a loan or additional
bonds that would be secured with the collateral of a
"take or pay contract" with the state for moving its
royalty oil through the pipeline to Valdez.

This arrangement would have produced a cash flow
sufficient to amortize all the debt and produce a
profit sufficient to initially pay out $300 to each
Alaska shareholder of the AGSOC.

BP had informally agreed to the sale. Several years
later, a BP official told me that the sale would have
been a mistake for them since the pipeline revenue,
unrelated to the fluctuations in oil prices, was the
only guaranteed revenue they had in Alaska.

The AGSOC plan, develop by Louis Kelso and myself,
did not require an investment by any Alaska citizen
or the state. The state was moving its oil at the
tariff rate regardless of ownership. There was no
investment of state royalties ever contemplated. The
plan was a classic use of credit under Kelso's Two
Factor economic theory. The wealth in question was
created by the capital ownership in the pipeline
through the use of credit -- that's the way the rich
folks do it.

The royalty oil revenue is an entirely another
matter. The Permanent Fund was merely a set-aside of
that revenue to be invested and the profits from
which are to be distributed to Alaska citizens. It
also is a dwindling asset depending on the nature of
the funds investments. All production tools a[re]
dwindling investments.

The difference between the AGSOC and the Permanent
Fund (which I supported when it was obvious the state
was not going to make the proper capital
improvements) is a matter o[f] control. The AGSOC
would be controlled by citizen/shareholders directly
empowering each individual economically. The Fund is
controlled by representative government -with the
entire undemocratic shortcoming that entails -- a
small gaggle of politicians and their well paid
investment advisors.

There is a lot more to the political side of this
story, but time does not permit me to elaborate.

Senator Mike Gravel
U.S. Senate 1969-81
703-516-4056 fax 703-516-4056
SenGravel@ni4d.us
Web site: www.ni4d.us
-

>From : "Norman G. Kurland" <thirdway@cesj.org
Reply-To : ownership@cog.kent.edu
To :    "Gravel, Senator Mike" <sengravel@p2dd.org>,
COG Ownership - Dan Bell <ownership@cog.kent.edu>
Subject :       [Fwd: OWNERSHIP: Re: Alaska dividend
model for Iraq]
Date :  Wed, 30 Apr 2003 13:38:58 -0400

Mike,

Do you care to comment on this critique of your
proposal? The writer is hostile to binary economics.

Norm

-------- Original Message -------
From: "William B. Ryan" <william_b-ryan@hotmail.ccm>
Subject: OWNERSHIP: Re: Alaska dividend model for
Iraq
To: ownership@cog.kent.edu
CC: socialcredit@topica.com

Gravel's proposal was to invest the state's royalties
in acquiring the pipeline, which would have been
putting all of Alaska's eggs into one basket. It
would have been a windfall for the bought-out owners
and the "advisers" who put the deal together.
Moreover, it would have been an investment into
infrastructure which would have dwindled in value as
Alaska's oil was depleted.

The Permanent fund--approved by the voters in
referendum--follows the prudential rule of
diversification, by investment in stocks, bonds and
real estate--which will directly provide income to
the people of Alaska forever.




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