So far, the LightSquared story has mostly been written as one of the FCC favoring a politically-connected company at the expense of its competition, and that favoritism having resulted in nothing but waste.  See, for example, today’s Coffee and Markets podcast on the subject. Their related links (Documents: LightSquared shaping up as the FCC’s Solyndra and Documents show Obama’s FCC used regulatory muscle to destroy LightSquared’s competition) pretty much give the outline.  It’s a simple story, and one that fits in neatly with an overarching narrative, as they like to say, of political money buying regulatory help.

As usual, the story is more complicated than that.  And as usual, the full story makes things look even worse.

The Wall Street Journal ran a story discussing just how badly the FCC had tied itself up in knots over this.  First, they declared a looming bandwidth shortage, and then quickly auctioned off additional spectrum, spectrum that happened to lie near to that used for GPS.  This was done years ago, and Falcone and his people no doubt assumed that the FCC wouldn’t be selling spectrum that couldn’t be developed.  Having gotten the favor, they then were surprised when the FCC didn’t turn around and tell the GPS people that this was coming, and that they should shield their equipment – technically well within their capability.  Having failed to do that, they now have to argue that there’s no spectrum shortage, after all.

Even assuming that the FCC wasn’t out to clear the field for LightSquared, they failed badly in their regulatory duty here.  The FCC has complete control over this stuff.  They can decide how, where, and when spectrum gets exploited, and by whom.  Either there is or isn’t, was or wasn’t, a spectrum shortage that will imperil future growth.  Either the spectrum neighboring the GPS wavelengths is or isn’t usable.  Either the burden of preventing interference lies with LightSquared (or whoever buys this tainted real estate from them), or it lies with the GPS companies.

Either the FCC didn’t know how it was planning to resolve this issues, or didn’t care.  Or else, it knuckled under to a multi-million dollar lobbying campaign, in which case, what’s the point of claiming “independent” regulatory agencies are any good at all?  If the FCC was throwing around its weight to help LightSquared, all these regulatory conflicts become even worse, leading other investors to throw their money after an investment the FCC must have known was headed for an iceberg.

The other example comes from the Department of Transportation:

Transportation Secretary Ray LaHood announced a $54.6 million loan to Kansas City Southern Railway Company (KCSR) for the purchase of 30 new General Electric ES44AC locomotives. These diesel-electric locomotives, built in Erie, Pennsylvania, will help KCSR meet increasing economic demand, and are more energy-efficient and produce significantly less carbon emissions than the locomotives they are replacing.

That’s nice.  Railroads have had a very nice couple of years, and with the absence of KeystoneXL, are likely to have even more business, at least in the short term. Kansas Southern has a $7.8 billion market cap.  It’s already carrying $1.6 billion in debt.  Its quarterly depreciation expense is almost $50 million, or just about the size of the loan.  Its operating cash flow was $170 million last quarter, and it showed a net income of $300 million.  And it’s not as though GE is going to file for bankruptcy protection if it doesn’t get a $50 million order.

This from the same administration who reflexively defends a perfectly reasonable accounting change (see The Death of LIFO) by attacking oil companies, rather than by defending the change on its own merits.

The problem with both of these stories is that the finance is bound up inextricably with the politics.  Analysts work by examining the underlying economic return, and to the extent that there are regulatory issues, they ought at least to be predictable or bounded.  Companies getting regulatory benefits they can’t use, or subsidies they don’t need, don’t do anything to help create real wealth.