Legal Philistines

"I am delighted to be here and to have the opportunity to discuss with you a subject of great importance and mutual concern. This subject is the intellectual content of law--or lack thereof. ... Indeed, I believe that law as it it taught, studied, adjudicated, and practiced in this country is insufficiently intellectual. I will be saying the same thing if I say American law is too provincial, too Philistine; that it is self-satisfied; that it is intellectually isolated; that it is for the most part derivative and unoriginal; that it is becoming less intelligent, less useful, and less relevant every day; that it is a prey to fads and charlatanry; that it has low standards; that it is methodologically reactionary and compromised, politically timid, and prone to pandering; and for good measure, that it is anticompetitive", 16 N. Kentucky Law Review, 415, 415, "Philistinism In Law", Posner, Richard (1989). "There can be little doubt that law affects behavior by altering incentives. ... But lawyers tend to believe that law affects behavior not only by changing incentives but also and perhaps more importantly by changing attitudes, which in turn affects behavior. ... Perhaps so, but where's the evidence?", 417. Lawyers skills "do not, in other words, enable our legal rules and institutions, and proposed changes in them, to be analyzed. For that type of evaluation other skills are needed--skills not imparted at any stage in the training of a lawyer", 418. "First, lawyers ought to know the principles of statistical inference", 420. "Lawyers and judges therfore ought to understand how to reason from probabilities. The law of evidence is based to a large extent on intuitions about probability, and many of these intuitions may be incorrect. Every law student should be required to demonstate a mimimum proficiency in statistical analysis. ... Second, and related, law students should study psychology. ... The relation to statistics lies in the fact that persons unacquainted with statistical principles tend to make serious mistakes in dealing with unfamiliar or low probability events. ... Third, law students ought to study the theory of social or collective choice, with particular reference to voting theory and interest groups. ... Fourth, law students should be required to study the legislative process", 421. "Fifth, and still related, law students need a course in political theory. ... Sixth, law students need to study jurisprudence, the field that explores the most fundamental questions about the law. ... Seventh, law students have to study the legal system--our own and that of representative foreign countries. ... Eighth, law students should have a working knowledge of the theory of finance", 422.

Is that all Judge Posner?

Fed Transparency

"To the conspiracy theorists, the [Fed] is a dangerous, shadowy and unaccountable organisation--like the [UN] or CIA but without the black helicopters. For more than 200 years, [sic, the Fed was founded in 1913] critics of the central bank have railed against an alleged lack of transparenncy, a threat to the fabric of the US by unelected moneymen. ... Defenders of free-market capitalism worry about the actions of Ben Bernanke, Fed chairman, who is alleged to have coerced Bank of America into completing its acquisition of Merrill Lynch in spite of mounting losses. ... There are fears of global skullduggery that Mr. [Ron] Paul outlined as he cross-examined Donald Kohn, vice-chairman of the Fed, last week. 'You say it's the public's interest, I don't that [that] reassures a lot of people, because all of a sudden we think, "What are you doing? Are you protecting the bankers' interests?"' ... Defenders of the Fed--including Tim Geithner, the former New York Fed chairman who is now Treasury secretary, and Barney Frank, the House financial services committee chairman--are trapped. ... The Fed does not believe that the sky will fall in if it faces more audits from the Government Accountability Office, as Mr. Paul's bill proposes, but it is concerned about the movement towards increased congressional oversight and the potentially chilling effects of its board discussions", Tom Braithwaite at the FT, 15 July 2009.

The move toward more Fed transparency is laughable. To effect monetary policy, the Fed must mislead the market. Think about it. Kill the Fed. Now! I don't ask if the Fed protects bankers. That's one of its jobs!

Another Educational Miracle

"But a new education study suggests that those acacdemic gains aren't what they seemed. The study also helps explain why big-city education reform is unlikely to occur without school choice. ... But according to 'Still Left Behind,' a report by the Commercial Club of Chicago, a majority of Chicago public school students still drop out or fail to graduate with their class. Moreover, 'recent dramatic gains in the reported number of CPS elementary students to meet standards on state assessments appear to be due to changes in the tests ... rather than real improvements in student learning.' ... Under the 2001 No Child Left Behind law, states must test annually in grades 3 through 8 and achieve 100% proficiency by 2014. ... The new Chicago report explains that most of the improvement in elementary test scores came after the Illinois Standards Achievement Test was altered in 2006 to comply with NCLB. ... But results from the National Assessment of Educational Progress exam, a federal standardized test sponsored by the Department of Education, show that only 13% of the city's 8th graders were proficient in math in 2007. While that was better than 11% in 2005, it wasn't close to the 39 percentage-point increase refelcted on the Illinois state exam. ... In 2006, [Arne Duncan] responded to a Chicago Tribune editorial headlined, 'An "A" for Everybody!', by noting (correctly) that 'this is the test the state provided; this is the state standard our students were asked to meet.' But this doesn't change the fact that by defining proficiency downward, states are setting up children to fail in high school and college", Editorial at the WSJ, 18 July 2009, link: http://online.wsj.com/article/SB124786847585659969.html.

See my 1 September 2008 post and comments, link: http://skepticaltexascpa.blogspot.com/2008/09/dead-elephant-in-living-room.html. Is anyone surprised by this?

Junior on Kohn

Junior rips Donald Kohn (DK) Junior Deputy Accountant, 9 July 2009, link: http://www.jrdeputyaccountant.com/2009/07/incredulous-as-ever-fed-vice-chair-kohn.html. Junior took DK's head off! Junior must be a Moslem at heart. If she gets bored where she is, she has a promising career ahead (ugh) of her in Saudi Arabia. As an executioner! Swing that sword Junior!

"A top [Fed] official warned lawmakers Thursday that intruding on the central bank's long-held independence on monetary policy could raise inflation fears and push long-term interest rates higher. Testifying before a House Financial Services subcommittee, Fed Vice Chairman Donald Kohn pushed back against congressional efforts to rein in the Fed and widen politicians' authority to audit the central bank", Sudeep Reddy at the WSJ, 10 July 2009, link: http://online.wsj.com/article/SB124716141172118959.html.

Is DK saying interest rates are below where he believes the free-market would set them? If so, I agree. Here I go with my answer to "Carthage must be destroyed". "Got gold? Get more. Got bonds? Sell, immediately"!

Banks' Toxic Brew

"The banks stubbornly refuse to understand that they are not the public's masters, but that their favored position in society will exist only so long as they are tolerated by the public. ... But an increasingly impoverished American public may not really care about the long-term implications of radical action, not if they are forced to watch Wall Street bankers pay themselves $700,000 bonuses out of their taxes as they lose their jobs and homes. If the chairman of the [Fed] is wise, he will accept congressional demands for an audit of the central bank and abandon the outmoded Finance First theory of economic development, for if he does not, he may well find the Federal Reserve System being burned down by an angry and irrational American public", my emphasis, Vox Day (VD) at WorldNetDaily, 6 July 2009, link: http://www.wnd.com/index.php?pageId=103143.

Jefferson said, "Banking Establishments are more dangerous than standing armies". Lloyd Blankfein (LB), you fool. Give up the bonuses. If you do when we elect a new Jackson, you might keep your head. Otherwise, you may get Marie Antoinette's treatment. Are you this stupid? You went to Harvard, AB and JD and was no affirmative action admit. What's your excuse? Disagreeing with one thing VD wrote, why would burning the Fed down be "irrational"? It's an instrument of class oppression, bankers use it to oppress non-bankers. Repeal the Federal Reserve Act. Storm our Bastille!

Supposedly a Emporer once asked Confuscius "What do you need to run an empire"? Confuscius responded, "Three things. Military equipment, food and the confidence of the people". "If the Emporer must give up one. Which"? "The military equipment. For if he still has food and the confidence of the people, they will fight for him with rakes and hoes". "If he must give up another, which"? "The food, for when he loses the confidence of the people, he loses his head". LB, the food is almost gone. Do you understand what that means? My previous references to Marie Antoinette and other relevant posts are: 7 November 2007, 26 and 30 November 2008 and 8 June 2009:

http://skepticaltexascpa.blogspot.com/2007/11/goldman-sachs-meets-marie-antoinette.html.

http://skepticaltexascpa.blogspot.com/2008/11/welcome-aboard-carl-icahn.html.

http://skepticaltexascpa.blogspot.com/2008/11/more-good-news.html.

http://skepticaltexascpa.blogspot.com/2009/06/lloyd-antoinette-blankfein-and-ft.html.

Diversity and the Navy

"'Naval Academy Professor Challenges Rising Diversity,' ran the headline in the Washington Post. The impression left was that some sorehead was griping because black and Hispanic kids were finally being admitted. ... 'Of the 1,230 plebes who took the oath of office at the Naval Academy [NA] in Annapolis this week, 435 were members of minority groups. It's the most racially diverse class in the nation's 164-year history. Academy leaders say it's a top priority to build a student body that reflects the racial makeup of the Navy and the nation.' ... According to [Bruce] Fleming, who once sat in the board of admissions, white applicants must have all As and Bs and test scores of at least 600 on the English and math parts of the SAT to even qualify for a 'slate' of 10 applicants, from which only one will be chosen. ... If true, the US [NA] is running a two-tier admissions system of the kind that kept Jennifer Gratz out of the University of Michigan and was declared unconstitutional by the Supreme Court. 'Minority applicants with scores and grades down to the 300s and Cs and Ds also come through after a year at our taxpayer-supported remedial school, the [NA] Preparatory School.' ... Yet, Chief of Naval Operations Adm. Gary Roughhead and the Superintendent of the [NA] Vice Adm. Jerry Fowler seem quite proud of what they are doing. ... 'First of all, we're dumbing-down the [NA],' charges Fleming. 'Second of all, we're dumbing down the officers corps.' ... 'Diversity is our number one priority,' Roughhead is quoted. Can one imagine Adm. Chester Nimitz or 'Bull' Halsey making an insipid statement like that? Can one imagine what Adm. David 'Damn the torpedoes! Full speed ahead!' Farragut would have thought of such a policy?", my emphasis, Pat Buchanan, 6 July 2009, at http://www.worldnetdaily.com/index.php?pageId=103293.

"Diversity is our number one priority". Is that from 1984? Is the US Navy Orwell's Ministry of Peace? Remember, "War is Peace; Freedom is Slavery; Ignorance is Strength". That's our Navy's motto today. Fowler and (misnamed) Roughhead are "metrosexual officers", see my 2 December 2008 post: http://skepticaltexascpa.blogspot.com/2008/12/security-and-specialization.html.

This is Justice?!

"When Rudy Giulani was a federal prosecutor in New York 20 years ago, his staff members used to play a game in which they would pick a high-profile and popular person like Mother Teresa and figure what federal crime they could pin on her or him. No one could escape and in the end, no person that they named was able to slide away without having committed at least one crime for which a stretch in prison was in order. ... Most Americans have never seen a federal court, much less have found themselves in the federal dock, and they are not familar with how the system works. Indeed, when they read of another federal guilty plea or see a federal conviction in the news, they usually assume that the person was guilty of something, otherwise, he or she would not have been charged in the first place. ... Thus, it was that on April Fool's Day earlier this year, a federal jury in Charlotte, North Carolina , convicted real estate attorney Victoria Sprouse of a number of charges related to alleged mortgage fraud. ... Not surprisngly, the TV and print journalists got it wrong. ... The federal courts have become an American version of the 'Bread and Circuses' routine that once kept the Romans happy as the government around them became increasingly tyrannical and arbitary. ... However, one asks, how was she convicted? ... The key to understand this case is not necessarily knowing the testimony that backed the prosecution; effectively rigged this trial. ... The prosecution's strategy was obvious. If Sprouse could be denied adequate counsel, as $25K is not going to buy anything more than an attorney who wants to plead out right away, then an conviction was as good as done. ... Most court-appointed attorneys plead out their clients, bill hourly, and pocket the money. The key is cutting deals with prosecutors and letting the court know that the defense is not going to be a problem and will 'play ball' with the prosecution. ... Harvey Silverglate, one of the country's finest civil libertarian attorneys, has noted in his forthcoming book, Three Felonies a Day, that much of current federal criminal law much more closely mirrors the law of the former Soviet Union than it does anything we have inherited from Great Britain. Indeed, one wonders why [Matthew] Martens and Chertoff don't have busts on their desks of Stalin's secret police head, Laverty Beria, who famously declared: 'Show me the man, and I will find you the crime'," original italics, my emphasis, William Anderson (WA) at Lew Rockwell, 7 July 2009, link: http://www.lewrockwell.com/anderson/anderson254.html.

William Rhenquist (WR), my favorite Supreme of the last 30 years, often decried criminal law's increasing federalization. WR reviewed the statutes and concluded he was guilty of some felonies! Our Chief Justice? Yes! WA's point about criminal defense attorneys is well taken. Once paid, their incentive is to plead a client out. Suppose an attorney charges a client $100,000 to represent him in a white collar criminal case, not that much today. At $300 an hour, that's 333 hours to trial. Suppose the attorney can plead the client out in 50 hours, that's $2,000 an hour. Where are the attorneys incentives? Further, suppose the federal prosecutor wants to go into criminal law. What will he do? Knowingly overcharge cases to induce plea bargains, so when he is on the other side of the table, he gets his. As Cardinal Richelieu, 1585-1642, said, "If one would give me six lines written by the hand of the most honest man, I would find something in them to have him hanged". I would have chosen Andrey Vishinsky instead of Beria, but WA's point is made. Why indict nobodys like Sprouse? To divert public attention from Wall Street, i.e., "look at her. She did it"! An interesting article on "contingency" fee economics is: 22 Stanford Law Review 1125, "An Economic Analysis of the Contingent Fee in Personal-Injury Litigation," Schwartz and Mitchell, (1970). Despite defense bar claims, these fees do not encourage "excessive litigation". At least in my view. Similar principles apply to criminal defense attorneys.

Diversity in China?

"So grave was the crisis in western China that President Hu Jintao canceled a meeting with President Obama, broke off from the G8 summit and flew home. ... In 1989, fear that what was happening in Eastern Europe might happen in Beijing produced Tianannment Square. The flooding of Chinese troops into Xinjiang bespeaks a fear that what happened to the Soviet Union could happen to China. Unlike, Mikhail Gorbachev, the Chinese, as they showed in Tibet, will wage civil war to crush secession. ... Where Beijing floods its borderlands with Han to reduce the indigenous populations to minorities, and stifles religious, ethnic and linguistic diversity, America declaring 'Diversity is our strength!' invites the whole world to come to America and swamp her own native-born. ... Without the assent of her people, America is being converted from a Christian country, nine in 10 of whose ancestors traced their roots to Europe as late as the time of JFK, into a multiracial, multiethnic, multilingual, multicultural Tower of Babel not seen since the late Roman Empire. The city farthest along the path is Los Angeles, famous worldwide for the number, variety, and size of its ethnic and racial street gangs. Not to worry. It can't happen here", Pat Buchanan, 9 July 2009 at: http://vdare.com/buchanan/090709_ethnonationalism.htm.

"Zhang Weiyi grew up in Urumqi, the capital of China's Xinjiang region, a second-generation Han Chinese resident living alongside the ethnic Uighurs native to Urumqi. ... Among the dead is his father, a man who had embraced the city's ethnic diversity. 'We never thought something like this could happen,' the 24-year-old Mr. Zhang says, sobbing. 'We buy vegetables together, we eat the same food,' he says, referring to his Uighur neighbors. 'They were my classmates.' ... Whether people like Mr. Zhang and his Uighur neighbors can find a way to reconcile will be a key factor in determining whether peace can hold in the region. ... Han, who make up more than 90% of China's 1.3 billion people, have been migrating to Xinjiang in ever larger numbers since China's Communist Party took control of the region in 1949. ... Today, Hans account for at least 40% of Xinjiang's roughly 20 million people. Many Uighurs resent the Han influx, which they see as an effort to dilute their culture and usurp economic opportunities", my emphasis, Shai Oster and Jason Dean at the WSJ, 10 July 2009, link: http://online.wsj.com/article/SB124713641544717543.html.

"The myth of a monolithic China was shattered this past week. Running barely beneath the surface of what the government has sought to portray as a 'harmonious' society, the fracture created by the Urumqi and Lhasa riots threatens to shake the country. ... China is also concerned about the 'Kosovo effect,' accusing its Muslim and other ethnic minorities of seeking outside international (read Western) support for separatist goals. But ethnic problems in President Hu Jintao's China go far deeper than the 'official' minorities, Sichuanese, Cantonese, Shanghainese, and Hunamese are avidly advocating increased cultural nationalism and resistance to Beijing central control ... Officially, China is made up of 56 nationalities: one majority nationalisty, the Han, and 55 minority groups. ... The supposedly homogenous Han speak eight mutually unintelligible languages. ... By the mid-1980s, it had become clear that those minority groups identified as official minorities were beginning to receive real benefis from the implementation of several affirmative action programs. The most significant privileges included permission to have more children (except in urban areas, minorities are generally not bound by the one-child policy), pay fewer taxes, obtain better (albeit Mandarin Chinese) education for their children, have greater access to public office, speak and learn their native languages, worship and practice their religion (often including practices such as shamanism that are still banned among the Han) and express their cultural differences through the arts and popular culture", Dru Gladney at the WSJ, 11 July 2009, link: http://online.wsj.com/article/SB10001424052970203547904574279952210843672.html.

"The question of why this happened and what went wrong between the Han Chinese and Uighurs who have been living together so closely in this neighbourhood for so long meets with a confused and helpess silence. ... Most eyewitness accounts say that the violence started on the night of July 5 with attacks by Uighur men on Han people and property, an account that has been repeated by the government. ... In the wake of foreign media accounts of Han retaliation last Tuesday, which was not reported in China's state media, and analysis and comment on the failure of Beijing's minorities policies, some sections of the Chinese media have accused foreign journalists of a bias in favour of the Uighurs. ... Many Chinese internet users also expressed their disgust at what they called subjective reporting, distortion of facts and demonizing of China. ... First, it sent military and paramilitary troops there with the double task of securing the territory on the fringes and developing its economy by building roads and starte farms", Kathrin Hile at the FT, 13 July 2009.

"Just as the Russians fear Chinese influence over Siberia, so the Chinese fear that Muslim Xinjiang could drift off into Central Asia. ... As things stand, the break up of China looks very unlikely. Over the long term, a steady inflow of Han immigrants into Xinjiang and Tibet should weaken separatist tendencies", my emphasis, Gideon Rachman (GR) at the FT, 14 July 2009.

"These were premeditated and organized crimes of violence, directed and instigated by separatists abroad and organized and carried out by separatists inside the country. ... Some people with ulterior motives inside China acted in collusion with the [Wolrd Uighur Congress] WUC. ... Hundreds of people gathered at the dictated time and areas, and started beating, smashing and looting at 8:18 p.m. The rioters began their barbaric sabotage of arson and killing, wreaking havoc in streets, alleys and the area connecting the city and the countryside. They tried to kill any Han person within sight, and smashed and set fire to stores and vehicles. ... We are unequivolcally against ethnic separatism, terrorism, extremism and violence, committed in whatever name. Unity among all ethnic groupos, social harmony and stability represent the highest interests of the Chinese nation, the 21 million people of all ethnic groups in Xinjiang included. ... Their trick is to try to clear themselves of their evil acts, mislead the international community, and win its sympathy and support by playing the 'victim card,' and disguising mobsters are the 'underprivileged' and 'peaceful protestors'," Wang Baodong (WB) letter to the WSJ, 15 July 2009, link: http://online.wsj.com/article/SB124762185860842743.html.

"Turkey has long been a haven for disaffected Uighurs, including Isa Yusuf Alptekin, the pre-eminent leader of Uighur nationalism until his death in 1995. ... In contrast, most Western and Muslim countries have not seen much benefit in riling China over an issue that arouses little international attention compared with human-rights abuses in neighbouring Tibet. ... Mindful of China's proximity, and of the danges of being sucked into further unrest, the 'stans' have taken a dim view of Uighur separatism", my emphasis, Economist, 16 July 2009, link: http://www.economist.com/world/asia/PrinterFriendly.cfm?story_id=14052216.

"But over the years, [Uighur] culture has been threatened by a steady influx of Han Chinese. The result: resentment and unrest. ... Many Uighurs complain that they have become second-class citizens in their own homeland", Simon Elegant at Time, 20 July 2009.

"Earlier this year, a Guangdong toy factory imported 800 Uighur workers as part of a government affirmative-action program. This angered Han workers--memebrs of China's dominant ethnicity--who didn't enjoy the same free room and board. ... Meanwhile, many Han are resentful that Uighurs get preferential treatment from Beijing--including job placement, easier college-entrance-exam requirements, and exemption from the one-child-per-family rule--and see them as ungrateful, especially now that provinces with large minority populations are receiving a generous share of stimulus funds", Melinda Liu at Newsweek, 20 July 2009.

"As Chinese leaders look to prevent another outbreak of ethnic violence, they face a key question: how to spread China's growing wealth to its ethnic minorities when they are losing control over even their traditional industries? ... Although the immediate catalyst for the attacks appears to have been the murder of two Uighurs in a southern Chinese factory, longer-term problems have simmered. Like Tibetans, who rioted last year against Han partly in protest of growing Han control of their region's economic life, many Uighurs feel that Han as taking over Xinjiang's economy. Most galling to some Uighurs, Han seem to be taking over traditonal Uighur industries--from tradtional markets to Muslim foodstuffs. ... Even some large companies making halal foods--those prepared according to Muslim purity laws--are run by Han and not by Uighurs. ... China aims to help its minorities through an array of generous policies, from easier college admission to soft loans and hiring requirements. Some of these have helped create a small class of prosperous Uighurs who sit on government advisory boards and have risen to top levels in the region's government", Ian Johnson at the WSJ, 21 July 2009, link: http://online.wsj.com/article/SB124811293085765891.html.

China sends Han to Xianjiang to keep it under control. What is Mexico doing to the southwestern US?

The WSJ is sympathetic to the Uighurs' plight in China. I've yet to see it show such sympathy to the plight of non-Hispanics in California. Han migration to Xinjiang followed a war. Did we have a war with Mexico, lose and I am unaware of it? Dilute Uighur "culture", clearly, but not "usurp economic opportunities". Instead make economic opportunities.

What really happened in the Balkans? Affirmative action in the People's Republic? Hmm. More children? Hmm. Like Hispanics in California. "By 2005, accordsing to the World Bank, [Mexico's total fertility rate, TFR] was 2.1--the same as the US rate. ... According to the [Center for Disease Control] data released in 2006, ... Mexican women in the US had a TFR of 2.9. ... So think about it. Women in Mexico have dramatically reduced their fertility rate, right down to US levels. But Mexican women who come to the US have more children than they would have had they stayed in Mexico. ... Why is that? ... As a people, we never directly chose this destiny, nor were we even asked about it. But we're expected to pay fo it, and be happy about it, as our nation is transformed into part of Latin America before our very eyes", Allen Wall at Vdare, 23 March 2009, link: http://www.vdare.com/awall/090323_memo.htm. I think China will transform Xinjiang into whatever it wants, the Uighur's opinion notwithstanding.

China's experience in Xianjiang province sounds like that of Kibbutzniks in pre-1948 Palestine or West Bank "settlers" today. Israel has an opportunity to tell China "we feel your pain. The European press has demonized us for decades. We give Moslems affirmative action programs too. We will send an emissary to cry with you".

I wonder if a "steady [in]flow of [Mexican] immigrants into" the American Southwest "should [heighten] separatist tendencies". Well, GR, what say you?

WB is a spokesman for the Chinese Embassy in Washington, DC. Next, WB will call the Israelis for suggestions on how to deal with China's "Palestinians". It could happen.

That's intersting. The Moslem world is little interested in the Uighurs plight in China. Why?

I wonder if the Uighurs are "racist". Or, since they are third-worlders, they can't be.

Quoted without comment.

"Look, up in the sky. It's a bird, it's a plane". No it's not Superman, but Al Sharpton. China clearly needs him. Al, step up. Your country needs you to set the Chinese right. Charge the Chinese a fortune and balance our payments. If China keeps up its current policies, it will become California. Interestingly, Han Chinese control most industries in Malaysia, which is 60% Moslem. Malaysia has Moslem "set-asides" for Bumiputras, the "sons of the soil". Why? Because they can't compete with the Chinese who are called the "Joos of Asia". Interesting. I see a trend here.

SEC Whistleblowers?

"Regulators should pay whistleblowers for information about frauds, according to an official investigating the US [SEC's] failure to uncover Bernard Madoff's $65bn scam. David Kotz, SEC inspector-general, said 'bounty' schemes, would provide 'necessary incentives' for individuals to bring complaints about possible illegal activity. There was evidence that similar programmes by the [DOJ] and the [IRS] had been effective, he said. ... The current system applied only to insider trading cases and criteria for judging awards were 'vague'. ... Since missing the Madoff fraud, the SEC has been hit by an avalanche of criticism. Credible allegations about the scam were brought to its attention by Harry Markopolos, a whistleblower, for at least a decade. ... His recommendations reinforce proposals by the US Treasury and the SEC for making better use of whistleblowers and the thousands of complaints and tips that flood into regulators' offices every year", Joanna Chung at the FT, 2 July 2009.

"Sir, While the inspector general of the [SEC] is right to propose a new bounty programme to encourage whistleblowers (July 2), such a programme would be pointless without a requirement that the SEC actually investigate reports of investor fraud and pursue the ones deemed worthwhile. The SEC already receives plenty of whistleblower and investor complaints--more than 700,000 annually. The problem is that important information about significant cases of investor fraud--such as Bernard Madofff's scheme--get buried in with crackpot complaints. There's no question the [DOJ's] bounty programme created under the False Claims Act [FCA] to stop fraud against the government has been successful, with recoveries from whistleblower cases totalling more than $14bn", my emphasis Erika Kelton (EK), letter to the FT, 6 July 2009.

Is Kotz serious? The DOJ's whistleblower program is a sick joke. The SEC's will be no better.

EK is an attorney at Phillips & Cohen. EK, I disagree. Requiring the SEC to do anything will give miscreants an incentive to drown the SEC in bogus complaints. The SEC should adopt my "Blankfein Test". I doubt Markopolos' information was buried. The SEC works this way in my experience: whoever read the information noted Markopolos was a nobody; Madoff a somebody. Stop. That the DOJ recovered $14 billion from whistleblower cases proves nothing. The DOJ intervenes in about 14% of FCA cases. We don't know how many billions, or tens of billions, the DOJ "left on the table". EK, you commited a Type One Error. Back to statistics class.

Japanese Justice

"However, new tests showed that Mr. Sugaya's DNA did not match samples linked to the crime, forcing authorities to accept that he is innocent and throwing into doubt evidence used in scores of other trials. The new tests also made clear the dangers of courts' general faith in jailhouse confessions, even when, like Mr. Sugaya's, they are subsequently recanted. Amnesty International has expressed concern that Japanese police routinely obtain confessions through 'torture or other cruel, inhuman or degrading treatment', including beatings and unrelenting questioning, while lawyers complain that the courts' 99 per cent conviction rate reflects undue willingness to accpet prosecutors' accounts. ... Professional judges have run juryless trials in Japan since 1943, but under the new system lay judges drawn from voter roles will help to decide guilt and punishment. ... However, some experts say citizens may be unwilling to go against the views of professional judges, while a gag law that bars lay judges from talking about their experiences afterwards may make it hard to tell how well the system operates", my emphasis, Mure Dickie at the FT, 20 June 2009.

In Texas 98% of all felony convictions result from plea bargains. Most attorneys, in my opinion, can't try cases. Absent eyewitness testimony, they are helpless. It's not the world of Gary Sinese and David Caruso out there, but the world of "summary arrest" or walk". Japan's new system looks like a "false flag" to me.

Derivative Regulation

"Any doubt about how broadly US corporations rely on fancy financial instruments vanishes with a look at who's lobbying Congress to forestall tougher regulation. ... Many in Congress blame such instruments for exacerbating the financial crisis last fall. ... Caterpillar, which uses derivatives to offset increases in the price of copper, says new regulations may drive US companies to seek financing overseas. ... At least 42 nonfinancial companies and trade associations are lobbying Congress on derivatives, according to a Wall Street Journal analysis of lobbying disclosure forms filed through April. ... 'Not all derivatives have put the financial system at risk and they should not all be treated the same,' Janet Yeomans, treasurer of 3M, wrote in a letter to Sen. Mike Crapo (R., Idaho). ... Treasury officials say their aim is to prevent another financial meltdown caused by hidden exposure to derivatives risk. ... Companies use derivatives to hedge risk. A company that borrows money at a variable interest rate might buy instruments to turn the borrowing into fixed-rate debt. ... Lobbyists say at least 90% of Fortune 500 companies use over-the-counter derivatives. ... The clearing-house would require daily pricing of the assets which could require companies to post additional collateral, in the form of cash or short-term securities", my emphasis, Kara Scannell at the WSJ, 10 July 2009, link: http://online.wsj.com/article/SB124718445317920379.html.

Hedge, or create risks? Derivatives are zero-sum games. The risk goes somewhere. Someone must be compensated to take it. Accounting games spur much derivative use, i.e., they are used to cook books. Whether a derivative is designated a hedge or a speculation is arbitrary. If a company wanted to issue fixed-rate debt, it could have. What's really going on? An investment banker told some fool corporate treasurer his investment banking firm can predict the direction of interest rates and the company converting variable into fixed-rate debt through a derivative was told interest rates will rise. If so, why doesn't it issue say 20-year fixed-rate debt? I am close to favoring banning the sale of interest-rate swaps. Period. US corporations existed before derivatives, they can exist again without them. How can Caterpillar use derivatives to "offset increases in the price of copper"? Does it buy copper futures? They have been around for decades. If Cat is concerned, let it buy a copper mine. Hey Cat, here's an idea. Buy Asarco! Oh, and don't forget you owe me $25 million for the idea. Let US companies keep this crap overseas. Then if they need bailouts, they can go to the European Central Bank or Bank of England. See my 21 July 2009 post, link: http://skepticaltexascpa.blogspot.com/2009/07/tom-selling-on-derviatives.html.

Mark-To-Market Follies

"Several Wall Street firms seeking to buy back warrants held by the government as part of the $700 billion financial bailout are complaining that the Treasury is demanding too high a price, according to people familar with the matter. The Treasury has rejected the vast majority of valuation proposals from banks, saying the firms are undervaluing what the warrants are worth these people said. ... The inability to agree on a price has already prompted JPMorgan to take the next step in a complex process to remove the warrants from the hands of the government. The bank has waived its right to buy the warrants and will allow the Treasury to auction them in the public market, which bank executives say will result in an actual market price. ... The bank said it took the action after the Treasury rejected its bid that was based on an independent appraisal. ... Some banks have begun pushing back against some government initiatives, a move fraught with political risk. ... Some banks argue they shouldn't have to pay much, saying the government's investment was essentially a short-term loan that accepted under duress to help stabilize the financial sector. ... But the Treasury is under pressure to extract as much as possible for the warrants and avoid seeming to favor Wall Street over taxpayers. Lawmakers and the bailout's independent overseers have warned the Treasury against settling for too low a price and robbing taxpayers of a richer return. ... Treasury officials are cognizant that their actions will be highly scrutinized, with likely congressional hearings and reports, and are taking a firm line. ... Many observers, say the Treasury left money on the table. Pluris Valuation, a financial advisory firm, contends that the Treasury undervalued the [Old National Bancorp] warrants by 53%. ... Banks also can waive their right to repurchase the warrants and have the Treasury sell them at through a public auction. ... To determine what the warrants are worth, the Treasury said it will use market prices, financial models and consult outside asset managers", my emphasis, Deborah Solomon and Robin Sidel at the WSJ, 10 July 2009, link: http://online.wsj.com/article/SB124718361931620349.html.

Nothing like some sunlight on this. Suppose BigBank has warrants it wants to buy back. Their "worth"? Say $1 billion in the open market. Abracabra! Hire an "independent" appraiser. Give him $500,000 and he says, "They're worth $470 million". Sell them. The bank is $529.5 million ahead! Now wait two years. Leave Treasury. Voila, a $3 million-a-year sinecure at BigBank. 53%. Wow! That means Pluris thinks they were worth 213% of what Treasury paid for them. Consider: financial statements include warrant and stock option values based on various models. What are these financials worth? It's good to see the banks are now enamored of market values. See my 17 July 2008 post, http://skepticaltexascpa.blogspot.com/2008/07/schwartzman-and-mcteer-on-accounting.html.

Leaving LA

"If New Yorkers fantasize that doing business here in Los Angeles would be less of a headache, forget about it. This city is fast becoming a job-killing machine. It is no accident the unemployment rate is a frightening 11.4% and climbing. ... The city's bureaucrats rival Stalin's apparatchiks in issuing decrees, rescinding them, and then punishing citizens for having followed them in the first place. ... Everything was going fine until the city started running out of money in 2007. Suddenly, the city announced that it was going to ignore its own ruling and reclassify us in the higher tax category. Even more incredible is the fact that the new classification was to be imposed retroactively to 2004 with interest and penalties. ... As long as City Hall operates like a banana republic, why is anyone surprised that jobs have left the city in droves and Los Angeles in teetering on the brink of bankruptcy?", Rick Newcombe at the WSJ, 10 July 2009, link: http://online.wsj.com/article/SB124718265362620253.html.

Rick, obey Lenin. Vote with your feet. Now. Welcome to: Houston, Dallas, Las Vegas, anywhere with no income tax. If Mayor "Reconquista" wants money let him go to the Mexican consulate and see if he can get some foreign aid.

Public Pension Problems

"Here's a dilemma: You manage a public employee pension plan and your actuary tells you it is significantly underfunded. You don't want to raise contributions. Cutting benefits is out of the question. To be honest, you'd really rather not even admit there's a problem, lest taxpayers get upset. What to do? For the adminstrators of two Montana pension plans the answer is obvious: Get a new actuary. Or at least that's the essence of the manager's recent solicitations for actuarial services which warn that actuaries who favor reporting thew full market value of pension liabilities probably shouldn't bother applying. ... Based on their preferred accounting methods--which discount future liabilites based on high but uncertain returns projected for investments--these plans are underfunded by around $310 billion. ... Using [lower interest rates], University of Chicago economists Robert Novy-Marx and Joshua Rauh calculate that, even prior to the market collapse, public pensions were actually short by nearly $2 trillion. That's nearly $87,000 per plan participant. ... Some public pension adminstrators have a strategy though: Keep taxpayers unsuspecting. ... Pubic pension administrators argue that government plans fundamentally differ from private sector pensions, since the government cannot go out of business. ... The Government Accounting Standards Board, which sets guidelines for public pension reporting, does not currently call for reporting the market value of public pension liabilities", my emphasis, Andrew Biggs at the WSJ, 6 July 2009, link: http://online.wsj.com/article/SB124683573382697889.html.

If General Motors can go bankrupt, California, Michigan, New York, New Jersey or any other state can. Got muni bonds? Sell immediately.

Detroit RIP

"Battered by massive layoffs, home foreclosures and nearly a decade of economic decline, more residents of Detroit's middle-class suburbs are having a tough time putting food on the table. ... Michigan has long struggled with poverty and unemployment in its urban areas. But the spread of financial hardship has been jarring for a region where the manufacturing-based economy once provided for high wages and comfortable middle-class lifestyles. ... The problem is likely to get markedly worse in the coming months. Michigan, where the 14.1% unemployment rate is the highest in the nation, faces still more layoffs in its principal industries: auto manufacturing, which is in the midst of a sweeping restructuring, and the health-care business, which is reeling from the auto makers' benefit cuts. .... By the end of the year, roughly 100,000 residents will have lost their benefits, according to the state's unemployment agency. ... In May, the caseload for Michigan's Food Assistance Program, which administers the USDA's food-stamp aid for the state, rose to 718,277 households, up 3.1`% from April and neatly triple what it was at the start of the decade. ... In Dearborn Heights, a suburban neighborhood near Ford Motor Co.'s headquarters, one mother of two says she made her first visit to a food pantry last month, after her husband lost his job as a mechanic making between $50,000 and $60,000 a year, causing the family's finances to unravel. ... She said she didn't initially tell her husband that she had gone to a food bank for help, and the rest of her family doesn't know. They are scraping by on income from her part-time job, which pays less that $12,000 a year, and her husband's $360 a month in unemployment benefits", Alex Kellogg, at the WSJ, 10 July 2009, link: http://online.wsj.com/article/SB124718194179420129.html.

Uncle Sam spends tens of billions to keep Lloyd Blankfein in cigars and look at this.

Robert Strange McNamara, RIP

"The question I wanted to ask him was this: 'Mr. McNamara, how is it after nearly destroying the Ford Motor Corporation, then destroying Viet Nam and almost destroying the [US], and then going on to be the president of the World Bank, where you made great strides towards destroying the world economy, how it is possible that today you can be held in high regard and stand up in front of this audience without being pelted with rotten fruit and vegetables?' ... The fact that McNamara and these other number crunchers were hired by Ford is, to me, indicative of the start of the collapse of the American auto industry. ... It was him who was more responsible than anyone else for the fetish they developed for building steel mills in parts of Africa that were on the opposite sides of the continent from coal supplies, etc. It was another disaster. His career is a series of unmitigated disasters, and still, he's held in some kind of regard today. ... The US is making the same mistakes in Iraq and Afghanistan as it did in Viet Nam. ... The more the US attacks them the more they feel threatened and feel they have to counterattack. And when they do, the fearmongers in this country feel threatened, and it keep escalating. ... At some point, somebody is going to get hold of one or more nuclear devices, or maybe a biological weapon, from one source or another. There are many possible way that could happen. Then they fly it into the US on a commerical airliner and detonate it on landing, or load it in a perfectly harmless-looking commercial boat and set it off as soon as the boat docks", Doug Casey (DC) at Lew Rockwell, 10 July 2009, link: http://www.lewrockwell.com/casey/casey14.1.html.

"Intelligent idiots, smart fools, multi-degreed morons--lots of monikers could describe a category of individuals dismayingly prominent in the ruling elites of the West. They are the people so divorced from reality, so engrosed in bookish pursuits that--for all their undoubted intellectual accomplishments and often as a direct consequence thereof--they invariably end up with egg on their faces whenever they try to engage in practical activities. ... It is a common mistake of intellectuals to confuse IQ with common sense and verbal fluency with leadership qualities. ... All [of Obama's] brilliant academics have been brought on board for the sole purpose of lending an intellectual veneer to Obama's political schemes and validate his power grab. ... Which should remind us of the conduct of the Vietnam War by another undeniably brilliant man, full of theories and impressively in command of the data, Robet McNamara, 'the perfect man' in Lyndon Johnson admiring characterization, who died earlier this week at 93. John F. Kennedy brought a tean of 'the best and the brightest' from Harvard to manage the war. They invaded the Pentagon and set about doing what they did best (and actually the only thing they knew): writing learned position papers, drawing charts and measuring results. ... Finally the day came when the fateful point was reached and ... nothing happened. The enemy blithely continued fighting ", Vitor Volsky at The American Thinker, 11 July 2009, link: http://www.americanthinker.com/2009/07/the_audacity_of_conceit.html.

I disagree with DC about one thing in his piece, our war with Islamofascism. It is one more battle in the jihad against Christendom that began in 710 AD when Moslems went from Africa to Spain. DC may not like this, but it is literally kill or be killed. The Crusades were a response to Moslems chasing Christians out of the Middle East. That's history. Unlike Viet Nam, the US has not "escalated" anything in the current "Global War on Terror (GWOT)". While we are making many of the same mistakes in Iraq and Afghanistan we made in Viet Nam, we aren't fighting a GWOT. Terror, as many have noted is a tactic, not an enemy. We even arm Palestinians against Israel. Our "GWOT" is insane. DC is correct about how terrorists do not need ICBMs to set off a nuke in the US. Just float a ship into New York Harbor, dock and then kaboom. I said this years ago. For decades now, I've called Robert McNamara, the "Man Who Never Did Anything Right In His Life".

McNamara and his crowd could not conceive that people exist in the world who do not think, nor behave like us. Really.

AIG's Preposterous Suit

"Maurice R. 'Hank' Greenberg won a resounding, though not absolute, victory over American International Group. Inc. [AIG] when a jury said his current firm didn't have to hand over $4.3 billion to the giant insurer he once led. ... The trial was basically a dispute over tens of millions of shares in AIG held by Starr but used for decades when Mr. Greenberg was AIG's chief executive to fund a long-term compensation plan for AIG employees. Mr. Greenberg left AIG in 2005 while it was under investigation for its accounting. When he left, the program ended and Starr later sold off some of the shares; AIG maintains it should control the shares. The verdict is a big setback for the insurer, which has been hungry for funds to repay a federal bailout in September that rescued the storied firm from the brink of bankruptcy", my emphasis, Liam Pleven and Chad Bray (P&B) at the WSJ, 8 July 2009, link: http://online.wsj.com/article/SB124699443213407227.html.

This case was preposterous. If AIG wants money, let its sue its counterparties, like Goldman Sachs. Disagreeing with P&B, the AIG bailout "rescued" the counterparties.

Cheap Natural Gas-2?

"'Nobody was talking about $3 gas a year ago,' said James Daly, director of gas and energy supply for Nstar, the utility formerly known as Boston Edison. ... For more than a century, the US has relied on coal to produce the biggest share of its electricity. Coal now accounts for about half of the nation's electricity, compared with about 21% from natural gas. ... This isn't the first time the power industry has embraced natural gas. In the late 1990s, as states deregulated their electricity markets, a new breed of so-called merchant generators built scores of gas-fired plants, ecouraged by rosy supply forecasts and easy borrowing. ... New natural-gas discoveries, however, in Texas, Lousiana, Pennsylvania and elsewhere, have created a gas glut that analysts expect to linger. Energy consulting firm Wood Mackenzie predicts gas prices won't recover until 2015. ... 'We're pulling back the coal throttle,' said Ted Carver, chief executive of Edison International, Rosemead, Calif., which owns several coal-fired plants that sell power on the open market. ... 'There basically is no spot market for coal right now,' adds Jim Thompson, managing editor of the Coal and Energy Price Report in Knoxville, Tenn., a coal-industry newsletter. 'Coal companies are living off their utility contracts'," my emphasis, Rebecca Smith and Ben Casselman at the WSJ, 15 June 2009, link: http://online.wsj.com/article/SB124502125590313729.html.

Coal and natural gas both look cheap to me. Disclosure: I own shares of companies in both industries.

Goldman's Schtarkes

"A Goldman Sachs Group Inc. [GSG] computer programmer who quit last month was arrested and charged with stealing codes related to a high-speed trading program that he helped develop. ... According to a complaint filed Saturday, Mr. Aleynikov downloaded 32 megabytes of data from [GSG's] computer system with 'the intent to convert that trade secret to the economic benefit of someone other than the owner.' ... In the court filing, FBI Special Agent Michael G. McSwain alleged that Mr. Aleynikov claimed after being arrested that he only intended to gather 'open source' files that he had worked on, then 'realized that he had obtained more files than he intended.' ... According to the FBI, Mr. Aleynikov got a job offer earlier this year at an unnamed Chicago firm that planned to triple the $400,000-a-year salary he was paid at [GSG]. The unnamed firm is 'new' and 'intended to engage in high-volume automated trading,' the FBI said in the court filing. Mr. Aleynikov's last day at [GSG] was around June 5. ... [GSG's] surveillance systems caught the alleged breach, and [GSG] notified the FBI", Susanne Craig and Amit Efrati at the WSJ, 7 July 2009, link: http://online.wsj.com/article/SB124688855704700671.html.

"At a hearing in New York federal court on Saturday, assistant US attorney Joseph Facciponti [JF] argued that the [sic] Mr. Aleynikov's actions could harm Goldman and the capital markets. 'The bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways,' the prosecutor said, according to Bloomberg", Greg Farrell and Justin Bear at the FT, 8 July 2009.

Ed Harrison has a 10 July 2009 post at Naked Capitalism you must read and follow the link to a Jonathan Weil interview. The blogosphere is all over this. Well, Lev Dassin (LD), will you dismiss this indictment, or get laughed all over the internet? Link: http://www.nakedcapitalism.com/2009/07/bloomberg-is-coming-down-hard-on.html.

Aren't you impressed? GSG snaps its fingers and the FBI jumps. What will happen if you bring information of GSG's alleged malfeasance to the FBI? What it will do? I wonder how long McSwain will take until he finds a new job at, no, not GSG. Most prosecutors won't touch trade secret theft. They leave it as a tort. But if GSG alleges its trade secrets were stolen, jump FBI! GSG, bossman commands! With all the fraud the FBI could find, it has time for this case. What's really going on here? GSG likely told Alenyikov's new employer, Teza Technologies don't muscle in on our territory. I hope Aleyniknov forces this to trial and is acquitted. Suppose GSG went to trial on this, what then? What could come out? Remember GSG, Aleynikov can confront witnesses against him. He still has the sixth amendment. Does GSG want an open trial on this? Hahahahaha, would the Mogambo Guru say. This could be worse. Suppose GSG uses that code to engage in market manipulation. Could GSG have hired the FBI to ensure its' manipulations are never exposed? Would the FBI do that? Look at the Joseph Jett case, the Craig Gile case, etc. etc. The FBI is a Big Business tool and never forget it.

If you doubt the pervasive corruption in the SDNY US attorneys office, read JF's statement. He said GSG's market manipulations are fair. I think as JF is GSG's agent, this should be considered a GSG "admission against interest" and bind GSG. Plaintiffs' bar, start your engines! Hey LD, is JF the stupidest AUSA you've got?

IRS Defeated

"The IRS lost a key battle in its long-running fight to limit tax deductions that can be taken by investors in small businesses in a case that could have wide implications for entrepreneurs. The Tax Court decision would allow investors in certain kinds of businesses to deduct losses against salary and investment income. Right now, investors often can only deduct losses in a business against future profits from that business, which in some cases prevents taxpayers from getting to use the deductions at all. ... The decision specifically applies to investors in limited-liability companies and limited-liability partnerships and benefots those who actively work in several businesses. ... Under this decision, losses from the two businesses could offset salary or investment income earned by both. The IRS has long taken the position that losses generated by businesses held within LLPs and LLCs can't generally be used to offset salary and investment income. The IRS position has had the effect of forcing investors in LLPs and LLCs to delay loss deductions, sometimes for years. ... Investors who are active in such businesses want to use LLP and LLC losses to offset other income, but the IRS has consistently challenged that. It believes these losses should be considered 'passive' under provisions enacted in 1986", Laura Saunders at the WSJ, 8 July 2009, link: http://online.wsj.com/article/SB124698320557906557.html.

This one was a close call, but I agree with the Tax Court.

China Sells Dollars-3

"China again sought to satisfy its hunger for natural resources, as state-owned Sinopec Group, agreed to acquire oil-exploration company Addax Petroleum Corp. for 8.27 billion Canadian dollars (US$7.19 billion), in what would mark the largest oveseas takeover by a Chinese company. ... The transaction also underscores the growing appetite for risk among Chinese resource companies. ... But in the past year, Chinese state-owned companies have been encouraged to make acquisitions by a central government convinced that the global financial crisis has created an unmatched buying opportunity", my emphasis, Guy Chazan and Shai Oster at the WSJ, 25 June 2009, link: http://online.wsj.com/article/SB124584068908746803.html.

China's dollar-selling spree continues. I disagree that the "transaction also underscores the growing appetite for risk among Chinese resource companies". It's the opposite. These companies see resources in the ground as less risky over the long-run than holding US dollars. So do I.

Tom Selling on Derivatives

"The FASB's own Investors Technical Advisory Committee (ITAC) wrote a strongly-worded letter to the Financial Accounting Foundation decrying that current events have eroded the FASB's independence. ... That's because the FASB has never acted in an indepdent manner. When pressed, it folds like a cheap suit. ... The butcher's knife view of derivatives is that they are primarily used a 'hedging' instruments; and the opportunity to hedge risks promotes investment. ... First, they have been used to transfer risks to to others who may not have understood the risks, due to lack of sophistication and/or transparency. Second, and to my view the more fundamental problem, is the way that managers 'game' the derivatives accounting rules to accomplish personal objectives at the expense of shareholders. ... My client, let's call it OilCo, produced and sold oil and gas. ... But, shortly after oil prices reached a level that had not been seen for a number of years, management made the decision to invest in crude oil forward contracts. ... By entering into a forward sale of its production at a fixed price, was management of OilCo hedging against future adverse changes in oil prices, or were they speculating that oil prices would decline? ... And what the heck is a 'derivative' anyway? ... Throw away FASB Statement No. 133's hedge accounting provisions and require that all derivatives be fair valued", Tom Selling at the Accounting Onion, 29 June 2009, link: http://accountingonion.typepad.com/theaccountingonion/2009/06/regulate-derivatives-start-with-better-accounting.html.

Yes TS! I have similar experiences to yours with OilCo with two silver mining companies. SFAS 133 is a pile of economic rubbish. The FASB has been "epicycling" away with this 1,060-page monstrosity for years. Kill it. Jim Leisenring also suggested fair valuing derivatives, my 12 June 2009 post: http://skepticaltexascpa.blogspot.com/2009/06/ia-goes-to-meetin.html. Derivatives can't promote investment, they can only push around risk. They are a zero-sum game. For every "hedger" there is a "speculator". The distinction is metaphysical nonsense.

Nuclear Bananas-3

"Consider the president's declaration, in a major speech this spring in Prague, of 'America's commitment to seek the peace and security of a world without nuclear weapons.' Will such a world be peaceful and secure? It is far from self-evident. In the nuclear-free world that ended in 1945 there was neither peace nor security. ... Consider also that while the administration accepts the urgency of halting the spread of nuclear weapons, the policies it has embraced to reach that goal are likely to make matters worse. Thus, in the Prague speech, Mr. Obama announced that the US world 'immediately and aggressively' pursue ratification of the comprehensive ban on the testing of nuclear weapons. The administration believes, without evidence, that ratification of the test-ban treaty will discourage other countries from developing nuclear weapons. Which countries does it have in mind? Iran? North Korea? Syria? Countries alarmed by the nuclear ambitions of their enemies? Allies who may one day lose confidence in our nuclear umbrella? ... The attempt to do so in 1999 failed in the Senate, mostly out of concerns about verification--it simply is not verifiable. ... Suppose future problems in our nuclear arsenal emerge that cannot be solved without testing? Would our predicament discourage nuclear proliferation--or stimulate it? ... There are some who believe that failing to invest adequately in our nuclear deterrent wlll move us closer to a nuclear free world. In fact, blocking crucial modernization means unilateral disarmament by unilateral obsolescence. This unilateral disarmanent will only encourage nuclear proliferation, since our allies will see the danger and our adversaries the opportunity. ... There is a fashionable notion that if only we and the Russians reduced our nuclear forces, other nations would reduce their existing arsenals or abandon plans to acquire nuclear weapons altogether. This idea, an article of faith of the 'soft power' approach to halting nuclear prolifeation, assumes that the nuclear ambitions of Kim Il Jong II or Mahmoud Ahmadinejad would be curtailed or abandoned in response to American and Russian deterrent forces--or that India, Pakistan or China would respond with reductions of their own. This is dangerous, wishful thinking", my emphasis, Jon Kyl and Richard Perle at the WSJ, 29 June 2009, link: http://online.wsj.com/article/SB124623202363966157.html.

POTUS Obama is a child. What more can one say? "Mr. 57 States" is a total historical ignoramus. Wow. I'm softening up in my old age, I'm being nice to Obama today.

Feminist Apocalypse

"In Fareed Zakaria's book, The Post American World, we find some apt criticisms of American behavior (and Western behavior in general). ... The spoiled adult, like the spoiled child, doesn't want to do the right thing. Furthermore, he hates his better, revolts against authority, and embraces the path of self-destruction. ... But in reality, the KGB and the Russian nuclear missiles never really went away. ... I am reminded of a quote from James Burnham's book, Suicide of the West. Burnham wrote: 'I have stated as my underlying hypothesis that liberalism is the ideology of Western suicide. ... I take is as too obvious to require discussion that, if the [US] collapses or declines to unimportance, the collapse of the other Western nations will not be far behind.' ... My view is closer to Burham's view, closer to a traditional 'balance of power' view. You cannot upset the superpower balance with impunity. ... Nations may cooperate, may form leagues or collective security organizations, but alien civilizations and cultures aren't going to melt into each other under the auspices of the global market. ... From the warlord we derive patriarchy, monarchy and aristocracy--bringing an end to feminism, democracy and egalitarianism. The reversal of the present order seems rather inevitable to me. ...George Washington was a general, not a social democrat or a Wall Street speculator His task was not to homogenize. It was to oppose force with force. ... Because America is a superpower an international crisis is also engendered. Sophisticated observers in Russia and China know what I'm referring to. The unravelling of a society, a nation or a civilization is a periodic ocurrrence in history. ... We should be reminded that nations are born in blood and renewed in blood", original italics, JR Nyquist (JRN), 15 May 2009, at: http://www.financialsense.com/stormwatch/geo/pastanalysis/2009/0515.html.

"Imagine you are on the Titanic, and the ship is sinking after sideswiping an iceberg. Does it matter if you need a haircut? Under life-and-death circumstances, only life seems to matter. The trivia that clogs our existence is swept away by the sudden realization of what is actually at stake. In this sense, true philosophy is found on the deck of the Titanic. It leads us to discover what really matters; that is to say, why most things actually do not matter. ... In a speech to senior Party cadres in 2005, Chinese Defense Minister Chi Haotian once noted, 'In Chinese history ... the ruthless have always won and the benevolent have always failed.' What is true for Chinese history, however, has not been true in American history. Only those who appreciate this fact will understand what the elimination of the [US] would signify. ... Consider, in this context, the words of yet another Chinese general, Li Jijin: 'Unconsciously accepting an opponent's strategic misdirection causes a nation to be defeated or collapse, and now know why.' ... The serious strategist, looking at society's gradual surrender to one suicidal idea after another, says to himself: 'An enemy could not have devised a better engine for our ultimate destruction'," JRN, 19 June 2009, link: http://www.financialsense.com/stormwatch/geo/pastanalysis/2009/0619.html.

"In the last few years it has become obvious that we are living in the twilight of the Western Democracies. ... Does democracy carry within it a poison pill that guarantees its own eventual destruction? ... So, for our purposes, the Age of Democracy covers the last four hundred years--and may well be drawing to a close. The fact that all modern Western democratic states are exhibiting varying degrees of the same morbid symptoms compels one to suspect that the disease is inherent in democracy itself, and not in its particular forms, or the quality of its political leaders, or which countries it holds sway in. ... For the last sevety-five years or so we have been governed extra-constitutionally. ... But peace and prosperity induce somnolence and amnesia. The current state of affairs comes to seem natural and normal. It is taken for granted, instead of being known for the fortunate anomaly that it actually is. We are living in a brief golden interlude of history: the normal state of human affairs is one of brutality, bloodshed and barbarism. It will be all too easy to return to the old patterns as our vigilance wanes. ... But the decline of education and the atomization and degradation of popular culture have eroded the average person's ability to understand the nature of self-government. ... The all-pervading state is a consequence of the feminization of democratic society. The requirement that society be safe, all-inclusive, and free of conflict is a quintessentially feminine notion. Liberty--a quintessentailly masculine notion--takes a back seat when women start to drive the democratic bus. ... When violence and brutality resume their time-honored course, the femimized superstructure of our culture will be discarded quickly enough. Until then, everybody has to drink their milk, play nice and share their toys. ... Sometime in the next quarter-century the promises made to retired people, the disabled, the unemployed, and other beneficiaries of the State will have to be broken", my emphasis, Baron Bodissey at Gates of Vienna, 27 June 2009, link: http://gatesofvienna.blogspot.com/2009/06/converting-manna-to-gall.html.

Quoted without comment.

I agree with JRN.

I agree with Bodissey.

Derivatives Spread Risk?

"Since it is chillingly clear that US financial institutions have for a good while been regulated no more stringently than, say, demolition derby drivers, Washington has belatedly locked the garage door and begun to debate strict new rules. ... A basic reason for favoring regulation is that derivatives create a kind of mirage. They don't extinguish risk, they simply transfer it to a third party--a counterparty, as the term goes. ... Roughly a year later [1995], there was a rash of derivatives problems that punished companies like Proctor & Gamble and American Greetings and supported the notion that most nonfinancial CEOs didn't have a clue about the intricacies of these instruments. ... Robert Steel, a ranking member of Henry 'Hank' Paulson's US Treasury team, remembers the case against a rescue: 'Gee whiz, this isn't a depository institution. It should just go out of business.' ... Derivatives, in other words, had changed Bear from a broker-dealer that could have been simply the latest name on a Wall Street tombstone to an entity that the government needed to save because it was too interconnected to fail. ... The feds essentially decided at this point that it was better to save AIG than to risk a domino effect among its counterparties, which were about two dozen prominent financial institutions in North America and Europe. ... But the Lehman saga illustrates another toxic aspect of derivatives: They are often a mess to value. That can lead, intentionally or not, to misreported profits and assets. ... But within two weeks of the bankruptcy filing, BofA sued Lehman to recover the $357 million, saying that Lehman in fact owed derivatives payments to BofA. Ultimately BofA placed the amount it was owed at $1.95 billion! In other words, by BofA's thinking, Lehman didn't have a plus of $357 million, but rather a minus of $1.95 billion. ... Considering the unending complications of derivatives, wouldn't we be better off without them? ... 'It doesn't matter what they do in Washington,' said a New York derivatives trader recently, showing Wall Street's all too common contempt for policymakers. 'The smart guys who come out of business school don't take regulatory jobs there. The smart guys go to places where there are chances to do well. And if there are new rules, the smart guys will just deal with them and move ahead'," original italics, my emphasis, Carol Loomis at Fortune, 6 July 2009.

If "smart guys" start getting long prison terms for peddling this "financial crack", they will stop. No regulation will work as well as prison terms which smart guys can't "diversify" out of. Derivatives "don't extinguish risk ... they simply transfer it". This is key. We can use this concept to kill them. Have derivative accounting conformed at issuance and quarterly. If A says the derivative is worth $1 million, counterparty B agrees, or else the contract is closed and its value arbitrated. If A or B can't pay, it goes bankrupt. Period. Yes Steel, Bear wasn't a "depository institution". It should have gone bankrupt. I would prohibit depository institutions from dealing in derivatives. To hell with AIG's counterparties. Why bail out Lloyd Blankfein (LB)? Just because Henry Paulson is a Goldman alumus? LB has enough money, he doesn't need Joe Schmoe's. Yes, "derivatives are often a mess to value". That's one reason bank accounting stinks. I see financial statements with model derived derivative values that I believe no one would pay to buy the instrument. They look like fiction to me.

Double Tax Deferred!

"At stake: whether to continue paying AIG an annual 1.25% of assets to manage their 401(k) plan as part of an insurance contract, or switch mutual funds costing a third less. No surprise that the proposal to convert passed easily. ... Or, more aptly, the plans they were sold by people motivated by lavish commissions. Many hyped the product as a low-or no-cost proposition for employers while glossing over the fees charged to employees. A successful ruse it is. All told, insurers have lured 18,000 companies into parking $185 billion of 401(k) assets inside group annuities and similar contracts, according to an analysis by Larkspur Data Resources of plans with under $25 million in assets. 'Insurance companies cater to the smaller, less sophisticated part of the market,' says Robert Prall, managing partner of Rx Investment Solutions, which advises companies on how to build low-cost 401(k) plans, 'Every time we've gone into a company that has a group variable annuity contract, no one has really understood how it worked.' ... 'When it comes to fee abuse in retirement plans, you can put group annuities at the top of the list,' says Daniel Maul, an investment advisor in Seattle, Wash. who helps small firms set up 401(k) programs. ... The fact that annuities may be tax-deferred is irrelevant inside a retirement account, which is tax-deferred no matter how it is invested. ... The fact that group annuities are sold at all is largely a function of muddled 401(k) regulation. ... While insurance salesmen are free to present themselves as honest brokers, they are not required to regard themselves as fiduciaries with a legal obligation to put plan participants' interests first. Some insurers, including New York Life, refuse to offer group annuities", original italics, Scott Woolley at Forbes, 13 July 2009.

I kid you not. I have seen pension administrators brag about keeping 401(k) money in group annuities as they are "double tax deferred". Apparently sales hype these ignoramuses got. If Teresa Ghillarducci wants to crusade against 401(k) abuses, here is a good place to start. Ban future sales of group annuities to tax deferred plans.

Spengler on Obama

"Obama doesn't want to betray the [US]; he only wants to empower America's enemies. Forcing Israel to abandon its strategic buffer (the so-called settlements) was supposed to placate Iran, so that Iran would help America stabilize Iraq, where its influence looms large over the Shiite majority. ... In Obama's imagination, a Sunni Arab coalition--empowered by Washington's turn against Israel--would encircle Iran and dissuade it from acquiring nuclear weapons, while an entirely separate Shiite coalition with [NATO] would suppress the radical Sunni Taliban in Afghanistan and Pakistan. ... Iran has already made clear that casting America's enemies in the leading role of an American operation has a defect, namely that America's enemies would rather lose on their own terms than win on America's terms. ... The trouble is that Obama has promised to withdraw American forces from Iraq, and Iran has sufficient influence in Shiite-majority Iraq to cause continuous upheavel, perhaps even to eventually win control of the country. ... While the Pakistan army holds nothing back in attacking the Taliban, American troops in Afghanistan have been told they can no longer call in air strikes if civilians are likely to suffer. That will put American forces in the unfortunate position of the Pirates of Penzance, who exempted orphans. Once this became generally known, everyone they attempted to rob turned out to be an orphan. The Taliban need only take a page from Hamas' book, and ensure that civilians are present wherever they operate. ... Obama's policy reduces to empowering America's enemies in the hope that they will conform to America's interests out of gratitude. Just the opposite result is likely to ensure", Spengler at Asia Times, 30 June 2009, link: http://www.atimes.com/atimes/Middle_East/KF30Ak02.html.

I agree with Spengler. Again. The more I see of POTUS Obama, the more convinced I am he is an irresponsible, ignorant child. At best. At worst? Who knows? Does anyone know the story of Czechoslovakia in 1938 and how its being forced to abandon the Sudetenland left it virtually defenseless? What is Obama doing to Israel? Why? Is Obama that STUPID?

Bank Accounting May Get Worse

"Tucked into the Treasury Department's proposed regulatory overhaul is a push for banks to salt away more money for losses when times are good. ... For more than a decade, banks have been restricted by accounting standards and the [SEC] from building capital reserves for loan losses that are likely to occur, but difficult to predict. 'Banks felt under pressure to keep reserves thin,' said Eugene Ludwig, the former comptroller of the currency who now heads consulting firm Promontory Financial Group LLC. ... The reserves they set aside during good times didn't cover their losses during the financial crisis, and banks had to scramble for capital. ... 'We recommend that the accounting standard setters improve accounting standards for loan-loss provisioning by the end of 2009,' the Treasury said in the financial-overhaul plan. ... Many bankers disapprove of the current rules. JPMorgan Chase & Co. Chairman and Chief Executive James Dimon wrote in the bank's annual report, 'I find it absurd that loan-loss reserves tend to be at their lowest point precisely when things are about to get worse.' Bank of America Corp. CEO Kenneth Lewis said bankers 'ought to have maximum flexibility to allow for the judgment of management, provided, of course, everything is transparent to the investor'," my emphasis, Matthias Rieker at the WSJ, 23 June 2009, link: http://online.wsj.com/article/SB124569316530037889.html

That's it boys. Let's return to pre-SFAS 5 accounting and contingency reserves. Bank accounting stinks and if the bank-controlled Treasury has its way, will get worse. This is stupid. Accounting reserves are not capital. They are accounting entries! Dimon and Lewis are saying banks are bad at estimating loan losses. This is news? What does Timmy Boy Geithner consider an "improve[d] accounting standard"? My guess: letting banks report any numbers they want. Dimon's statement is beautiful, when else would loan loss reserves be lowest if not when things look best? Has Dimon any concept of a business cycle? For decades I believed bankers our second dumbest group of businessmen after insurance executives. I still do. "Maximum flexibility" means "we want the Big 87654 to be even more supine than they have been in the past. We want to report whatever we want and never get indicted for securities fraud".

The Supremes Win One!

"Last week, the US Supreme Court issued a significant ruling, one that upholds the right of a criminal defendant, during trial, to confront the analyst who prepared a forensic report if the prosecution plans to use that report as evidence. ... But many prosecutors, and the court minority, complained that it would place undue strain on forensic analysts and prosecutors", Editorial at the Houston Chronicle, 1 July 2009.

This case should have been another no-brainer, 9-0 decision. The sixth amendment gives us this right. What copy of the constitution do Kennedy, Roberts, Breyer and Alito have? Was the page with the sixth amendment missing? Prosecutors and forensic analysts lack of integrity used to amaze me. It hasn't in years. What they are really afraid of is: "The CSI Effect", jurors being able to spot faulty science and poor evidence handling. Jurors looking at tests performed and wondering why other tests weren't. Imagine, our Supremes came up with Daubert in 1993. What a joke.

California Real Estate Update-7

"California's median price for existing homes rose 1.4% in April from March, marking the second consecutive monthly increase in housing prices and prompting some industry officials to declare that the state's long swoon in housing values could be at or near the bottom. ... It was the first back-to-back increase in the state's housing prices in two years. ... April also marked the eighth consecutive month of single-family home sales about 500,000 units. The inventory of unsold homes continued to shrink, to 4.6 months' supply from 9.8 months a year ago", Jim Carlton at the WSJ, 29 May 2009, link: http://online.wsj.com/article/SB124353047811163187.html.

"California's median price for an existing single-family home rose for the third straight month, a sign that the state's battered real-estate market may be bottoming out. ... Prices were still well below their year-ago levels, down 30.4% compared with May 2008", Stu Woo at the WSJ, 26 June 2009, link: http://online.wsj.com/article/SB124597490775357441.html.

The long slide in California real estate appears over.

Is the SEC Toast?

"Three months ago, in a courtroom in Bridgeport, Conn., a 72-year old former Morgan Stanley [MS] broker named Richard A. Kwak was cleared of any involvement in a small-time stock manipulation scheme. ... Kwak's life is now in tatters. He is around $1 million in debt and suffers from emotional problems. He has struggled to stay out of bankruptcy. Although he is still a broker--he certainly can't afford to retire--he long ago lost his job with [MS], where he had spent several decades without so much as a hint of impropriety. Needless to say, his business is a small fraction of what it once was. ... Indeed, it was the [SEC's] Boston office--the same one that so relentlessly pursued Mr. Kwak--that Mr. Markopolos first approached about Mr. Madoff, whom he strongly suspected of financial chicanery. In 2000, 2001 and 2005, he peppered investigators with evidence that, while circumstantial, was far more compelling than anything the SEC ever had on Mr. Kwak. ... The first is that the [SEC] spends too much time going after small fry like Mr. Kwak. 'It happens more times than you can possibly imagine,' said Steven N. Fuller, one of the lawyers in the case. ... But even the new SEC enforcement chief, Robert Khuzami, acknowleged that the agency has for too long judged itself primarily on 'quantiative metrics'--that is, the number of actions it brings and cases it settles--something he hopes to change. ... Clearly, it is far easier for the SEC to add scalps by going after little guys, who will often agree to a settlement and a fine even when they are innocent. They either run out of money, or lose the will to keep fighting, or both", my emphasis, Joe Nocera (JN) at the NYT, 27 June 2009, link: http://www.nytimes.com/2009/06/27/business/27nocera.html.

"When it comes to corporate America, critics and skeptics are about as welcome as skunks at a pool party. And when companies try to silence dissenters, shareholders are often imperiled. ... Matrixx shares have fallen 71 percent since the FDA announcement. ... Last Tuesday, Matrixx's problems grew when it said the [SEC] had begun an informal inquiry into the company related to the FDA action. ... Matrixx filed a defamation suit against the posters. Then, as part of their case, it subpoeaned Tim Mulligan, an independent research analyst who had published a critical report on the company in his accounting-oriented newsletter, the Eyeshade Report. ... Over the years, he had questioned the practices of several companies that were subsequently investigated by the SEC. ... Matrixx never named Mr. Mulligan as a defendant in its defamation case, but the years of legal work and costs that he incurred defending himself against the company's subpoena finally drove him to shutter his research operation in late 2005. ... Citing regulatory filings and other public documents, Mr. Mulligan's 24-page report that August also warned that Matrixx might not be able to supply the FDA with adequate support for its claims that Zicam reduces the severity of cold symptoms. ... In an interview, [Bill] Helmet said Matrixx's subpoena was not intended to silence Mr. Mulligan. ...In addition to his dismay over the legal battle, Mr. Mulligan said he was perplexed by encounters with SEC officials regarding Matrixx. Amid his legal wrangle, he contacted two SEC enforcement officials offering his research about the company. They dismissed him as 'suspicious,' Mr. Mulligan said, and refused to provide e-mail addresses to which he could send his work", my emphasis, Gretchen Morgenson (GM) at the NYT, 28 June 2009, link: http://www.nytimes.com/2009/06/28/business/28gret.html.

Welcome aboard JN. I've questioned SEC case selection for decades. It's worse than JN thinks. The SEC chases nobodys like Kwak to avoid politically powerful defendants. In Yves Smith's parlance, it's a "feature, not a bug". Besides, could Kwak, a nobody, offer an SEC attorney a NY BigLaw job when he decides to "go private"? Hey Khuzami, how about this? Offer Kwak a position as your deputy. Well? Look at SEC disasters in cases like: Joe Jett's, the PWC Two and Gile. See my 9 December 2008 post: http://skepticaltexascpa.blogspot.com/2008/12/linda-thomsen-please-go-home.html.

The SEC should require SEC registrants filing such suits to file them on Form 8-K with a copy to the SEC's enforcement division which should intervene. If the suit was meritless, the SEC should bar the attorneys who filed it from further SEC practice. But "that will chill zealous advocacy". Tough. If you're an SEC registrant you ain't got no "zealous advocacy" in such matters. The attorneys who acted against Mulligan should be forced to reimburse his legal fees. If they don't the SEC should bar them from further practice. Welcome aboard GM. That's my SEC experience too. If you tell it about something "questionable" and you are not an "approved source", you will be ignored at best, if not investigated yourself. The SEC has approved sources? Didn't the Fed claim it had no TBTF list? Whether or not Matrixx's subpoena was "intended to silence Mr. Mulligan" is a jury question. The SEC should refer this to the DOJ and let the sparks fly. Mulligan may have a good abuse of process claim too.

China on Bank Regulation

"First of all, the firewall between capital and banking markets was eroded by unsound financial innovations. Second, macro-prudential regulation was neglected. Third, financial institutions had too much leverage and were too opaque. Fourth, incentives for staff at fincancial institutions were driven by short-term gains, rather than long-term benefits. Fifth, the bail-out put the cart before the horse by pumping in capital and liquidity before cleaning up balance sheets. ... We believe banks are deeply rooted in the real economy and while the financial sector can temporarily outpace the real economy, this cannot continue forever", Liu Minghang (LM) at the FT, 29 June 2009.

LM is chairman of China's Banking Regulatory Commission. I wonder if LM wants to replacce Tim Geithner?

Whose Good Start?

"With clear signs of stability returning to the US financial system, this is an appropriate time to look ahead to the rebuilding process and to the steps that must be taken to prevent the recurrence of another such crisis. ... I especially support the creation of a single bank regulator, which is long overdue. ... Also welcome in the administration's new proposals is the focus on strong capital and liquidity requirements for a broad range of financial institutions. ... A big chunk of the activity that led to the current crisis took place in the shadows at financial institutions that weren't as carefully watched as banks. ... However, let's not forget that businesses large and small still need customized derivative products to hedge risk. ... Regulation of derivatives must be smart and effective, and done in a manner that reduces the risk of manipulation or abuse without choking off access to a needed product. ... First, we must preserve the ability to innovate and to steer capital toward the most promising innovations. ... The primary regulators of financial institutions must be responsible and held accountable for protecting consumers", my emphasis, Jamie Dimon (JD) at the WSJ, 27 June 2009, link: http://online.wsj.com/article/SB124605726587563517.html.

"At issue was whether New York's AG could demand mortgage data from federally chartered banks to fish for evidence of discrimination under the state's fair lending laws. Mr. Spitzer was running for Governor, and he wanted to play the racial lending card even as he now denounces the same banks for lending too much to the same people. ... As recently as two years ago in Watters v. Wachovia, the Supreme Court upheld precisely this principle. But now a five-Justice majority, improbably led by Antonin Scalia, who was joined by the Court's entire liberal wing, has opened the gates of state regulation against national banks", original italics, my emphasis, Editorial at the WSJ, 30 June 2009, link: http://online.wsj.com/article/SB124631935435570967.html.

This is special pleading. JD, JPMorgan CEO, wants the "to steer capital toward the most promising innovations". Is he kidding? Shades of the Atari Democrats of 24 years ago. "Single bank regulator"? Easier to control, you mean. JD wants non-banks subject to capital requirements. Why? They do not create money unlike commercial banks. It sounds like JD wants the Feds to "muscle out" his competition. "Weren't as carefully watched as banks". Hahahahaha, would say the Mogambo Guru. So? How carefully were banks watched? Did JD forget Citigroup got about $306 billion in various forms of federal largesse? Why do small businesses need derivatives? How did they exist in the old days? I don't want any bank holding FDIC insured deposits to "innovate". Period. Bank regulators, which protect banks should protect consumers? This sounds like a conflict of interest. This piece was titled, "A Unified Bank Regulator Is a Good Start". I say for who? Banks or bank customers?

How terrible. Get out your crying towel for Citibank, et. al. Since the Feds won't regulate these monsters, which is why they originally sought federal charters, apparently the states will have to do it. This give me another idea for our current regulatory stew: end national banking charters. That might cut a Citigroup down to size.

Isn't "Defense" The Culprit?

"In contracts with the United Auto Workers, GM promised high wages, lifetime employment, generous pensions and comprehensive health insurance. All this now is ancient history: new workers get skimpier benefits. ... Since 1960, government has changed radically. Then, 52 percent of federal spending went for defense, 26 percent for 'payments to individuals'--the welfare state. By 2008, 61 percent went for 'payments to individuals,' 21 percent for defense. ... Any sober examination of figures like these suggests that the system has promised more than it can realistically deliver. We are borrowing not to finance investment in the future but to pay for today's welfare--present consumption", Robert Samuelson (RS) at Newsweek, 29 June 2009.

Yes, RS. But isn't defense spending "busting the budget"? No. Social security and such will collapse. Bet on it.

Shaken Baby Baloney

"So-called 'shaken baby syndrome' is another area where it increasingly appears that flawed forensic testimony helped secure numerous false convictions over the years. ... According to an essay by Maurice Posley at The Crime Report: ... 'If research shows that the physical conditions that once automatically resulted in a prosecution could actually have been the result of an accident, the implications are enormous. "Given the scientific developments ... we may surmise that a sizeable portion of the universe of defendants convicted of SBS-based crimes is, in all likelihood, factually innocent," [Deborah] Tuerkheimer writes, adding that a far greater number of defendants among the group were likely convicted on legally insufficient evidence.' ... Convictions are still being obtained based on this forensic theory even though 'there is no consensus among medical professional as to whether the symptions that have traditonally been attributed to SBS are necessarily indicative of intentional shaking'," Grits for Breakfast, 22 June 2009, link: http://gritsforbreakfast.blogspot.com/2009/06/science-undermining-shaken-baby.html.

The real world is not that of CSI NY's Gary Sinese. Much "forensic evidence" is nonsense which prosecutors get "made as instructed". Lawyers are among those least capable of detecting such nonsense. That's why we have cases like Massachusetts' Amirault and California's McMartin preschool case. It's shameful what prosecutors can get away with.

The SEC's Graffam Moment

"The recent insider-trading charges against former Countrywide Financial Corp. Chief Executive Angelo Mozilo show how prearranged stock trading plans, commonly thought to limit the misuse of inside information, might instead signal an intent to game the system. ... However, research from Stanford University accounting professor Alan Jagolinzer suggests that prearranged trades are actually more likely to predict future stock-price movements than other insider transactions. ... Academics have established that insider transactions correlate with future stock performance. But, as Prof. Jagolinzer says, the effect is even more pronounced with transactions made under 10b5-1 plans. The legal protections afforded by the trading plans could spur some insiders to be more aggressive with their trades, he theorizes. He said insiders may be willing to push the boundaries of trading rules based on 'the perception of reduced legal risk. ... For example, while insiders can't embark on a trading plan while in possession of inside information, they are able to cancel such plans based on inside information. The SEC's guidance is that if there is no trade, there is by definition no illegal trade", my emphasis, David Reynolds at the WSJ, 24 June 2009, link: http://online.wsj.com/article/SB124580361150344795.html.

Is the SEC this stupid it failed to realize this would result? I saw this coming when these plans were first inaugurated. As Yves Smith would ask, is this a "feature, not a bug"? The SEC lacks an "opportunity cost" concept. To hold a stock is to not sell it. This is another SEC "Graffam Moment".