Saturday, October 31, 2009

California's Gestapo-2

On 19 October 2009 I received a letter from California's State Board of Equalization (SBE). What did the SBE, which collects California sales taxes want? I read the letter which described California's "qualified purchaser" concept and said I should register to pay California use tax on items I bought for which I paid no California sales tax. It said penalties and interest will be applied to late payments and I should also report my 2007 and 2008 purchases. Well "Ahrnold" come and get me. I sold my LA condo 34 months ago. I have no assets in California. Good luck "Ahrnold". Be warned, we Texans are well armed and if you send your "agents" to collect, we may send them back. You don't want that? We don't either. If I sent the letter to our local US attorney Tim Johnson, would he get a grand jury to indict the SBE for mail fraud, 18 USC 1341, or extortion, 18 USC 876? The SBE letter does not state with no California business you are exempt from registration. Hey "Ahrnold", did you hear of interstate commerce? The SBE's three registration conditions apply to every Texas business doing over $100,000 in annual sales. Go ahead SBE, come to Texas to collect your tax. We're ready. California is desperate. Got California muni bonds? Poor you. See also my 20 October 2008 and 25 July 2009 posts:

Texas Bad Man

"Gov. Rick Perry on Wednesday defended his actions in the execution of Cameron Todd Willingham [CTW], calling him a 'monster' and a 'bad man' who murdered his children. Perry has been embroiled in a national firestorm over whether he has tried to block an investigation into the quality of the forensic scinece that led to Willingham's conviction in the 1991 arson deaths of his three children and his 2004 executuion. ... 'This is a bad man. This is a guy who in the death chamber in his last breath spews an obscenity-laced triad (sic) against his wife,' Perry said. ... [Sam] Bassett has said he felt pressured by Perry's staff to back off of the investigation and was told that a scientific report on the house fire that killed the children was not worth the state's expense. ... Perry's GOP rival in next spring's gubernatorial primary, US Sen. Kay Bailey Hutchinson, said the debate should not be about 'one man or one case' but about Perry politicizing the forensics commission. She said Perry has created a 'cloud of controversy' that looks like a cover-up. 'The only thing Rick Perry's action have accomplished is giving liberals an argument to discredit the death penalty,' said Hutchinson, a death penalty supporter. ... Willingham's first lawyer, David Martin of Waco, told the Houston Chronicle in August that Willingham was a 'textbook psychopath'," RG Ratliffe at the Houston Chronicle, 15 October 2009, link:

"Yes, by most accounts, [CTW] was a 'bad man,' as Gov. Rick Perry declared Wednesday to reporters. But being a bad man isn't a crime punishable by death, even in Texas. ... The state's expert found no evidence that the fire was arson. ... The new chairman promptly canceled the public hearing, saying he needed time to study the case. ... But the story isn't just about [CTW] anymore. It isn't about guilt or innocence. ... It's about whether Perry is purposefully trying to subvert the law in [CTW's] case, and potentially obstruct justice in countless other arson cases that could benefit from the commission's review, all for political gain during a hotly contested primary. ... And the case looks clearer every day. ... The [CTW] investigation may have been prompted by a complaint by the New York-based Innocence Project, but it was never concerned with determining [CTW's] guilt or innocence. ... The probe was only concerned with the validity of the forensic science in [CTW's] case, and, eventually, how many other arson investigations may have been conducted in the same way. ... So, whether or not [CTW] was a bad man, or even a 'monster,' as Perry also called him, is immaterial to the chief question being asked of the governor: What's his problem with a science commission that investigates science?," my emphasis, Lisa Falkenberg at the Houston Chronicle, 15 October 2009, link:

I agree with Hutchinson. Even if CTW was all Perry claims, that does not make CTW a murderer. If Texas did not prove the threshhold question: did an arson occur, there was no crime.

Not even in Texas? I'm crushed. I suspect Perry knows much expert testimony used by DAs stinks. OJ is a bad man and Marcia Clark and Chris Darden (C&D) spent months proving it. So? The OJ jury was not impressed by the C&D case. Neither was I.

Friday, October 30, 2009

Sox 404(b), the Stinking Onion

Tom Selling (TS) has a 5 October 2009 post at his Accounting Onion excoriating the SEC for its not telling Congress that applying ICFR to "non-accelerated filers", i.e., SEC registrants with under $75 million in market cap is likely a waste of money. TS notes "Even under that very conservative assumption, 6,000 non-accelerated filers comprise (at the very most) only 3.2% of aggregate equity values". I have said the PCAOB wastes time inspecting 1790 of its 1800 CPA firms for years, even assuming the PCAOB's people know what they are doing, which I doubt. TS also notes, "The corporate corruption scandals that got politicians moving on the Sarbanes-Oxley Act of 2002 were the result of fraud by CEOs and CFOs. ICFR can have little to no impact of the actions of the top executives, because they always possess the power to override internal controls, or sometimes to orchestrate schemes that circumvent those controls", original italics, my emphasis, link:

Bravo TS! See also my 29 August 2009 post on fraudbusters:

MSM Shill for Obamacare

"On the surface, there was nothing unusual about the Oct. 6 telephone call between White House health-care boss Nancy-Ann DeParle and Karen Ignagni, the leading medical-insurance lobbyist in Washington. ... Five days later, Ignagni released an analysis by PricewaterhouseCoopers [PWC] that claimed, on the basis of a misleading reading of the bill, that reform could lead to a painful spike in insurance premiums for ordinary Americans. ... The [America's Health Insurance Plans] AHP report was the kind of one-sided study that lobbyists sometimes commission to create scary sound bites. ... The report analyzed the impact of four narrow features of the Senate Finance bill using a worst-case-scenario model; it concluded, as Ignagni says, that 'health care costs [would] increase far faster and higher than they would under the current system. A fairer reading of the bill, which cleared the Finance Committee on Oct. 13 with a 14-9 vote, with one Republican supporter, suggests these projected costs are wildly exaggerated", my emphasis, Michael Scherer and Jay Newton-Small (S&S) at Time, 26 October 2009, link:,9171,1930527,00.html.

S&S, shut up. Stop editorializing in a "news" article. Stop shilling for Obamacare. I agree with Big 87654 firm, PWC here. My "back of the envelope" calculations are in PWC's ballpark. Why care if "congressional bean counters" look at this? Will any "cost" calculations over the next ten years be within 50% of being correct anyway? "Misleading" by whose standards? Will any Obamacare supporters' study be "objective"? Who are you kidding? Reality is: you guys want Obamacare to pass. End of story.

Thursday, October 29, 2009

Was Franz Pick Right After All?

"It is only fitting on a day where the price of gold hit a new, nominal high that I should discuss the last days of the US dollar as a 'reserve currency.' ... Instead, it is the pseudo-money, the paper 'fiat currencies' which are currently all plunging steadily downward in value--with no currency able to keep up with the collapse of the US dollar. ... For decades, the Gulf oil producers have had their currencies 'pegged' pegged to the US dollar (a fixed exchange rate versus the dollar) as part of their massive oil-export business to the US. ... However, as the US economy degenerated into a Ponzi-scheme economy (where total collapse is now only avoided through creating ever-larger-asset-bubbles), the currency-peg of the Gulf regimes has become poisonous to their own economies--essentially forcing them to 'import' US inflation (which the US government claims doesn't exist). ... Indeed, it is likely that crushing the crude oil market was in part vindictiveness by Wall Street--punishing the Gulf states for turning their backs on the US. ... If this wasn't sufficient, by itself, to provide the impetus for the secret deal (or "non-deal") between Gulf oil-producers and their new, best customers, the US government has provided the final impetus itself--with its permanent near-zero interest rates. ... As a result of this policy-of-failure, the US dollar is becoming the new 'carry-trade' currency. ... The consequence of the carry-trade is that the currency which provides 'free money' is now dumped into global markets in unprecedented quantities. ... Thus, the US's incompetent, two-party dictatorship is essentially forcing former economic 'partners' like the Gulf states to drop their reliance on the dollar as a matter of economic survival--due to their essentially permanent, near-zero interest-rate policy. ... Instead, the more likely options are that the US either suffers a debt-implosion (like the former Soviet Union), or ignites hyperinflation--through reckless money-printing required to avoid a debt-implosion. ... In all these scenarios it is nothing short of economic suicide to have holdings in US dollars, or to simply hold dollars as a currency 'reserve'. ... The new, nominal high today for gold is not an ending, it is a beginning--while for the US dollar, the 'obituary' is already written", original italics, my emphasis, Jeff Nielson (JN) at Gold Eagle, 6 October 2009, link,

JN, you're 26 years late. Franz Pick, 1898-1985, wrote The US Dollar: An Advanced Obituary in 1983. If curious, you might find a used copy of this out-of-print gem. See also my 8 January 2009 post: Import inflation? Jacques Reuff screamed about in the 1960s. That's it, cheat: Arabs, Chinese, Russians and Japanese to float Wall Street. This is wonderful foreign policy. It's also war-mongering.

Parsons of Citigroup

"The eminent Richard Parsons, former chairman of Time Warner (the parent of Fortune's publisher), is chairman of the board of directors of Citigroup, the immense, troubled financial entity. As such, he owes an unequivocal, clear-cut fiduciary duty to Citi's shareholders. This duty means, among other things, that Parsons must put the interests of Citi's shareholders ahead of his own or anyone else's. He must avoid any conflict of interest in any situation involving Citi. ... One of Citi's millions of clients is a large private equity firm called Providence Equity Partners. ... Citi is involved as principal and/or lender in many private equity transactions with many other private equity firms, to which it owes, at the minimum, a duty of good faith and fair dealing. Now get this: It was announced last month that Parsons will-simultaneously with his being chairman of Citi--serve as a senior adviser to Providence. He will be paid by Providence, and if normal private equity practice governs, he could get a bonus depending on how much money Providence makes. That means Parsons will be chair of a huge lender to Providence and will at the same time be an employee of Providence. How can this be allowed--how it cannot be a severe conflict of interest--is impossible to understand. ... Yet how can any official of Citi possibly go against a deal in which his boss is involved? ... Maybe I'm wrong. Parsons clearly does not see a problem. It is a bit stunning that Citi's lawyers do not see one", Ben Stein at Fortune, 26 October 2009.

Citi's lawyers either: stink or are afraid to speak "truth to power" and refuse to admit Citi's emporer "has no clothes". What has Sarbox to say about this? Did Citi officially change its' name to "The Immense, Troubled Financial Entity"? If not, it should.

Wednesday, October 28, 2009

POTUS Obama, Grow Up!

"When a child loses a tooth, we talk about the tooth fairy. When it comes to Christmas, we prefer to speak of Santa Claus; at Easter, it is the Easter Bunny. On Halloween we dress our children as ghosts and goblins, and send them off to collect candy. For World War III, we have the Strategic Arms Reduction Fairy. We make up stories to cover the nakedness (and sometimes the barrenness) of our spirit. We have taught children a sense of entitlement, whcih can best be summed up as follows: 'YOU ARE SPECIAL ... JUST LIKE EVERYONE ELSE.' ... Without realizing it, however, we have created new superstitions like democracy and monetarism. We no longer believe in witches. We believe in economists and arms reduction treaties. Our fairy tales have grown into adult narratives, as children become adults without entirely growing up. For us, the disturbing edge of the traditional fairy tale has been dulled. We no longer want hard truth and tough talk. Instead, we cling to childishness. ... Fifty years ago people were seriously worried about World War III. They anticipated the destruction of civilization in a nuclear holocaust. ... In reality, nuclear weapons are an unavoidable consequence of human nature. ... The child sees no obstacle because the child does not know himself, and does not know human nature. A mature mind, however, knows that peace is precarious and temporary. It is not a question of eliminating nuclear weapons. Peace is only possible if we can mitigate the wickedness of human beings (e.g., like you and I). ... In terms of nuclear weapons, it is childish to suppose that leaders of systems based on the concentration of power will agree to an honest reduction of their nuclear forces. ... It is childish for Americans and the US president to strive for universal nuclear disarmament. ... As the Soviet Dictator Vladimir Lenin once said: 'Treaties are like pie crusts, meant to be broken'," my emphasis, JR Nyquist (JRN), 26 September 2009, link:

You mean there is no Santa Claus? JRN, I'm crushed. I remember "duck and cover", people building fallout shelters in 1958 and serious discussions of life after "two weeks in the shelter". What to expect, how many Americans would die, would we have any arable land, etc. Lenin is correct. As Mao said, "Political power grows out of the barrel of a gun". Mao might add, "or a tank, plane, ICBM, etc." Did the world learn nothing from say 1922's Naval Treaty? I don't believe in economists; I do in alchemists though.

What Gold Bubble?

"Signs of gold fever are everywhere. ... But amid the buying frenzy after a decade-long run-up that has seen the price quadruple, is gold still a good investment? The simple answer: Wherever the price of gold is headed in the long term, several market watchers say the fundamentals indicate that gold is poised to fall. ... Jim Rogers, the investor who predicted the commodities boom earlier this decade, expects gold to pass its inflation-adjusted 1980 peak of $2,312. 'Gold is going to be much higher over the course of the bull market, in a decade or however long it lasts,' he says. ... But when you look at supply and demand, gold loses some of its luster. Gold miners have poured more than $40 billion into new projects since the bull market began in 2001, according to Montreal-based bullion dealer Kitco. ... On top of that, $1,000 gold brings out gold scrap sellers", Scott Cendrowski (SC) at Fortune, 26 October 2009.

Buying frenzy? For every one ounce gold coin sold, one is bought. What is SC talking about? Fundamentals? What is SC talking about? Supply and demand? Gold is not corn. SC, you are a fool. $40 billion? So what? Compare $40 billion to? At $1,048 gold looks cheap to me.

Tuesday, October 27, 2009

Princeton's Propagandists

"Clearly, the nation's attention is focused squarely on a question few presidents want to answer just nine months into their term: What has your administration accomplished? ... The president's critics complain that his only real accomplishment is the $787 billion stimulus bill--which they deride, somewhat contradictorily, as either budget-busting, ineffective of both. But is that all there is? I think not. ... The administration's chief accomplishment to date surely is devising and executing--with huge assists from the [Fed]-- a comprehensive program is pull us back from the abyss. The stimulus was just one component. ... When the Treasury secretary finally did release his plan, in stages, he wisely resisted the siren songs soming from both the left ('nationalize the banks') and the right ('let 'em fail), opting instead for the high-risk 'stress tests' of 19 big financial institutions. Today, all 19 are alive and breathing. ... And many big banks have repaid their money from the [TARP], earnings taxpayers a profit", Alan Blinder (AB) at the NYT, 18 October 2009, link:

AB is proud the 19 TBTF's are "alive and breathing". Why? I say kill them. Profit? AB must not read Yves Smith's Naked Capitalism, my 15 September 2009 post: Nor her jabs at the "stress tests", my 21 May 2009 post: What big accomplishment is getting Zimbabwe Ben to print money? He likes doing that. It's as big an accomplishment as getting a seven-year-old to eat an ice cream cone. Apparently AB would call me a "rightist". I say and have said, kill the banks. I last poked Princeton in the eye on 6 July 2009, link:

SDNY Head Fake

"Federal prosecutors announced charges on Thursday against 41 lenders, lawyers and others in the real estate industry who they said used fraud to obtain more than $64 million in loans connected to more than 100 residential properties in New York State. An investigation involving the FBI, the Secret Service, the [NY] State Banking Department and other agencies led to the wire fraud, bank fraud and conspiracy charges against the lawyers, mortgage brokers and loan officers, who engaged in complex plots that operated over a period of years, said Preet Bharara, the [US] attorney for the [SDNY]. ... 'Whether the economy was going up or the economy was going down, these alleged fraudsters were working feverishly to game the system.' ... Eventually, prosecutors said, the defendants would strip all the equity from the homes, putting them through sham transactions and saddling the properties with enormous debt. ... 'This office has a tradition of looking at institutions and executives oif institutions,' [Bharara] said. 'And we will go wherever the facts lead'," my emphasis, Colin Moynihan ay the NYT, 16 October 2009, link:

This is the DOJ's MO, see my 12 September 2009 post: $64 million? That's Lloyd Anoinette Blankfein's annual bonus. While over my "Blankfein test", why bother with this? Bank fraud, 18 USC 1344. Hmm. Was the investigation which likely cost tens of millions made because the fraud was against as opposed to for banks? What did the "alleged fraudsters" do? If big enough they're called leveraged buyouts! Right? Just get a solvency opinion from say KPMG, my 18 December 2008 post: and you're good as gold. "[W]e will go wherever the facts lead", says Bharara. Even to the Vampire Squid? Is this case part of the DOJ's continuing efforts to turn bankers into fraud victims as opposed to co-conspirators, my 31 March 2008 post:

Monday, October 26, 2009

Kids' Math Scores are Fine

"Fewer than four of 10 fourth- and eighth-graders are proficient in mathematics, according to a highly regarded federal test given in early 2009, adding to recent evidence that the US drive to become more economically competitive by overhauling public education may be falling short. ... Significant scoring gaps between white students and their Hispanic and African-American peers also haven't changed much in recent years, the test results showed. ... In December, the US and other nations released results of an international test, the Trends in International Mathematics and Science Study, indicating that US math students have made gains in recent years but still trail their peers in places such as Hong Kong, Singapore and Taiwan", my emphasis, Robert Tomsho at the WSJ, 15 October 2009, link:

"The media love disaster. ... But the most obvious, perilous, and, most preventable catastrophe looming on America's horizon is one that the media and political class refuse to talk about. ... One great, avoidable evil we face is the declining quality of the American work force. The Census Bureau tells us that if immigration continues at is current rate of nearly two million people a year, whites will become a minority of the under-18 child population in just 14 years--in 2023--and will become a minority of the working population just 16 years later. ... Demographers are beginning to warn that as well-educated, white baby boomers retire and are replaced by poorly educated blacks and Hispanics, the productivity gains of the last several hundred years will be reversed, and the [US] could go into a tailspin. .... Irwin Kirsh [of ETS] ... warns that our increasingly non-white and immigrant workforce threatens not only our standard of living, but the very survival of republican government based on an informed middle class. ... However, the graduation rate slightly decreases for the second US-born generation (85.1 percent vs. 85.9 percent), so that in 2007, even after three generations in the [US], Hispanics had a dropout rate that was still 2.3 times the white rate and 33 percent higher than the black rate. ... In Detroit, only 26.8 percent of students graduated on time in 2006. The other worst performers were Philadelphia: 39.1 percent, Dallas: 40.7 percent, Los Angeles: 47.7 percent, and Washington, DC: 48.8 percent. ... Hispanics who stay in school do badly. ... Hispanics are the least likely group to go to college. ... Again, the problem is not just one of adapting to the [US]. College graduation rates for US-born Hispanics are only slightly better than those for immigrants, and Hispanics who have been in the country for three generations or more are still less likely even than blacks for graduate from college. ... This rise in income will reverse as black, Hispanic, and immigrant workers replace whites. California will be particularly hard hit because of its large Hispanic population. ... According to a 2007 report from the Migration Policy Institute, an estimated 400,000 legal immigrants and 350,000 illegal immigrants were illiterate in their native languages, much less English. ... The National Center for Public Policy and Higher Education predicts that because of declining education and productivity, average per capita income for the nation will have fallen two percent by 2020. For California, because of its heavily Hispanic population, the center predicted a real per capita income decline of $2,467 or no less than 10.8 percent, the biggest loss for any state. ... Texas faces serious problems too. ... McKenzie [sic] and Company, estimates that if black and Hispanic students had been able to close the achievement gap in 1998, American GDP 10 years later would have been larger by up to half-a-trillion dollars. ... The Educational Testing Service (ETS), based in New Jersey, predicts that all states will see a drop in reading and math ability. ... The US is slipping badly in comparison with other developed countries. ... In blacks, Hispanics, and immigrants are excluded from the American results, our performance rises from 12th, to 2nd in reading and 5th in math. This means immigrants, blacks, and Hispanics are dragging our rating down. ... The oldest age groups--the ones with the most whites--do the best while the youngest groups with the fewest whites [do] worst. ... The same racial pattern is found in student scores. ... However, if the scores only of whites were counted, the US ranked 10th, in the company of Japan, Hong Kong and New Zealand. ... By age 15, many of the worst performing American students have dropped out, which means those who are tested are not a representative sample. ... In coming decades, companies may move [white-collar jobs] offshore because they can't find Americans who can do them at any wage. ... There are about 16,000 school districts in the [US], and not one has figured out how to [close the achievement gap]--but we all keep pretending it's possible. ... What would baffle Enoch Poweel about all this is why there is so much talk about bridging the achievement gaps but so little talk about keeping Hispanic immigrants out of the country. If Hispanics are not good additions to the workforce, why let more in? ... An increasingly Hispanic workforce is, in Powell's terms, an avoidable evil. But we will fail to avoid it simply because we are unable to say to Mexicans, 'Your lot isn't working out too well here, so stay home.' Instead, we try one preposterous gap-closing scheme after another and wonder why we can't get blood from turnips", original italics, my emphasis, Jared Taylor (JT) at TakiMag, 12 October 2009, link:

It's that old devil IQ again rearing its ugly head. Just change our "peer group" countries to: Mexico , Guatemala, Pakistan, Uganda and Haiti. The US is doing fine.

Could go? Where have our demographers been since 1973? Rise in income? Look at California. Not will be, is now. 10.8%? McKinsey, shut up. Starting with my 24 May 2009 post: Hmm, has McKinsey heard of "left tail cutoff"? I figured out how to close the achievement gap over 40 yerars ago! Thank you JT for saving me the trouble of doing some of this arithmetic. What is California's current decrease in per capita GSP arising from its demographic changes? In my 11 October 2009 post:, I noted California's per capita GSP excluding Hispanics was $55,300, including Hispanics its $40,000 a 27.7% decrease! That's over than 10.8% now, not in 2020.

We Don't Need No Stinkin' Experts

"Just 88 minutes before the February 2004 execution of Cameron Todd Willingham [CTW], Gov. Rick Perry's office received by fax a crucial arson expert's opinion that later ignited a political firestorm over whether Texas, on Perry's watch, used botched forensic evidence to send a man to his death. ...At 6:20 pm [CTW] was executed after declaring: 'I am an innocent man, convicted of a crime I did not commit.' ... Yet Perry's office has taken the position that any documents showing his own review and staff discussion of the [CTW] case are not public--a claim the Chronicle disputes. ... By execution day, Perry was [CTW's] last chance. The 5th Circuit Court of Appeals had rejected a reprieve, calling the arson expert's report 'no more than an opinion'," my emphasis, Lise Olsen at the Houston Chronicle, 11 October 2009, link:

To develop contempt for judges, read 5th Circuit criminal decisions regularly. Do these black-robed incompetents deny the DA presented "expert" opinion at trial that arson ocurred? These clowns lack intellectual integrity. Read a case like Boss v. Quarterman, 552 F3d 425 (5th Cir., 2008) find its logic. I dare you. It's, "Them damn niggahs be locked up and we don't wanna hear from 'em".

Sunday, October 25, 2009

Newsflash, Moody's Does Something

"Spanish banks are failing to recognize the true scale of their losses during the deep slump in Europe's fifth-largest economy--something that could hamstring the sector's growth for years, Moody's Investors Service said Tuesday. ... Moody's said the banks set aside less than half the Euro108 billion ($160 billion) in loan losses it estimates they will suffer during the course of the downturn. ... Spanish banks deny they are concealing any losses. A spokeswoman for Spain's banking association said its members, which include Spain's listed banks, continued to report strong earnings and had moved to bolster their capital. She added that the Bank of Spain [BOS] had performed stress tests on the banks and hadn't detected any irregularities. An official at the [BOS] said the Spanish regulator 'certainly doesn't allow banks to hide any losses, and will continue to act with rigor'," Thomas Catan & Christopher Bjork at the WSJ, 14 October 2009, link:

I'm sure the BOS cleared its stress test protocol with Zimbabwe Ben before applying it. I wonder if Moody's contacted the various banks CPAs about its findings.

Goldman Sachs, KGB?

"Hoping to defuse a politically combustible situation, Goldman officials have been mounting a soft-sell campaign that pushes the usually reticent company into the spotlight. For months, the New York firm has been working to dispel what it sees as misperceptions about itself to make its profit and bonuses go down easier, from a lobbying push in Washington to media interviews in which Goldman Chief Executive Lloyd Blankfein reminisces about his humble roots. ... Company executives also have discussed charitable contributions by the firm or by encouraging empoyees, according to the people familar with the situation. Such a move could help Goldman repel any public backlash it suffers are a result of this year's bonuses, whioch will be decided near the end of the fourth quarter and paid out in January. ... Goldman spokesman Lucas van Praag said the charm offensive is a necessary response to supercharged rhetoric and exaggerations that have swirled around the 140-year-old company since the financial crisis erupted. In June, a Rolling Stone magazine article--which was passed up and down Wall Street--called Goldman a 'great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.' ... 'In a world that seems to have turned upside down, where virtues are viewed as vices,' said Mr. van Praag, 'it is important we explain our business model to a wider audience, why what we do matters and why and how we pay our people.' ... Luigi Zingales, a finance professor at the University of Chicago Booth School of Business, said trying to explain to the public billions in bonuses barely a year after Goldman got a $10 billion capital infusion from the government and bolstered its liquidity by converting to a bank holding company is to many Americans the equivalent of 'putting lipstick on a pig.' ... Goldman's share price is up more than threefold since it bottomed out in January, including Wednesday's jump of $5.05, or 2.7%, to $192.28 in 4 pm [NYSE] composite trading. ... Blankfein also has been spending more time meeting lawmakers in Washington, lobbying for more effective systematic regulation", my emphasis, Susanne Craig at the WSJ, 15 October 2009, link:

"Roughly a year after accepting unprecedented financial aid to shore up its operations, Wall Street firm Goldman Sachs Group Inc. [GSG] posted yet another impressive quarter that further distances itself from its rivals, many of which are still struggling to overcome the credit crisis. ... 'We are very aware of what is going on in the world, but we have to trade that off with being fair to our people who, we believe, have performed admirably throughout the crisis,' said [GSG's] chief financial officer, David Viniar. ... [GSG] also has benefitted from the [FDIC's] debt-guarantee program, which means it and other banks can borrow money at cheaper rates than before. ... The firm has tried to soften the blow of its decision to set aside huge pools of money for compensation; Thursday it made a $200 million charitable contribution to the [GSG] Foundation, which has an existing $283 million in it. Still, that did little to deflect attention from the $16.71 billion in has earmarked for bonuses, which will be paid out early in 2010", my emphasis, Susanne Craig at the WSJ, 16 October 2009, link:

A "charm offensive" should be easy for GSG. GSG likely employs dozens of graduates of the KGB "charm school" in Nelson DeMille's The Charm School, 1988. This is a job, not for Superman, but Michael Moore (MM). MM, please make a movie of politicians meeting GSG apparachiks then slinking away with newspapers covering their faces. GSG now sprouts the prosperity gospel of say Ken Hagin, or the now-deceased Reverend Ike. "Sow a seed" of say $10 million into Washington and have it return to GSG 100 fold! The Rolling Stone article insulted GSG. GSG would not stick its blood funnel into a money pile of less than $1 billion. Does GSG really want the American public to understand its "business model"? Go Zingales! Why need Blankfein, who makes about $60 million a year, have his actions regulated by $150,000 a year civil servants? Who is he kidding? WC Varones recently added GSG's "logo" to his blog. Take a look. I have an idea for GSG, it can add the vampire squid to its stationery and people's business cards.

Is GSG's charitable contribution admissible "res gestae" on the issue of "consciouness of guilt"? Didn't Bernie Madoff donate millions to charity? Millions of other people's money. Yes Viniar, Henry Paulson performed "admirably" for his "former" firm. $16.71 billion divided by $200 million = 83.5, you're in the "prosperity gospel" ballpark!

Saturday, October 24, 2009

Rockefeller's Revenge

"Last Wednesday, changes to New York's notorious Rockefeller drug laws went into effect, allowing judges to shorten the prison terms of some nonviolent offenders. This measure will further reduce New York's prison population, which has already declined, in the past 10 years, from about 71,600 in 1999 to about 59,300 today. (The state's crime rate also dropped substantially during that time.) Nevertheless, mainly because of opposition from the correction officers' union and politicians from the upstate areas where most of our correctional facilities are, the state has been slow to close prisons. It was not until earlier this year that policymakers in Albany, confronted with fiscal crisis, mustered the will to shut three prison camps and seven prison annexes--a total of about 2,250 prison beds--in a move that is expected to save $52 million over the next two years. ... The prison system still has more than 5,000 empty beds in 69 prisons. What's more, there are other ways to lower the prison population. For starters, state lawmakers could repeal the Rockefeller mandatory sentencing provisions that remain on the books. ... In addition, the state could reduce the number of people--last year, more than 9,000--who are returned to prison for technical parole violations like missing a meeting with an officer or breaking curfew. ... Also, more prisoners with good institutional records could be given parole. ... After New York passed the Rockefeller drug laws in 1973, a mandatory sentencing movement swept the country, raising the nationwide prison population to nearly 2.4 million, from 300,000", Robert Gangi at the NYT, 12 October 2009, link:

Texas has 156,000 prisoners and 24.3 million people, New York, 59,000 and 19.5 million, thus Texas incarcerates 212% as many persons per capita as New York. Why? The correction officers' union's opposition to closing prisons should surprise no one.

To Spank, Or Not to Spank?

"Three recent, widely reported studies on spanking children claimed to show that the disciplinary practice impairs cognitive development in children. Together, they held out the promise of providing the latest, definitive word on a passionate debate. ... Effects can be attributed to the wrong cause, statisticians say: rather than spanking causing problems in children, it is possible that their exisiting cognitive problems can make spanking more likely. Moreover, any effects of spanking are difficult to measure and probably small. ... Spanking studies have a long history of fueling rather than settling the corporal punishment question. Earlier findings that spanking can contribute to aggressive behavior in children helped spur the American Academy of Pediatrics to study the issue and recommend against spanking in 1998--a conclusion that is still disputed. ... Den Trumbell, vice president of the [American College of Pediatricians], says studies need to distinguish between appropriate spanking--following a warning and done in privacy following specific, proscribed misbehavior--and reactive, anger-based spanking. 'Spanking gets a bad name of late, because parents tend to use it when having a bad day,' Dr. Trumbull said", my emphasis, Carl Bialik at the WSJ, 14 October 2009, link:

Which caused what? These spanking studies look so weak they could have been done by economists or criminologists.

Friday, October 23, 2009


"An internal review by the nation's largest independent securities regulator found that its staff members had missed numerous red flags that would have uncovered frauds run by Bernard L. Madoff and the Texas billionaire R. Allen Stanford. The report to the group, the Financial Industry Regulatory Authority, was the latest indication that government and private regulators did not investigate tips that might have unconvered suspicious activities by both men before tens of thousands of investors lost billions of dollars. ... According to the report, Finra's predecessor, the NASD, did not act from 2003 to 2005 on 'credible information from at least five different sources claiming that the Stanford CD's were a potential fraud.' ... The Finra report noted that from 1999 to 2003, Finra's office in Dallas was led by Bernard Young, who three years later was hired as managing director of compliance at the Stanford Financial Group, Mr. Stanford's company", Clifford Krauss at the NYT, 3 October 2009, link:

Give it up. Under current incentives, regulation is hopeless.

Dog Bites Man!

"An outside review of Citigroup Inc.'s management team has concluded that it is generally in good shape but that some shuffling of senior executives might be needed, according to people familiar with the matter. The review, conducted this summer for Citigroup's board by recruiting and consulting firm Egon Zehnder International [EZI],was triggered by the government's stress tests of top banks last spring. ... The [FDIC], which has had concerns about the qualifications of Chief Executive Vikram Pandit [VP] and his top management team, required Citigroup to hire an outside firm to perform the review. In a sign of the sensitivity about the report inside the company, the document hasn't been circulated in electronic form and is printed on paper that can't be photocopied. ... The report provided less-favorable assessments of at least two of Mr. Pandit's lieutenants, Vice Chairman Lewis Kaden and Chief Adminstrative Office Don Callahan, the people said. ... Citigroup's board met Tuesday morning to start discussing the findings and how to respond to them. ... The company has to inform regulators this month about [EZI's] findings and how the board is responding to them, these people said. The FDIC is likely to treat the management review as one factor in a broad assessment of Citigroup's financial health. ... The report's encouraging tone is a departure from the frustration that some analysts, investors and Citigroup executives have expressed about Mr. Pandit's leadership since he became CEO is December 2007. Among the complaints is that Mr. Pandit relies too much on a small cadre of advisers, according to people familar with the matter", David Enrich and Joann Lublin at the WSJ, 8 October 2009, link:

"The [FDIC] is questioning the generally positive conclusions in a government-mandated review of Citigroup's top management, according to people familar with the situation. Some officials at the agency have expressed doubts about the rigor of the report, which was based partly on interviews with Citigroup executives who were asked to rate the effectiveness of their colleagues, these people said. ... The review was completed last week, and Citigroup's board began discussing this week whether to make any management changes in response to the report. The FDIC began sifting through the findings this week. ... FDIC officials vetoed a consulting firm that the bank had initially porposed for the job. After vetoing the consulting firm favored by Citi, FDIC officials sent Citi 'a list of approved firms acceptable to them,' and one was [EZI], one informed individual said. ... One person close to the agency described the outside report as 'a total whitewashing.' Some agency officials also are having second thoughts about the qualifications of [EZI], which largely runs executive searches for clients", my emphasis, David Enrich & Randall Smith at the WSJ, 9 October 2009, link:

Another orchestrated farce like the stress tests. Man bites dog is news, that Citigroup's hired guns find Pandit is doing a decent job should surprise no one. Will Citigroup file the report as an attachment to a Form 8-K? If not, why not?

What wrong with a whitewash? Did the FDIC scream about Zimbabwe Ben's stress tests? For the record, Citigroup never approached me to do the review.

Thursday, October 22, 2009

Another DOJ Triumph

"A former Dallas councilman and four associates, including his wife, were convicted Monday of shaking down developers who sought city approval for low-income housing projects. ... Two other defendants were each convicted in US District Court in Dallas of two felonies for their involvement in what federal prosecutors said was a wide-ranging scheme to extort money from real-estate developers. ... The guilty verdicts capped a three-month federal trial but don't mark the end of the Dallas corruption probe. Three additional defendants, including a Democratic state legislator, are scheduled to go on trial later this fall. Six others have pleaded guilty. 'The jury's verdict today shows that the citizens of this community do not want a government where the game is rigged,' said US Attorney James T. Jacks. ... The developers testified that they were pressured to funnel cash and lucrative consulting contracts to Mr. [Don] Hill and his associates in what they characterize as a pay-to-play scheme. ... During the investigation, the federal government recorded thousands of conversations. The jury heard, for instance, an associate of Mr. Hill telling him to delay a zoning votew while he pressured the developer for more money. Jurors also saw FBI suveillance photos of Mr. Hill accepting $10,000 in cash from a business associate who, just hours earlier had picked up $20,000 from one of the developers. ... Mr. Hill and the other four defendants, who are all black, have accused the government of targeting them for prosecution because of their race. Defense lawyers characterized the contracts for Mr. Hill's associates--including a $14,000-a-month consulting job for his wife--as legitimate efforts to involve minority groups in development projects", my emphasis, Stephanie Simon at the WSJ, 6 October 2009, link:

Imagine, Jacks and the FBI had time for this. Is Wall Street rigged to greater orders of magnitude? Will Jacks find an act commited by Goldman Sachs in Texas Northern District giving him authority to investigate it and potentially bring some of its senior exectives to book? $10,000, wow. $14,000 a month, wow. This case is a good argument for reducing the FBI's and DOJ's budgets. Apparently neither has anything important to do.

Justice Smells

"Dogs have occupied a special place in law enforcement for decades thanks to their heightened sense of smell, and their role has only grown in recent years because of use in explosives detection and the newly popular practice of 'scent lineups'. ... The Innocence Project of Texas agrees. A group that works on behalf of the wrongly accused, the project issued a scathing report last week on both [Keith] Pikett and the practice of getting courtroom evidence from scent lineups, in which a specially trained dog matches a suspect's scent to items from a crime scene. ... It's the next step that bothers them--the eagerness of police to use scent results as the basis of a criminal charge and prosecutors to accept them as evicdence. It has called on the state Attorney General's Office to investigate other cases in which Pikett's dogs were crucial to getting a conviction. ... Other dog trainers have attracted scrutiny. In Florida, John Preston occupied a niche similar to Pikett's in the 1980s. Three men he helped imprison have since been released after other evidence showed the convictions were wrong. ... As publicity spread about Pikett's work, more and more police agencies and prosecutors began to use him. He has said he has no idea of how many cases his dogs have been involved in, but it numbers in the thousands. He also has testified that his dogs have almost never been wrong. One of them, 'Clue,' erred once in 1,659, he has testified, while 'James Bond' made one mistake in 2,266 tries. ... Three experts hired by the Innocence Project criticized Pikett's work. ... 'This is the most primitive evidential police procedure I have ever witnessed,' [Bob] Coote stated. 'If it was not for the fact that this is a serious matter, I could have been watching a comedy.' ... 'In some counties, police are abandoning nornmal police work in favor of Pikett and his dogs,' [Curvis] Blackburn said. 'We believe it is becoming ... a widespread and pervasive problem'," my emphasis, Mike Tolson at the Houston Chronicle, 27 September 2009.

How do you cross-examine a dog? It's the Vincent Broderick Syndrome, i.e., cops lack the brains to investigate anything. So they have 'experts" testify as "oath helpers" of old. Dogs testify? Why not? Most DAs today would accept goat entrail examinations as evidence. I've been a juror four times. I did not see what you see on "CSI New York". Pikett's statistics are amazing. Did anyone reproduce them in a "double-blind" experiment? Will police consult Ed McMahon's hermetically sealed mayonnaise jar next? How did Pikett determine Clue's and Jame Bond's error rates?

Wednesday, October 21, 2009

Jesse on Equities and Flation

Jesse at Jesse's Cafe Americain has an interesting 10 October 2009 post on what's driving equity prices today. He presents cases for deflation, stagflation and implosion. I favor the stagflation scenario like the 1970s, but with higher peak inflation rates than 1979's 13%, say 25-30% in this cycle. Here's a link: Jesse likens Wall Street to a group of third world warlords. I've compared it to a bunch of mafia families running an extortion racket.

Junior on Geithner

Junior at Junior Deputy Accountant, 9 October 2009, notes Timmy Boy Geithner still takes orders from the various Wall Street capos, here's a link: I add the WSJ had a 10 October interview with Lloyd Blankfein, di capo di capos. I laughed while reading it. Don't waste your time with it.

Ken Lewis-Scapegoat

"Dogged by shareholder lawsuits and by multiple law-enforcement investigations into his bank's ill-fated merger with Merrill Lynch [ML], [BofA] CEO Ken Lewis announced on Sept. 30 that he would leave his post by the end of the year. ... At the root of Lewis's woes is a merger that more closely resembles a shotgun wedding. [BofA] negotiated a hasty takeover agreenment with [ML] over the course of a single September weekend following the shocking collapse of Lehman Brothers. Treasury Secretary Hank Paulson aggressively championed the deal as integral to his effort to stem the rising financial crisis. ... Merrill's staggering losses required [BofA] to accept a $20 billion infusion of additonal federal cash immediately following the merger., and [BofA] shares now trade at a fraction of their former value. ... The numerous civil complaints say that Lewis sold out their interests by saddling them with a disproportionate share of the cost of rescuing the world economy at the behest of bureaucrats in Washington. ... But the events surrounding the merger indicate that Paulson and Bernanke may have placed improper pressure on Lewis to disregard his duties to his shareholders. If that is true, then Lewis looks less like a criminal than like the hapless pawn of top government regulators determioned to stem the crisis at any cost. ... Lewis clarified that Paulson did not want the government to be required to disclose that it was committing additional TARP funds to bail out [BofA] until after the merger with Merrill had taken place. ... [BofA's] shareholders were surely shortchanged in the merger, but was Lewis criminally responsible, or was he punk'd by a duo of super-regulators determined to control the fate of [BofA] by installing a whole new management team, if necessary? The latter seems likely. ... In reality, a former Trasury secretary and a cerrent [Fed] chairman are unlikely to be indicted for cormers they cut in their efforts to stave off the collapse of the financial system. ... But letting Paulson and Bernanke off the hook will only redouble the determination of politicos and shareholders to exact punishment on the only remaining culprit. ... Courts have also recognized a second defense that might apply to Lewis: a defendant's reasonable belief that a government official had exempted his conduct from the law may negate the required mens rea, or ciminal intent, needed for convicton. ... To prosecute Lewis while giving Paulson and Bernanke a free pass would send an even worse signal: that the government will take care of its own, and that politicians will find their scapegoats among those who attempt to run productive enterprises rather than those who regulate them", Marie Gryphon at National Review, 7 October 2009, link:

"The Treasury Department's pay czar pushed outgoing [BofA] Chief Executive Kenneth D. Lewis into giving back about $1 million he received so far this year and forgoing the rest of his $1.5 million salary for 2009, say people familar with the matter. ... Kenneth ... Feinberg pushed for the deal because he thought the package of retirement benefits and unvested stock Mr. Lewis takes with him when he steps down at year's end--currently worth at least $69.3 million, according to securities filings--was large enough and possibly too big. ... Thursday's decision caps a rocky relationship between Mr. Lewis and the US government", Deborah Solomon and Dan Fitzpatrick at the WSJ, 16 October 2009, link:

This is the way it looks to me.

Is it a coincidence that Feinberg "sticks up" Lewis on the same day GSG announces $16.71 billion in bonuses? Is this a federal "head fake"? Lloyd Blankfein has 3,354,836 GSG shares worth $621 million at $184.96 each. Why doesn't Feinberg TELL Blankfein "You will donate the proceeds of the sale of these shares to the Treasury? Won't you"? See my 6 September 2009 post:

Tuesday, October 20, 2009

The Liquidity Bomb

Martin Hutchinson has a 5 October 2009 post at Prudent Bear which I agree with. Here's a link:

Malpass on the Dollar

"If you want to know why the dollar has been falling this week and gold hit a new high, look no further than the weak jobs numbers last Friday and the weak communique issued over the weekend at the G-7 meeting in Istanbul. ... At 9.8% unemployment convinced markets that monetary policy will remain loose regardless of dollar weakness. ... Bill Gross [said], 'One of the ways a country gets out from under its debt burden in to devalue.' ... Gold, oil the euro and equities are all rising as much as the dollar declines. They stay even in value terms and create lots of trading volume. ... Investors have been playing this weak-dollar trade for years, diverting more and more dollars into commodities, foreign currencies and foreign stock markets. This is the Third-World way of asset allocation. ... Corporations play this game for bigger stakes, borrowing billions in dollars to expand their foreign businesses. As the pound slid in the 1950s and '60s and the British Empire crumbled, the corporations that prospered were the ones that borrowed pounds aggressively in order to expand abroad. Though British equties rose in pound terms, they generally underperformed gold and foreign equities. ... Some weak-dollar advocates believe that American workers will eventually get cheap enough in foreign-currency temrs to win manufacturing jobs back. In practice, however, capital outflows overwhelm the trade flows, causing more job losses than cheap real wages create. This was the lesson on the British malaise, the Carter malaizse, the Mexican malaise of the 1990s, Yeltsin's Russian malaise through 1999 and the rest. No countries have devalued their way into prosperity", David Malpass at the WSJ, 8 October 2009, link:

I agree with Malpass. Current Fed policy is insane. Except for Wall Steet and the TBTF banks.

The Plank in the DOJ's Eye

"A federal grand jury accused the former chief executive of a defunct soft-drink-maker and four others connected to the company of perpetrating an $806 million bank fraud, much of which allegedly went to the ex-CEO and his family. Gregory Podlucky, 48 years old, of Ligonier, Pa., provided financial institutions and equipment supplies 'with dramatically false financal statements' to get equipment leases and loans for Latrobe, Pa.-based Le-Nature's Inc., said US Attorney Mary Beth Buchanan [MBB]", WSJ, 29 September 2009, link:

What's wrong with this story? Not Podlucky's being indicted, assuming MBB is correct. But that executives of America's largest banks haven't also been indicted for having their banks prepare and disseminate false financial statements. If you commit fraud against a bank you get indicted; if you commit fraud for a bank, the bank gets bailed out. What a country. Even if Podlucky did everything he's accused of, how different is that from Wall Street's current "heads we get bonuses, tails the public pays" compensation system? I wonder if MBB, 46, is being groomed to become the new Mary Jo White, 61? Compare this to Citigroup's $800 million Old Lane purchase, my 24 June 2008 post:

Monday, October 19, 2009

Is California Going to Pot?

"A majority of Californians in recent polls say the state should legalize marijuana. What pot proponents can't agree on is how soon voters will really be ready to approve legalization. ... While pot is already widely available under the state's medical-marijuana laws, and an April Field Poll found that 56% of Californians would support legalizing and taxing marijuana sales to help with the state's budget crisis, there is a significant anti-legalization lobby that is gearing up to fight any pot proposition. ... Law-enforcement groups who campaigned against [Proposition 5] are ready to battle any new marijuana initiative [John Lovell] said", Stu Woo at the WSJ, 3 October 2009, link:

To hell with the law enforcers. Legalizing pot might make them focus their attention on real crime, like murder, robbery, rape and such.

Rating Agency Snake Oil-2

"As scrutiny of credit-ratings firms in Washington heats up, a second official of Moody's Corp. has emerged and is expected to testify about concerns he took to regulators earlier this year. ... Mr. [Scott] McCleskey wrote to the [SEC] in March this year, chiefly to complain that Moody's doesn't adequately monitor credit ratings it assigned to tens of thousands of municipal bonds. He also took issue with changes the company made to its compliance department last year, which preceded his departure. ... In his letter, Mr. McCleskey said that while he was head of compliance, 'virtually no surveillance was being performed' on the 'vast majority' of Moody's municipal-bond ratings. ... An SEC spokesman said the agency is 'focusing on the tips and complaints we receive and following up, where appropriate, with examinations targeting suspected problems.' ... The SEC earlier this month passed new rules, but critics still say the fundamental problems haven't been fixed", Serena NG at the WSJ, 30 September 2009, link:

"A senior Moody's Corp. executive said at a congressional hearing that an outside legal firm investigating claims by a former analyst has so far found no evidence of wrongdoing. ... Richard ... Cantor told the House Committee for Oversight and Government Reform that Moody's hired law form Kramer Levin Naftalis & Frankel LLP to investigate a July complaint submitted by Eric Kolchinsky, a managing director who left Moody's in mid-September", Serena Ng and Sarah Lynch at the WSJ, 1 October 2009, link:

"This morning we had hoped to be able to praise House Financial Services Chairman Barney Frank, who seemed ready to break up the credit ratings racket that did so much to inflame the financial panic. But just when you think Barney will free up competition, he reinforces the cartel. ... A former Moody's employee, Eric Kolchinsky, described a 'reckless disregard for the truth' in an August memo to a Moody's official. Yesterday he tesified that those responsible for ensuring sound ratings methodology are 'routinely bullied' by management. ... Yet despite the path of financial destruction paved by the Big Three raters, Washington still won't yank their privileged status as Nationally Recognized Statistical Ratings Organizations (NRSROs). Based on the draft reform written by Mr. Frank's colleague, Paul Kanjorski (D., Pa.), the raters can expect more compliance and legal costs, but no threat to their official role as America's judges of credit risk. ... Appearing in CNBC in September, Mr. Frank said, 'We have exalted rating agencies too much.' He added, 'We need to repeal laws that mandate the use of rating agencies.' ... The bureaucrats at the [Fed], SEC and elsewhere merely need to study the issue and report back to Congress. These are the same people who wrote the flawed rules, so why would they eliminate them? ... But by bleeding the NRSROs while leaving intact rules that require their services, Mr. Kanjorski could be creating a senario in which regulators are soon calling S&P and Moody's too big to fail. This is essentially what Sarbanes-Oxley did for the accounting firms after Enron: In the name of punishing them, make then even more important", my emphasis, Editorial at the WSJ, 1 October 2009, link:

Nor will they be fixed until the individual SEC staffers incentives change.


What can we expect from the geniuses who brought us Sarbox? Praise Frank, like Marc Antony did Brutus in Julius Caesar 3:2:1-34. Let us bury Sarbox. It's the product of the actions of honorable men. Just like say the AIG bailiout.

Sunday, October 18, 2009

Hutchinson on Hyperinflation

Martin Hutchinson's (MH) 12 October 2009 post at Prudent Bear, link: is a must read. MH notes, "We have never experienced a global hyperinflation, in which money is unable to purchase goods, so it becomes worthless. ... Once articles start appearing in the Financial Times about investors choosing to buy physical commodities rather than futures, many more such investors will be drawn into this activity. ... It does not matter one whit whether investors demand physical gold rather than futures, because gold has only insignificant industrial uses and the stocks of gold available in 'inventories' such as Fort Knox are far more than sufficient to supply those uses for a decades if necessary". Gold is money. Not the stuff our counterfeiter in chief Zimbabwe Ben creates.

Three Felonies a Day

"Sometimes even criminal laws are left vague, to be defined by case. Technology exacerbates the problem of laws so open and vague that they are hard to abide by, to the point that we have all become potential criminals. Boston civil-liberties lawyer, Harvey Silverglate calls his new book 'Three Felonies a Day,' referring to the number of crimes he estimates the average American now unwittingly commits because of vague laws. ... Silverglate describes several cases in which prosecutors didn't understand or didn't want to understand technology. This problem is compounded by a trend that has accelerated since the 1980s for prosecutors to abandon the principle that there can't be a crime without criminal intent. ... The federal wiretap laws, Mr. Silverglate writes, were 'written before the dawn of the Internet, often amended, not always clear, and frequently lagging behind the whipcrack speed of technological change. Prsoecutors chose to interpret the ISP role of momentarily copying messages as they made their way through the system as akin to impremissibly listening in on communications. The case went through several rounds of litigation, with no judge making the obvious point that this is how ISPs operate. After six years, a jury found [Bradford] Councilman not guity. ... The Internet is a series of links, so if there's liability for anything in an online chain, it would be hard to avoid prosecution. ... Under the English common law we inherited, a crime requires intent. ... Prosecutors identify defendants to go after instead of finding a law that was broken and figuring out who did it", my emphasis, L. Gordon Crovitz, at the WSJ, 28 September 2009, link:

Another problem the DOJ has is Vincent Broderick Syndrome, favoring summary arrests, not investigations, my 28 November 2007 post: Silverglate is too kind, mindless, unscrupulous DOJ clowns seek easy prosecutions. I think the ISP case was brought in bad faith. Imagine, we want judges to apply Daubert. The DOJ operates like Laverntiy Beria's NKVD. A Federal Bureau of Prisons (BOP) 2007 report showed the BOP had 200,000 persons in custody, 53.5% of whom were in prison for drug offenses. Only 10.6% were in for immigration offenses and 0.5% for "banking, insurance, counterfeit, embezzlement". In reading the BOP's list, only 11.9% of those in BOP custody were convicted of exclusively federal crimes. Most AUSAs are innumerate. Try having one understand a complex securities fraud case. Good luck. Federal prosections rarely follow the CSI model, i.e., we have a corpse, now "whodunit"?

Saturday, October 17, 2009

The SEC is Hopeless, Kill It

"The [SEC's] independent watchdog called for a sweeping overhaul of the agency's investigation and enforcement practices on Tuesday, after a blistering report on the SEC's failure to detect Bernard L. Madoff's extensive Ponzi scheme. ... Representative Edolphus Towns, Democrat of New York, ... said the report found that more than 13 percent of the enforcement staff members said they had experienced a lack of impartiality among their supervisors, affecting the performance of their duties. 'There can be no place for partiality or political influence in our financial regulators,' Mr. Towns said. ... The changes recommended by Mr. [David] Kotz, who employed an outside firm, FTI Consulting, to conduct the review, also include giving the SEC staff access to outside publications and databases that cover the securities industry, while starting a collection system for capturing information from tips", my emphasis, Zachery Kouwe at the NYT, 30 September 2009, link:

Absent a change in SEC staffers' incentives, nothing will improve. Only 13%? Does that mean the other 87% know what kinds of cases to ignore so aren't pressured to ignore them?

Obama's Ratchet

"Doctors are trying to remove a provision in the Senate's latest health care bill that would cut Medicare payments to those who administer the most tests and treatments. The proposal--aimed at reducing waste--is one of several proposals in the bill by the Senate Finance Committee that could change how doctors are evaluated and paid. ... The bill calls for the secretary of Health and Human Services [SHHS] to account for doctors with less-healthy patients. But the government has acknowledged that its efforts to collect that type of data haven't fully accounted for all the attributes of Medicare recipients. ... Democrats see the health overhaul as a chance to reward doctors on the quality of care rather than the quantity. Health policy experts say the change is critical to eliminate wasteful medical spending. The Finance Committee bill would require the [SHHS] to distribute reports to doctors that compare their levels of treatment to other doctors with similar patients. Any doctor whose level of testing and procedures ranked at the 90th percentile of above would be penalized with 5% reductions in Medicare reimbursements. ... Republicans said the bill would hurt patients. 'This is, pure and simple, the rationing of health care," said Senate Republican Whip Jon Kyl of Arizona", my emphasis, Janet Adamy at the WSJ, 2 October 2009, link:

Ad hominem attack notice: Who do you think you're fooling, you mollycoddled, affirmative action baby, POTUS Obama? Not me. See my 3 September 2009 post: Obama is something, he can't stop lying for a second, all while believing he's got over a 200 IQ like Albert Einstein. What does "quality of care" mean? Is it like "quality" schools? Is "wasteful medical spending" any treatment for a white woman over 80? What is a "similar" patient? Every year 10% of doctors will be at or above the 90th percentile, by definition. The SHHS will give these doctors less money. To escape next year's list, the doctors on year one's list reduce treatments. In year 2 a new group of doctors is at the 90th percentile or above. The new group reduces treatments. Every year treatments decrease because of what I call a "ratchet effect". Obama, spare us this nonsense. Just feed the old white women hemlock. "Aimed at reducing waste", i.e., old white women.

Friday, October 16, 2009

Niall Ferguson on Wall Street

"Since its brith, the [US] has grappled with the problem of an over-mighty financial sector. With the exception of Alexander Hamilton, the Founders' vision was of a republic of self-reliant farmers and small-town tradesmen. The last thing they wanted was for New York to become the London of the New World--a mammon-worshipping metropolis in which financial capital and political capital were rolled into one. ... But now, barely a year after one of the worst crises in all financial history, we seem to have returned to the Gilded Age of the late 19th centruy--the last time bankers came close to ruling America. ... And what makes the losers in this crisis really mad is the fact that there's now one law for the small debtors and another one for big ones. If you lose your job and fall behind on your $1,500 monthly mortgage payment, no one's going to bail you out. But Citigroup can lose $27.7 billion (as it did last year) and count on the federal government to hand it $45 billion. ... Today it's the turn of Goldman Sachs to be likened to a 'great vampire squid.' To understand why, you need to go back 12 months. ... Despite much talk on both sides of the Atlantic of new financial regulation, the likelihood is that the most important flaw in our financial system will not be addressed. ... That flaw can be summed up in a single phrase: banks that are 'too big to fail.' Let's call them TBTFs. ... The TBTFs are able to pay crazy money because they reap all the rewards of risk-taking without the cost of going bust. ... What's needed is a serious application of antitrust law to the financial-services sector and a speedy end to institutions that are 'too big to fail.' ... Yet if the status quo persists, the danger of a populist backlash against both Wall Street and Washington will only grow. Such a backlash has more than one precedent in US history. ... TBTFs be warned. Old Hickory, where are you when we need you?", Niall Ferguson at Newsweek, 21 September 2009, link:

Amen. I would be honored to load our new Andrew Jackson's flintlocks.

Which Mob?-3

"The latest indictment to hit the New York City Buildings Department taps into the usual themes of bribery, corruption and compromised inspections. But it also introduces a new criminal element into the agency: the mob. Manhattan prosecutors on Thursday accused the Luchese crime family of infiltrating the Buildings Department, saying that three of the family's associates found jobs as building inspectors and that others in the family, including top bosses, committed a wide range of crimes. ... Robert M. Morgenthau, the Manhattan district attorney, said 27 of 29 people named in the indictment had been arrested; the other two remain at large. Those indicted include bosses and associates of the Luchese family, officials of four corporations, real estate officials and the six building inspectors. ... 'These former inspectors are accused ot betraying the public and this department for their own selfish gain, and they should be prosecuted to the full extent of the law,' [said Robert LiMandri, buildings commisioner]. Morgenthau said the largest known bribe was $44,000, paid by a real estate company to Carmine Francomano Jr. for 'favorable dispositions' of building inspections. Altogether, Mr. Francomano accepted $82,500 in bribes, Mr. Morgenthau said. ... In an unrelated gambling indictment announced almost simultaneously on Thursday, a dozen other people connected to the Luchese family were among 19 people charged. The announcement was made by Preet Bharara, the [US] attorney in Manhattan, and Andrew M. Cuomo, the state attonery general", Christine Hauser, at the NYT, 2 October 2009, link:

Bharara, you learned well at Mary Jo White's knee. Forget the Lucheses. Find something to indict Vikram Pandit for. If you lack the brains, I'll explain the "Old Lane Scam". Pro Bono. But I have no law degree, lest an Ivy League one. So? You tell criminals "ignorance of the law is no excuse", don't you? Find something to indict Lloyd Blankfein (LB) or John Mack for. Invoke Laverntiy Beria's, 1899-1953, spirit, "Show me the man, and I'll find you the crime". Are the SEC and DOJ "mob infiltrated" organizations. Ben Stein, my 21 December 2007 post, was so right: $44,000? Is that LB's monthly cigar bill? Why is "Lady Justice" depicted wearing a blindfold? Because she's blind to only certain types of crimes?

Thursday, October 15, 2009

Listen to Lenin!

"State and municipal governments, stuggling with sinking revenue, are raising money by levying fees on consumers, slapping businesses with back taxes and tweaking tax laws in ways that force many businesses to pay more. That is leading to accusations--and, in some case, lawsuits--that governments are trying to rake in more money without officially raising taxes, sometimes illegally. ... Last week, five retailing groups sued New York state alleging that a new tobacco-registration fee was unconstitutional. The groups argued the new fee, which uses a sliding scale based on a retailer's total sales, instead of just cigarette sales, 'is essentially a tax,' said Andrew Curto, a lawyer representing the groups. ... In San Francisco, tax lawyers say the city is sidestepping the electorate by labeling the new cigarette levy as a fee instead of a tax. ... Among the more aggressive states has been California, which teetered on the brink of insolvency during a budget impasse earlier this year", Conor Dougherty at the WSJ, 26 September 2009, link:

Who said California still isn't "on the brink of insolvency"? Muni bonds anyone? See my 20 October 2008 post on the Franchise Tax Board: If you don't have to do business in California, get out. While the going is good.

Fed as a Lehman Creditor

"A court-appointed examiner investigating Lehman Brothers Holdings Inc.'s bankruptcy has been exploring whether the [Fed] improperly cut in front of other creditors owed money in the $613 billion bankruptcy case, records show. ... Fed loans were crucial to propping up Lehman during its final days, and were part of an extraordinary government attempt to stabilize lehamn in the chaotic weeks of mid-September 2008. ... Should the examiner determine that the Fed got preferential treatment, bankruptcy adminstrators could pursue court claims to recover assets for Lehman's creditors from the Fed, on the theory those assets should have remained with Lehman when it filed for bankruptcy last September. ... Yet it could bring a focus to one of the unresolved questions of the financial crisis: just how much special treatment the federal government receives above private-market players when it beocme a direct participant in the markets. ... [Sovereign immunity] generally holds that the government can't be held legally accountable for its actions. But Lehman's estate could have an opening, because by the standards of bankruptcy law, the government isn't supposed to receive immunity, said Richard Levin, a partner at law firm Cravath, Swaine & Moore LLP who helped write the US bankruptcy code. 'The Lehman estate could sue the Fed.' Mr. Levin said, adding that the Fed would likely argue it can't be held liable", Jeffrey McCracken and Mike Spector at the WSJ, 2 October 2009, link:

Will the Fed argue it is a branch of the federal government? I thought it was an independent entity like say Fannie Mae or Freddie Mac. Stay tuned, this could become interesting.

Wednesday, October 14, 2009

Martin Hutchinson on Capitalism

Martin Hutchinson (MH) has a 28 September 2009 post attacking: financial alchemy, economists, bad accounting, the Fed, ratings agencies, banks, AIG, Goldman Sachs, phony statistics and the bond markets. He writes heresy, "It would have been much better to allow Goldman Sachs and the other major counterparties to AIG credit default swaps to suffer the full losses, and then send some random collection of CDS dealers and maangers to jail for a couple of decades or so, as was done after the Drexel Burnham and Enron collapses". Off with MH's head. Here's a link: MH says it all.

SEC Shills

"Our experiences from bringing possible securities fraud and money-laundering cases to the SEC have caused us to seriously question the SEC's commitment to protecting investors. We acknowledge that the agency is underfunded and understaffed and therefore must conduct a cost-benefit analysis for each case on its table", my emphasis, my emphasis, James Deitrick and Brian Vodicka (D&V), letter to the WSJ, 28 September 2009, link:

Nice going D&V. You guys must be SEC shills. I'm sure SEC staffers conduct the "cost benefit" analysis you have in mind, i.e., which costs can be exteralized and which benefits can the SEC staffer capture for himself. I disagree that the SEC is understaffed and underfunded. It knows which cases it takes and which it passes on. And why.

Ken Lewis Whistleblower?-3

"When [BofA] bought Merrill Lynch last winter, the political class applauded and called CEO Ken Lewis a solid citizen. Now, from the safety of noncrisis hindsight, our politicians claim that the bank's shareholders may have been mistreated. Few of those shareholders are complaining, given the profits Merrill has been generating for the bank in recent months, but the pols apparently want a scapegoat for bailouts and bonuses. Mr. Lewis fits the bill. ... Of course, proxies rarely make anything clear, because, like all SEC-mandated disclosures, they are created to ensure regulatory compliance rather than inform invstors. Was this one worse than average? ... Anyone who cared enough to read the proxy probably consumer enough financial news to understand that BofA was willing to pay to maintain Merrill's principal asset--its employees. ... But count us as skeptical that BofA managers would risk violating securities laws in order to make sure that other people could collect large bonuses, or to hide another firm's losses so they could have the privilege of overpaying to acquire it. ... If Mr. Cuomo wants to do a public service, he could focus on the government's own role in this episode. ... Here's a theory of the case that won't help Mr. Cuomo become governor, and won't help Mr. [Edolphus] Towns make headlines, but might even be true and fair: Amid the autumn and winter financial panic, everyone involved was operating under tremendous pressure with incomplete information. Federal officials all but ordered Mr. Lewis to buy Merrill and they certainly knew all about the bonuses", original italics, my emphasis, Editorial at the WSJ, 21 September 2009, link:

"After fighting to keep his grip on the bank he helped build from a scrappy Southern outsider to the nation's largest in assets, [BofA] Chief Executive Kenneth D. Lewis said he will resign by year end. ... Even as the board backed Mr. Lewis publicly, there were signs that his interests and the bank's were diverging. Mr. Lewis has hired his own lawyers, former US Attorney Mary Jo White and James Wyatt III, a criminal-defense expert in Charlotte, while the board and the bank have separate representation on the various lawsuits and investigations relating to the bank's purchase of Merrill Lynch", Dan Fitzpatrick and Joann Lublin at the WSJ, 1 October 2009, link:

It is inconceivable that Zimbabwe Ben and Hank Paulson didn't know.

Uh oh. Ken, watch your new lawyers like a hawk. You hired Mary Jo "Ping Pong Ball Fed" White. You don't know who your lawyers represent. My advice: get a Roy Cohn, if you can find one. One who would be unafraid to let the Fed, Treasury and DOJ know: If you come down, you will crash their whole corrupt system.

Tuesday, October 13, 2009

IFRS Survey

Tom Selling of Accounting Onion has a survey about IFRS in conjuntion with Pat Walters of Fordham University. Here's a link so you may respond:

Parole Follies

"California is the only state that places all released prisoners on parole, no matter the seriousness or their crime. Even at a time of historically low violent crime, critics argue that overloading parole agents compromises public safety. Legislation passed this month will reduce the 'average' caseloads for parole agents to 45, from 70, and nonviolent, less serious offenders will no longer be returned to prison for adminstrative infractions. ... The law was hard-won by the Democratic-controlled state legislature. Corrections officer unions, police organizations and prosecutors opposed it, arguing that even parolees convicted of nonviolent crimes were too dangerous to be left unsupervised. ... In fact, Gov. Arnold Schwarznegger announced $280 million in cuts this week to educational and rehabilitation programs inside prison", Solomon Moore at the NYT, 27 September 2009, link:

"Nine sex offenders have been ordered out a makeshift camp behind an office park and on Tuesday sought housing that conformed to state law. The offenders, all of whom are men, had been directed to the spot by probation officers who said it was a site of last resort. Georgia law bans the state's 16,000 sex offenders from living, working or loitering within 1,000 feet of schools, churches, parks and other places where children gather", NYT, 30 September 2009, link:

We should ignore criminal justice "experts", like prosecutors and correction officer unions. Why? Do you expect them to say parole agents should have larger caseloads? It's a likely as the NEA suggesting schools increase class size.

This law should be repealed. You did your crime, you did your time. That's it. Georgia's sex offenders should seek housing wherever they want and dare Georgia to send them back for housing violations. Georgia is broke, see my 26 September 2009 post:

Not Again

"A new wave of financial alchemy is emerging on Wall Street as banks and insurers seek to make soured securities look better. Regulators are pushing back, saying the transactions don't have enough substance and stand to benefit bankers and ratings firms. ... The popular deals are known as 're-remic,' which stands for resecuritization of real-estate mortgage investment conduits. The way it works is that insurers and banks that hold battered securities on their books have Wall Strete firms separate the good from the bad. The good mortgages and bundled together and create a security designed to get a higher rating. The weaker securities get low ratings. ... Some state insurance regulators worry that current ratings are flawed--perhaps even too harsh--for determining the capital that should back up residential-mortgage securities. But they are chafing at the re-remic strategy. That's partly because of the fees and partyluy because re-remics rely on ratings firms--faulted for failing early on to identify problems with mortgage-backed bonds--to rate the new securities", Leslie Scism and Randall Smith at the WSJ, 1 October 2009, link:

They're kidding. That any regulator would let one dollar of re-remics be peddled under current circumstances shows how complete regulatory capture is.

Monday, October 12, 2009

Lake Wobegon Does Toronto

"On Tuesday, when hundreds of thousands of Ontario students head back to school, a lot of attention will be focused on one particular school in Toronto's north end. In only has 85 students, but hopes are high for the Africentric Alternative School, which wll open its doors near Kelle Street and Sheppard Avenue West on Sept. 8 for the very first time. ... The Toronto District School Board voted narrowly to approve the controversial school in January 2008. It's an attempt by educators to combat the disproportionately high dropout rate among black students in the Toronto school system. ... Leah Newbold, the school's French, health and phys-ed teacher, is also excited about the new school. 'I know that the students in our communities are brilliant, and I want to be part of a school that's helping them to demonstrate that'," 4 September 2009, link:

"For the 21st straight September morn, the first day of school finds me in the halls of Crawford Adventist Academy. This year, the fourth and last of Jameses enters high school to start the beginning of the end of the cycle. ... Can a Toronto public school tasked to engage students through the use of an Africentric curriculum, focus and culture suceed in stemming outrageous dropout rates among black students? ... But despite the television cameras, African drums, speeches and other embellishments, the elementary students can't possibly grasp the importance of the enormous experiment they and their parents have embraced. ... Stripped of all the hand-wringing over the Africentric school, this core remains: Forty per cent of Toronto's black kids are dropping out of school. That alone is enough for a national inquiry, extensive parental reforms and intervention, and a host of initiatives. It is a crisis unfolding before our eyes as dropouts gun down each other on our streets. ... This group of students will graduate--empowered, confident, a class of world-beaters. Why? Because they will leave this school loving themselves, respecting their community, and utterly convinced they can take on the world on society's terms", my emphasis, Royson James at Parent Central, 15 September 2009, link:

Ocean Hill-Brownsville! Bring back Jim Crow. Resegregate our schools. Reverse Brown. Will al'Qaeda open a madrassah in Toronto? Good luck Newbold.

Quoted without comment.

What Precedent?

"In her maiden Supreme Court appearance last week, Justice Sonia Sotomayor made a provocative comment that probed the foundations of corporate law. ... Sotomayor sggested that the majority might have it all wrong--and that instead the court should reconsider the 19th century rulings that first accorded corporations the same rights flesh-and-blood people have. Judges 'created corporations as persons, gave birth to corporations as persons,' she said. 'There could be an argument that that was the court's error to start with... [imbuing] a creature of state law with human characteristics.' ... Originally, corporations were a relatively rare form of organization. ... 'A corporation is an artificial being, invisible, intangible,' wrote Chief Justice Marshall in an 1819 case. 'It possesses only those properties which the charter of its creation confers upon it.' ... Sotomayor may have found a like mind in Justice Ruth Bader Ginsburg. 'A corporation, after all, is not endowed by its creator with inalienable rights,' Justice Ginsburg said, evoking the Declaration of Independence", Jess Bravin at the WSJ, 17 September 2009, link:

What? I've held to Ginsburg's comment for decades. I would like to see the "Ginsburg-Sotomayor" bloc win this one and overturn what I believe to be 100 years of bad law.

Sunday, October 11, 2009

State Tax Collections

"State tax revenues in the second quarter plunged 17% from a year earlier as rising unemployment and reduced spending hurt sales- and income-tax collections, according to Census Bureau figures released Tuesday. The decline was the sharpest since at least the 1960s. ... But with tax collections continuing to decline, many have been forced to reopen budgets after they have been passed to push through even bigger cuts to staffing and servicces. States, unlike the federal government, are generally required to balance their budgets. ... 'Anything is fair game,' said Amber King, a public information officer for [Louisiana] state Treasurer John N. Kennedy, who serves on the 'streamlining commission.' ... In Arizona, overall tax revenues fell 27% in the second quarter. Tax revenues fell 12% in Florida and 14% in California. ... Eleven states--including California, New York and Wisconsin--saw personal income taxes fall more than 30%", Connor Dougherty at the WSJ, 30 September 2009, link:

Muni bond buyers, good luck. If anything is on the table, how about repudiating Louisiana's muni bonds? Only fat cat, tax avoiders own them anyway.

Boskin's Baaack!

"For so many decades California residents enjoyed a rising standard of living, and outstanding education system, and unprecedented upward mobility. ... While uncontrolled spending, excessive regulation and litgation have helped create a dismal business environment, the tax system is central to the state's economic woes. ... Ironically, California's progressive tax and spending policies now threaten the state's ability to fund everything from parks to prisons, education to health. The excess spending during booms is never entirely cut back during the busts. Instead, the state also raises taxes and borrows temporarily. ... While the two of us believe California needs to control and reform state spending, and then reduce as well as reform state taxes, we and the commission's other appointees were limited by the executive order creating the commission to changes on the tax side of the state budget that would neither raise nor lower the state's revenues on average over the business cycle", my emphasis, Michael Boskin & John Cogan (B&C) at the WSJ, 30 September 2009, link:

"No state's economy, with the exception of Michigan, has careened into a deeper ditch than California in this recession. The state now has the fourth-highest unemployment rate (12.2%), the third-highest rate of mortgage foreclosures, and for two years has had the biggest budget deficit in the history of the 50 states. ... The heart of the new plan is to broaden the tax base and slash tax rates on personal income, business and sales. ... Because about 70% of small businesses pay the personal California income tax, the commission found that California's high rate is driving enterprises to the likes of Nevada, Texas and Idaho", Editorial at the WSJ, 30 September 2009, link:

Brenda Walker has a 30 September 2009 post about California at Vdare, link: Way to go Brenda!

B&C are Stanford professors. So? We remember Boskin. He led 1996's infamous "Boskin Commission", my 5 October 2007 post: As Uncle Miltie taught us 40 years ago, government spending uses real resources. 2009's Boskin Commission is as fraudulent as 1996's. Without spending cuts, California will not balance its budget. Perhaps not then. B&C's article does not mention the "I word", immigration. Hmm. California can shuffle its economic Titanic's deck chairs ad infinitum, changing percentages on its tax forms will accomplish nothing. Have California residents no longer "a rising standard of living"? Compared to who? Oregonians or Mexicans? What happened to California's schools which in the 1950s and 1960s were the US's best? Is "the tax system central to the state's economic woes"? Tax "reform" is a scam. Cut spending. Why is California hopeless? California's gross state product (GSP) is $1.55 trillion; with 38.5 million residents, say $40,000 per capita. Mexico's per capita GDP is about $10,700. Which Mexicans come to the US? Mostly those from Southern Mexico. Mexico's per capita GSP varies from $22,000 to $4,000. Assuming illegal aliens come from Mexican states with per capita GSPs of about $7,000 and their productivity doubles in the US, as the US is "capital deeper", we have 14 million people producing $196 billion in California GSP 24.5 million producing $1.354 trillion or $55,300 per capita. If California's 14 million Hispanics even consume at 1/3 the rate of non-Hispanics, that's $12,400 per capita. There's more. If they produce $14,000 per capita, they likely earn say 67% of that or $9,400 per capita, $12,400 - $9,400 = $3,000; $3,000 x 14 million = $42 billion, the difference between Hispanic consumption in California and income. If the difference is half this estimate, its still $21 billion. This money comes from somewhere.

Tax rates, bah humbug. Absent spending cuts the proposed tax rate changes amount to nothing. The WSJ doesn't mention the "I word either".