Saturday, February 28, 2009

Judicial Malfeasance

"At worst, Hillary Transue thought she might get a stern lecture when she appeared before a judge for building a spoof MySpace page mocking the assistant principal at her high school in Wilkes-Barre, Pa. She was a stellar student who had never been in trouble, and the page stated clearly at the bottom that it was just a joke. ... 'I felt like I had been thrown into some surreal sort of hightmare,' said Hillary, 17, who was sentenced in 2007 [to three months]. 'All I wanted to know was how this could be fair and why the judge would do such a thing.' The answers became clearer on Thursday as the judge, Mark A. Ciavarella Jr., and a colleague, Michael T. Conahan, appeared in federal court in Scranton, Pa., to plead guilty to wire fraud and income tax fraud for taking more than $2.6 million in kickbacks to send teenagers to privately run youth detention centers run by PA Child Care and a sister company, Western PA Child Care. ... 'In my entire career, I've never heard of anything remotely approaching this,' said Senior Judge Arthur E. Grim, who was appointed by the State Supreme Court this week to determine what should be done with the estimated 5,000 juveniles who have been sentenced by judge Ciavarella since the scheme started in 2003. ... Prosecutors say the judges tried to conceal the kickbacks as payments to a company they control in Florida. ... But [AUSA] Gordon A. Zubrod said after hearing that the government continues to charge a quid pro quo. 'We're not negotiating that, no,' Mr. Zubrod said. 'We're not backing off.' ... For years, youth advocacy groups complained that Judge Ciavarella was unusually harsh. He sent a quarter of his juvenile defendants to detention centers from 2002 to 2006, compared with a state rate of 1 in 10. He also routinely ignored requests for leniency made by prosecutors and probation officers. ... Clay Yeager, the former director of the Office of Juvenile Justice in Pennsylavania, said typical juvenile proceedings are kept closed to the public to protect the privacy of children", Ian Urbina and Sean Hamill at the NYT, 13 February 2009, link:

Compare this to what regularly goes on in the DOJ. The DOJ sees kickbacks to a judge as "quid pro quo", but not law firm partnerships or law firms' fees, see my 31 December 2008 post: We can't see all the prosecutions the DOJ squashes to protect rich miscreants, squashed and paid for in legal fees.

Bond Rates

"Amid the daily news about economic woes, it is useful to ponder the long view. And the long view shows that we now stand at the tail end of the greatest secular swing in interest rates in US history. Interest rates are a barometer of economic conditions. So where have they been, and what can they tell us? .... The upward move began in 1946, when long bonds were yielding about 2.5%, and ended October 1981, when they peaked at 15%. ... The magnitude of this long up-and-down yield movement dwarfs by a very wide margin all four previous secular swings in American financial history. The cumulative change in the postwar trough-to-peak-to trough swing was 25.3 percentage points. ... The private sector is overloaded with debt. The federal government continues to issue an unprecedented volume of new obligations. Our financial institutions are overleveraged and dependent upon government largess for their survival. Whereas the nation stood on the brink of an unprecedented economic boom in 1946, today wealth is contracting massively and the economy is grinding through a severe recession. ... The current interest-rate trough reflects several weaknesses in today's financial markets that are also undermining the broader economy from the failure of monetary policy makers to recognise the impact of financial and structural changes in market behavior, to serious lapses by credit rating agencies, to the inability of the senior management of financial institutions to stay within reasonable risk parameters. Which raises the question: Why are we so poor at managing our key economic institutions while at the same time so accomplished in medicine, engineering and telecommunciations? ... The answer lies in methodology. In science and technology, we rely on the scientific method: experimental design with dependent and independent variables and with reproducible results. Economists and financial experts like to fancy themselves as exact scientists as well", Henry Kaufman (HK) at the WSJ, 14 February 2009.

I agree with HK, interest rates are going up. HK misses something: the Fed changes things rendering "experiments" impossible. I have long said that economics is infected with scientism, see my 15 January 2009 post:

Friday, February 27, 2009

Is This Churchill's England?

"When Alice fell down a rabbit hole and embarked on her adventures in Wonderland, she discovered a thoroughly surreal environment in which the White Queen was able to advise the Mad Hatter that ... 'quite often subjects are punished before they commit a crime, rather than after, and sometimes do not even commit it all.' Welcome to Wonderland, Mr. Wilders, where Holland's sober lawmakers appear intent on out-fantasizing Lewis Carroll on acid. The fact that they are hell-bent on subjecting Geert Wilders [GW] to a criminal prosecution is more than just absurd. it is insane. Totally, utterly and mind-bendingly insane. .. But the 2009 version of [GW] is not intent on taking over a foreign land. Today, he is simply defending his own land against a new generation of foreign destroyers, pillagers and rapists. And for this he is smeared as a criminal by his very own countrymen. It is a very curious state of affairs when a man can be indicted for detailing the revolting behavior of a third party group, but this, in effect, is just what has happened. ... He allows them to harvest villification all by themselves. A photo opportunity inciting a variety of hatreds is the Achillies heel of many imams, who view such behavior as a mere exercise in Islamic public relations. But when these images are combined with the hate-filled words of the Koran, then Islam manages to indict Islam via a magnificent lack of self-awareness. ... What the Dutch authorities (in cahoots with EU authorities) are doing is ensuring the selective editing of free speech. I say selective, because under existing criminal legislation most Mosques throughout Europe should need a conveyor belt to shuttle the new imams through the front door as the manacled ex-imams, convicted not only of sedition but also the incitement of hatred against Jews, Christians, women and homosexuals, are shuttled out through the back ... Can one compare Churchill and Nazism with Wilders and Islamism? Liberals would probably disagree, but liberals need a few basic lessons in reality. Islam is at war with Europe. Right now. Today. ... The idea that fellow Europeans, indeed fellow Dutchmen, have deliberately imported and protected an alien and totally unassimiable culture whose core ideology is the antithesis of the liberal democracy that is Holland, would have Alice in need of Prozac rather than a nice cup of tea, such is the manifest insanity of it all", Baron Bodissey (BB), 9 February 2009, link: http://gatesofvienna,

"[GW] is an unlikely free-speech symbol, as the Dutch lawmaker wants to ban the Quran. And Britain is an unlikely country to suppress free speech, but police Thursday detained Mr. Wilders at Heathrow Airport to stop him from speaking at Parliament. ... In truth, the government is selective in opposing extremism, for example, allowing Ibrahim Moussawi, a chief spokesman for the Iran-financed Islamic terrorist group Hezbollah, to enter the country last May and address meetings organized by the 'Stop the War Coalition.' ... Nobody really thinks [GW's] presence will incite attacks on Muslims. Rather, the unspoken fear is that his visit will spark riots by Muslims", Editorial at the WSJ, 14 February 2009.

"Twenty years ago, Andres Serrano put a plastic crucifix in a glass of urine, photographed it and called it art. ... Also 20 years ago: On Valentine's Day 1989, the Ayatollah Khomeni issued a fatwa against Salmon Rushdie, condemning him to death for supposedly blaspheming Islam in his novel, 'The Satanic Verses.' ... [GW] is being prosecuted for hate speech in his native Holland, where he faces up to 16 months in prison if convicted. His alleged crime involves making a short film, called 'Fitna,' which draws a straight line betwen Quaranic verses and acts of Islamic terror. ... As for the Rushdie affair, after some initial hesitation most of the liberal intelligensia on both sides of the Atlantic rallied to his cause. True, there were some dissenters: Jimmy Carter called the 'Satanic Verses' a 'direct insult to those millions of Muslims who sacred beliefs have been violated'. ... For liberals, the issue is straightforward. If routine mockery of Christianity and abuse of its symbols, both in the U.S. and Europe is protected speech, why shouldn't the same standard be applied to the mockery of Islam? ... But a defense of Mr. Wilders is made a lot easier if one can point to the vivid difference between a civilization that protects, even celebrates (and funds!), its cultural provocateurs, and a civilization that seeks their murder. This is no small point", Bret Stephens (BS) at the WSJ, 17 February 2009.

Uassimilable, how dare you? Does anyone remember Europe's 1989 reaction to Khomeni's fatwa against Salmon Rushdie (SR)? Disgusting.

Since when does GW want to ban the Koran? He wants to expose the Koran! This is not Churchill's England, but a sick caricature.

I agree with BS. As many Moslems act, they may be right. The world is becoming a scene out of an old Western, the scene where the guy in the white hat says, "This town ain't big enough for the both of us". Similarly, Islam and: Hinduism, Judaism, Christianity, Buddhism, Atheism, etc.. Apparently BS does remember the SR incident. Jimmy Carter is some piece of work. His accomplishments in office: high inflation, exiting the Shah and pushing anti-Semitism.

An Austrian View of Simulus

Mike Rozeff (MR), a retired finance professor applies Austrian economics to Obama's stimulus plan. Having read the WSJ piece Rozeff refers to, I have nothing to add to Rozeff's 13 February 2009 comments: He's got it nailed.


"Moses would cry if he read 'Voices from the Rubble' [Feb. 9]. Moses would cry for the three little Palestinian girls shot by Israeli soldiers who were on a candy break. Moses would cry for the parents and grandparents unable to help their children. Moses would cry for the soldiers so steeped in a national bunker mentality that they no longer value the lives of Palestinian civilians. Moses would cry for his people, who have lost sight of the biblical guideline on proportionate retaliation: 'An eye for an eye, a tooth for a tooth'," Lowell Klessig (KL) letter to Time, 23 February 2009.

Time, like most MSM members subscribes to political correctness and biblical ignorance. Who edits Time anyway? "An eye for an eye, a tooth for a tooth" is at Exodus 21:24. It does not refer to acts of warfare, but punishment for criminal acts or torts. Read Exodus 21. Does KL know of Moses who brought Egyptians: blood, frogs, gnats, flies, livestock plagues, boils, hail, locusts, darkness and slaying their firstborn? Did "innocent" Egyptian children suffer when they had no water, just blood to drink? Did "innocent" Egyptian children die when the firstborn were slain? "We conquered all his towns and completely destroyed everyone--men, women and children. Not a single person was spared", Deut 2:34 (NLT), referring to Moses war with King Sihon of the Amorites. Was Deut. left out of KL's bible?

Thursday, February 26, 2009

Nuclear Bananas and Russia's Tocsin

"China's military said that it needs to be stronger to face containment abroad and separatist threats at home, even as it said that relations with long-time rival Taiwan had improved. ... But despite that improvement in what has been its biggest potential hot spot, defense officials said China needs to continue to invest more in equipment, salaries and logistics to modernize its army and to fend off other threats to national unity, including separatists in Tibet and in energy-rich Xinjiang. ... China says its military budget is purely for defensive purposes and that while spending has accelerated in recent years, it's still a fraction of what the U.S. spends", Shai Oster at the WSJ, 21 January 2009.

"Critics--often labeled 'traditionalists' or 'conservatives'--concede that irregular warfare will occur more frequently in the future that interstate war. But they conclude that such conflicts do not threaten U.S. strategic interests in the way large-scale conflicts do. They fear that the Long War school's focus on small wars will transform the Army into a constabulary force", Mackubin Owens at the WSJ, 27 January 2009.

"Even as these words are written, the [US] is embracing collective suicide. I am not talking about the economic crisis. I am referring to Barack Obama's foreign policy, which promises to fulfill Nietzsche's prophecy regarding the future dominance of Russia. As reported by the major media, President Obama has set out to eliminate most of America's nuclear arsenal. We're talking about bombs mounted on intercontinental rockets that can travel anywhere on earth and wipe out hardened military targets. We are talking about weapons that can reduce an Army to radiated debris, sink fleets, and devastate cities. These are the decisive weapons of our time--terrible and awesome. ... On their side the Russians are eager to encourage U.S. disarmament. A few weeks ago a Russian general, talking on the radio, publicly advises the Kremlin to take a more soothing stance toward the Americans. Half the American nuclear arsenal doesn't work, he said, and the other half is seriously neglected. ... If Russia lays low and avoids stunts like the recent incursion into Georgia, then Russia might enjoy the dominant positioon. President Obama wants a nuclear arms reduction agreement. All Russia has to do is to sign the agrement and ignore its requirements. This is what the Russians have already done. ... As it turns out, arms reduction is too sexy. It is something that flabby and vapid people cannot resist. ... Once I heard an American senator say that a few dozen such weapons would destroy the planet. Such childish notions are not believed by Russian generals, or by those who've bothered to study the rational use of these weapons. ... If you think in strict strategic terms, nuclear war is perfectly winnable. ... The [US] is headed for disarmament. Who dares raise an alarm against this shameful stupidity?", my emphasis, JR Nyquist (JRN), 6 February 2009 at

Suppose China's military spending was for "offensive" purposes. What would it say? What fraction, 10% or 90%?

Count me a "traditionalist". The US should not fight "small" wars. I said the US army is turning into a constabulary before, 14 April 2008, link:

Diane Feinstein made a fool of herself, showing she knows nothing about nuclear weapons, my 15 January 2009 post, link: Russia's military doctrine ever since it developed the MIRVed SS-18 in about 1975, is: there is no nuclear war, but battles with nuclear weapons within a war. I see the Russian general's speech differently. He needed Putin's OK to make it. Why did Czar Putin grant it? To warn us of our strategic inadequacy if Russia and China go to war. Putin wants us, "Hope and Change" President included, on Russia's side and militarily capable. I think Russia sees China as a real threat, not the US. See also my 3 December 2008 post, link: In about 1964 Mao told Khruschev China could lose 300 of its 600 million people in a war and still win. That kind of rhetoric is not lost on Czar Putin.

Nothing New Here

"Tim Geithner didn't use the words 'regulatory forbearance' yesterday in his banking bailout presentation. In fact, no one in Washington uses those words, which are seriously out of fashion. Yet regulatory forbearance is the most important item in the government toolkit. ... Is mark-to-market the best of all possible disclosure regimes for investors? Maybe so, but that's no reason for regulators to tie their own hands when flexibility about bank solvency would better serve the public interest. That's regulatory forbearance. Let's not kid ourselves, either, that banks haven't already received a few nods to avoid accounting write-downs that would endanger their capital adequacy. ... Banks 'too big to fail' already are effectively backed by government and don't need trillion-dollar capital injections or taxpayer-financed toxic asset relief. .. Instead, Mr. Geither offered that Washingon now would 'stress test' banks to find out their true condition, Huh? Aren't our multiple regulatory agencies already doing this? ... Dropping mark-to-market is no miracle cure, but it would reduce the pressure on banks and regulators to make irrational choices about the disposition of questionable assets. ... Regulatory forbearance doesn't make this moral hazard worse; at this point, it simply represents the least-cost approach to finishing the job the government has of holding the banking system's hand while it steps back from the abyss", Holman Jenkins (HJ) at the WSJ, 11 February 2009.

"The Treasury Secretary seems stuck on keeping the banks we have in place. But we don't need zombie banks overstuffed with nonperforming loans--ask the Japanese. Mr. Geithner wants to 'stress test' banks to see which are worth saving. The market already has. Despite over a trillion in assets, Citigroup is with a meager $18 billion, Bank of America only $28 billion. The market has already put that the banks and their accountants haven't fessed up to bad loans and that their shareholders are toast. ... The $45 billion to Citi and the Bank of America wasn't nearly enough. Instead $306 billion and $118 billion loan guarantees were extended to cover the bad debt, which unfortunately, the market believes still weighs down the banks' balance sheets", Andy Kessler at the WSJ, 11 February 2009.

"Bank-stock investors have every reason to stress out over the Treasury's stress test. As part of Treasury Secretary Timothy Geithner's Financial Stability Plan, many banks will be subject to tests aimed at gauging whether they have sufficient capital to support lending and absorb losses under a severe economic outlook. Existing bank regulators, including the Treasury's own Office of the Comptroller of the Currency [OCC], already test banks' strength. So the new assessments will have an added rigor, or the announcement was pure theater. If the administration really does have the stomach to get tough with the banks, they could be forced to recognize credit losses more quickly. ... Incredibly, as the credit crunch has deepened, banks' loan-loss reserves have so far fallen as a percentage of non-performing loans", my emphasis, Peter Eavis at the WSJ, 13 February 2009.

Is HJ kidding? Regulatory forbearance, in part got us here. How does HJ know what serves the public interest? He sounds like a bank lobbyist Thomas Jefferson warned us about banks. I say kill these monsters, now. To think accounting entries change regulators' decisions shows banks books are cooked and HJ wants the taxpayers cost of bank bailouts disguised. HJ makes similar arguments to Citigroup's Bob Traficanti, my 17 July 2008 post:

I agree with Kessler.

The OCC is another joke. See what it did at NCC, my 18 June 2008 post, link:

Wednesday, February 25, 2009

"Small" Banking

"The Obama administration's plan to limit the remuneration of employees of publicly supported financial institutions to $500,000 has the simplicity of genius. A limit on pay is an effective way to reinstate the Glass-Steagall Act's separation of commercial and investment banking. ... But no professional would join an investment bank unless he or she expected to earn far more. ... But German shareholders, taxpayers and depositors might take the alternative position. They might well want such talent to be kept far away from their savings. ... Diversified financial conglomerates are a bad idea. ... The culmanation of Sandy Weill's aspirations at Citibank was a behemoth that neither he, nor anyone else, was capable of running. They are a bad idea for those who work in them. Tension between the buccaneering culture appropriate to trading and investment banking and the meticulous processing and caution needed for retail banking is perpetual. ... Most of all, they are a bad idea to taxpayers. Banks used the retail deposit base, with its effective government guarantee, as collateral for speculative trading", my emphasis, John Kay at the FT, 11 February 2009.

I agree with Kay. It's more than time to break up monsters like Citigroup.

Wait Listed by Jail-4

"The California prison system must reduce overcrowding by as many as 55,000 inmates within three years to provide a constitutional level of medical and mental health care, a federal three-judge panel tentatively ruled Monday. ... 'The evidence is compelling that there is no relief other than a prisoner-release order that will remedy the unconstitutional prison conditions,' the panel said in its tentative ruling. ... The court supported its argument by citing Gov. Arnold Schwarzenegger's own support for prison reforms, which he has said would reduce the population by about 40,000 inmates. ... The judges also indicated that they would mandate a prison population cap of about 120 percent to 145 pecent of the state's designed capacity", Solomon Moore, 10 February 2009 at the NYT, link:

This may have been the result Schwarzenegger wanted. Now he can "blame" the prisoner release on the Feds. See my 11 November 2008 post:

Tuesday, February 24, 2009

Legal Inequality

"Much of what we read on the LRC page and elsewhere involves unjust or criminal actions by people employed by governments. Whether it be the aftermath of the infamous Duke Lacrosse Non-Rape. Non-Kidnapping, and Non-Sexual Assault Case, the Little Rascals Case, or yet another situation involving a wrongful prosecution and conviction, we are given example after example of government wrongdoing and outright criminal behavior. In any of these stories, one or more of all of the following will have occurred: (1) Prosecutors hide exculpatory eviodence or just lie, (2) prosecutors suborn perjured testimony, (3) police officers lie on the witness stand, and (4) judges sit back and do nothing while an innocent person is railroaded. ... What we rarely see, however, are the people who were at fault ever being charged as criminals or being on the end of lawsuits brought by the victims. Most of the times, the real victims have no recourse at all. The reason is that governments confer immunity upon those privileged to work in the police and 'justice' systems. ... In subsequent rulings, courts have spread immunity to prosecutors and police and others in government 'acting in their official duties.' ... If one steps back and examines the reasons given for immunity, they translate to the following: judges and legialators are not willing to expose the government employees in the 'justice' system to legal liability because it might 'distract' them from their duties or make them legally vulnerable. This reasoning is rich, very rich, and absolutely ironic. What they are saying is that police and those employed by the courts should not be subject to the very legal procedures that they force upon the rest of us. ... We cannot make police, prosecutors, and judges into honest people. However, we also have to understand that the very immunity that protects these goverment employees also provides a powerful incetive for fundamentally dishonest people to seek these careers", my emphasis, William Anderson (WA) 3 February 2009 at

"In fact, one of the reasons that Mallin was so sure of her identification was that police investigators insisted that Cole was the man and, in effect, confirmed for her the identification she had made. ... Let me put this case another way: Mike Brown, Cole's attorney, did a better job of investigating the case that did the Lubbock Police and Jim Bob Darnell. In fact, the official investigators failed in their efforts, and ultimately depended upon lies, bullying, and intimidation. ... I am not interested in hearing how police simply 'made a mistake'. If Mike Brown could figure out the case, why were the police and prosecution so reluctant to to the same?", WA, 8 February 2009 at

Imagine suing SEC, OCC or Fed employees for negligence. Would we be in today's mess? Imagine suing the SDNY US attorneys for wasting government resources on prosecting insignificant financial crimes while no one in a position of authority at Citigroup, among other entities, has been indicted for anything. Imagine. Incentives count!

In part, this police inadequacy is a result of the drug war. See my 28 November 2007 post: Don't be too enamored of the FBI either. Remember Unabomber, Joe Jett or the Richard Jewell cases?

Whistle-Blowing Dixie

"And what have the SEC and the [DOJ] been doing to stop what appears to be a far bigger organized-crime wave than any blamed on the Mafia? Nothing. As in the 1930s, we need a thorough public investigation to indentify the criminals and send them to prison, and also to prevent this from happening again", David Kofsky letter to Barron's, 9 February 2009.

"Should Wall Street have spoken up? That is a key question to emerge from the Madoff scandal: whether Wall Streeters should more-readily report concerns about possible fraud to regulators", Aaron Lucchetti at the WSJ, 12 February 2009.

"A parliamentary committee examining the banking crisis claimed its first victim as the deputy chairman of the U.K.'s financial watchdog agency stepped down amid allegations he silenced the risk director at one of the U.K.'s troubled banks several years ago. ... Paul ... Moore claims his warnings that the bank was growing too rapidly went unheeded and resulted in his dismissal in 2005. Mr. Moore's allegations surfaced prominently on Tuesday during the first of two hearings before the Parliamentary Select Committee that is scrutinizing the banking crisis. My midday Wednesday, Sir. James--who has advised Prime Minster Gordon Brown on financial matters--had submitted his resignation after an onslaught of negative publicity. Following the resignation of Sir James, the FSA sent out a detailed statement saying that claims made by Mr. Moore in 2004, were 'taken seriously, and were properly and professionally investigated.' It said a review by KPMG concluded that HBOS acted appropriately", Sara Munoz at the WSJ, 12 February 2009.

"In recent years, the SEC has been seen as increasingly toothless, particularly under Christopher Cox, the Republican chairman who stepped down last month. ... Harvey Pitt [HP], former SEC chairman, called for structural changes, including to the 'fatally flawed' way companies were inspected", Joanna Chung at the FT, 13 February 2009.


Suppose they did? What would the SEC do anyway?

The same firm that audits Citigroup tells us HBOS "acted appropriately". Which means it paid KPMG a seven-figure fee for something. Does Sir James think he's Linda Thomsen, recently of our SEC?

Uh, oh. HP, the second worst SEC chairman in history in my opinion, wants "structural changes". Is this HP's call for better SEC "corporate governance"? What does HP, a shill for big business interests in my opinion really want? To delay, deny, continue to collect consulting fees and cover the SEC's arse. See my 10 and 16 August 2007 posts about HP:

Monday, February 23, 2009

Plausible Deniability

"At least 11 of the nearly two dozen investor lawsuits filed since Mr. Madoff was arrested on December 11 name the national branches of PWC, Ernst & Young, KPMG or BDO as co-defendants. Among the top five, only Deloitte so far appears to have escaped a Madoff-related lawsuit. ... Auditing experts said it would have been very unusual for a hedge fund's auditors to be given access to the books of the fund's broker dealer", my emphasis, Brooke Masters, Stanley Pignal and Joanna Chung at the FT, 6 February 2009.

"The [SEC] reached a partial settlement with money manager Bernard Madoff, but the main question--what kind of criminla case the government will bring remains up in the air. ... Federal prosecutors in New York have until Wednesday to file a criminal indictment against Mr. Madoff, reach a plea deal or seek an extension of time to give them more time to build a case. ... Madoff settled the civil case without admitting or denying wrongdoing, which is customary for SEC cases", my emphasis, Kara Scannel at the WSJ, 10 February 2009.

"If Ms. Schapiro seeks to learn from the SEC's recent history, she might start by considering the most basic lesson from the Madoff incident. Private market participants spotted the fraud, while SEC lawyers couldn't seem to grasp it. Rather than giving her staff lawyers still more automony, she should instead be supervising them more closely, while trying to harness the intelligence of the marketplace. Meantime, investors should remember that their own skepticism and diversified investing remain their best defenses against fraudsters", Editorial at the WSJ, 10 February 2009.

Yes, it would have been unusual. Which raises this equestion: why did Madoff have Freihling & Horowitz do its audit? Was it to give the Big 87654 plausible deniability as to each's knowledge of Madoff's fraud?

Quoted without comment.

SEC lawyers can't understand the economics that drives frauds. Most SEC lawyers, in my experienence, are glorified clerks.

What, Me Read?

Thomas Bertonneau, a professor at SUNY-Oswego has three posts, 15, 22 and 29 January 2009 about his students. He writes, we are entering a "'post-literate' age". I agree with him. Many of today's college graduates could not have survived in my fifth grade class!

Some gems from 22 January's installment: "I am aware of the numerous statistical reports that tell of a decline of literacy at all levels of our society. My interest lies not so much in the fact of this condition than in the physiognomy of the low level of lettered achievement--how the inner life manifests itself in bad writing. ... Perhaps the abilities of newer generations to speak and listen are stunted because of all the flashing lights and rude sound effects they are subjected to from an early age. Such students may be not only sub-literate but also sub-oral, stultified in any kind of thinking by the torrent of electronic stimulation. ... We should not forget, however, that the tortured prose corresponds to dim and cloudy thinking and that this same dim and cloudy thinking will one day define the prevailing mental climate of our society. ... From the first day of class I made clear my worry, based on experience, that students would have difficulty with the chronology of dates before and after Christ. ... As my Manhattan pal Steve Kogan says, 'BC' obviously means 'Before Comprehension.' Steve also points out that chronology is as fundamental to a sense of history as addition and subtraction are to mathematics ... and that this student deficiency argues for a remarkable failure in many compartments of the K-12 curriculum. ... I have argued elsewhere that such constructions are a type of oral generality whose appearance is student populations signifies that they are closer in their mental habits to historically pre-literate and other non-literate peoples than to literates like our grandparents. .. But students are notoriously not prone to thoughtfulness. 'You didn't tell us we had to think,' an irate student once said to me after receiving a low grade on an essay. ... The answer is that written language, including orthography, makes little or no impression on a large percentage of students because these sudents are, in fact, operating with oral mental habits rather than literate ones", my emphasis.

From 29 January's installment, "Some writing specialists excuse bad writing on the hopeful supposition that a gap exists between cognition and expression--similar to the way a stroke victim can have a complex thought, but cannot properly verbalize it. That is, students who write badly nevertheless know what they want to say, or what they have read, as well as anyone else. I have concluded that no evidence supports this postulate. Having no other means to discern congition than through its expression, one must take as a given that expression is cognition. ... The individual who cannot see things clearly cannot think about them clearly. ... My lecture hall comes equipped with all those media-wonders that higher education budgets now lavish on classrooms. ... Keeping the characters straight is an elementary gesture, formerly expected even of sixth-graders, and second nature for any habitual reader. ... The examples of defective prose that have paraded past in the previous installment of this series have exhibited pure epistemological confusion. ... They involve an unwillingness or inability to keep the good guys and bad guys straight in relation to two contending perspectives: for Homer, the Trojans are enemies, while for Virgil they are the heroes, and for him the Greeks are enemies. ... In a response to the depiction of individual moral crisis in Saint Augustine's Confessions, a different type of failure comes into view. ... The Confessions demand that a reader participate with the author in judging actions morally rather than pragmatically and insist that they turn the faculty of moral criticism on themselves. ... Oral people, as those scholars have noted, recognize prohibitions, to be sure, but they never perform moral analysis. Indeed, they see analysis as obfuscation and can show hostility to it. ... Augustine was also, as the Confessions tell us, susceptible to female attractiveness, and spent a period of inveterate brothel crawling and inexhaustible fornication. But Odysseus seeks to win back the material wealth and chattels that the squatters in his palace would steal from him. In contrast, Augustine, in spiritual revolt against worldliness, rejects power and riches for the sake of his intangible soul. This essential difference the student entirely misses. It is as though the student cannot hold the resemblance and the difference in mind simultaneously. ... The inability to make a straightforward statement along such lines as Augustine rejects self-indulgence and adopts self-control as a mandate of his conversion is much more than a funny instance of incompetence. It is a crippling intellectual deformity that will prevent a student who distantly glimpses a moral problem from adequately seeing or articulating it. ... He will lack the very notion of a deliberative resolution. ... Perhaps the only thing we can do is laugh, laugh at the irony of a society that was once the most literate that ever existed now reverting to the spiritual savagery of tribal existence. ... I see in the resentful incapacity of so many students a not-so-dim 'Shape of Things to Come' whose characteristics will be theirs: perceptive obtuseness, expressive coarseness, extreme limitation of language and therefore of concept, radical unfitness to judge complicated technical or moral problems, complete disconnetion from any meaningful past and, to borrow a term from Oswald Spengler, in a conditon utterly 'historyless.' The world will soon be dominated by such people. ... Petulance will characterize it universally. ... Many older, genuinely educated people surviving into this not-too-distant future will find the new world infantile and exasperating. ... When the educational system rejects cultivating intellect as its primary goal and dedicates iteself to fostering fellings, opinions, and baseless pride, it will discharge at the end of twelve years young people for whom the Jamesian 'buzz' of phenomena cannot resolve into a comprehensible image".

"As parents pack their youngsters off to college, they might ask themselves whether it's worth both the money they will spend and their children's time. Dr. Marty Nemko has researched that question in an article aptly titled 'America's Most Over-rated Product: Higher Education.' ... Only 23 percent of the 1.3 million students who took the ACT college entrance examinations in 2007 were prepared to do college-level study in math, English and science. Even though a majority of students are grossly under-prepared to do college-level work, each year colleges admit hundreds of thousands of such students. ... Nemko says that the worst of all is that few of these former college students, having spent thousands of dollars, wind up in a job that required a college education. It's not uncommon to find them driving a taxi, working at a restaurant or department store, performing some other job that they could have had as a high school graduate or dropout. .. First, only 40 percent of each year's 2 million freshmen graduate in four years; 45 percent never graduate at all. Often, having a college degree does not mean much. According to a 2006 Pew Charitable Trusts study, 50 percent of college seniors failed a test that required them to interpret a table about exericse and blood pressure, understand the arguments of newspaper editorials, and compare credit card offers. About 20 percent of college seniors did not have the quantitive skills to estimate if their car had enough gas to get to the gas station", Walter Williams (WW), 27 August 2008 at


Is Bertonneau talking about our current president? I'll say again, many college graduates could not have intellectually survived my fifth-grade class.

WW is a professor of Economics at George Mason.

Sunday, February 22, 2009

Fire Lloyd Blankfein

"The problem with your characterization is that there are precious few capitalists on Wall Street. Capitalists are people who put their own capital at risk and who succeed or fail as their ventures prosper or die. As evidenced by the compensations in financial services firms, this hardly applies to the executives in question, since they profited more than handsomely even as they ran their firms into the ground", my emphasis, Klaud Chavanne letter to the WSJ, 7 February 2009.

"If Sen. Claire McCaskill's proposal to limit the pay of workers at bailed-out companies serves to push the 'innovative' financial workers who drive the U.S. banking system off a cliff to work similar miracles somewhere else, it might be the most valuable piece of legislation passed in 2009", Ed Dennison letter to the WSJ, 7 February 2009.

"Much of the past year has been deeply humbling for our industry. People are understandably angry and our industry has to account for its role in what has transpired. Financial institutions have an obligation to the broader financial system. ... If events that were calculated to occur once in 20 years in fact occurred much more regularly, it does not take a mathematician to figure out that risk managment assumptions did not reflect the distribution of the actual outcomes. ... Rather than undertake their own analysis, [financial institutions] relied on the rating agencies to do the essential work of risk analysis for them. ... Fourth, many risk models incorrectly assumed that positions could be fully hedged. ... Fifth, risk models failed to capture the risk inherent in off-balance sheet activities, such as structured investment vehicles. ... Sixth, complexity got the better of us. ... Risk and control functions need to be completely independent from the business units. And clarity as to whom risk managers report to is crucial to maintaining that independence. ... We rationalised and justified the downward pricing of risk on the grounds that it was different. ... We should resist a response, however, that is solely designed around protecting us from the 100-year storm. Taking risk completely out of the system will be at the cost of economic growth", my emphasis, Lloyd Blankfein (LB) at the Financial Times, 9 February 2009.


Would we be so lucky. We should pay for these knowledge workers to learn Chinese. Within 24 months of their decamping to China, China will surrender.

This is rich. LB, Goldman Sachs (GSG) CEO admits GSG's 2008 10-K is wrong! GSG is mentioned in my 30 November 2008 post, link: GSG has 14 Business Principles. So? Hedged? Did these fools learn nothing from 1987's crash and portfolio insurance? Risks are not insurable to the system as a whole. Someone must bear them. LB wants GSG to transfer it to the public. SIVs? Like those Citigroup created? Will anyone go to prison over Citigroup's SIV accounting? If GSG's "risk and control functions" were not independent, did PWC, which got $56 million in 2008 scream about it? Page 130 of GSG's 2008 10-K has PWC's 22 January 2009 opinion. I saw nothing unusual in it. Page 129 has GSG's Managment Report on Internal Control. Nothing unusual there either. Why did LB and David Vinar sign the SEC certifications on 26 January 2009, exhibit 31.1 to GSG's 2008 10-K? Protecting who from the "100-year storm" LB? GSG or the public? If GSG internalized its risks and was adequately capitalized, with say 15% equity, would LB be begging? GSG's business principle 3, "Our goal is to provide superior returns to our shareholders. Profitability is critical to achieving superior returns, building our capital and attracting and keeping our best people. Significant employee stock ownership aligns the interests of our employees and our shareholders". Really? Or is GSG's goal to pay out every dime it can in compensation and have the public bear its losses? See also my 23 November 2008 post:

Gold Mine Costs

"South Africa's woes spread well beyond its domestic miners into the global gold market, helping to hold down the world's mined gold supply last year to 2,385 tonnes, down 3.6 per cent from 2007. ... 'Most of the operations are mature and their life-of-mine is limited without developing resources below 4,000 metres,' says David Davis, senior gold analyst at Credit Suisse Standard Securities. The cost of starting such a mine from scratch 'would be prohibitive unless the gold price was, say $2,000 [an ounce]'," Tom Burgis at Financial Times, 6 February 2009.

2,385 tonnes is 76.7 million ounces at 32,151 ounces per tonne. At $900 an ounce, that's $69 billion in gross gold sales. Zimbabwe Ben can create that much money in a fortnight. Got gold? Get more!

Saturday, February 21, 2009

China's College Complex

"Oakley Qiao had every reason to feel confident when he began his job hunt last September. He was a student at one of China's top graduate business schools. ... But on Tuesday, Mr. Qiao walked away empty-handed from the campus of Peking University to take a train northeast to his frigid hometown. ... 'Everyone's anxous,' he said as he sat in a campus cafe the day before leaving. 'The companies who come to the job fairs, they just come to give presentations, not to offer jobs.' ... Now, Chinese white-collar businesses are starting rounds of layoffs, slashing salaries and cutting the year-end bonuses that employees highly prize. ... So worrisome has the situation become that some students and Peking University, one of China's most prestigious, are even talking about joining the army or becoming butchers.. (A well-known alumnus recently made a fortune opening pork shops). Last year, 10,000 college students joined the military, a much higher number than in previous years, according to the official newspaper of the People's Liberation Army. The anxiety level of the ruling Communist Party, whose legitimacy is pegged to maintaining economic growth, is rising in lockstep with that of frustrated workers and job seekers. ... 'Under the current situation, new social conflicts will be created nonstop,' Chen Jiping, deputy secretary of the Communist Party's central poltical and legislative affairs committee, said this month in Outlook, a magazine published by Xinhua, the state news agency. ... The plight of college graduates is expected to get worse because Chinese universities are increasing their enrollments each year. Furthermore, the ranks of overseas Chinese who are returning to look for work are swelling because of the recession in the [US] and Europe", Edward Wong, NYT, 25 January 2009.

This situation is potential sociological dynamite. Unemployed college graduates may push China into war. China fell prey to the US's economic growth fallacies in increasing the percentage of its population going to college. China appears he have its own Harvard MBA Indicator, that of Peking University. What's wrong with being a butcher anyway? See my 25 October and 15 November 2007, 20 January, 6 October and 4 December 2008, 3 February 2009 posts:

Goldman Sachs, Fools or Knaves?

"Many Americans believe that any bonuses for top executives paid by rescued banks would constitute 'excess compensation,' a phrase used by Barack Obama. ... But the Wall Street bonus system has some serious flaws. The most important is the amount of moral hazard that the system creates. Great rewards to executives are paid for successful risk-taking, but the penalties for unsucessful risk-taking end up being borne by taxpayers. One remedy for this is to charge traders a cost for the capital they use based on the risk that they intend to put it into. Many firms just charge the firm's own cost of the capital, and therefore overstate the profits they record on the riskiest trades. This also ovestates the bonuses that should be paid on them. ... Public anger is hard to deny, but we shouldn't let it weaken an important industry', Roy Smith (RS) at the WSJ, 7 February 2009.

"Why did the union [Ken] Lewis lauded as the 'deal of a lifetime' spin so quickly into disaster? ... A 24-year veteran of Goldman Sachs, [John] Thain was viewed as a Wall Street wizard. ... Peter Kraus, whom Thain lured from Goldman to head strategic planning, got a guarantee of around $25 million, which he received even though he left the company after three months. ... But despite his earlier words, he did little to rein in Merrill's proprietary trading operation, which took supposedly low-risk positions in currencies, commodities, and especially bonds, and had been a reliable profit center for years. That decision would come back to haunt him. ... Merrill also bought protection from the so-called monoline insurers, such as MBIA and Ambac. But when those insurers were downgraded by the rating agencies, the protection Merrill had paid for was less valuable, and Merrill had to add to its reserves to make up the difference", my emphasis, Shawn Tully at Fortune, 16 February 2009.

RS, MBA Harvard, 1966, "former" Goldman Sachs (GSG) partner, now a finance professor at New York's Stern School. Is RS an idiot or a criminal? RS admits what I've said for decades: major commerical and investment bank cost accounting stinks, causing excessive trader compensation. Imagine, firms hire GSG and its competitors for "financial advice". Why? What do these guys know? Alternatively, RS and his fellow partners knew all along what they were doing and should be indicted for fraud, i.e., defrauding their outside shareholders. This is a disgace. Further, a "former" GSG partner was a our last TreasSec. Treasury is infested with these parasites, on 14 October 2007 I called for a 25-year moratorium on GSG personnel working for Uncle Sam, That may not be long enough to purge our system of these parasites. What risk-taking is RS talking about? GSG executives are not capitalists, they are grossly overpaid hired help. Did RS scream about this at GSG? Did he tell GSG's shareholders? Why listen to RS now? Who is he protecting? Where were the compensation consultants like say Hewitt Associates and Pearl/Meyer while this went on? Who needs those guys either? See my 23 and 30 November 2008 posts: and

Get this, it's "public anger" that weakened Wall Street. This clown's arrogance is amazing.

Another Wall Street idiot. A GSG "wizard" would be a fool in any other industry. Thain thought monoline insurance had value, fool. He thought Merrill's trading business was "a reliable profit center". Under what kind of accounting regime? Wall Street must be the most poorly managed business on earth, except for its senior employees.

Friday, February 20, 2009

SEC at Large

"The [SEC] is investigating whether Apple committed securities fraud by failing to inform the public about CEO Steve Job's health. This investigation exemplifies how the agency has run amok. ... Mr. Jobs met persistent inquiries with a snippy, 'Why don't you guys leave me alone? Why is this important?' ... His health was surely material information for investors. And under federal securities laws, it is a serious felony--securities fraud--for corporate officers to disseminate false material information, or to fail to disclose true material information related to the company's financial prospects. ...But while the legal meaning of 'materiality' has long been the subject of dispute and little regulatory definition, it should not dictate that corporate officers have no right to privacy. ... The SEC's investigation is the latest in a long history not only of incompetence, but it connivance with Department of Justice prosecutors", my emphasis, Harvey Silverglate (HS), at the WSJ, 2 February 2009.

"A UBS AG investment banker, a former co-worker, a family friend and a former classmate have been charged criminally in an insider-trading case that allegedly reaped more thean $7 million in illicit profits. ... On Thursday, the [SEC] separately brought civil charges against seven people in the matter", Chad Bray at the WSJ, 6 February 2009.

"The new chairman of the [SEC] pledged a crackdown on fraud and announced changes aimed at speeding up inquiries and reaching tougher settlements. ... Schapiro said she wants to improve audits at privately held brokerage firms and promote safe custody of customer assets. Also, Friday, the SEC announced that David Becker, a partner with Clearly Gottlieb Steen & Hamilton LLP [CGSH], was named the SEC's general counsel, a post he earlier held from 2000 to 2002", Kara Scannel at the WSJ, 7 February 2009.

"Former federal prosecutor Robert Khuzami will be named the new head of enforcement at the [SEC], as soon as this week, a person familiar with the matter said, in the latest bid by the SEC's new chief to restore its credibility. Mr. Khuzami, currently a top lawyer at Deutsche Bank AG in New York, was offered and accepted the position of enforcement director, this person said. ... The appointment of Mr. Khuzami, a respected prosecutor who served as chief of the securities fraud unit at the U.S. attorney's office in Manhattan, is part of SEC Chairman Mary Schapiro's effort to reinvigorate the enforcement division", Kara Scannell at the WSJ, 9 February 2009.

I agree with HS, the SEC should drop this. HS in an attorney and author in Boston. What, the SEC and DOJ can't be trusted?

While the amount involved, $7 million, exceeds my "Blankfein test", I think the SEC and DOJ should drop this too, and focus on more significant matters, like: are Citigroup's books cooked?

Will Schapiro have the same firm that audits Citigroup audit brokerages? She brings Becker back. The SEC-BigLaw revolving door, revolves once more. From his resume at CGSH's website, "David M. Becker ... focuses on SEC and other investigations, internal corporate investigations, corporate governance issues, and on a broad range of SEC regulatory matters. ... Becker was particularly active in advising the Commission on matters related to corporate governance, and accounting and disclosure. ... Becker received a JD degree from Columbia ... in 1973, and an undergraduate degree from Columbia College in 1968". Oh goody, Becker has two Ivy League degrees. Harvey Pitt was SEC chairman from 2001 to 2003. Think about that. My take: it's open season for accounting fraud at the SEC.

If selecting a former AUSA from the SDNY US attorney's office, currently with a NY BigBank, is Schapiro's attempt to "reinvigorate the enforcement division", I don't want to know what she thinks will emasculate it. Laugh, Schapiro made a joke.

Junior at Jr. Deputy Accountant, 5 February 2009, advocates the SEC be abolished, link: Junior calls me a "brutal critic" of the SEC. Guilty as charged. I am not ready to kill the SEC, yet, unlike the Fed which I would have been buried decades ago. At least in theory, I stress, in theory, the SEC, unlike the Fed, could do more good than harm, if it was the "least cost provider" of information used by the market to price securities. This is theory. I await a study which would convince me the SEC ever paid for itself. At least, the Obamaites should arrive at the SEC with GSG's CNC guillotine, cutting heads left and right and admonish those staffers, each of whom still has his head: pay for yourself or get out! Make annual personnel decimation Uncle Sam's policy with regard to the SEC.

Bush and Obama's Islamic Fantasy

"'My job is to communicate to the American people that the Muslim world is filled with extraordinary people who simply want to live their lives and see their children live better lives,' [US] President Barack Obama told an Arabic television channel on January 26. Really? What are their names? Word has come to the West of no extraordinary Muslim thinker since the 12th century. ... By 'extraordinary', to be sure, Obama means no more than Garrison Keillor meant in saying that the children of Lake Wobegon are all above average. ... In the real world, the ordinary depends on the extraordinary, for it is the extraordinary citizens of a nation who set the mark for the aspirations of ordinary people. ... But woe unto cultures whence comes no contribution to the rest of humanity. Where are the Muslim scientists, novelists, entrepreneurs, athletes and musicians? Apart from political leaders, a reasonably diligent reader of a quality newspaper in the West will not be able to name a single Muslim distinguished in any field of human endeavor. Excluding the politically awarded Peace Prize, Muslims have won only three Nobel prizes since their inception more than an century ago, or one for every 450 million Muslims alive today. By contast, there have been 169 Jewish Nobel Laureates, (excluding the Peace Prize), or about one for every 89,000 Jews alive today. During the past century a Jew was 5,000 times more likely to win the Nobel than a Muslim. ... Excepting Turkey, no Muslim country has a single industrial company that can compete on world markets. ... In dozens of essays during the past five years, I excoriated former president George W. Bush for imagining that he could fix the problems of the Muslim world by promoting American-style democracy. If Obama spends more time reassuring and less time trying to fix the Muslim world, he will do better, by default, America's policy towards the incurables should be to live and let die", Spengler, 2 February 2009 at:

See my 6 February 2008 comments about Ahmed Ben Bella here: Talk of hypocrisy. In 1972 I knew a resident at Columbia Presbyterian hospital in New York. He told me visiting Saudis insisted on Jewish surgeons. I asked him why. He said because they know Jewish doctors are the best. What frauds. Is the 5,000 to one ratio unexpected? Our friend, La Griffe du Lion sheds some light on this. His February 2000 and September 2003 posts, and are instructive. We learn Nobel Laureates average IQ is 144, or +2.93 SD. At +2.50 SD measured IQs exhibit "fat tails" and +2.93 SD is not .9983 or one in 596 but about one in 250. With Jews IQ at one SD about the caucasian mean, 144 IQ is .9734, one in about 38 or eight times as common. We're not done. From IQ and the Wealth of Nations, I estimate the Islamic world's average IQ is 84. We're still not done. In these countries, to the extent measured, IQ SD is about 13, so 144 is 60 /13 or + 4.615 SD, roughly .999998 or one in 500,000; estimating the fat tail effect at 10X, we get one in 50,000. How many Ashkenzim are there worldwide with IQs over 144? 9 million / 38 or 237,000. How many Moslems? 1.45 billion / 50,000 or 29,000. Coincidence? We don't think so. If the Islamic world wants to advance, it should beg Jews to relocate to Islamic countries and throw the Koran's anti-Jewish passages in the garbage.

Spengler's ratios are misleading as he compared "stocks" and "flows", i.e., the number of Nobel Prizes awarded over time to numbers of people alive today. This comparison would make sense if the ratio of Jews to Moslems was stable since 1900. It was not. In 1950 there were 12 and 361 million Jews and Moslems, today there are 13 and 1,450 million respectively. The ratio changed from 1 to 30 to 1 to 111. Assuming an average ratio since 1900 of 50, we get one Nobel Prize for every 76,000 Jews alive in a given year and one per 217 million Moslems, a 2,855 to one ratio.

Thursday, February 19, 2009

Reboot the: Banks, US?

"Everyone agrees that the [US] urgently needs a few good banks. Turning bad banks into good banks is a difficult and risky way to get them. It's simpler and safer to start entirely new banks. In this context, 'good' means a bank with assets and liabilities that are easy to value using market prices. At a good bank, officers, regulators, and investors can be confident about the value of the bank's capital. ... Proposals for turning existing banks into good banks--recapitalizing them, transferring the toxic assets off their balance sheets, or insuring the toxic assets--require prices for all these hard-to-value assets or, worse still, prices for derivative contracts on the toxic assets. (Calling the derivatives 'insurance' doesn't make them any easier to price). ... With a return to a clearly articulated and familiar pattern of bank regulation, investors from the private sector could invest in the banking sector without fear that they will be competing with zombie banks that receive ongoing subsidies and transfers from the taxpayers. ... The government should move first and signal unambiguously that new banks with at least $350 billion worth of capital will enter the market quickly. Over time, the private sector will deliver on this commitment. The government's role is merely to act as a temporary bridge. ... Banks that are not visible, the ones with liabilties that substantially exceed their assets, will lobby vociferously against a return to historical patterns of bank regulation. They will say anything to postpone a looming FDIC takeover. The administration should not listen to threats and pleas from these doomed banks. It does not have to rely on them to get new lending going quickly and on a large scale. New entrants could give us a few good banks. That, plus an FDIC that can do its job, is all we need", Paul Romer at the WSJ, 6 February 2009, link:

"Lawmakers seized on a government watchdog's assertion that the Treasury Department may have significantly overpaid for its investments in financial institutions, saying the government shouldn't benefit the banking industry at the expense of taxpayers. Speaking at a Senate Banking Committee [SBC] hearing Thursday, Elizabeth Warren, the head of a congressional oversight panel that oversees [TARP], said the Treasury failed to price for risk and paid 'substantially more' for assets it purchased under the $700 billion financial-rescue program implemented last year than their market value at the time. ... The criticism underscores a key tension complicating the Obama adminstration's financial-rescue efforts: how to stabilize the financial system without appearing to hurt taxpayers", my emphasis, Michael Crittenden and Deborah Solomon (C&W) at the WSJ, 6 February 2009.

"'Treasury simply did not do what is said is was doing,' Ms. Warren said at a hearing before the [SBC]. Neil M. Barofsky, another watchdog for the program, told the [SBC] his office was turning to criminal investiogations. 'That's going to be a large focus of my office,' he said", NYT, 6 February 2009, link:

"i expect that for the glitterati of the central banking community is washington, the sheer scale of the financial disaster facing western civilization has already sunk in. ... it may have surprised [Zimbabwe Ben] and his compatriots initially, to see the sum of seventy years' of economic thought regarding monetary policy smashed and tossed aside by the reality of a massive deflationary unwind; but i sincerely doubt he still denies the truth. for what its worth, bernanke has been a much less prominent figure since the failure of lehman brothers--and i think that is not an accident. ... this level of realization, though, probably still eludes the carnival of lawyers known as congress. anedotal reporting from interested financial parties regarding the competence of our legislative body in this crisis have been uniformly appalling--even the leadership on relevant banking committees apparently have utterly no understanding of what has actually happened, much less what is likely to happen or how it might be remedied. such cluelessness in combination with slavish devotion to deep-pocketed special interests has rendered congress all too easily manipulated by the agents of wall street, embodied first in hank paulson and now his successors larry summers and tim geithner. the result has been straight government handouts to the monied classes behind the banks with no prospect of a resolution to either the financial or the economic crisis. ... it gives me little pleasure to point to newt gingrich, an architect of division and fraud if one has ever sat in the capitol, as he puts record to something like the truth. ... 'Gingrich's harshest words were reserved for recently confirmed Treasury Secretary Timothy Geithner, whom he mentioned repeatedly as a symbol of the government and business class refusing to learn lessons. "Geithner is fronting for the banks. Frankly, that's what I think Paulson ended up doing. Paulson ended up being a Wall Street deal-maker who was happy to take your money to bail out Wall Street deal-makers. ... What we have to do is look at the very simple question: 'What is it going to take to succeed in the world market, how do we reset the American economy, how do we get rid of the wreckage, and how do we start growing a new generation of institutions?' ... The political class has panicked, [it did not ask], "What's gone wrong, how do you reset the system and how do you realistically expect this system to operate in the world market in the future?",'," my emphasis, gaius marius, 8 February 2009 at

I largely agree with Romer. I would go further. I would "just say no" to bailouts for existing banks and direct them to federal bankuptcy court. Disagreeing with Yves Smith. It's too late flor half measures. Dropping nuclear weapons on Manhattan is required such that nothing of the old system remains. Storm the Bastille!

C&W hit the key issue: how can Obama's adminstration defraud the taxpayers. My answer: cook: the banks' and TARP's books! I'm sure the Big 87654 will accommodate Obama & Co. Why was Warren surprised? TARP, MLEC 2.0, was designed to enable Hank Paulson (HP) , formerly of Goldman Sachs to overpay for assets and not account for them properly. Fraud is now official government policy. What did Bernie Madoff do that was so terrible anyway?

Will Barofsky start by pressing Eric Holder to indict HP? If not, why not?

"Carnival of lawyers", I love it. Gingrich asks, what must be done to "reset the American economy". Reset? Did someone just call Mencius Moldbug? I suspect there are many people in Washington who know what must be done, but none has the cojones to say it.

Bastiat's Ghost

In 1850 Frederic Bastiat wrote "the parable of the broken window" about an economic fallacy, link: Junior at Jr. Deputy Accountant has a 4 February 2009 post about someone applying this, link: Read it. You need a good a good laugh.

Wednesday, February 18, 2009

Keynes vs. Hayek

"Barack Obama and congressional Democrats (very few of whom likely have read Keynes's 1936 book 'The General Theory of Employment, Interest and Money') have dug up the dead economist's convenient justification for deficit spending in defense of their bloated stimulus legislation. But none ask the most important question: Was Keynes right? ... Keynes's thinking was a decisive departure from classical economics, because arbitrary 'macro' constructs like aggregate demand had no basis in the microeconomic science of human action. as [Frederick] Hayek observed, 'some of the most orthodox disciples of Keynes appear consistently to have thrown overboard all the traditional theory of price determination and of distribution, all that used to the the backbone of economic theory, and in consequence, in my opinion, to have ceased to understand any economics.' ... If the government borrows the money for the stimulus, then it will either have to print money later or raise taxes to pay it back. ... The problem with government attempts to manipulate the economy through fiscal policy ... is that it is audacious. It assumes that government knows better how to spend and invest than individuals acting in their families' best interest", my emphasis, Dick Armey at the WSJ, 4 February 2009.

Armey was a congessman. Keynesianism is just a "convenient justification", nothing more. See Mencius Moldbug's 21 August 2008 comments at:

SEC Faulted, Lacks Gulag

"Fraud investigator Harry Markopolos blamed the [SEC's] 'financial illiteracy' for failing to heed his warnings about money manager Bernard Madoff. ... 'There was an abject failure by the regulatory agencies we entrust as our watchdogs,' Mr. Markopolos said in prepared remarks for the meeting. ... Markopolos had harsh words for the SEC. Officials asked few questions and made little effort to understand the derivative instruments Mr. Madoff said he was using, according to Mr. Markopolos. His experience blowing the whistle to the SEC led him to conclude 'that the SEC securities' lawyers if only through their ineptitude and financial illiteracy colluded to maintain large frauds such as the one to which Mr. Madoff later confessed'," Michael Crittenden at the WSJ, 4 February 2009.

"Rep. Paul Kanjorski, D-Pa., the House Financial Services subcommittee's chairman, vented frustration after the SEC's acting general counsel said the five officials appearing before the panel couldn't answer lawmakers' questions about the Madoff case because its under investigation. ... Kanjorski accused the agency of impeding the panel's investigation, calling it an 'abuse of authority.' ... Linda Thomsen, the agency's enforcement director, said the SEC takes the Madoff case very seriously, but asserted there were confidential areas related to an ongoing investigation that couldn't be publicly discussed", Marcy Gordon at the Houston Chronicle, 5 February 2009.

"In the torrent of criticism that Mr. Markopolos and lawmakers heaped on the SEC and its senior staff members, some complaints were serious--that the agency lacked the expertise to tackle major fraud by big players and had no systematic way of dealing with whistle-blowers. ... [Lawmakers] had been far more riveted by Mr. Markopolos testimony, which at times seemes to enter verbal territory more often explored at organized crime hearings. He referred to his fear that he would be killed if Mr. Madoff learned of his investigation. At one point, noting his experience in military intelligence, he described an offer he made to 'go undercover' for the SEC--a proposal that was rebuffed. ... While one lawmaker asked whether this all wasn't 'a little paranoid,' others agreed that Mr. Markopolos was wise to be cautious, given the scale of the fraud he was trying to bring to light", my emphasis, Diana Henriques, 5 February 2009, at the NYT, link:

That SEC lawyers are financially illiterate is part of their calling. They are lawyers. Look at Congress. See my 22 December 2007 post, link:

This is nonsense. These SEC clowns should be held for contempt of Congress or obstructing a Congressional investigation, 18 USC 1505.

I am grateful "the agency" has "no systematic way of dealing with whistle-blowers". Why? Because the "agency" would model it after another "agency", Stalin's NKVD, and build a whistle-blowers gulag! That's how things work in the NY-Washington Axis. See my 10 January 2009 post about the UN, link: I'm not surprised these hearings sounded like they dealt with "organized crime". Didn't they? Bring back Estes Kefauver, (1903-1963), link:! How bad is the SEC? Look at Joe Jett's case, my 8 August 2008 post, link: The SEC already has Andrey Vyshinskys. They're called adminstrative law judges. The SEC as currently run, is an "agency" that operates on the other side of Alice's looking glass.

Tuesday, February 17, 2009

Wall Street Headhunting

"The new guidelines on executive pay--which technically would only apply to top officers at those firms requiring still more capital--were seen as an evisceration of a professional culture rooted at the likes of J.P. Morgan Chase & Co., Goldman Sachs Group Inc., Morgan Stanley and Citigroup Inc. ... They are sending out resumes and making calls to smaller investment banks--often called 'boutiques' for their smaller size--and European banks that haven't taken government money, such as Credit Suisse Group AG and Deutsche Bank AG. Many who left boutiques to seek their fortunes at larger firms are returning. ... Citing the wave of negative coverage of plane trips and junkets, one executive of a boutique groused, ' ... Who knows? Next week, we may have to shoot every third employee. I just look out my window and look for the guillotine'," Heidi Moore at the WSJ, 5 February 2009.

I wonder how many of these people are traders as opposed to investment bankers. See my 16 February and 16 April 2008 and 13 January 2009 posts:

A third, I'll take it! What's going on? Why is he still waiting for the guillotine? It must be busy. We'll just wait list him for it. Alternatively, sell limited partnership units and use the proceeds to build a second guillotine.

Lehman's Vultures

"Turnaround firm Alvarez & Marsal earned more than $30 million for less than three months of work for Lehman Brothers Holdings Inc., a fraction of what could be ultimately paid to advisers, experts say. ... The Alvarez fees highlight the potentially hefty cost to compensate the range of professionals working on the largest bankruptcy ever filed. ... Two law professors who have studied fees in large bankruptcy cases have separately estimated that the Lehman case could ultimately cost between $800 million and $1.4 billion in professional fees. Seton Hall University School of Law professor Stephen Lubben ... estimates that Weil and law firm Milbank, Tweed, Hadley and McCloy, which is representing Lehman's unsecured creditors, will earn about $400 million. He expects most of the remaining $400 million to to go Alvarez", David McLaughlin at the WSJ, 4 February 2009.

What conflicts of interest? All these clowns should be pushed out of there. I could easily see these fees doubling Macy's total of $500 million. See also my 26 January 2009 post:

Monday, February 16, 2009

Moscow's "Firm"

"Now it's the Russian lawyers turn. ... With the brazen daytime murder of human rights attorney Stanislav Markelov on Jan. 19. it became clear that members of the Russian bar are also targets in the murky vendettas that taint commerce and politics in Moscow and throughout the country. ... Corporate lawyers, too, face increasing threats. 'It is now impossible in Russia to defend a client who is in a politically motivated case or in a [commercial] case where the other side has a lot of money and is willing to play dirty,' says Jamison R. Firestone [JFR], managing partner of Firestone Duncan, an American corporate law firm in Moscow. ... [JFR] argues that the case against [Sergei] Magnitsky is entirely fabricated and intended as a form of pressure on Magnitsky's client, Hermitage Capital, by hostile forces within the Russian state, possibly in collusion with corporate raiders. ... 'What's especially disturbing in Russia is that the state investigators and prosecutors appear to have been quite superficial in such cases [Markelov's],' says Martin Solc, co-chair of the Human Rights Institute at the International Bar Assn. Novaya Gazeta, which has had four of its reporters murdered since 2000, observed: 'The perpetrators have no fear because they know that they will not be punished'," Jason Bush at Businessweek, 9 February 2009.

Are these murderers who "have no fear because they know that they will not be punished", NY investment bankers? Moscow legal practice is not NY's, see my 9 November 2008 post:

Does JFR think he is practising in front of the SEC? Things just don't seem to work that way in Moscow. Moscow legal practice is a John Grisham novel! See my 23 October 2008 post, link:

Woodrow Wilson Infects Obama's "State"

"President Obama and Secretary of State Hillary Clinton reportedly believe that the key to world peace is an international welfare state to equalize wealth distribution worldwide. Both the President and ... [Clinton] are on record as believing that they key to world peace and the end of Islamic Jihad is to buy-off the enemy with welfare benefits, funded by American taxpayers. ... Theirs is an approach based on social justice, the liberal-progressive hypothesis that institutions supporting private property rights foster unfair accumulation of wealth in the hands of greedy capitalists, leading to discontent. ... Those views are a reversion to pre-World War I progressivism, when European and American liberal-progressives were firmly convinced that the world was moving inevitably toward social perfection. ... In his exposition of positivistic philosophy and the Religion of Humanity, Auguste Comte had expressed confidence that all people of the world, after becoming aware of his new scientific era ethical principles, would voluntarily and happily come to study peace and harmony at his feet. ... The savagery of World Wat I, followed by the 1917 Russian Revolution, brutally questioned the validity of that worldview, as did the abject failure of the League of Nations. ... Apparently having learned nothing from the dismal showing of liberal-progressive foreign policy in the 19th and 20th centuries ... Obama and [Clinton] propose to run the same banner up the flagpole once again", Thomas Brewton, 25 January 2009 at

Cherson has a 27 January 2009 post about Palestinian "refugees" history and unique "refugee" status. He compares their situation to Sikhs and Hindus thrown out of Pakistan in 1947 and Moslems who left India in 1947. He also notes that Israel has many Arabs who are descended from the 450,000 Arabs who stayed in Israel in 1948. Here's a link, learn some history:

Let's see: Obama, AB Columbia, JD Harvard; Clinton, AB Wellseley, JD Yale. Three Ivy League degrees out of four. You might think these two know something. Islam's jihad began in 622 AD, long before Marx was born. Did either of these two ever hear the term, "jiyza"? What do they think Islamists believe Western foreign aid is? Fools! Do Islamists attack India or the Phillipines because of each's great wealth? What's going on here? See also my 11 September 2008 post:

Sunday, February 15, 2009

Los Angeles as Mexico City

"With new data suggesting that a net 50,000 to 100,000 people left Los Angeles County last fiscal year, the San Fernando Valley [SFV] is emerging as the poster child for middle-class flight--even as LA politicians try to spin an almost opposite tale. ... Its more than 1 million people poured such a wealth of taxes into downtown's municipal treasury--subsidizing other areas--that Valley sucession was seen as an attack on LA's fiscal health. ... But, in fact, an LA Weekly analysis based on US Census data clearly shows that for the middle class, the opposite is true. LA grew in 2007-8 due to high birth rates among the poor and working class, mostly Latinos, and due to illegal immigration. But since 2001, on the key measure of an area's ability to attract the middle class, 901,426 more citizens have fled the county for other states than arrived from other states, and last year, they continued that flight. ... At the current rate, within 60 years, the Valley will have no discernible middle class. ... LA, 'exists for the rich and the poor. It's policies have gotten more that way since 2000,' says [Joel] Kotkin, now completing a study of New York's fleeing middle class. ... Paul Taylor, Pew Research Center's executive vice president and lead author of 'Inside the Middle Class: Bad Times Hit the Good Life,' says the Valley has undergone a fundamental 'compositional change in the population itself.' It is increasingly made up of generally lower-skilled Latinos who are much poorer than those moving out. ... JJ Popowich, whose Winnetka Neighborhood Council represents the most ethnically diverse middle-class area of the Valley, says simply, 'If they don't stabilize the middle class, the city will collapse'," Beth Barrett at LA Weekly, 29 January 2009, link:

The SFV story is being repeated all over California. At present trends, California will collapse economically, socially and in other ways within ten years. At present trends, by 2030 Mexico won't want California back.

Keynes' Inflation Bomb

Chan Akya's 30 January 2009 Asia Times post, "Keynesian spending will likely create ... hyperinflation that could well take hold before the year is over. ... The gap between the write-offs of banks and those of insurers probably requires a study unto itself; however it suffices to say here that altering actuarial assumptions and differences in accounting logic help point to a significant pile of undeclared losses at various insurance companies as well as banks in Europe and Asia", link:

"Altering actuarial assumptions", say it ain't so. I don't expect US hyperinflation, defined as inflation of at least 20% a month. However, I expect higher inflation than any "respectable" prognosticator.

A Rated California

"Standard & Poors Corp. cut California's credit rating Monday to the lowest level among all 50 states because of a budget impase between Gov. Arnold Schwarzenegger and state lawmakers. ... The downgrade reflects the rating agency's view of 'the lack of political progress around the budget negotiations that we believe is serving to exacerbate the state's current and projected cash position,' said Gabriel Petek, an S&P analyst, adding that 'the state's cash position is rapidly eroding.' Because of the stalemate, California's controller on Monday began delaying more than $3 billion in tax refunds, welfare checks and other payments to pregvent a cash shortfall. ... S&P downgraded California's $46 billion of general obligation bonds to single-A from single-A-plus, the rating agency's fifth-lowest of 10 investment grades", Stu Woo at the WSJ, 4 February 2009.

S&P is on the ball. It downgrades California's debt after California is unable to pay it's current bills. Who needs these guys? Further, these S&P fools think the problem is a "stalemate" as opposed to California's spending.

Saturday, February 14, 2009

SEC Expertise

"Two events occurred last week that seem unrelated. But, as often occurs in our interwoven world, connecting the dots is revealing. ... Linda ... Thomsen, the director of enforcement at the [SEC], offered her take on how the nation's top securities cop missed the ponzi scheme Bernard Madoff is said to have run for decades, noting how assiduously the SEC chases tips it receives. 'Without fear or favor,' she said. ... The two events are linked by this: Just as the SEC failed Mr. Madoff's investors as tipsters told the agency he might be up to no good, it also seems to have let down Allied's shareholders by ignoring analyses of aggressive accounting at the company. ... It wasn't until five years after critics began questioning Allied's books that the commission moved against the company. ... In a settlement, Allied neither admitted nor denied the allegations, not a nickel in fines or penalties was assessed. ... But given the crisis of confidence in our markets--in their participants and overseers--the story of how Allied quelled its critics and managed its regulator is intriguing. ... 'Fooling Some of the People' [by David Einhorn] should be required reading for Mary L. Schapiro, the new chairwoman of the SEC. Ditto for anyone else interested in assessing our nation's broken-down regulatory apparatus. ... H. David Kotz, the new inspector general of the SEC, already seems to have paged through Mr. Einhorn's book. Mr. Kotz's most recent report to Congress indicates that he is investigating the problems Mr. Einhorn encountered with the SEC, when he gave it information about Allied's aggressive accounting. ... On the call was Joan M. Sweeny, [Allied's] chief financial officer, who had worked in the enforcement division of the SEC. Joining her was William L. Walton, Allied's president, who complained--falsely, as it turned out--that Mr. Einhorn had not spoken with the company and was trying to 'scare people, make a quick buck and move on'. ... According to the book, the SEC did not respond to accounting analyses of Allied he sent the agency in 2002. Instead, early the next year, it began investigating him. ... The SEC inquiry into Mr. Einhorn went nowhere. Not long after his SEC visit, [Mark] Braswell left the agency. He joined a law firm, where he registered as a lobbyist for Allied in 2004. ... He said the SEC ethics office OK'd his lobbying for Allied", emphasis mine, Gretchen Morgenstern, 1 February 2009 at

SEC ethics office? Hahahahaha, the Mogambo Guru would say. "Without fear or favor", what? Braswell went to Venable on 25 September 2003. "Braswell also has first-hand experience investigating a wide range of SEC violations, including corporate financial fraud, insider trading, market manipulation and broker/dealer misconduct. Prior to joining the SEC, Braswell spent four years at a major national law firm, where his practice focused on complex commerical litgation. ... Braswell joins a very active corporate governance practice at Venable. Led by firm, chairman Benjamin R. Civilietti, former Attorney General of the United States. ... Venable has an interdisciplinary firm of attorneys from across its various practices to assist senior executives, boards of directors and audit committees in managing their risk, ensuring compliance and protecting company reputations. ... The firm has four former attorneys with SEC experience and more than a dozen former prosecutors and regulators, including former senior [US] Justice Department officials [AUSAs], former federal banking regulators, as well as former Assistant State's Attorneys and Public Defenders. ... 'Working at the Commission has been extremely rewarding and has made me understand why the US financial marketplace remains a model of transparency and liquidity, despite a series of headline abuses and scandals in the past several years', Braswell said. ... 'For the past nine years, Mark Braswell has been at the center of securities law enforcement,' said Geoffrey Garinther, who co-heads Venable's Corporate Governance and Investigations Group. ... 'At the SEC, Mark was known as a creative problem solver,' said Venable partner Nancy Grunberg", link: The entire federal law enforcement apparatus seems to have been "Mary Jo Whiteized".

Consensus Foreign Policy

"In almost any discussion of world affairs, there is one thing on which doves and hawks invariably agree: much more needs to be done to shore up states that are failing, in a state of collapse, or so poor that they are heading in that direction. ... In America these days, defence planners say they worry more about weak states, even non-states, than about strong ones. ... To the chagrin of old-school sceptics, nation-building is now an integral part of American strategy. Similarly, the European Union's declared security strategy sees state failure as an 'alarming' phenomenon. It opines that: 'Neighbors who are engaged in violent conflict, weak states where organized crime flourishes, dysfunctional societies or exploding population growth on its borders all pose problems for Europe.' ... Strategists have worried about failing states ever since the end of the cold war", my emphasis, The Economist, 29 January 2009, link:

"Gone are the days when support for the radical right cane from neo-Nazi elements in European society; they now come from ordinary citizens, concerned not only about bleeding social welfare programs, but also from worries about the continued influx of immigration--a feeling that it is likely to worsen as recession hangs over the continent. 'I voted for the Freedom Party to stop immigrants from burdening our social welfare system,' says Lukas, a grandfatherly figure and government employee. ... Such is the dynamic in today's European race relations. A December Pew Research Center's Golbal Attitudes Project reports anti-immigrant, and especially anti-Muslim sentiments, to be growing steadily across the continent. ... As European Muslims demand more mosques, state-funded Islamic schools, and even the implementation of Sharia (Islamic law) in their host countries, the term [Islamization] refers to the gradual process by which European society is becoming increasingly and visibly Muslim. ... Sharia courts have already been adopted in many cities in the UK after persistent demands by British Muslims. ... High immigration from Muslim nations, combined with fertility advantages, means that ethnic Europeans might lose their demographic counterpoise: a fact that touches a raw nerve with many. ...The sense that Europe is under seige is further heightentd by concerns over the welfare system being overtaxed by non-natives", my emphasis, Handan Satiroglu, 29 January 2009, link:

When you lack war fighting ability, like most European states, you can worry about "failing states". This strikes me as a militarily impotent continent's busy work. Disagreeing with the "experts", I do not think failing states strategically important. As I read in Barron's decades ago, "consensus may be comforting, but rarely proves profitable". Or in this instance, correct. "Declared security strategy"; my declared security strategy is: I can fly by flapping my arms! What nonsense! Europe should be more concerned about a real threat to its future: 25 million Moslems living within its borders.

About 40 years ago Milton Friedman said you can't have unlimited immigration and a welfare state. How right he was.