The Biggest Taboo

"'I don't think there is much of an IQ difference between the Nordic peoples. ... If we are approaching a discontinuity in Western History then we will probably witness selection pressures in favor of ethnocentric warrior creeds. ... I don't think any single factor ever explains everything, not even genes or IQ, but if we assume that Europeans, and Germanic Europeans in particular, have a genetic profile which favors altrusim then we will probably be facing a bottleneck in the coming generations where only those whites capable of carving out a land exclusively for them and expelling intruders will survive and pass on their genes. ... What we have witnessed during the past century is the unprecedented situation where the global human population has exploded, but mainly in dysfunctional Third World countries. If high-IQ countries such as Germany and Japan have stagnating populations and low-IQ countries such as Nigeria and the Yemen have booming populations, does that not mean that the global average IQ is declining? It probably does. What kind of effect will this have on world civilization? This question is perhaps the greatest possible taboo that exists in the modern West, but in my view it needs to be asked. ... Around WWI, people of European origins made up at least a third of the world's population. Now we're soon down to single digits and still falling. This is rapidly turning into a question of survival. ... We should remember that most of the population growth in the Third World has been caused and sustained by the global impact of Western technology. When the West is no longer willing or able to carry these countries on our backs then many of them will simply implode'," Baron Bodissey (BB) quoting Fjordman at Gates of Vienna, 10 January 2010, link: http://gatesofvienna.blogspot.com/2010/01/iq-and-human-accomplishment-debate.html.

BB may be writing of Mencius Moldbug's "reset". For years I've said a "discontinuity" is coming. Be patient. It will. Here's a book to read on this topic, Human Accomplishment by Charles Murray (CM), 2003. Despite what you may have learned in politically correct school, most of it was done by dead white guys. The same CM who was co-author of the Bell Curve, 1994? Yeah, that guy.

Junior on Fed "Profit"

Neil Irwin (NI) has a 12 January 2010 Washington Post piece claiming the Fed had a $45 billion 2009 profit. With $2.2 trillion in assets, suppressing interest rates by 6 percent, my estimate, the Fed gave banks about $132 billion in 2009 taken from savers. A calculation like NI's makes sense in Stalin's world of "free capital"! About 40 years ago Kenneth Arrow, Stanford economics professor, introduced the "social rate of discount" concept. After various machinations, he estimated it was 6-7% per year in real terms. Let's use 6.5%, a 1.8% 2009 CPI increase and a $2.2 trilliion Fed balance sheet, the Fed should have earned (.065 + .018 = .083; .083 x $2.2 trillion = $183 billion) $183 billion last year. Ergo, US taxpayers suffered a $138 billion "opportunity loss" ($183 - $45) arising from the Fed's existence. Kill the Fed! Here's Junior's 12 post at Junior Deputy Accountant: http://www.jrdeputyaccountant.com/2010/01/fed-turns-45-billion-profit.html. Does no one at WaPo understand "cost of capital"? These guys can work for Citigroup. Fed accounting is a joke. Here's a link to my 29 December 2009 post on the Fed's laughable 2008 financial statements: http://skepticaltexascpa.blogspot.com/2009/12/zimbabwe-bens-audit.html. I blasted government accounting on 25 September 2009, and will continue to do so:

http://skepticaltexascpa.blogspot.com/2009/09/government-accounting.html.

"Last year the Fed earned $52.1 billion, with most of that income coming from interest payments on bonds that it bought during the year to shore up the economy and credit markets. Anyone with access to printing presses could have racked up similar gains. But the Fed's purchases leave it exposed. Its assets are 43 times its capital, compared with 15 times at Goldman Sachs", Peter Eavis at the WSJ, 13 January 2010, link:

http://online.wsj.com/article/SB10001424052748704586504574654780067214134.html.

"The Fed's 2009 earnings were up 47% from 2008, when the central bank generated a net income of $35.5 billion and transferred $31.7 billion to the Treasury", Meena Thiruvengadam at the WSJ, 13 January 2010, link: http://online.wsj.com/article/SB126333721463026795.html.

Imagine, even the Vampire Squid (VS) is better managed and has more accurate financials than the Fed.

I found a way out for the Fed, an exit strategy. Oh you of little faith, a Fed exit strategy! There's something in it for the VS! It's a win-win. Use the PEG ratio, "price-earnings growth", I think the PEG ratio is an absurd metric, but I'm not a Wall Street Managing Director. Since the Fed earned $52.1 billion in 2009, or 47% more 2008, let's assign it a 1 PEG, therefore the Fed is "worth" $2,449 billion ($52.1 x 47). Not going overboard, have the Fed issue new stock to the public of 20% of its "worth" or $490 billion ($2,449 x .20). Now Merrill Lynch "analysts" can swear 47X earnings for the right to counterfeit currency is cheap. Now enter He who does "God's work", Lloyd Antoinette Blankfein (LAB) who in the public interest will do the Fed's IPO for 50% of VS's normal 6.5% fee, 3.25%, a mere $15.9 billion ($490 x .0325). Oh, VS's sacrifices for Joe Schmoe, giving up $15.9 billion in fees to make the Fed IPO succeed. Who says Zimbabwe Ben has no exit? LAB will give up 75% of VS's fee on the 15% ($73.5 billion) overallotment. Oh LAB to think, leaving another $3.6 billion on the table for Joe Schmoe. What a patriot. And to think, I believed all along you had a shrine to Mammon in your office. Silly me.

.

Any idiot can run the Fed at a "profit" if the idiot's cost of capital is zero.

Jiyza for California?

"There isn't a single compelling reason to provide the girly-man of American gubernatorial fiscal responsibility, Arnold Schwarzenegger [AS], with a nickel from our federal coffers. ... It's clearly time to start killing and slashing. For decades California has enabled its spendthrift legislators, feather-bedding public-sector employee unions and welfare recipients (comprised of both native-born and illegal immigrants) to the tune of a $21 billion annual deficit with no sign of sufficient tax revenue in sight. Meanwhile the confiscatory tax policies and unfriendly business environment of the Granola State continue to hemmorhage both businesses and jobs to more enlightened states. According to the IBD, California is home to more than 1/3 of the nation's welfare recipients. ... In addition, California is rated 48th out of the 50 states in terms of tax-competitiveness with over $493 billion worth of new tax regulations for businesses since the year 2000. Where is the light at the end of this tunnel? ... Why should we contribute to ensure expensive gold-plated retirement packages for the 'the public employee unions that have systematically looted the public' coffers of California and now come looking for more sensible Americans to fund their fiscal insanity. Let 'em hit the wall and file bankruptcy. It's time for the insolvent public sector in California to start turning away welfare recipients, closing government offices, and defaulting on public employee union benefits including pensions until they can be renegotiated in light of fiscal responsibility to all Californians, not just the special pleaders", Ralph Alter at American Thinker, 27 December 2009, link:

http://www.americanthinker.com/blog/2009/12/not_one_nickel_for_california.html.

.

"The US economy survived the traumas of 2009, thanks to good policy and good luck. What worries me, looking ahead, is what might be called the 'Californiazation' of America--the growing tendency of our political system to make promises in social spending programs that it isn't prepared to pay for with tax increases. ... What's worrisome this year isn't economic decline but political dysfunction. And nowhere is that clearer than in California, where politicians--despite some serious bipartisan efforts--haven't been able to make the decisions that would put the state on a sound financial footing. The political forces that generate deficits are just too strong: a Democratic Party in hock to public-employee unions and a Republican Party in love with tax cuts. ... What many state governments want is a federal bailout, which would free them of the consequences of overspending. It's a classic case of what economists call 'moral hazard'--in that the bailouts would allow the irresponsible behavior to continue, rather than force a halt. One prominent economist argues that if the states were countries, the International Monetary Fund would grant relief only if it came with conditions that imposed fiscal discipline. So will Washington become like California? Some would argue that has already happened, with the fiscal disaster masked by the federal government's ability to sell its massive debt cheaply and print money to pay the bills", David Ignatius at Washington Post, 3 January 2010: http://www.realclearpolitics.com/articles/2010/01/03/the_californiazation_of_america_99749.html.

"Gov. [AS] of California was on the mark when he said this week that the state needed to change policies that spend more money on prisons than on the state's once-vaunted higher education systems, which are being bled to death in budget cuts. Mr. [AS] was way off the mark when he suggested that the answer was to privatize prison services or to pass yet another constitutional amendment, this time to limit prison spending. ... It would generally be impossible for the state to unilaterally lower prison spending without first cutting the prison population dramatically. ... The only real way for California to cut prison costs is to reverse sentencing policies that have filled its prisons to bursting and have driven up costs by about 50 percent over the last decade alone", NYT Editorial, 8 January 2010, link: http://www.nytimes.com/2010/01/08/opinion/08fri3.html.

"Republican Gov. [AS] asked for $6.9 billion in federal funds in his state-budget proposal Friday and warned that state health and welfare programs would be threatened without the emergency help. ... 'It's time to enact long-term reforms that will change the way the most populous state and the federal government work together,' Mr. Schwarzenegger said. He and state legislative leaders plan to visit Washington to lobby for federal bailout money. White House budget officials weren't available to comment on the governor's request. ... The governor said California deserved the federal funds because the state sends far more tax money to Washington than it receives in return. Federal mandates, he added, 'force us to spend money that we do not have,' ... Mr. Schwarzenegger called the state legislature into a special budget session. He proposed cutting $2.4 billion from health and welfare spending and $1.2 billion from prison spending. He also called for cuts in salaries and pensions for state workers. ... State Senate President Darrell Steinberg, a Democrat, said: 'I have one reaction: You've got to be kidding me.' He and other legislative leaders said they were opposed to any more cuts to welfare and health programs. Instead they said they preferred federal help or taxes on, for example, oil drilling and tobacco sales. ... The state has delayed billions of dollars of payments and issued IOUs to keep the government from defaulting. ... 'My concern at this point is that the negotiations could go on longer than the amount of cash the state has on hand,' said Gabriel Petek, analyst at Standard & Poor's Corp. which has California on a negative ratings outlook", Stu Woo & Jim Carlton at the WSJ, 9 January 2010, link: http://online.wsj.com/article/SB126297948893221947.html.

I agree.

I said this was coming decades ago. This is no surprise.

I agree with the NYT. Repeal Caifornia's drug laws. Now. Prison privatization is another panacea, see my 7 November 2009 post: http://skepticaltexascpa.blogspot.com/2009/11/wait-listed-by-jail-11.html.
.

California is hopeless, unless you're an illegal alien or anchor baby. If neither, leave.

Hugo Chavez Shows America How

"President Hugo Chavez's decision to devalue Venezeula's bolivar and impose a complicated new currency regime may paper over some growing cracks in the economy, but it is also setting the stage for bigger problems down the road for the country's oil-rich nation and its populist leader. ... At Caracas's middle-class Sambil shopping mall, lineCarmens at cashiers reached 50-deep. Blanco, a 28-year old accountant, waited to buy a 42-inch flat-screen television she doesn't need because she already has one at home. 'It doesn't make any sense to keep my savings,' Ms. Blanco said Saturday. 'I'd love to see how things work in a normal country.' ... Chavez ... vowed to 'seize any businesses and shops that are participating in speculation.' ... In order to protect the poor, his main constituency, from the move Mr. Chavez announced the creation of another exchange rate of 2.6 bolivars per dollar for imports of food, medicine and other essential goods. Those rates will compete with a black-market rate, where the bolivar had plunged, forcing the official devaluation. On Friday, that black-market rate stood at 6.25 per dollar. ... Rising oil prices granted Mr. Chavez a huge economic war chest to smooth out economic problems during most of his presidency. But with oil prices off record levels, inflation soaring and the economy stuck in recession, the era of easy choices appears to be over", my emphasis, John Lyons and Darcy Crowe at the WSJ, 11 January 2010, link:

http://online.wsj.com/article/SB126316619465423909.html.

Right on Mish who likens Chavez to Obama, 11 January 2010, link: http://globaleconomicanalysis.blogspot.com/2010/01/chavez-threatens-to-seize-businesses.html.

This is the fate I expect to befall America. Not hyperinflation like in Zimbabwe, but Latin Americanization, i.e., high inflation, price and exchange controls, subsidies and who knows what else? In the US we steal people's savings through interest rate suppression. Venezeula's current inflation rate is reported at 27% annually. Televisions are better "stores of value" than the Bolivar. Governator, take note.

Weil Asks the Question

Jonathan Weil (JW) at Bloomberg, 7 January 2010, asks the "big question" about AIG and its worthless shares. Why have they any value? JW also wonders where the SEC and PWC on AIG's financials? Thank Dark Cloud for bringing this to my attention, link:

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a8dZOpzRxVj4.

I've asked these questions for about two years, here a sample: 20 February, 21 November, 18 December 2008, 19 March, 12 and 13 May 2009.

http://skepticaltexascpa.blogspot.com/2008/02/pwc-on-guard.html.
http://skepticaltexascpa.blogspot.com/2008/11/bust-outs-and-paulson-mob.html.
http://skepticaltexascpa.blogspot.com/2008/12/deprizio-doctrine-and-aig.html.
http://skepticaltexascpa.blogspot.com/2009/03/aig-again_19.html.
http://skepticaltexascpa.blogspot.com/2009/05/goldman-aig-and-18-usc-152.html.
http://skepticaltexascpa.blogspot.com/2009/05/pricewatergates-waterloo.html.

Big 87654 at the SEC

"[SEC] Chairman Mary Schapiro has appointed Carlo V. di Florio as the director of the agency's Office of Compliance Inspections and Examinations, or OCIE, the SEC said Monday. ... Mr. di Florio comes to the SEC from PricewaterhouseCoopers where he was a partner in the financial-services regulatory practice. The SEC said Mr. di Florio strengthened PwC's corporate-governance, risk-management and regulatory compliance practice and defined new industry standards", my emphasis. Fawn Johnson, WSJ, 5 January 2010: http://online.wsj.com/article/SB10001424052748704350304574638742574432328.html.

Couldn't the compromised SEC find a non-Big 87654 partner for this? PWC "audited" both AIG and Vampire Squid (VS), financial services industry firms. Did di Florio work on the AIG and VS audits? Does he know what he is doing, or did the Big 87654 install him at the SEC as part of the "continuing coverup"? Imagine. di Florio "strengthened PwC's ... standards". Think about how weak they must have been before di Florio got there. Laugh.

Leaving Vampire Squid

"Stockbrokers, AKA financial advisors, were always the other guys on Wall Street, watching their colleagues in the trading and investment banking departments rake in huge bonuses while they were wearing out their fingertips with cold calls. ... Brokers find themselves having to explain to clients why they should entrust money to the firms that employ them. ... Possibly the most compelling of the new opportunities for breakaway brokers is a Chicago firm called HighTower. It offers brokers with at least $100 million under management what it describes as an 'open source' alternative to firms like Merrill and Morgan Stanley Smith Barney. ... HighTower's two founders, Elliot Weissbluth and Drew Kornreich, expanded this model so that brokers affiliating with their firm also have the ability to choose from various custody firms, including JPMorgan Chase and Schwab, and clearing firms like Pershing and Fidelity's National Financial. ... Larry Gilbert, 40, was a heavy hitter in Goldman Sachs' private wealth group in Chicago before he joined HighTower in February 2009. 'I left Goldman because I wanted to be a true fiduciary,' says Gilbert. He says Goldman's pay was structured to encourage advisors to sell Goldman products first. 'During the financial crisis these products didn't hold up,' he says. Goldman denies Gilbert's claims", Matthew Schifrin at Forbes, 18 January 2010, link:

http://www.forbes.com/forbes/2010/0118/outfront-wall-street-brokers-hightower-second-acts.html.

What? Some Vampire Squid products did not perform as advertised? How dare you say that? Off with your head, Gilbert. This is why we should separate investment banking from retail brokerage.

Wal-Mart Pays Retail

"How strange, then, that in a world of 8,000 mutual funds, for the 1.2 million participants of what is the world's most populous 401(k) plan, Wal-Mart assembled a measly selection of ten funds--most of them at everyday high retail prices. ... Among the eight actively managed offerings, fees were discounted nary a penny from what a lone individual with no buying power would pay. It was as if the greatest retailer in history had consigned its employees to shop for retirement services in a Soviet department store. ... Unfortunately for tens of millions of workers, 401(k) plans are riddled with skimpy fund selections, poor cost disclosure and fees that fail to take advantage of bulk buying power. ...Jeremy Braden, a Wal-Mart store employee in Ozark, Mo., alleges in a class action filed in March 2008 that by failing to demand institutional rates for the 401(k) funds, or to disclose details of the revenue-sharing deals between Merrill and eight outside firms with funds on the plan's menu, Wal-Mart breached its fiduciary duty under the Employee Retirement Income Security Act. ... 'Merrill Lynch [ML], with Wal-Mart's blessing, was choosing mutual funds based on payments that the funds would make to [ML],' says Braden attorney Derek Loeser of Keller Rohrback in Seattle, Wash. ... Because the case involved the giant retailer and controversial practices common across defined contribution palns, a ruling that requires Wal-Mart and [ML] to reveal more about the motives that went into assembling the fund menu, and how it was priced, could prove a watershed for the $2.3 trillion (assets) 401(k) business. ... The crux of Braden's case is the question of whether it is sufficient for Wal-Mart and Merrill to tell participants what they are paying in total for investment services, or whether they have the right to know how--and why--money is passed around behind the scenes. ... Such arrangements raise a multimillion-dollar question: ... Or did [the administrator] stuff the 401(k) with the funds of managers who were willing to kick back the largest fees, as Braden contends? ... Wal-Mart has never explained how its 401(k)'s funds were picked. In fact, it signed a nondisclosure agreement with [ML], preventing it from revealing details about revenue-sharing deals", Stephanie Fitch at Forbes, 18 January 2010, link:

http://www.forbes.com/forbes/2010/0118/investing-walmart-retirement-401k-paying-retail.html.

It seems ML is an aider and abettor and should be sued too. Where were the SEC and Labor Department while this went on? No administrator like ML should be permitted to have a secret arrangement hidden from 401(k) plan participants. Period. Kick backs on Wall Street? Never. How can you think such a thing?

The Continuing AIG Coverup

"The Federal Reserve Bank of New York [NYFed] told [AIG] not to disclose key details of their agreements to make big payouts to banks in the insurer's regulatory filings in late 2008, according to a set of email exchanges released Thursday. ... Congress also pressured the insurer to release the names of banks that were paid off in full on $62 billion in bets on soured mortgage securities. The biggest payouts went to French bank Societe Generale and to Wall Street firm Goldman Sachs Group Inc., AIG finally said publicly in mind-March 2009. ... Buit a Treasury spokeswoman said Mr. Geithner wasn't involved in AIG's disclosure decisions, even though discussions about them took place in late November 2008, when he was selected as Treasury Secretary by President Obama [sic]. ... 'Our focus was on ensuring accuracy and protecting the taxpayers' interests during a time of severe economic distress,' Mr. [Thomas] Baxter said. ... Copies of email exchanges from late November 2008 to March 2009 between lawyers representing AIG and the [NYFed] were released by Rep. Darrell Issa (R., Calif.), ranking minority member of the House Committee on Oversight and Government Reform. ... In a Nov. 25 email, Peter Bazsos, an attorney at law firm Davis Polk & Wardwell [DPW] , which reprented the [NYFed], worte, that certain agreements 'do not need to be filed.' One agreement contained the names of banks that received payouts from AIG. A [DPW] spokesman declined to comment. In response, and AG in-house lawyer, Kathleen Shannon, said the company and its law firm Sullivan & Cromwell 'believe that the better practice and better disclosure in this complex area is to file the agreements.' She also wrote that the staff at the SEC 'would not be particularly happy with a decision to withhold the documents at this time'," Serena Ng & Michael Crittenden at the WSJ, 8 January 2010, link:

http://online.wsj.com/article/SB10001424052748704130904574644542588515508.html.

"New revelations that the government stopped the [AIG] from revealing information about its bailout had securities lawyers and policy makers buzzing on Thursday about whether the information had to be disclosed under federal securities law, and if so, what to do about the lack of compliance. Joel Seligman, a historian of the [SEC], said the disclosure rules were supposed to apply to all public companies, with only a few narrow exceptions for things lijke trade secrets and national security. ... The messages showed that in December 2008, AIG was prearing a filing to explain how it had eliminated a portfolio of derivatives , known as credit-default swaps, through an entity created with the Fed called Maiden Lane III. ... The Fed's lawyer, Ethan T. James of [DPW], deleted all references to the $10 billion in swaps that could not be torn up. He wrote in the margin: 'There should be no discussion or suggestion that AIG and the [NYFed] are working to structure anything else at this point'," Mary Williams at the NYT, 8 January 2009, link:

http://www.nytimes.com/2010/01/08/business/economy/08aig.html.

The documents should have been filed as Form 8-K attachments. Well Mary Schapiro, what will you do about this? Ban DPW from performing SEC services? If not, why not? If the Fed is not part of the US government it should not be able to sustain a "sovereign immunity" claim. Therefore, someone should have standing to sue it for triple damages under RICO. This case reminds me of Blake v. Dierdoff, 856 F2d 1365 (9th Cir., 1988), which introduced the "group published information" concept. Since one of Blake's attorneys was, drumroll please, William Lerach (WL), we know why the Feds had to get him. Hey Obama, here's an idea: pardon WL, then tell, not ask, tell, Preet Bharara (PB) to take WL as a special AUSA. Or are you afraid this might antagonize your Wall Street supporters? Even better, fire PB and replace him with WL. Let's plead the "group": AIG, AIG's officers, the NYFed, Vampire Squid (VS), DPW, some DPW partners and we'll see who else we can bring into this witches' brew. We know DPW, don't we? Sure, Linda Thomsen, former SEC enforcement director went from DPW to the SEC then back to DPW, my 28 April 2009 post: http://skepticaltexascpa.blogspot.com/2009/04/wsj-mistitles-article-2.html.

Well PWC, where were you when this happened? Why wasn't your 2 March 2009 opinon qualified as to inadequate disclosure?

Incentives Count, For Criminals Too!

"The recession of 2008-09 has undercut one of the most destructive socal theories that came out of the 1960s: the idea that the root cause of crime lies in income inequality and social injustice. As the economy started shedding jobs in 2008, criminologists and pundits predicted that the crime rate would shoot up, since poverty, as the 'root causes' theory holds, begets criminals. Instead, the opposite happened. Over seven million lost jobs later, crime has plummeted to its lowest level since the early 1960s. ... If crime was a rational response to income inequality, the thinking went, government can best fight it through social services and wealth redistribution, not through arrests and incarceration. Even law enforcement officials came to embrace the root causes theory, which let them off the hook for rising lawlessness. ... The 1960s themselves offered a challenge to the poverty-causes-crime thesis. Homicides rose 43%, despite an expanding economy and a surge in government jobs for inner-city residents. The Great Depression also contradicted the idea that need breeds predation, since crime rates dropped during that prolonged crisis. The academy's commitment to root cauases apologetics nevertheless persisted. ... Unemployment in California is 12.3%, but homicides in Los Angeles County, the Los Angeles Times reported recently, dropped 25% over the course of 2009. Car thefts there are down nearly 20%. ... The causes of that long-term drop are hotly disputed, but an increase in the number of people incarcerated had a large effect on crime in the last decade and continues to affect crime rates today, however much anti-incaceration activists deny it. The number of state and federal prisoners grew fivefold between 1977 and 2008, from 300,000 to 1.6 million", my emphasis, Heather MacDonald at the WSJ, 5 January 2010: http://online.wsj.com/article/SB10001424052748703580904574638024055735590.html.

Errata: an increase from .3 to 1.6 million is 433%, so fourfold is more accurate. I say the "root causes" theory holds. Look at Wall Street. "We don't get our bonuses. We engage in extortion. Give us billions or we wreck the ecnommy, throwing millions out of work. So there". The crime rate shot up, just not the "street crime rate". Crime is a "rational reponse to income inequality". Ask Lloyd Antoinette Blankfein. Uncle Sam is fighting crime through "wealth redistribution". See the AIG bailout and interest rate suppression to float the banks as examples. Wall Street today is our "inner cities" of 1967! Would a Wall Street "roundup" have a large effect on crime? Preet Bharara try it. You might like it.

Gutless Governator

Junior at Junior Deputy Accountant has a 7 January 2010 post about California Governor Arnold Schwarzenegger's recent proposal to reduce prison spending and increase education spending:

http://www.jrdeputyaccountant.com/2010/01/higher-education-vs-criminal-justice.html. Junior writes, "Also, has anyone informed this genius that we can't afford neither? It's not about one or the other, it's about Oh shit we can't pay any of it! OMG!", italics and emphasis, Junior's. No, California can't. I repeat my 28 June 2009 proposal to save California money and "kill two birds with one stone", http://skepticaltexascpa.blogspot.com/2009/06/wait-listed-by-jail-7.html.

Argentina's Lock Box

"Argentine President Cristina Kirchner's [CK] political troubles turned into an open standoff Wednesday, when the country's central banker rejected her request to resign following his refusal to transfer billions in foreign-currency reserves to pay the country's debt. ... Mrs. Kirchner, along with her husband and predecessor Nestor Kirchner, have tried to assert more control over the economy--nationalizing pension funds and an airline--even as their popularity has declined among Argentines. The latest conflict puts the couple on a collision course with both the central bank and a newly invigorated congressional opposition. ... Mrs. Kirchner announced the creation of the 'Bicentennial Fund for Stability and Reduced Indebtedness,' [BF] to be funded with central-bank reserves, on Dec. 14. ... Financial markets had welcomed the creation of the fund, coming as Argentina plans to start borrowing again after eight years of being largely frozen out of markets in the wake of a massive 2002 debt default", my emphasis, Matt Moffett & Matthew Cowley (M&C) at the WSJ, 7 January 2010, link:

http://online.wsj.com/article/SB126282620632718915.html.

"Argentine President [CK] said she was firing the country's central-bank chief Thursday, escalating a battle over foreign-currency reserves into a nascent constitutional crisis. ... Some Argentine legal specialists also said the president doesn't have the authority to unilaterally dismiss the top banker, saying the dismissal decree is unconstitutional. ... The announcement came after markets closed Thursday. It was unclear how the opposition-dominated Congress would respond, but some if its leaders called for Mr. Redrado not to comply with the decree. ... Argentina's decree, signed by all cabinet members and issued late Thursday afternoon, followed two days of mounting government pressure on Mr. Redrado to transfer $6.57 billion in reserves to a fund Mrs. Kirchner unveiled in December to conver some of Argentina's debt payments. ... The opposition maintains Mrs. Kirchner and her husband and predecessor, Nestor Kirchner, are trying to steamroll the central bank, as they already have the media, the national statistics bureau, agribusiness and other institutions to seize foreign-currency reserves so they can boost patronage spending and sustain their power", my emphasis, Matt Moffett at the WSJ, 8 January 2010, link: http://online.wsj.com/article/SB126289800502920289.html.

"A federal judge blocked President [CK] from using foreign-currency reserves to pay Argentina's national debt and revoked the dismissal of the central-bank chief who opposed that policy. ... On Friday morning, federal judge Maria Hose Sarmiento granted an injunction request by two opposing parties barring the central bank from transferring money into the so-called [BF], which Mrs. Kirchner had hoped to create with $6.57 billion from the reserves. A few hours later, Judge Sarmiento ordered the reinstatement of the bank president, Martin Redrado, whom Mrs. Kirchner dismissed on Thursday for refusing the make the transfer. ... Earlier in the day he defended his action in defying Mrs. Kirchner. 'The reserves belong to all Argentines and if they are to be used for some purposed besides backing the currency, ther matter should go before Congress,' he said. ... Underlying the dispute is the Kirchner administration's need for funds to sustain the Peronist patronage machine. Last year, public spending grew at three times the rate of revenue. ... Now the whole idea of the [BF] may have boomeranged, revealing the fragility of Argentina institutions. ... Roberto Sifon Arevalo, a director in the Latin America Sovereign Ratings Group at Standard & Poor's said compromising central-bank authority is disturbing to investors. 'There is a conceptual reason why people focus on the independence of the central bank,' he said", my emphasis, M&C at the WSJ, 9 January 2010, link: http://online.wsj.com/article/SB126296529801421655.html.

"Few Argentine politicians are prepared to pay the political cost of spending cuts or tax rises to pay off bondholders. As it is [CK] may have turned the Central Bank chief into a martyr for the cause of integrity in public policy", Economist, 9 January 2010, link: http://www.economist.com/world/americas/PrinterFriendly.cfm?story_id=15213761.

My idea: let's swap Redrado for Zimbabwe Ben (ZB) and Robert Schiller! What idiocy, to welcome creating a paper fund instead of reductions in Argentine spending. This fund would have as much substance as the Social Security "lockbox". CK wanted this fund to further her confidence game.

Bienvenidos a Argentina. Was this article really about Argentina, or the Obama administration?

How closely are ZB and Peter Orzag following this?

I await ZB's following Redrado's lead.

Tax Preparers PCAOB?

"Under the plan, which would begin with the 2011 tax season, anyone who takes money to help people with their taxes will have to register with the IRS, and eventually pass competency tests and sign up for continuing education. So having made tax filing so complicated that most Americans need help with their forms, Washington now wants to raise the price of such counsel by regulating advisers in a way that may reduce their supply. ... Cheering the new regulations are big tax preparers like H&R Block, who are only too happy to see the feds swoop in to put their mom-and-pop seasonal competitors out of business. ... With fewer preparers in the market, H&R Block will find it easier to raise prices. It may also live to regret that. The new IRS blueprint is already in play in California, whose rules for regulating tax preparers seem to have inspired Commissioner Shulman, including his new education and registration requirements. ... Our guess is that the new regulatory scheme will cost far more than it will ever yield in revenues", WSJ Editorial, 7 January 2010, link:

http://online.wsj.com/article/SB10001424052748703436504574640572196836150.html.

CPAs have had peer reviews, inspections and continuing education for decades. So? H&R Block is the Big 87654 of non-CPA tax preparers. I expect the IRS next will create a PCAOB to drive mom-and-pop shops out of the 1040 preparation business. I doubt H&R Block will get much from this. If it raises its prices too high, its clients will go to CPAs and EAs. Who will make big bucks from this? The CPA reivew firms like: Roger and Becker. They can start drafting their materials now and send them to the IRS to influence the content of the IRS competency exam. The IRS will next have "ethics" requirements requiring bi-annual tests. Roger, Becker, et. al., start your engines. Oh, and don't forget to mail me a very large fee for the idea.

China 2010, Japan 1989?

"Li Nan has real estate fever. A 27-year-old steel trader at China Minmetals, a state-owned commodities company, Li lives with his parents in a cramped 700-sq.ft. apartment in west Beijing. Li originally planned to buy his own place when he got married, but after watching Beijing real estate prices soar, he has been spending all his free time searching for an apartment. ... In the last 12 months, such apartments have doubled or tripled in price, to about $400 per square foot. 'This year they'll be even higher,' says Li. ... Some local officials are even building towns from scratch in the desert, certain that demand won't flag. And if families can swing it, they buy two apartments--one to live in, one to flip when prices jump further. ... The real estate rush in fueling fears of a bubble that could burst later in 2010, devastating homeowners, banks, developers, stock markets, and local governments. ... On Dec. 27, China Premier Wen Jiabao told news agency Xinhua that 'property prices have risen too quickly.' He pledged a crackdown on speculators. ... In some places, demand for upper middle class housing is so hot it can't be satisfied. In others, speculators keep driving up prices for land, luxury apartments, and villas even though local rents are actually dropping because tenants are scarce. ... In Beijing's Chaoynag district--which represents a third of all residential property deals in the capital--homes now sell for an average of nearly $300 per square foot. That means a typical 1,000-sq.-ft. apartment costs about 80 times the average annual income of the city's residents. ... How did this bubble get going? Low interest rates, official encouragement of bank lending, and then Beijing's half-trillion-dollar stimulus plan all made funds readily available. ... Chinese consumers, fearing inflation will return and outstrip the tiny interest they earn on their savings, have pursued property ever more aggressively', my emphasis, Dexter Roberts at Businessweek, 11 January 2010, link:

http://www.businessweek.com/magazine/content/10_02/b4162030091917.htm.

"China has told banks to stop giving commissions to real-estate agents for introducing mortgage customers, as Beijing tries to rein in its property market and unscrupulous lending practices. ... The China Banking Association said Wednesday that the new guideline on housing-loan commissions has been in effect since Jan. 1. ... 'High commissions paid by banks to real-estate agents have seriously disturbed the [financial and real-estate] markets and impacted banks' credit business,' the association said. ... The practice isn't unique to China but has raised regulatory concerns, as banks often reduced lending rates or relaxed lending practices to secure individual mortgage loans, a lucrative sector to lenders, while real-estate agents helped borrowers forge mortgage documents to get higher commissions. ... Central-bank data show that banks extended 952 billion yuan ($139.45 billion) worth of individual mortgage loans in the first three quarters of 2009, nearly four times the amount issued in the same period of 2008. ... In December, prices of new housing in Shanghai rose to an average of 20,187 yuan per square meter, up 8% from November, government data show", my emphasis, Rose Yu at the WSJ, 14 January 2010: http://online.wsj.com/article/SB10001424052748704675104575000322691746914.html.

"Fresh steps to rein in China's booming housing market--one of the engines that has put the country on the cusp of becoming the world's second-largest economy--triggered an international selloff in stocks, as investors grew concerned about the Asian giant's continued growth. ... Wag Shi, head of China's biggest property developer, China Vanke Co., said last month his country is at risk of a Japan-style property bubble if rapid price gains spread beyond major cities. ... Bank of China Ltd. will stop making new loans for the rest of the month, while several smaller banks will have to hold more funds in reserve, according to people familar with the situation. .. Loans from state banks are the cornerstone of the stimulus programs China put in place amid global slowdown more than a year ago. ... Prices of new residential property are now rising at an annualized rate of more than 20% nationwide. ... Both November and December saw a record volume of construction starts, which are up 75% from a year earlier for the quarter. Koyo Ozeki, the Tokyo-based head of Asian credit research for bond-fund manager [PIMCO], says that comparisons of China's real-estate boom with Japan's speculative bubble are overdone, in part because Japan's economy was much more mature in the 1980s than China's is today. ... Even without a crash, a housing market that serves only a narrow slice of the urban elite could turn into a political problem for the rulers in Beijing", my emphasis, Andrew Batson at the WSJ, 21 January 2010, link: http://online.wsj.com/article/SB10001424052748703405704575014703152997616.html.

China today looks like 1989's Japan or California in 2005. From 1989 to 1999 Japanese real estate fell about 80%. Here in Houston, a 1,000 sq. ft. condominium will bring between $40,000 and $175,000 depending on the area. Compared to Beijing, Houston real estate is dirt cheap! Apartments for 80X Beijing's average annual resident income. Wow! Two apartments! Shades of Argentina years ago, when people bought two stoves or televisions not to hold Argentine pesos. "Low interest rates", hear that Zimbabwe Ben, low interest rates can cause bubbles.

Is Chinese real-estate in a bubble? You decide. Imagine, commissions paid real-estate agents could lead to conflicts of interest. Whodathunkit? I wonder if anyone at the OCC has read this? Nearly four times. Wow! 20,187 per square meter is $275 per square foot (20,187 / 6.83 = $2,956; $2,956 / 10.76 = $275). This is not cheap. You can buy new homes in Houston for $100 a square foot.

Disagreeing with Pimco, what difference does it make the Japan's 1989 economy was more mature than China's today? If cap rates in China are about 2-3%, which is what I think they are, China's real estate is overvalued. Stop here. Are China's state banks its answer to Freddie and Fannie? 20% annualized! Shades of Los Angeles 2005!

Bank Accounting Gets Worse

"Can investors count on consistency when it comes to bank accounting? As many banks struggle with piles of bad loans, some auditors appear stricter than others when assessing their true value. ... Banks carry most loans on balance sheet at their original cost. But they must also disclose the loans' fair value, or current market value, in footnotes. ... The average gap among Ernst and Deloitte clients in the 25-bank group was about 6%; among clients of PriceWaterhouseCoopers and KPMG it was abo0ut 2%. ... But hits to the fair value of loans still matter to investors. Who audits a bank's books may have importance beyond whose name goes on the letter blessing the financial statements once a year", Michael Rapoport at the WSJ, 29 December 2009, link:

http://online.wsj.com/article/SB10001424052748703278604574624463134498976.html.

That E&Y and D&T clients had larger differences between their loans book and fair values may mean PWC and KPMG were more aggressive in making the banks write off loans! Remember, D&T is the firm that "audited" Zimbabwe Ben's financials.

Pimco, the New Vampire Squid

"A switch in how state regulators size up insurers' risks will save the industry more than $5 billion in capital requirements, New York officials said Monday. ... In ditching the ratings firms, the regulators said they had lost faith in the ratings firms' ability to size up risk in insurers' big holdings of residential-mortgage bonds. In choosing Pimco for the high-profile assignment, they cited the rating firms' widely publicized shortcomings in initially rating many of the bonds as triple-A, the highest rating, then last year downgrading waves of the bonds to 'junk' status. ... Some have critcized the regulators for changing their methodology in a way that could lead to a more-lenient outcome for the insurance companies, saying the move could weaken protection for policy holders", Leslie Scism at the WSJ, 5 January 2010, link:

http://online.wsj.com/article/SB10001424052748704350304574638823927363010.html.

Apparently Pimco is our new Vampire Squid (VS) as old VS developed a foul odor since it claimed to do "God's work". Neal Kasksahri formerly of VS and Treasury recently went to work for Pimco. When will Hank Paulson and Robert Steel decamp to Pimco? Will this regulatory change do anything for insurance company policyholders? Why ask?

Si Se Puede

"It's getting to the point where the twin news stories more or less write themselves. ... But somehow the watch list, the tipoff, the many worried reports from colleagues and relatives, the placing of the name on 'a central repository of information' don't prevent the suspect from boarding a place, changing places, or bringing whatever he cares to bring onto a plane. ... So that's now more or less the routine for the guilty. ... (By the way, I make a safe prediction: Nobody in that embassy [Abuja, Nigeria] or anywhere else in our national security system will lose his or her job as a consequence of this most recent disgrace.) ... For some years after 9/11, passengers were forbidden to get up and use the lavatory on the Washington-New York shuttle. Zero tolerance! I suppose it must eventually have occurred to somebody that this ban would not deter a person who was willing to die, so the rule was scrapped. ... Why do we fail to detect or defeat the guilty, and why do we do so well at collective punishment of the innocent? The answer to the first question is: Because we can't or won't. The answer to the second question is: Because we can. The fault is not just with our endlessly incompetent security services, who give the benefit of the doubt to people who should have been arrested long ago or at least had their visas and travel rights revoked. It is also with a public opinion that sheepishly bleats to be made to 'feel safe'," my emphasis, Christopher Hitchens at Slate, 28 December 2009, link:

http://www.slate.com/toolbar.aspx?action=print&id=2239935.

Why do we prosecute low-level drug offenders? Because we can! Why don't we prosecute sophisticated financial frauds? Because we dare not.

California in Illinois

"Social-services agencies are worried about paying staff, and time is running short to address a huge budget deficit in Illinois amid a political fight between candidates in the race for governor. ... Concerns about the political impacts of tough choices are likely to hinder the ability of governors and legislatures to address deficits. Illinois is confronting an estimated $4.3 billion budget gap for its current fiscal year, which ends June 30. The shortfall equals 16.5% of the state's general-fund budget, the third-highest percentage gap in the US behind Oklahoma and Arizona, according to a November report from the National Conference of State Legislatures. ... 'In a tough recession like the one we're in ... we have to have a safety net to prevent human beings from falling into despair,' Mr. [Pat] Quinn said in an interview Wednesday. ... The state's budget problems have been persistent. The non-partisan Pew Center on the States pronounced Illinois in 'fiscal peril,' noting in a November report that the state has run deficits every year since the 2001 recession. ... The pension plan has unfunded liabilities of nearly $80 billion--among the worst in the nation, with no solution in place for catching up. ... In 2003, for example, Illinois under then-Gov. Rod Blagojevich sold $10 billion in 30-year bonds to cover two years' worth of payments to the pension fund. The proceeds from the bond sale went into an investment portfolio that included stocks; the expected profits haven't materialized, leaving Illinois far behind", Amy Merrick at the WSJ, 4 January 2010, link: http://online.wsj.com/article/SB126256615856614247.html.

Illinois is following California. Cut spending.

Moscow's DOJ Extortion Racket

"What happened next was less typical: Her case was dropped, the 38-year-old is now campaigning to change a Russian justice system she says let bribe-seeking offficials pressure her and other executives by throwing them in jail. ... On Tuesday, President Dmitry Medevedev signed a law banning pretrial jailing of suspects in first-offense tax cases. The move is the latest legal change that removes one of the levers that critics say police and regulators have used against executives. Russia has also recently made it more difficult for investigators to call surprise audits of businesses or bring criminal charges aganist tax offenders who have already paid their debts. ... On Monday, the independent Moscow Public Oversight Commission characterized Mr. [Sergei] Magnitsky's pretrial detention as a campaign of neglect and torture by police and jailers. ... Change has been slow, however, and it is unclear how much momentum remains. Ms. [Yana] Yakovleva and other activists estimate that tens of thousands of people in pretrial detention are charged with white-collar crimes, though official statistics aren't available. Almost none are acquitted, but many receive sentences that don't involve prison time. ... Ms. Yakovleva says her own problems with the law started in 2006, after she and her partner turned down an offer from an officer of the antidrug police to pay kickbacks on sales of diethyl ether, an industrial solvent that can also be used in illicit-drug production. ... Ms. Yakovleva says she was arrested as she left her health club. 'It's so nice to detain decent people,' she recalls one officer telling her. ... Officials at the antidrug police publicly defended the prosecution. But ultimately they dropped the charges when a court struck down the rule that had made ether a controlled substance. Ms. Yakovleva filed a complaint alleging official corruption. Officials denied the allegations. No charges were filed", my emphasis, Gregory White at the WSJ, 30 December 2009, link:

http://online.wsj.com/article/SB126212533991109359.html.

Moscow's authorities need to learn how we do it in the US. These Russians are amateurs. Study say my 17 January 2008 post: http://skepticaltexascpa.blogspot.com/2008/01/justice-department-extortion-racket.html. Russia's legal system may be better than ours. Could Moscow's Public Oversight Commission look at the SDNY US attorney's office for us?

June 1941, Again?

"Don't assume that Russia and America will be adversaries forever. Given the nature and the magnitude of the negativity marking the current stage of the American-Russian relations, the very thought of an alliance between the two countires looks outright absurd to many people. Regardless of the presence of seemingly insurmountable obstacles, American-Russian relations could offer a dramatic U-turn to a stunned world. Why? The answer to this question is both logical and simple: The spread of radical Islam thoughout the Muslim world and the quickly advancing Islamization of Europe could bring to life this unlikely and, according to many experts, even impossible scenario. ... The main problem from the Russian side is the hysterical anti-Americanism which has become the essence of Russian foreign policy. ... Maybe the most important among them is the negative image of the [US] created by totalitarian propaganda during the Soviet era. The image in question has been powerfully reinforced by the chaos and corruption that plagued Russia in place of the long-expected triumph of Democracy. ... How exactly would Russia benefit from a Vietnam-style American withdrawal from Afghanistan? In fact, an American abandonment of Afghanistan will trigger nothing short of a disaster for Russia. ... And let's not ignore a very important fact: Those Muslim neighbors share an almost 1,900-mile-long border with Afghanistan, which is as porous as the border between Afghanistan and Pakistan. A Taliban victory would represent a huge boost to the activities of radical Islamists whose influence is growing in Central Asia. ... Given the magnitude of that danger, the changing demography of the country as a result of the reduction of the Russian component of the country's population provides grounds for a lot of sobering thoughts. Another important factor influencing the Russian policymakers is the proximity of the dramatically underpopulated Russian Far East to the overpopulated border areas of China. ... Of course, the old rule stipulating that 'it takes two to tango' is fully applicable to the area of foreign policy. Undoubtedly, within US corridors of power, Russia is regarded not only as a former enemy, but also as a current and future rival. American policymakers committed a huge mistake by not taking advantage of the positive attitude of Mr. Putin's government to the [US] in the immediate aftermath of 9/11. ... World public opinion supported the American action designed to terminate the ethnic cleansing of the Albanian community committed by the Milosevic regime. At the same time, however, the [US] did not protect the Serbian residents of Kosovo when they too became victims of ethnic cleansing. The inconsistency brought about a powerful negative reaction in Russia, a traditional Serbian ally and protector. What matters the most today, however, is that fact that America needs Russia to the same degree that Russia needs America. ... Well, looking back in time, those differences didn't prevent the emergence of the WWII-era American-Soviet alliance that buried all of Hitler's dreams and ambitions. ... The new relationship between the [US] and Russia would open the door for the creation of a brand-new system of international relations by including Europe, China, and India, all targeted and coverted by radical Islam, into the alliance. The emergence of such a structure would increase the chances of finding the correct approach to separting the majority of the world's Muslim community from the radical minority trying to establish world domination", my emphasis, Georgy Gourney (GG) at American Thinker, 26 December 2009, link:

http://www.americanthinker.com/2009/12/america_and_russia_rivals_unit.html.

GG got a PhD from the Moscow Institute of Foreign Relations. I oppose our antagonistic policy toward Russia. Our 1998 actions in Serbia did not ingratiate us to the Moslem world, but furthered the jihad. I believe Ralph Peters shortly after 9/11 suggested the: US, Russia, India, Israel and China form an alliance to fight Jihadism. Imagine had this happened, the US and Russia could have presented Iran an ultimatum, replete with pictures of Dresden and Berlin: stop all nuclear activities or this is your fate, that of Germany in 1945. My guess, within a few weeks, Iran's military will have slaughtered its Mullahs and given US-Russian teams free reign to look at anything in Iran. Instead, the US kisses Saudi Arabia's arse. The US should try to avoid a Moslem-controlled Russia with 6,500 "deliverables". I infintely prefer Putin's Russia to that. I disagree with GG as to what prevents the alliance: it's current US policy in Georgia, Poland, Serbia, etc. We offer Russia no "quid pro quo" for its support. I agree with GG, our Afghanistan war is Russia's fight. Look at a map. The US need not worry about "world public opinion". How many divisions has the world? I wonder what the alumni of Princeton's Wilson and Harvard's Kennedy Schools think of this? See my 24 and 28 August 2008 posts:

http://skepticaltexascpa.blogspot.com/2008/08/ias-presidential-endorsement-vladimir.html http://skepticaltexascpa.blogspot.com/2008/08/wither-russia.html.

CPAs, ACFE and 404

"A measure by the House Financial Services Committee that would exempt small and midsized companies from Sarbanes-Oxley audit requirements has drawn fire from a number of organizations, including the [AICPA], the Center for Audit Quality and the Association of Certified Fraud Examiners [ACFE]. ... The exemption comes despite a plea from [SEC] Chair Mary Schapiro, who wrote to lawmakers on the committee opposing the carve-out. ... The accounting profession supports the Sarbanes-Oxley Act and we believe that the Section 404(b) internal control provisions should apply to all public companies, not just large ones,' said AICPA president and chief executive Barry Melancon [BM]. ... The exemption provision also raised the ire of ACFE president James D. Ratley, who said that lawmakers need to consider the impact of potential fraud losses on organizations, investors, employees and taxpayers when weighing the cost of anti-fraud controals prescribed by SOX. ... In a report issued last year on fraud statistics, the Austin, Texas-based ACFE found that the implementatiion of anti-fraud controls has a measurable impact on an entity's exposure to fraud. ... Meanwhile, Cindy Forelli, executive director at the CAQ, wrote a letter to the leaders of the congressional committe also criticizing the amendment: 'We believe the reforms under SOX have contributed significantly to restoring investor confidence, and in particular, that Section 404 has played a critical role in promoting high-quality financial reporting, which is vital to the successful operation of our capital markets", Accounting Today, 14 December 2009, link:

http://www.webcpa.com/ato_issues/23_19/critics-assail-small-co.-404-exemption-52654-1.html.

BM, shut up. You don't speak for me. I'm a CPA, or didn't you notice? Why does the American Institute of Craven, Pilfering Accountants favor keeping SOX section 404 for small companies? Because the Big 87654-controlled AICPA wants to help the Big 87654 sell SOX 404 internal control audits. I view anything from the ACFE with suspicion ever since Joe Wells founded it in 1988, It too wants more business for its members. The CAQ is a bigger joke than the AICPA, of which it was a part. The CAQ was the AICPA's SEC Practice Section until SOX created the PCAOB which now does inspections, which replaced peer review. The SECPS did nothing to improve Big 87654 practice and the CAQ is just a Big 87654 lobbying organization. Kill SOX! See my 29 August 2009 post:

http://skepticaltexascpa.blogspot.com/2009/08/fraudbusters.html.

Blackwater's Black Hats?

"So much of federal prosecutions depend on the Court being able to rely on the credibility of federal prosecutors. There's no reason for courts to do that any longer and we all will suffer because of the unethical behavior of a series of [DOJ] lawyers who simply refuse to follow their professional responsibility", Clarice Feldman at American Thinker, 1 January 2010, link:

http://comments.americanthinker.com/read/1/508687.html.

"The sudden blow to the case against the former Blackwater security guards over a shooting that killed 17 Iraqis and wounded at least 20 may have come as a surprise to the public in Iraq and the [US], but the legal problem that the judge cited Thursday when he threw out the indictments was obvious to American government lawyers within days of the shooting. The issue was that the guards, as government contractors, were obligated to give an immediate report of what they had done, but the Constitution prevents the government from requiring a defendant to testify against himself, so those statements could not be used in a prosecution. ... The prosecutors were also concerned, even when using qwhat they called a 'taint team' to try to prevent information in the guards' compulsory statements from influencing the investigation, according to the 90-page ruling by Judge Ricardo M. Urbina of the Federal District Court in Washington. The judge said the prosecutors had failed to take 'coomon sense precautions' to avoid the problem. The ruling led to disappointment in the [US] as in Iraq. ... Judge Urbina's decision would make it difficult for prosecutors to reinstate the original charges. Information that the guards were required to give immediately after the shootings was deeply woven into the governments effort to secure the indictments, he wrote. ... Investigators did not find physical evidence of an attack by Iraqis, the judge's decision said. ... But in their presentations to the second grand jury, the prosecutors also edited out evidence that suggested that the guards were firing in self-defense, the judge said, and those omissions were improper", my emphasis, Matthew Wald at the NYT, 2 January 2010: http://www.nytimes.com/2010/01/02/us/02legal.html.

"Iraqis seeking justice for 17 people shot dead at a Baghdad intersection responded with bitterness and outrage Friday at a US judge's decision to throw out a case against a Blackwater security team accused in the killings. The Iraqi government vowed to pursue the case, which became a source of contention between the US and the Iraqi government", my emphasis, Rebecca Santana at the Houston Chronicle, 2 January 2010.

"The dismissal of charges against five Blackwater Worldwide security guards accused by the [DOJ] of recklessly shooting in a Baghdad traffic circle in 2007 potentially strains US-Iraqi relations at a critical moment and raises new questions for the Obama administration about effective legal ovesight of battlefield contractors. ... 'Investigations conducted by specialized Iraqi authorities confirmed unequivocally that the Blackwater guards committed the crime of murder and broke the rules by using arms without the existence of any threat obliging them to use force, Iraqi government spokesman Ali al-Dabbagh said in a statement, the AP reported", my emphasis, August Cole at the WSJ, 2 January 2010, link: http://online.wsj.com/article/SB126229226969112429.html.

The DOJ's Blackwater Five (BF) case stank from the start. It had problems with: evidence, chain of custody, crime scene control and witness statements. Lastly, any statement by a Moslem with respect to non-Moslem matters must be viewed through the lens of takiwa and Sharia's blood money concept. My conclusion: the DOJ brought this case for political purposes to ingratiate the Bush administration with Iraq. What would the DOJ have done if the case was tried and the BF were acquitted? Call the jurors stupid?

Did the DOJ immediately dispatch CSI NY's incorruptible Gary Sinese to Iraq to "control the crime scene" and collect evidence? There was no "physical evidence of an attack by Iraqis". So? The Iraqi investigators destroyed it. In my opinion. A decent defense attorney would have made mincemeat of the DOJ's case if it went to trial. This was a political prosecution. That's my bottom line. The State Department saw the BF as "expendibles". My surprise was that Urbina had the cojones to throw the indictment out. I wouldn't have, but forced the case to trial and ruled against the DOJ on evidence issue after evidence issue. Then empanel the jury and let the DOJ's case collapse. In public. Urbina did the DOJ a favor by dismissing the indictment. It kept the DOJ's dirty laundry from the public. In some schools of Islamic jurisprudence a kaffir may not even testify against a Moslem! Why should we credit anything an Iraqi says? "This declaration defines human rights according to Islamic law, which prohibits critcism of Islam. Indeed, Iraq's US-enabled 2004 constitution enshrines Islamic law above all. Little wonder Iraq consistently votes at the United Nations with the OIS and against the [US] on this key ideological divide between Islam and the West, most recently in November. ... Guess we're supposed to look the other way. But that's like applauding the Status of Force Agreement (SOFA) between the [US] and Iraq without noticing that the agreement prohibits the [US from attacking Iran (or any other country) from Iraq", Diana West at Townhall, 29 December 2009, link:

http://townhall.com/columnists/DianaWest/2009/12/29/the_surge_and_success,_part_ii. Until you understand Sharia, you can't understand what really happened here. Iran won our war with Iraq. Brilliant.

Big deal. Outrage. What is outrageous is that this case was ever brought.

Who were these "specialized" authorities? Iraq's answer to Saudi Arabia's mutwain, operating under Sharia's rules of evidence? Our Iraq "excursion" has been a total failure. That we would concern ourselves with relations with Iraq shows we wasted $700 billion and 5,000 lives. It is inconceivable to Iraqis that dhimmi could ever be justified to shoot Moslems. Get over it.

Natural Gas Hedging-2

"In a sign that low natural-gas prices are probably here to stay, big US energy companies are pushing to sign long-term contracts with electric utilities and other customers. Major producers such as Chesapeake Energy Corp. and Devon Energy Corp. are trying to reach multiyear deals--likely five or 10 years--that would guarantee them buyers for their gas but would deny them the benefits from any sudden price increases. ... But huge new gas fields in Texas, Lousiana, Pennsylvania and elsewhere have led to a surge in US natural-gas producrtion, glutting the market even as the recession has sapped demand for all forms of energy. ... 'The days of double-digit gas prices in the US are over,' said Chesapeake Chairman and Chief Executive Aubrey McClendon", my emphasis, Ben Casselman & Rebecca Smith at the WSJ, 30 December 2009, link:

http://online.wsj.com/article/SB10001424052748704134104574624491513755228.html.

$5.57 natural gas looks cheap to me. I suspect McClendon will ultimately do as well with his advance gas sales as Barrick did with its advance gold sales, see my 21 December 2009 post: http://skepticaltexascpa.blogspot.com/2009/12/barrick-rings-bell.html. I agree with Exxon, see my 2 January 2009 post: http://skepticaltexascpa.blogspot.com/2010/01/exxons-acquisition.html.

Flying Foolishness

"As Phyllis Chester plaintively asks, 'Are we all going to be subjected to underwear checks before boarding our flights? If so, Al-Qaeda will soon secrete explosives in body cavities. Will we all be searched there as well?' In other words, because US security agencies refuse to take the sensible precaution of concentrating their resources on the small target pool of suspects, namely Muslims, about 1 percent of the population, hundreds of millions of passengers must bear the burden of extra cost, inconvenience, and loss of privacy", Daniel Pipes at Frontpagemagazine, 28 December 2009, link:

http://frontpagemag.com/2009/12/28/what-the-near-tragedy-in-detroit-revealed-by-daniel-pipes/

Body cavity searches? I've got it. The TSA should recruit registered sex offenders. They won't even need any training! They'll work for peanuts! The TSA is a joke, See my 16 December 2009 post: http://skepticaltexascpa.blogspot.com/2009/12/uncle-sam-protects-you.html. I now give "Him" a new name, Obamanero. Obama fiddles while the people burn.

Uncle Sam's Credit

"Romanian President Traian Basescu was inaugurated for a second term Wednesday and began working with political parties to form a government that can enforce the tough budget changes required by the International Monetary Fund. ... Romania had pledged to keep next year's budget deficit below 5.9% of [GDP]. The deficit is likely to be around 7.3% of GDP this year", Christopher Emsden & Joe Parkinson at the WSJ, 17 December 2009, link:

http://online.wsj.com/article/SB126097910690093879.html.

"We only hope Republicans aren't foolish enough to fall down this trap door, though some are already tempted. A budget deficit commission is nothing more than a time-tested ploy to get Republicans to raise taxes. In the 2009 version, Republicans are being teed up to hold hands with Democrats and agree to become the tax collectors for Obamanomics. The deficit reduction commission is a long-standing idea that is now pushed with renewed fervor by Republican Frank Wolf of Virginia and Democrat Jim Cooper of Tennesse in the House and Democrat Kent Conrad of North Dakota and Republican Judd Gregg of New Hampshire in the Senate. ... Mr. Wolf says the commission would be 'a 16-member panel that would look at everything--from what the government is required to spend on mandatory entitlements to spending on all other programs to tax policy.' ... They're correct that current federal commitments are unsustainable, starting with $37 trillion in unfunded Medicare liabilities. ... The real goal is to get GOP cover for tax increases so Democrats aren't run out of town in 2010 and 2012 for blowing up the national balance sheet. ... In 1983 Ronald Reagan and Congressional Republicans agreed to decades of job-destroying increases in payroll taxes to 'fix' Social Security, which you may have noticed still isn't fixed. ... Democrats would agree to means-tested entitlements, which means that middle and upper-class (i.e., GOP) voters would get less than they were promised in return for a lifetime of payroll taxes. ... New taxes will only reduce the pressure to cut future spending", my emphasis, WSJ Editorial, 29 December 2009: http://online.wsj.com/article/SB10001424052748703939404574566034074899214.html.

Is Romania a better credit than Uncle Sam? Moody's gives Romania a Baa-3 rating. Why?

The GOP should tell Obama and Pelosi, "No tax increases. No hell. No way. We remember Bush the Elder's promise and won't be fooled again". As for means-tested entitlements, consider if tax and social security policy are to be reviewed, what that implies for Roth IRAs.

Live Witnesses

"In a move that could add to the government's arsenal in the Galleon Group insider-trading case, prosecutors made a federal court filing Wednesday that suggested they are on the verge of accepting a guilty plea fronm former McKinsey & Co. partner Anil Kumar. ... The government 'wants live witnesses,' says John Coffee, a law professor at Columbia University. 'If you have someone saying, "This was the conspiracy and we talked about it and this was our goal," that is more effective' than documents such as emails he said. He added that prosecutors may be telling the other defendants that those who strike early deals may get better treatment than latecomers", my emphasis, Susan Pulliam & Kelly Nolan at the WSJ, 31 December 2009, link:

http://online.wsj.com/article/SB10001424052748704152804574628552933868662.html.

Disagreeing with Professor Coffee. It's more effective only if the AUSA does not know how to assemble a circumstantial evidence case, which seems endemic at the DOJ. I would not believe any federal witness whose testimony was not corroborated with documents. I would presume the AUSA was suborning perjury. It's that bad at the DOJ.

Citigroup's Aleynikov

"The [FBI] is probing a computer-security breach targeting Citigroup Inc. that resulted in a theft of tens of millions of dollars by computer hackers who appear linked to a Russian cyber gang, according to government officials. ... It couldn't be learned whether the thieves gained access to Citibank's systems directly or through third parties. ... The attack underscores the blurring of lines between criminal and national-security threats in cyber space. Hackers also assaulted two other entities, at least one of them a US government agency, said people familiar with the attack on Citibank. ... The FBI and the National Security Agency, along with the Department of Homeland Security and Citigroup, swapped information to counter the attack, according to a person familiar with the case. Press offices of the federal agencies declined to comment. Citigroup said, 'Allegations of a breach of Citi systems and associated losses are false.' ... Losses to online crime of all types exceeded $260 million in the US last year, the FBI estimates. Attacks on corporations are 'at an epidemic level,' former White House cyber-security director Melissa Hathaway said recently. US banks have generally been loath to disclose computer attacks for fear of scaring off customers", my emphasis, Siobhan Gorman & Evan Perez at the WSJ, 22 December 2009, link:

http://online.wsj.com/article/SB126145280820801177.html.

Absent national security implications, I would tell the FBI drop this case. $260 million in annual losses is peanuts. Vampire Squid (VS) got $13 billion from the AIG bailout, 50 times the annual cybercrime total. I note the FBI jumped on this. Well FBI, how many people have you investigating the AIG-VS fiasco? If Citigroup denied the breach and lied about it, will Preet Bharara indict anyone for securities fraud? Will KPMG find Citigroup committed an illegal act? Will Dudley Doo-Right save Nell Fenwick? Isn't it nice to see how concerned the Feds are about attacks on corporations? The DOJ's case selection is designed to further DOJ employees' careers. Never forget it. Where's the SEC? What's this "loath to disclose" nonsense?

California Death Watch-3

"California is deep in red ink again, according to a new report projecting that the cash-strapped state faces a $21 billion budget shortfall through June 2011. ... The state's Democratic controller, John Chiang, said on Wednesday that California could have trouble making payments as early as Spring 2010 if tax revenue remains below forecasts, among other reasons. Until at least June 2015, the report projected California will face annual budget shortfalls of about $20 billion. ... At one point, California was so close to insolvency it was forced to issue IOUs. ... Republicans, including Gov. Arnold Schwarzenegger [AS], opposing tax increases. ... 'The numbers cry loudly for California to focus on rebuilding our tax base,' said Democrat Darrell Steinberg, the Senate president. ... The new budget report said $6 billion of the projected shortfall in the current fiscal year is largely due to unrealistic budget assumptions about tax revenue and spending on schools and prisons", Stu Woo at the WSJ, 19 November 2009, link: http://online.wsj.com/article/SB125856632697953969.html.

"Facing a $21 billion shortfall through June 2011, California leaders want billions of dollars in budget relief from Washington that could head off deep cuts expected to state programs. Gov. [AS] will ask the White House to waive rules that require the state to spend its own money on certain programs to receive federal funds, according to California officials briefed on the Republican's coming budget proposal. ... His message: The national economy will depend on California's recovery. ... 'Under President Clinton, we got 94 cents back on every dollar we sent,' said gubernatorial spokesman Aaron McLear, citing data compiled by the nonpartisan Tax Foundation. 'Now it's 78 cents on the dollar. It makes no sense that California should be subsidizing programs in other states.' ... If the state doesn't receive federal aid, health and welfare programs could be eliminated, the officials said", my emphasis, Stu Woo at the WSJ, 31 December 2009, link: http://online.wsj.com/article/SB126222107949110937.html.

Absent a federal bailout, I don't see how California can avert defaulting its bonds.

Are you arguing against "progressive income tax rates"? That California gets back less than say Alabama results from California's higher average incomes. Look at The Guvernator's argument, it amounts to California is the Vampire Squid.

60 More Years of Flapdoodle

"In the 11/25/09 issue of the Wall Street Journal three eminences of public education--Harold Ford Jr., Louis Gerstner Jr., and Eli Broad--reflect on the ways to improve public education in 'Race to the Top in Education.' ... Now, however,' they note, 'President Obama has launched Race to the Top--a competition that is parcelling out $4.35 billion in new education funding to states that are committed to real reform.' This package, the author notes, should augur well for meaningful change. ... Despite the emphasis on so-called 'performance standards and competition,' clearly goals that are needed, my guess is this initiative will fail as all of its predecessors have. ... Like those in Lake Wobegone, everyone must be above average. It's good for politicians and a conclusion that satisfies parents. Unfortunately Johnny doesn't read, write, and compute as well as mom and dad think. ... As Al Shanker [AS] of the American Federation of Teachers once noted, 'When students start paying dues, I'll be as interested in them as my teachers.' ... As Thorstein Veblen noted, 'students are being trained in incapacity.' Until the real issues are addressed--if they can be addressed--don't count on any more success in education than we've encountered before", Herbert London (HL) at Newsmax, 15 December 2009, link:

http://newsmax.com/PrintTemplate?nodeid=61056.

I remember AS as a no nonsense union leader who would have said something like this. HL is a New York University professor. I read the article he refers to. For my money it's just 60 more years of Flapdoodle, my 17 September 2009 post:

http://skepticaltexascpa.blogspot.com/2009/09/flapdoodle-2009.html.

James Kroker, Shut Up

"[SEC] Chief Accountant James L. Kroker told leaders of the accounting profession that independent auditors will be expected to consider the interests of the 'investing public'--not just their audit clients--when performing their duties. The mission of his office will be to 'put investor protection at the forefront in all that we do,' he said in an address to the [AICPA's] National Conference on SEC Developments. Under his watch, 'you are likely to notice we will be more proactively seeking to understand and discuss the views of investors.' Accountants 'should not be surprised when we ask you whether you have considered the perspective of the investing public.' ... And while auditors can expect to be treated professionally by SEC regulators, Kroker told the AICPA members, 'You should not confuse professionalism with a notion of leniency. Those who fail to live up to their responsibilities and those who cause harm to investors or our capital markets can expect that we will take appropriate action,' he said. ... In this vein, the staff is unfortunately aware of potential structure designed and marketed to "address" assets where prices have and are expected to continue to show weakness by entering into creative off-balance-sheet structures with little apparent transfer of risk.' To guard against such schemes, Kroker called on auditors to be especially 'vigilant when evaluating the substance, or lack thereof, of elements of transactions included to achieve specific accounting results'," my emphasis, Ken Rankin at WebCPA, 8 December 2009, link:

http://www.webcpa.com/news/SEC-Chief-Accountant-Tells-CPAs-Consider-Investors-52682-1.html.

What crap Kroker, "former" D&T partner. See my 12 June 2009 post; http://skepticaltexascpa.blogspot.com/2009/06/ia-goes-to-meetin.html. CPAs don't need Kroker to remind them of US v Arthur Young, 465 US 805 (1984), or AICPA ethics section 53. Kroker, did you aim this speech at investors? Or did you remind your "former" partners of their "professional responsibilites"? My experience is the SEC staff treats only Big 87654 CPAs "professionally". What action will the SEC take with respect to PWC, AIG's and Vampire Squid's CPAs? Substance versus form considerations from the SEC staff, surely you jest Kroker. What will the SEC do about KPMG and E&Y and the ".001 standard", my 5 March 2008 post:

http://skepticaltexascpa.blogspot.com/2008/03/enron-accounting-redux.html.

Assignats for America!

"Corporations raise money by issuing both debt and equity, the latter giving investors an implicit share in future profits. Governments should do something like this, too, and not just rely on debt. Borrowing a concept from corporate finance, governments could sell a new type of security that commits them to paying shares in national 'profit,' as measured by gross domestic product. ... Although GDP numbers still aren't perfect--they are subject to periodic revisions, for example--the basic problem has been largely solved. So why not issue shares in GDP now? Such securities might help assuage doubts that governments can sustain the deficit spending required to keep sagging economics stimulated and protected from the threat of a truly serious recession. In a recent pair of papers, my Canadian colleague Mark Kamstra at York University and I have proposed a solution. We'd like our countries to issue securities we call 'trills,' short for trillionths. ... Each would pay in perpetuity, and in domestic currency, a quarterly dividend equal to a trillionth of the nation's quarterly nominal GDP. ... Trills would be issued with the full faith and credit of the respective governments. ... There are indications that officials in China are starting to worry about threats to their huge investment n [US] debt from a possible outbreak of high inflation. The trills, tied to nominal GDP, would protect them. Right now, TIPS, ... are offering disappointingly low yields, which may have to be raised to attract more investment. ... The [US] government is highly unlikely to default on its debt, but even this remote possibility would be virtually eliminated by trills, becasue the government's dividend burden would automatically decline in tough times, when GDP declined. ... These imbalances--exempliifed by the massive Chinese holdings of [US] government debt--might not be so worrisome if the investments were financed better. ... Proposals for securities like trills have been aired many times over the years", my emphasis, Robert Schiller (RS) at the NYT, 27 December 2009, link:

http://www.nytimes.com/2009/12/27/business/economy/27view.html.

RS is a Yale economics professor. I would normally say "big deal" to a proposal like this. A New York City CPA buddy of mine, suggested these type of securities 30 years ago! Trills appear to pay "interest", but pay nothing. As long as Uncle Sam (US) will not run a budget surplus, trills can't be "paid" in real terms. Anyone buying trills should remember, "interest is what the government promises to pay you to steal your principal". Trills look like an ideal security for Teresa Ghillarducci to stuff in people's IRAs without their consent. For their own good of course. I'm sure Argentina's Madame Kirchner will consider issuing trills. RS forgets "Miller-Modigliani" finance, i.e., investment and financing decisions are separable. No matter how US finances his debt, absent budget surpluses, it can't be paid. Will a trills owner get multiple votes? One vote per million trills? Will trill-owning foreigners vote? Will Saudi Arabia control our Congress more obviously than today? Trills facilitate deficit spending! RS said it! RS does not suggest US reduce spending. He is now another "house economist". Well RS, make it official and move to Princeton! "Full faith and credit"? Hahahahahaha. If TIPS yields are too low, tell Zimbabwe Ben (ZB). ZB could increase interest rates. Disagreeing RS, US will default on his debt. Explicitly, or through higher inflation. "Financed better"? Let's call Vampire Squid to sell trills and Moody's to rate them AAAA, quadruple A! Professor Fama, we need you. Try to kill trills. Trills remind me of France's assignats and mandats issued in the 1790s. They became worthless. Here's a link to an article about French inflation: http://www.usagold.com/gildedopinion/assignats.html.

California's Begging Bowl

"California Governor Arnold Schwarzenegger, anticipating a $21 billion state budget deficit, plans to ask President Barack Obama to ease mandates and minimums on social programs to save as much as $8 billion. ... 'The problem is that there are no easy solutions left,' said Jean Ross, executive director of the California Budget Project, a Sacramento-based research group concentrating on issues facing the poor. ... The arsenal of one-time accounting maneuvers he and lawmakers have previously used to temporarly paper over parts of the gap--such as accelerating income-tax collections--have been mostly depleted, making efforts to erase the latest $21 billion deficit more difficult. ... The state also has struggled to implement cost-cutting measures that were part of the $85 billion spending plan approved in July. Courts blocked part of the budget that cut funding for home care for the disabled and another part that borrowed $800 million from an account that sets aside money for local transportation agencies. ... The state was the biggest bond issuer this year, selling $36 billion of debt", Michael Marois and William Selway at Bloomberg, 24 December 2009, link: http://www.bloomberg.com/apps/news?pid=20670001&sid=aFdI2wUyyroI.

My answer: bring back quartering! Don't feed me any third amendment crap either.

Martin Feldstein-Maniac

"Many gold buyers want a hedge against the risk of inflation or possible declines in the value of the dollar or other currencies. Both are serious potential risks that are worthy of precautionary hedges. ... But is gold a good hedge against these two risks? Will gold maintain its purchasing power value if inflation erodes the purchasing power of the dollar or the euro? And will gold hold its value in euros or yen if the dollar continues to decline? The short answer is no on all counts. ... Consider first the potential of gold as an inflation hedge. The price of an ounce of gold in 1980 was $400. Ten years later, the US consumer price index (CPI) was up more than 60%, but the price of gold was still $400, having risen to $700 and then fallen back during the intervening years. ... So gold is a poor inflation hedge. Moreover, the US government provides a very good inflation hedge in the form of Treasury Inflation Protected Securities (TIPS). .... Gold is also a poor hedge against currency fluctuations. ... Unlike common stock, bonds, and real estate, the value of gold does not reflect underlying earnings. Gold is a purely speculative investment. Over the next few years, it may fall to $500 an ounce or rise to $2,000 an ounce. There is no way to know which it will be", my emphasis, Martin Feldstein (MF) at Project Syndicate, 26 December 2009, link: http://www.project-syndicate.org/commentary/feldstein18.

MF, did you lose your mind? Gold is the inflation hedge, see my 2 and 19 December 2009 posts:

http://skepticaltexascpa.blogspot.com/2009/12/dollar-drops-98.html; http://skepticaltexascpa.blogspot.com/2009/12/pound-drops-99.html. TIPS are a good investment? For who? Uncle Sam; not the TIPS holder. Buy TIPS? No bye TIPS, see my 5 October 2007 post: http://skepticaltexascpa.blogspot.com/2007/10/tip-on-tips.html. Gold has no underlying earnings, it's MONEY! What is a dollar's underlying earnings? MF, go back to school and study economic history. Try ECON 2239 at Harvard. I found the course number for you! Poor MF. He's so confused he should join Princeton's economics department and consult with luminaries like Paul Krugman and Alan (well-named) Blinder!

Zimbabwe Ben Fools Time

"The man who is now supposed to fix our problems did not see them cmong in the first place. One may perhaps think that the problems were so byzantine that they were undetectable until they at last erupted in the crisis. But this is not so. There were those who saw the problems clearly. A few predicted the crisis with uncanny accuracy. One of them was Peter Schiff, a financial commentator and president of Euro Pacific Capital. ... It is paradoxical that as Schiff was sounding the alarm, mainstream pundits--those of the Greenspan/Bernanke worldview--were laughing in his face. ... Of course, Peter Schiff and Ron Paul have no crystal ball that enables them to fortell future events with uncanny accuracy. Their grasp of financial and economic situation is rooted in the Austrian school of economics. An outgrowth of classical liberalism, its main proponents are Ludwig von Mises, Nobel Prize winner Frederich von Hayek and Murray N. Rothbard. One of the main focus areas of this school is the business cycle--the boom-and-bust recurrence--which defines the trajectory of western-style economies", Vasko Kohlmayer at Frontpage Magazine, 24 December 2009, link: http://frontpagemag.com/2009/12/24/ben-bernanke-bust-of-the-year-–-by-vasko-kohlmayer/

Not only was Zimbabwe Ben Time's "Man of the Year", he got a Financial Times accolade. Here's Junior's Junior Deputy Accountant post, 25 December 2009:

http://www.jrdeputyaccountant.com/2009/12/financial-times-names-lloyd-blankfein.html.

Pax Obamicana

"History speaks of a Pax Romana, a Pax Britannica, and a Pax Americana--but no other namable eras of sustained peace, for the simple reason cited by Henry Kissinger: nothing maintains peace except hegemony and the balance of power. The balancing act always fails, though, as it did in Europe in 1914, and as it will in Central and South Asia precisely a century later. ... Those who wanted an end to US hegemony will get what they wished for. But they won't like it. ... The failure of the region's most populous state--in that case the Ottoman Empire, in this case Pakistan--makes shambles of the power balance, leaving initiative in the hands of irredentist radicals who threaten to tug their sponsors among the great powers along behind them. ... The US-sponsored frontier war amounts to Punjabis--traditonally the core of the country's military--killing Pashtuns. The default view of area defense analysts has been that army operations against the Taliban may turn into a Punjabi-Pashtun ethnic conflict. ... Pakistan is being ground between two millstones: the Afghan war and the global economic crisis. Half the country is illiterate, and half of Pakistanis live on less than US$1 a day. ... The credibility of secular government--with its promise of economic improvement--is threadbare. The alternative is an Islamist regime committed to confronting India over Kashmir and suppressing the Shi'ite minority that comprises 30% of Pakistan's population. ... Russia faces a slow demographic death, but it remains a great power in terms of military techonology: its surface-to-air-missile systems are as good as anything American [sic] can field, and its newest system, the as yet undeployed S-500, may be better. ... But Obama's budget cuts have hit military aviation hard, leaving its closest allies--including Israel and Australia--without a clear alternative to the aging F-16 force. Russia and India, meanwhile are developing a 'fifth generation' fighter, with some inputs from, France and Israel. There is widespread speculation that Russia's decision to cancel deliveries of its S-300 anti-missile system to Iran carried a price tag for the Israelis: order the latest Russian systems for their own use, and make available the entire package of Israeli avionics. ... In short, Washington appears to have driven its two closest allies in Asia--Isreal and India--into a technology alliance with Russia that may have enormous long-term consequences. ... China cannot sit by and allow India to encircle and eventually crush Pakistan--not because China has fundamental strategic interests in Pakistan, but because it cannot tolerate such a blemish to its credibility. The problem does not lie in Pakistan, but in the mutual capacity of India and China to destabilize each other. ... The implications of such an exercise in great-power politics [by the US] are in some respects ugly. ... The most dangerous undertaking of the Obama administration is not the petty failures of policy, such as the hapless effort to appease the Palestinians over West Bank settlements, or Pakistan over Kashmir. If America's technological leadership in fighter aircraft, surface-to-air missiles, and related technologies continues to erode, the [US]--like Britain in 1914--no longer will have the power and credibility to enforce an agreement among prospectively hostile players. America's self-sabotage in this regard is a unique act of abnegation in the history of world strategy", my emphasis, Spengler at Asia Times, 23 December 2009, link:

http://www.atimes.com/atimes/Central_Asia/KL24Ag01.html.

Yes Spengler. Now tell that double-Ivy League nitwit in the White House. Well Generals McCrystal and Petreus, what say you?