Monday, May 31, 2010

Eisenhower's Warning

"Whatever your views on financial reform--whether you want the government to crack down on bankers or to disentangle itself from financial markets--you should fear Sen. Chris Dodd's financial reform bill. In 1,300-some pages, all it really does is legislate power to the government for fixes to be named later. ... But it sweeps aside more than two centuries of accumulated wisdom: that checks and balances are essential to markets, and that rules must be known in advance. ... We challenge lawmakers to think of any contract or transaction that doesn't meet that definition--from buying detergent with a money-back guarantee to getting a rain-check at the car wash. ... 'Substantial' and 'significant' are never defined. The bill does not say whether they are to be measured relative to the golbal economy, or the financial positions of you and your counterparty, or for that matter to the average humidity of a mid-summer afternoon in Cleveland. All of this is to be named later. ... Regulators will likely start off reasonably. ... And because they have unlimited power to set rules they will be able to outlaw practices as they see fit. This will encourage anyone who loses money for any reason to use political pressure to get redress. ... Regulated institutions will get fat on government-legislated profit, and regulators will look good by getting private firms to throw money at any problem that bothers Congress. People will move back and forth between the private and regulatory sectors. The Dodd bill is perfectly designed to create the largest and most powerful crony system in history. It's not that the people, regulator or regulated, are personally corrupt. It's that the system will select itself for, reward and enforce corruption. ... No regulator can afford to antagonize a potential future employer", my emphasis, Clifford Asness & Aaron Brown (A&B) at the WSJ, 13 May 2010, link:

As Yves Smith says, "feature or bug"? The Dodd Bill is just more of the same. A&B are with AQR Capital Management. "Rules must be known in advance"? Look at: Roth IRAs or Australia's recent proposed new mining tax. Governments have no rules. Disagreeing with A&B, I believe the "system" attracts the personally corrupt. The most corrupt: our (In)Justice Department. Phew! We are drowning in "complexes", military-industrial, teacher-educationalist-social worker, etc.

Illegals and the Ottomans

"Throughout history, when an occupying power has wanted to destabilize and destroy a nation, it has settled a foreign people in its midst. The seeds of the Balkan conflict were sown when the Turks planted Albanian Muslims in Kosovo to uproot the Christian Serbs who had long defended the borders of medieval Christendom and had more than once turned back the tide of an expanding Ottoman empire. ... Despite this, Americans did not worry about the massive migration of Mexicans and other third-world immigrants for many years due to their belief in equality and the idea of the American melting pot. Unfortunately, both concepts are complete myths, devoid of any support from logic, history or science. ... There is, quite simply, no such thing as human equality in any material sense. ... As for the myth of the American melting pot, it should suffice to point out that the idea was popularized by a Russian Jew who emigrated to England, never lived in the [US] and was a fervent believer in the cause of establishing a Jewish homeland. ... The reality is that from the mid-17th century to the mid-19th century, the New England states had almost no immigration for 200 years. And it is important to note that when the Irish did finally come to America, they were fewer, more culturally similar, and they came in a more gradual manner from farther away. ... The reality is that America will proceed on one of two paths. The first is to embrace the conflict. If Americans can find the courage to consciously reject the myth of the melting pot and expel the Mexicans from the American Southwest, the Arabs from Detroit and the Somalis from Minneapolis, they can reclaim their traditional white Anglo-Saxon Protestant culture. ... White Americans continue to vote with their feet, retreating slowly but continuously before the inexorable wave of migratory expansion. Encouraged by the frailty of American society and the fragility of myth-based American political culture, what are still currently the fringe views of the Aztlan revolutionaries will rapidly become the mainstream opinion of Mexican irredentists in California, Arizona, New Mexico and Nevada. ... Only Texas, with its unique and exapnsive view of itself, combined wiht its history of violent conflict with Mexico, is likely to take action over time. ... There is no magic assimilation to replace the ruthless mathematics of demographic transformation. Precisely how the Lincoln-forged Union will fragment cannot be foreseen wth perfect clarity at this point, but as recent events suggest, it should begin in the bellwether states of California and Arizona", Vox Day (VD) at World Net Daily, 10 May 2010, link:

"The Ottomans had an interesting method of assuring political stability. The sprawling empire operated on a system in which 'millets', distinct ethnic and religious groups, were allowed to oversee their own internal affairs while giving absolute loyalty to the sultan and his government. Every now and then a millet would be ordered to pack up and head out for a new home, at times at the opposite end of the imperium, amid new neighbors--sometimes the original residents, sometimes other refugees--of alien origins, ethnicity, and religious belief. ... In short order, the various groups would become so enmeshed in harassing and attacking each other that they could spare no time or energy to defying the staus quo. ... The American left has its own millet system, consisting of ethnic (and other) groups defined in large part by their grievances as victims of America. ... The left prefers Balkanization and permament conflict. ... So how to keep the pot boiling? The answer was to find a new millet--or rather to take advantage of the one next door, of the deperate people fleeing a serial kleptocracy, an uneducated, ignorant, and frightened mass open to all forms of manipulation. ... It explains the insistence that any solution to the immigration problem provide for amnesty and citizenship for the millions of illegal already living within our borders. ... Illegals will become a new protected class, with privileges and entitlements denied the rest of the populace (including, ironically, current members of previous such classes). ... A vast bureaucracy will arise to 'assist' the new citizenry, funded with billions. ... There must be no amnesty. Such an action would simply drop a permanent inassimilable presence in the midst of American society", JR Dunn at the American Thinker, 14 May 2010, link:

I agree with Michael Panzer's interesting 22 May 2010 post at When Giants Fall about Turkey, Iran and nuclear weapons, link:

Yes VD. At the very least, California, from San Diego to Santa Barbara, looks like it will revert to Mexico. Pancho Villa won!

China has a policy to move Han Chinese into Sinkiang province, which was primarily Uighur, to ensure Beijing's control. We permit let illegaal aliens stay in the US, which will likely cause the US to dissolve. Look at the contrasting policies.

Absent a new "Operation Wetback", I expect the US to break up no later than 2040, see my 11 January 2009 post:

Sunday, May 30, 2010

Christie as FDR

"Once again showing that he means to shake up Trenton, Gov. Christopher J. Christie declined on Monday to reappoint a sitting justice to the New Jersey Supreme Court, instead appointing someone who he said would show the restraint that was missing from the court. ... Justice [John] Wallace's departure also means that for the first time in 16 years, the court will not have a black justice. If confirmed by the State Senate, Mr. Christie's appointment of Anne M. Patterson, a Morris County lawayer, will give the court its first female majority. Speaking to reporters in Trenton, Mr. Christie had only kind words for Justice Wallace, but he described the historically liberal court as 'out of control' over the last three decades, usurping the roles of the governor and the Legislature is setting social and tax policies", Richard Perez-Pena at the NYT, 4 May 2010, link:

Go Christie. If FDR could threaten to "pack" pack the Supreme Court, I see no reason you can't unpack New Jersey's Supreme Coirt.

Unleash the Logan Act

"The [Fed] sought to pre-empt criticism of its decision to reopen a controversial lending pprogram, in which it funnels US dollars to the European Central Bank and other central banks overseas, by arguing that the move was necessary to prevent Europe's crisis from reaching US shores. ... Some Republicans immediately assailed any US involvement in Europe's big bailout. ... Fed officials say the US faces little financial risk in the program because central banks are on the hook to repay, not commercial banks. ... 'Our view from here is that we don't want the financial spillover effects of what's going on in Europe to put at risk our incipient recovery here in the [US],' Charles Plosser, president of the Federal Reserve Bank of Philadelphia, said in an interview. ... In addition to accusing the Fed of bailing out foreigners, some congressional critics say the Fed is too tight with details about its rescue programs, a concern that is prompting lawmakers to demand more Fed disclosures", my emphasis, Jon Hilsenrath & Corey Boles at the WSJ, 11 May 2010:

This is preposterous. Instead of letting Greece stew in its own juices, the Fed prints up tons of US dollars then claims it wants to "prevent Europe's crisis from reaching US shores". Nuts. What is it the foreign central banks will repay with? Wampum? Eric Holder, attorney general, here's an idea: indict some Fed Heads for a Logan Act violation. Come on. You're creative. Squeeze it in!

Saturday, May 29, 2010

IRS Doublecross?

"An influential group of criminal tax lawyers is sharply criticizing the [IRS] for its decision to prosecute some people who came forward to confess that they had used foreign bank accounts to evade taxes, saying it goes against a longstanding practice of encouraging taxpayers to come forward to report tax violations. ... A letter dated March 30 and signed by 32 lawyers, many former high-ranking tax officials, said the IRS actions 'smack of trickery.' ... The letter acknowledged the government's right to reject confessors if it already had their names or opened an audit. But it argued that subjecting these taxpayers to rare public prosecutions would look like a doublecross", Laura Saunders & Arden Dale at the WSJ, 5 May 2010:

It looks that way to me. The DOJ did not have to go along with the IRS. The IRS cannot effect a criminal prosecution.

Cockroaches Eat Israel

"Weaning itself off socialist-influenced policies that once brought 400% inflation and 60% income-tax brackets, Israel's economy is now growing despite the international financial slowdown. ... But one Israeli economist is warning that beneath Israel's back-patting lurks a hidden peril--fueled by demographic trends and political choices--that could eventually mean an end to the country. ... According to [Dan] Ben-David, nearly one in five Israeli men between 35 and 54--a group that he believes has 'no excuse' for not working--are not part of the labor force. That's about 60% higher than the average among nations in the [OECD], an international forum fostering market-based economies that Israel joined Monday. ... Nearly 27% of Arab men and 65% of ultra-Orthodox Jews don't work, government figures show, The non-employment rate for ultra-Orthodox men has tripled since 1970, Ben-David says. ... What worries Ben-David most is that the nonproductive part of Israel's population, which survives largely on welfare, is also growing the fastest. Today Arabs and the ultra-Orthodox together make up less than 30% of the population, but they account for nearly half of school-age children. ... 'Eventually it's going to break the bank,' the economist said. 'We're on trajectories that are not sustainable.' ... A radio talk-show host recently described ultra-Orthodox Jews as 'parasites.' Tel Aviv's mayor said the fast-growing ultra-Orthodox community was 'endangering' the economic strength of the 'silent majority'," Edmund Sanders at the Los Angeles Times, 10 May 2010, link:,0,6313284.story.

Did Sanders write this because "LA Times" management would not let him write of Hispanic immigration's economic effects on California? The ultra-orthodox Jews, haredim, are pejoratively called cockroaches in Israel. They do not work and produce families of 6-8 children, supported by the Israeli state. This trend, if unchecked may destroy Israel long before Iran can. It's ironic that Europe imported Moslems to increase its welfare recipients.

Friday, May 28, 2010

EU in Wonderland

"The bailout package for eurozone governments facing debt troubles has created another urgent challenge for European policy makers: how to keep free spending governments in line. ... Because there was no currency risk, banks, insurance companies and pension funds in every euro-zone economy became the biggest investors in the bonds issued by governments of other countries using the euro. .... Although the budget policies of euro-zone members were tied together in this way, without people really noticing, there were no mechanisms to prevent governments from overspending. ... But, in practice, the pact had no bite. ... These packages circumvented rules that many had assumed prohibited bailouts within the euro zone. They also weakened market incentives for governments to get their houses in order. ... 'Profligate countries now can count on the ECB to alleviate market pressure that could provide the only disciplining device before a crisis situation is reached,' Mr. [Marco] Annuziata says. ... As a step toward improving it, Olli Rehn, the EU economic commissioner, is set Wednesday to propose rules, with clear enforcement mechanisms, both to prevent excessive government debts and deficits, and to act more decisively in a debt crisis", my emphasis, Stephen Fidler at the WSJ, 11 May 2010, link:

This is laughable. There no "rules" for governments, unless you have your own army to enforce them. Unless the EU has its own army and will use it to "enslave" millions of Greeks, Greece's debt will be repudiated. One way or another. What part of this don't you understand? Sovereign debts are usually repudiated. Openly. Or by inflation. Government bonds are a sell. Treasuries, Bunds, Gilts, etc. They all stink. You want to restrain government spending? Have your government go back to the gold standard. "[T]here were no mechanisms to prevent governments from overspending". Of course. As Yves Smith asks, "feature or bug"? What "circumvented rules"? What "clear enforcement mechanisms" short of an army? Will the EU hire the Crips or Bloods to collect from Greece? For a small "emolument", they could likely be enticed into collecting. How small? Say 10% of whatever they collect. Hell, for 10% of say $150 billion, you might be able to get the Zetas to collect for you.

America is Lake Wobegon

"Having no substance of its own, the left is inherently parasitic; like a cancer cell or virus, it survives by posing as a healthy member of the same host it then attacks and ultimately destroys. This pattern of 'mimic-attack-conquer' has given us liberty-hating 'liberals,' leftist mainline chruches that publicly embrace what their own teachings explicity prohibit, and educators whose goal is to ensure that all children get left behind. ... Under the direection of leftist educators, the very institutions, charged wth the liberation of young minds from the chains of ignorance and groupthink, have become increasingly effective indoctrination centers and breeding grounds for rigid, unreflective political orthodoxy. ... The seven liberal arts have deep roots in the ancient world, and are divided into two groups. The artes triviales, or Trivium, consist of grammar, rhetoric and dialectic. They correspond roughly to what today are called 'the humanities.' ... Having mastered the elementary lessons of the Trivium, the pupil was prepared for the study of the more advanced Quadrivium, or artes quadrivales, of arithmetic, geometry, astronomy and music. ... These were considered the proper pursuit for free minds pursuing knowledge and wisdom, and were contrasted with the illiberal arts, artes illiberales, which aimed only at mastery of a particular subject or skill set. ... I will never forget the open sneer from a former colleague--an intelligent and multi-talented feminist history professor--that greeted my advocacy of 'free and unfettered discourse.' The very idea struck her as absurd, and she acted as though I was running some kind of intellectual con. She averred that 'free and unfettered discouse' was code for permitting the expression of bigoted, racist, and otherwise 'illegitimate' points of views. For such closed-minded academics, the liberal arts' commitment to free inquiry is itself a serious threat, and is treated accordingly. ... Grammar, even broadly conceived, has yielded to multiculti gibberish in the freshman English classroom. Rhetoric, if taught at all, consists principally of learning to denounce politically incorrect opinion, not to evaluate, refute, or engage constructively with them", Daniel Fernald at Amercan Thinker, 8 May 2010, link:

Yes Fernald. We have more uneducated college graduates than ever before. Who needs them?

Thursday, May 27, 2010

The WSJ's Got It!

"The [SEC's] complaint against Goldman Sachs is playing in the media as the Rosetta Stone that finally exposes the Wall Street perfidy and double-dealing behind the financial crisis. Our reaction is different: Is that all there is? ... Far from being the smoking gun of the financial crisis, this case looks more like a water pistol. ... Regarding the second point, the offering documents for the 2007 CDO made no claim that we can find that Mr. Paulson's firm was betting alongside ACA. ... More fundamentally, the investment at issue did not hold mortgages, or even mortgage-backed securities. ... Perhaps the SEC's enforcement division doesn't understand the difference between a cash CDO--which contains slices of mortgage-backed securities--and a synthetic CDO containing bets against these securities. ... Did Goldman have an obligation to tell everyone that Mr. Paulson was the one shorting subprime? ... Mr. Paulson bet against German bank IKB and America's ACA, neither of which fell off a turnip truck at the corner of Wall and Broad Streets. ... By the way, Goldman was also one of the losers here. Although the firm received a $15 million fee for putting the deal together, Goldman says it ended up losing $90 million on the transaction itself, because it ultimately decided to bet alongside ACA and IKB. ... Which leads us to the real impact of this case, which is political. The SEC charges conveniently arrive on the brink of the Senate debate over financial reform, and its supporters are already using the case to grease the bill's passage", my emphasis, WSJ Editorial, 19 April 2010, link:

Yes, convenient. Coincidence? We don't think so. Why did the SEC choose this case? See my 5 May 2010 post: That the case is weak is a Yves Smithian "feature. not bug". Vampire Squid's losing money on this deal means nothing to me, except possibly that was one of the SEC's considerations in selecting this deal for "enforcement"

Ticking Debt Bombs

"My first lesson in the power of contagion happened in 1997, when I was based on Seoul. ... Why would a problem in Thailand extend to wealthier South Korea? ... On the surface, contagion makes no sense. Just because country A falls into a debt crisis doesn't mean countries, B, C or G should as well. But that's not how investors think in times of uncertainty. Instead, they look for other potential trouble spots, then try to get out of them. ... Europe may be facing a similar contagion effect today. Worries that overindebted Greece could default sent investors scouring for the next ticking debt bomb. ... Not even the unprecedented $145 billion European Union-IMF bailout for Greece announced in early May is guaranteed to stop things from getting worse. In South Korea in 1997, the IMF rescue failed to restore shattered investor confidence. ... Athens must still prove it can implement the brutal tax hikes, public-sector salary cuts and other budget-reduction measures it promised in return for the aid. ... And why stop in Europe? Much of the indistrialized world is emerging from the Great Recession buried in debt, the result of historical profligacy mixed with the costs of stimulus packaages and bank bailouts initiated during the recession. ... No investor should equate Greece's problems with those of the US. But we're not in normal times. .... What makes contagion so scary is that investors respond in a completely rational fashion: they panic. .... Now, with the Greek rescue, Europe has finally shown the backbone to take on contagion. But it needs to do more. This is no longer a Greek crisis; it's a eurozone crisis", my emphasis, Michael Schuman (MS) at Time, 17 May 2010, link:

MS produced a descriptive piece devoid of economic analysis. Contagion means and explains nothing. MS, do you know what a balance sheet is? You are right about this: "it's a eurozone crisis". Instead of confining the cancer to Greece, Germany injected itself with it. Got euros? Poor dear. I'm sure MS will happily take them off your hands. This kind of piece Yves Smith would decry for its dismissive tone, "You sans culottes. Fear nothing. Super ECB-IMF is here. Buy Greek bonds". Why should Greece's $145 billion bailout do any more than spread the problem to Germany and France? MS, how dare you tell me what not to do? I "equate Greece's problems with those of the US". All times are those of "uncertainty". So? What made investors to look less positively on Greece's debt?

Wednesday, May 26, 2010

Old News at S & P

"In 2004, well before the risks embedded in Wall Street's bets on subprime mortgages became widely known, employees at Standard & Poor's, the credit rating agency, were feeling pressure to expand the business. One employee warned in internal e-mail that the company would lose business if it failed to give high enough ratings to collateralized debt obligations, the investments that later emerged at the heart of the financial crisis. ... In June 2005, and S&P employee warned that tampering 'with criteria to "get the deal" is putting the entire S&P franchise at risk--it's a bad idea. A Senate panel will release 550 pages of exhibits on Friday--including these and other internal messages--at a hearing scrutinizing the role S&P and the ratings agency Moody's Investors Service played in the 2008 financial crisis. The panel, the Permanent Subcommittee on Investigations, released excerpts of the messages Thursday. ... The investigation, which began in November 2008, found that S&P and Moody's used inaccurate ratings models in 2004-7 that failed to predict how high-risk residential mortgages would perform; allowed competitive pressures to affect their ratings; and failed to reassess past ratings after improving their models in 2006. ... A sweeping financial overhaul being debated in the Senate would subject the credit rating agencies to comprehensive regulation and examination by the [SEC] for the first time. The legislation also contains provisions that would open the agencies to private lawsuits charging securities fraud, giving investors a chance to hold the companies accountable", Sewell Chan at the NYT, 23 April 2010, link:

The SEC will be as effective in regulating the rating agencies as it has the CPA industry. What's the problem? How do CPA firms operate?

Low Yields?

"As bond yields soar across Western Europe, other countries once considered much riskier as issuing debt at among their lowest interest rates ever. Russia, returning to the market for the first time since defaulting on its debt in 1998, recently sold 10-year bonds with a yield of 5%. Investors charged Egypt 5.75% on its 10-year bonds. In contrast, Portugese bonds are yielding 6% and Ireland's are yielding 5.8%", Tom Lauricella at the WSJ, 6 May 2010, link:

Narrowing spreads between US Treasury interest rates and those of other governments may be saying something Timmy Boy Geithner might not want to hear. You should. Bonds are a sell! Even US Treasuries? Yes.

Tuesday, May 25, 2010

Indian Affirmative Action

"India's ruling secular Congress party has joined hands with Hindu nationalist parties on a bill to guarantee 33% seats in the parliament and state legislatures to women. ... Although caste has declined in India's large, cosmopolitan cities, elsewhere this system still restricts social mobility for the country's 100 million dalits (untouchables). They are not only consigned to demeaning jobs they're not even allowed to pray in the same temples as upper castes. ... But then came the fatal leap. They created a list or 'schedule' of all the dalit sub-castes deserving preferential treatment and handed them 17.5% of the seats in the parliament and state legislatures. They also gave them 22.5% of all public-sector jobs and guaranteed spots in public or publicly funded universities. ... This body, charged with examining the plight of the poor and disenfranchised, concluded in its final report that the original list of scheduled castes was too short. ... The report caused an uproar. Hindu students from nonscheduled castes castes, particularly from modest backgrounds, exploded into riots. Already rubbed raw from the existing quota regime which allowed academically inferior, scheduled-caste candidates to breeze into the best universitites and land secure government jobs while they struggled, they took to the streets. A few immolated themselves, one big reason why the government collapsed in November 1990. But the quota system survived, and post-riot governments have slowly expanded it. ... In a few states with their own quotas, almost 70% of government jobs and university seats go to the reserved castes. ... In some states like Rajastan they have actually instituted quotas for the poor 'forward castes'--code for upper-caste Hindus. ... It would be tempting to blame the abuse of quotas on the degraded state of Indian politics. But, in reality, India is demonstrating the reductio ad absurdum of quotas", my emphasis, Shikha Dalmia at the WSJ, 1 May 2010, link:

Shades of Asians applying to UCLA or Cal Berkeley. What else would the body conclude, if not that the schedule was too short? California's negroes lost the "quota derby" to Hispanics. Se la guerre. Quotas never go away. See my comments about the "Freedom Budget", my 1 September 2008 post:

ObamaCare Accounting

"Earlier this week, House Democrats concluded that the deluge of corporate writedowns--amounting to $3.4 billion so far--were in fact the result of ObamaCare, not the nefarious conspiracy that the White House repeatedly cited when it was embarrased soon after the bill's passage. ... 'The companies acted properly and in accordance with accounting stndards in submitting filings to the SEC in March and April,' [staffers] write. ... The larger question is what motivated the White House to unleash the assault. Democrats were amply warned about the destructive consequences of these tax changes, and if they really thought these companies were acting out of political motives, then they didn't understand what was in their own bill. Or at least that's one possibility. More likely is that they did know and were simply trying to mislead the public in the early days of what was supposed to be the raptuous response to ObamaCare's passage", WSJ Editorial, 29 April 2010, link:

If the Democrats were serious, they should had the SEC look into these disclsoures. The Democrats were grandstanding.

Monday, May 24, 2010

Greece and California

"In formally requesting Euro45 billion ($60 billion) from the [IMF] and [EU] Friday, Greek Prime Minister George Papandreou sought to end the drama over whether Greece can pay its bills. ... What it would do instead is open a wide new world of moral hazard--for Greece, for the countries providing aid, and for the future of the entire euro-zone. ... Thursday's market turmoil left Greek bonds in emerging markets territory at 8.7% on 10-year debt--5.7 percentage points about the German benchmark. This came after the EU's statistical agency, Eurostat, said it still lacked confidence in Greek figures and raised its 2009 deficit estimate to 13.5% of GDP from 12.7%. ... Meanwhile, tens of thousands of Greek public workers took to the streets to protest the government's austerity measures, such as they are. Could there be a greater disconnect? ... But over the next five and a half years, Greece will face some Euro240 billion in debt-service and refinancing costs-roughly equal to Greece's gross domestic product. ... Loans might delay, but cannot prevent, a radical restructuring of Greek debt. ... Further austerity measures demanded as a quid pro quo might take some domestic heat off Mr. Papanderou, but the IMF's policy history does not bode well for future economic growth. ... If Greece is bailed out, the markets will rightly conclude that a line has been crossed, and that Portugal and even Spain will be rescued too. Even the Germans don't have that much money. ... Mr. [Wolfgang] Schauble is so worried about Berlin's finances that he opposes tax cuts for Germans, but he nonetheless wants to bail out a spendthrift Greece. In an interview Monday in Der Speigel, he warned that, 'We cannot allow the bankruptcy of a euro member state like Geece to turn into a second Lehman Brothers,' adding that 'Greece is just as systematically important as a major bank.' ... Far better for the EU to draw the line now, force Greece and its creditors to take their pain, and to demonstrate to markets that there won't be a rolling series of bailouts. To adapt Mr. Schauble's Lehman analogy, better to stop the moral hazard at Bear Stearns, lest Spain become Lehman. ... Greece's problems are familiar across Europe: a welfare-entitlement state that is unaffordable given the country's anemic economic growth. This is what has to change, but it won't as long as the Greeks marching in the street believe their standard of living will be salvaged by German or French taxpayers", my emphasis, WSJ Editorial, 24 April 2010, link:

I agree with the WSJ noting the WSJ does not cite Islamic immigrants as a welfare-state problem in Europe. Nor does it compare Greece to California. Or the US. So I will.

Some Assets?

"No one likes taxes, and investors always should be wary of assets based on them. ... Deferred-tax assets and liabilities arise because of differences in tax accounting, which is based on cash payments, and accounting for financial-reporting purposes, which assigns revenue and expenses to the period in which they occur. ... Citigroup ... reported $46 billion in deferred-tax assets at the end of 2009, triple the level of two years earlier, a result of huge losses. The bank steadfastly has maintained there isn't doubt over its ability to use these assets, basing this on expectations of being able to return to profitability", David Reilly at the WSJ, 10 April 2010, link:

I wish Citigroup and its CPAs, KPMG, good luck. I last commented on Citi's deferred-tax assets on 16 March 2009:

Sunday, May 23, 2010

What's The Good News?

"The share of new high-school graduates enrolled in college reached a record high last year, likely reflecting the weak job market they faced. ... Many of those searching for jobs were unsuccessful. The 2009 high-school graduates who didn't go to college faced a 35% unemployment rate. ... The outlook for high-school dropouts was even grimmer. Some 383,000 people dropped out of high school between October 2008 and October 2009, and their jobless rate was 55.1%", Sara Murray at the WSJ, 28 April 2010, link:

Would anyone explain to me why we need unskilled laborers from Mexico in view of these statistics? What's our current unemployment rate again?

Nationalization, Aussie Style

"Australia's government plans to reap billions of additional dollars in tax from the country's booming resource industry and use the extra revenue to cut corporate taxes to a more globally competitive level and offer more-generous tax concession for smaller companies. ... The move to capture a bigger share of mining-company profits triggered an outcry from the resource industry, which argues that the plan puts more than 100 billion Australian dollars (US$92.55 billion) in future investment in the mineral industry 'under a cloud'. ... Australia has the world's largest reserves of brown coal, lead, mineral sands, nickel, silver, uranium and zinc--as well as the second-largest global reserves of iron ore, highly sought after by developing countries such as China", Rachel Pannett at the WSJ, 3 May 2010, link:

"Feeling like it missed out the last time around, Australia wants its piece of the next commodities' bull market.The government is pitching a Resource Super Profits Tax on mining profits. This is part of an overhaul targeting the 'proceeds of the next mineral boom,' for the broader economy. For example, nonmining corporate taxes will fall", Mohammad Hadi and Alex Wilson at the WSJ, 4 May 2010, link:

It doesn't matter which government. In one repect they are all the same: they change the rules after the fact to your detriment. You who made Roth IRA conversions, take note.

Australia missed out? Did it "invest" in the minerals industry with public funds to develop mines and oil wells within Australia?

Saturday, May 22, 2010

Russia Upgrades Penal Colonies

"In Russian prisons, the inmates are divided into barracks housing a hundred or so men without regard to the severity of their crimes. At night, a guard locks the door and walks away, leaving first-time offenders and people convicted of nonviolent crimes to fend for themselves in a crowd of gang members, hit men and other career criminals. Beginning this year, however, first-time offenders may no longer have to live in fear. In the first major effort to upgrade a prison system that has changed little since Stalin established it more than 70 years ago, career criminals will be separated from the general prison population and housed in new prisons with cellblocks, rather than barracks. ... Common barracks are unusual outside the former Soviet Union and parts of Africa, according to a London-based advocacy group, Penal Reform International. Western European and American correctional institutions typically rely on large cellblocks, with a few inmates to a cell. ... Low-cost and high-volume, they are modest upgrades of the camps of the 1930s to 1950s and hold the second largest per capita inmate population in the world, trailing only the [US]. ... Under the plan, some sites will be renamed 'settlement colonies.' a sort of minimum security prison. Hardened prisoners will be moved to cellblocks, though only just over 2,700 inmates live in cells in Russia today. ... By 2016, prison officials say, they intend to separate the most violent first-time offenders from petty criminals, and by 2020 move them and the recidivists into new prisons with cellblocks. ... The degraded do menial chores, like cleaning bathrooms, and are sexually abused, Mr. [Kiril] Kharnuzhin said. Men convicted of child molesting and former policemen automatically tumble into this caste, but most other inmates obviously try to avoid it", Andrew Kramer at the NYT, 23 March 2010, link:

Ruth Bader Ginsburg please note. Russia's prisons may be more enlightened than California's.

Where is Eugene Fama on Portugal?

"More than a decade ago, the low interest rates that came from the euro's imminent creation were supposed to propel investment and efficiency gains. Instead, they created the appearance of prosperity. Underlying problems, such as low productivity and a bloated public sector went ignored. ... The cautionary lesson from the euro zone's 10th-largest economy--that monetary union and a common currency are no substitute for a skilled and productive work force and budget discipline--is apparent here amid the once-busy clothing factories and fabric mills in the hills outside the coastal city of Porto", my emphasis, Brian Blackstone at the WSJ, 28 April 2010:

The Los Angeles investment group I was a member of debated the euro's significance when it was created. My opinion was the euro was not important. That over the long run, only real forces matter. This reminds me of a tenet of "Fama-Miller" finance, investment and financing decisions are separable. Why be surprised Portugal's new numeraire did not affect its real economy? The US should study Portugal's plight. Zimbabwe Ben can print all the dollars he wants. Without government spending decreases the US will continue capital decumulation and American living standards will fall. This article was titled: "Euro Masked, Amplified Portugal's Problems". Amplified? How? If a carpenter measures wood in meters instead of yards, how is that a problem?

Friday, May 21, 2010

Christie Ain't Old Hickory

"With Rush Limbaugh fawning over him on talk radio and Fred Barnes comparing him to Ronald Reagan, New Jersey Republican Gov. Chris Christie [CC] is being hailed as a conservative hero. ... In 1993 Christie Whitman, like [CC] in 2009, won the Republican nomination for governor by tacking to the right in the primary. ... But here the comparison gets interesting. Ms. Whitman actually cut state income taxes across the board--before losing favor with conservatives thanks to her spending policies and judicial picks. ... The most important political issue in New Jersey--the one that drives debates about income taxes, property taxes, and local government power--is education. The core of the problem is a string of state Supreme Court decisions, the most sweeping of which were issued by judges Ms. Whitman put on the court. ... Suburban homeowners pay income taxes to support the urban schools while also paying some of the highest property taxes in the country to support local schools. ... Four years ago, the Abbott districts were receiving 56% of the income tax money that had been meant to relieve local property taxes, while the suburban districts got 44%. Under [CC's] budget for next year, that 56% rises to 60%. The Abbott districts get about $4.8 billion in aid, while the other 500-plus other districts must split up $3.2 billion. Thus Asbury Park will receive $28,232 per-pupil from the state next year, while Mendham, the governor's hometown, will get $2.32 per pupil. ... [CC's] fortunes will rise and fall depending on whether he can take back control of school funding from the courts and give suburban towns an equal share of state aid. But if taxes continue to rise, his prospects will fall--no matter how much he pleases commentators who don't pay New Jersey property taxes", Paul Munshine at the WSJ, 1 May 2010, link:

Hey, Gov. Perry, my Gov. Perry. You want to win 2012's presidential election? Kick Texas Supreme Court in the keesta and refuse to enforce our "Robin Hood" funding rules. The problem is not New Jersey's judges. It's the governor not telling the judges loudly and clearly, "You do not set tax or spending policies. They are politicial decisions. I will ignore your rulings and begin impeachment proceedings against all of you who supported this. I am addressing a joint session of New Jersey's legislature 9:00 AM tomorrow morning. And have a nice day". Support a VAT? Do you believe a VAT will lower your income taxes? Do you want to buy this nice bridge I have over the East River? It's just $10 billion. Cheap. See also my 22 November 2009 post:

Another Impossible Product

"Some big changes are happening in funds favored by safety-seeking retirement savers. ... 'What the credit crisis exposed is that these vehicles are much more complex than people assumed,' says Steve Deutsch, who tracks the funds at investment-research firm Morningstar Inc. ... This added protection allows investors to trade in and out at a relatively stable value rather than at the underlying portfolio's actual market value, which can bounce around. ... Some funds' market value dropped sharply, making them more reliant on their wrap contracts to deliver book value to investors. That, combined with general bond-market upheaval, made issuers more reluctant to offer the protection. Though the market has stabilized, there is still a significant shortage of wrap contracts, causing higher fees and other headaches for stable-value funds [SVFs] and their investors. ... The Employees Retirement System of Texas, which administers 401(k) and 457 plans for state employees, late last year decided not to renew its contract with its stable-value provider. Its fund's market value early last year dropped to just 89% of book value--helping to push the 'crediting rate,' essentially the yield investors receive, to 3% currently, down from 4% at the start of 2009. ... The shortage of wrap contracts is causing come managers to hold bigger cash stakes, a drag on performance. ... Given the great demand and limited supply of wrap contracts, the issuers of these contracts have plenty of power to dictate their own terms, which aren't always favorable to investors. One outcome: higher fees. ... The wrap provides 'can be as strict as their want to be on terms,' says Chris Tobe, a senior consultant at Bridenbach Capital Consulting who helps employers review [SVFs]. ... All this adds up to lower returns for investors. The average [SVF] delivered 3.1% last year, down from 4.6% in 2008, according to Hueler Cos., which tracks the stable-value industry. ... Investors may also find tighter restrictions on their ability to move from the funds to other investments. Many [SVFs] have long considered certain other investment options, such as money-market funds 'competing funds.' ... Stable-value investors also are vulnerable to rising interest rates. When rates start to rise, yields of money-market mutual funds will likely tick up faster than those on [SVFs]. ... Many newer stable-value products have a number of different wrap-contact issuers, ensuring that investors can trade in and out at book value. Amid the shortage of wrap insurance, though, some firms are seizing the opportunity to reintroduce older types of stable-value products that are backed by a single insurer and carry considerable risks", my emphasis, Eleanor Laise at the WSJ, 1 May 2010, link:

SVFs always struck me as a scam. They are sold as if they are bank deposits. If you want to be able to redeem your "investment" at par, you should hold bank deposits. But they pay lower interest rates than other "investments". Precisely. The limit to how "strict" the wrap providers can be is the bank interest rate. The existence of SVFs is another result of Zimbabwe Ben's zero interest rate policy. Of course SVF interest rates change slower than money-market funds. SVFs have longer maturities than money-market funds. Mencius Moldbug has done some fine work describing maturity transformation, which is what SVFs try to sell.

Tuesday, May 18, 2010

Stanford's 96%

"It sounded like a great idea: Stanford education professors would create a model school to show how to educate low-income Hispanic and black students. Or, as it's turned out, how not to. ... How did it happen? Stanford New Schools, run by the university's school of education, seems to stress social and emotional support over academics. ... With an extra $3,000 per student raised privately, students enjoy small class, mentoring, counseling and tutoring, technology access, field trips, summer enrichment, health van visits, community college classes on campus, and community service opportunities. The goal is to send graduates to college as critical thinkers, lifelong learners, and 'global citizens.' ... In comments on the news stories that have run, I see a common refrain: It's impossible to teach these kids. Not even Stanford can do it. ... The 96 percent college admissions rate is meaningless, since it includes community colleges, which take anyone, and California State University campuses, which admit students with a B average or better, regardless of test scores. ... EPA Academy students got into CSU on their grades, while much stronger students with lower grades were shut out, says [Michelle] Kerr, now a Stanford-trained high school teacher. ... The median scores for SAT takers are in the high 300s in each section, about the 15th percentile. ACT scores average 15, equally low. ... Will Stanford education professors learn from their mistakes? I fear they'll write off the elementary, claiming the program didn't get enough time, and continue to claim the high school as a success", Joanne Jacobs at Pajamas Media, 24 April 2010, link:

"One of the most reflective responses of the left to any social problem is to blame under-funded education. What the left means by this, of course, is not really education, but indoctrination, which is the primary purpose of public education and college education in America today. The vast transfer of wealth from parents and taxpayers to the public schools and uiniversities is one of the most regressive sorts of social tariff in our society. ... State and local spending on public education is more than $15,000 per pupil. Federal spending on public education was almost nonexistent a few decades ago, but now it is growing fast. America, in fact, spends more per capita on public education than almost any nation in the world. Are we getting much for that investment? Not according to test scores. ... The cost per credit hour in the average university is about $300, or about $9,000 per college year. This expense has increased 1,000% over the last decade. Americans are 'investing' an enormous amount of money in the education of our children. Is this a wise policy?," Bruce Walker at the American Thinker, 26 April 2010, link:

Small classes. Wow. My old grammar school, PS 191, had 1,400 students in the late 1950s. It's website says it now has 276. I bet every one of them enters Harvard after high school, except those who decline the "H-Bomb" for: Yale, Princeton, Stanford, Chicago, MIT and Amherst. Sure. Shades of the Africentric Toronto school, my 12 October 2009 post:

Now its war story time. In 1994 I was doing accounting research in Cal State Northridge's (CSUN) library. Three young ladies (YL) came up to me. One said, "Mistah, can you help us learn about whales"? "Yes, young ladies. Which Wales?". The YL look confused. I asked, "The country or the sea mammal"? "The sea mammal". I took the YL to the "WH" card catalog drawer. In 1994 CSUN had a real card catalog! The YL do nothing. I write out w-h-a-l-e-s on a piece of paper and hand it to the YL. The YL do nothing. It now dawns on me the YL do not know the alphabet. I open the card drawer to whales and tell the YL they can find all the books they need now. Will someone tell me why these YL were in college?

Walker, the answer is no.

Taksei on NASA

"What speaks the most to me, becasue I once ran an endless 21-kilometer half-marathon, is that the Orion Nebula is 24 light years across and 1,344 +- 20 light years distant. ... These are numbers that can sit honorably at the same table and have a drink or two with the [US'] national debt, currently estimated at $115 trillion. Tying the Orion Nebula and Obama Nation together is also the vast canyon of dust that the latter is being transformed into under much hopeychangey hot gas. ... The nebulous hot gas bullets were piercing the clouds of credulity already in August of 2008, when Presidential candidate Barack Obama during a campaign rally with NASA workers criticized thre Bush Administration for inadequate support of NASA and promised to change that (more here). ... We do not know to what extent the BHO administration has tackled and contained this idiocy. On the other hand, we do know that NASA now has a black chief and a female deputy chief, so at least we started out with what really matters: racial and gender justice. ... The funds are simply not there when you have to provide medical insurance to several million citizens of Mexico, to continue the wealth transfer mirage of Fannie 'n' Freddy and to offer free college education for every possible moron with high self-esteem and low competence at the multiplication table", Takuan Seiyo at Gates of Vienna, 25 April 2010, link:

Here here Taksei. Your superior Wharton ways are coming through. I agree. The US pays Mexico tens of billions annually in "war reparations". Well Rev. Al., why don't you demand this stop and direct the reparations to your people.

Monday, May 17, 2010

Even Bill Gross!

"'Bonds have seen their best days,' [Bill] Gross told Bloomberg Radio in a Mar. 25 interview. Real [inflation-adjusted] interest rates are moving higher.' ... When rates go up, bond prices go down, and that means a bearish market for bondholders. ... Pimco, which announced in December, it would offer stock funds for the first time, is advising investors to buy the debt of countries such as Germany and Canda that have low deficits and higher-yielding corporate securities. ... Gross's global forces extends beyond bonds. The No 1. thing Americans should do to try to make back wealth is to 'move outside of the [US] ' in choosing stocks, he says. ... Whatever approach investors take with their bonds, Gross suggests a wise motto to adopt in his latest investor commentary: When evaluating sovereign debt, 'Don't trust any government and verify before you invest'," my emphasis, Tom Keene & Susanne Walker at Businessweek, 12 April 2010, link:

I should reconsider my position. I agree with Gross. In part. Did Gross discuss this with Zimbabwe Ben (ZB)? If so, what did ZB say? As long as you don't buy financials, I don't see what's wrong with US stocks. Now Gross tells us not to trust governments.

Arms and Obama

"President Barack Obama [said on] ... March 26, ... 'Since taking office, one of my highest priorities has been addressing the threat posed by nuclear weapons to the American people. And that's why, last April in Prague, I stated America's intention to pursue the peace and security of a world without nuclear weapons.' ... But a bilateral agreement will not move towards a nuclear free world if other powers not party to the negotiations are expanding their arsenals. Case in point, China. Beijing was not impressed by the US-Russian agreement. ... Yet, China is moving ahead with its own nuclear weapons programs, unimpaired by any international agreements. ... 'Beijing is now deploying or developing up to five intercontinental nuclear-armed ballistic missiles in what amounts to China's most ambitious increase in intercontinental ballistic missile (ICBM) capability since the late 1980s.'... And then there is the continued diplomatic support China provides to Iran and North Korea to block or weaken any counteraction against their nuclear weapons programs. Beijing confirmed April 1 that President Hu Jintao will participaite in the Nuclear Security Summit on nonproliferation to be held April 12-13 in Washington", William Hawkins at the American Thinker, 2 April 2010, link:

I can't see India's, Israel's or England's nukes threatening us. I would be surprised if Russia does anything consistent with Obama's expressed wishes. Book suggestion: Modern Arms and Free Men, Vannevar Bush, 1949. Obama, speak for yourself.

Sunday, May 16, 2010

Hawking in the Twilight Zone

"The famous astrophysicist Stephen Hawking believes that the only rational response to 'Are we alone' is a resounding 'No.' ... 'But he warned that aliens might simply raid Earth for resources, then move on.' ... 'Prof Hawking thinks that, rather than actively trying to communicte with extra-terrestrials, humans should do everything possible to avoid contract.' ... In fact, even if the aliens had the best of intentions, it is still likely they would end up destroying us. ... It would be infinitely safer to assume that aliens want to destroy us than that they would greet us with open arms. if the latter, it's a mistake that we can't take back if the former turns out to be true", Rick Moran at the American Thinker, 26 April 2010, link:

As long as I can remember, I have thought it a mistake to try to contact other life forms. I remember 2 March 1962's Twilight Zone episode, "To Serve Man". Here's a link:

Why 8-1?

"In a defense of free speech by both liberal and conservative justices, the Supreme Court struck down a federal law banning depictions of animal cruelty, dismissing claims that gruesome animal films had no constitutional protection. ... 'As a free-floating test for First Amendment coverage,' [John Roberts] wrote, the government's argument is startling and dangerous.' ... But in this case, the court saw clear evidence of overreaching legislation that broadly banned an entire category of speech. ... The case sparked wide interest, with animal-rights groups and more than half the states filing friend-of-the-court briefs backing the law. Publishers, civil liberties groups and hunting organizations took the other side. ... Lawmakers reasoned that by making illegal the creation, sale or possession of such videos, they could remove the financial incentive to make them. ... Chief Justice Roberts, however, wrote that child pornography was a 'special case' and that other forms of speech could not be banned based on 'a simple cost-benefit analysis.' ... 'Our Constitution forecloses any attempt to revise that judgment simply on the basis that some speech is not worth it.' ... In his dissent, Justice Alito wrote that like child pornography, crush videos were inextricable from the underlying crimes,, and banning the depiction was a way to prevent the abuse", Jess Bravin at the WSJ, 21 April 2010, link:

I don't know what a "simple cost-benefit analysis" is. The "analyst" can load it any way he wants. Alito said he doesn't like crush videos. So? What's Alito's theory? Is a crush video viewer an aider-abettor, co-consipirator, accessory after the fact? This decision should have been 9-0. Haven't the states anything better to do with their police and courts than worry about crush videos? We have too many cops and district attorneys.

Saturday, May 15, 2010

SEC vs. Cuban, Round 2

"Like the adage, 'beware of Greeks bearing gifts,' perhaps the [SEC] should consider whether to beware of litigating against billionaires. Its insider-trading suit against Mark Cuban, the billionaire owner of the Dallas Mavericks basketball team, has turned into a pitched battle that is being fouight in two federal district courts and one federal appeals court. ... Having won an order dismssing the SEC case against him in 2009, he did not simply take his ball and go home--especially after the commission appealed. Instead, Mr. Cuban went on the offensive. ... The legal fees in the various cases have undoubtedly exceeded the amount at issue [$750,000] in the insider-trading case. but this seems to more of a grudge match in which money is no object. ... Judge Sidney A. Fitzwater of Federal district Court in Dallas found that the SEC did not have the authority to adopt the rule and that the SEC had not alleged that Mr. Cuban agreed not to trade in the information while maintaining its confidentiality. ... Mr. Cuban's appellate brief argues that the SEC is improperly attempting to convert an alleged breach of contract into a federal securities fraud' because any agrrement he might have made did not impose an obligation to refrain from selling his shares. Without a fiduciary duty to, there can be no insider trading liability, despite the SEC's attempt to create one in Rule 10b5-2. ... Judge Fitzwater allowed discovery of the SEC' conduct in pursuing the case", Peter Henning at the NYT, 3 April 2010, link:

Go Cuban! The SEC has shown time and time again, it cannot, or will not, distinguish breach of contract from securities fraud cases. It has also been vindicative to those who expose its incompetence, ever since 1973's Ray Dirks fiasco.

More WSJ Propaganda

"The [Fed] has acquired more than $1 trillion of mortgage-backed securities in the past 15 months. At their policy meeting next week, Fed officials will decide how and when to get rid of them without jarring financial markets and the nascent economic recovery. ... The more challenging issue will be agreeing on a long-term plan to shrink a balance sheet of $2.38 trillion, or more than double the pre-crisis levels, according to Fed insiders. ... It is also possible that the Fed won't signal its intentions on the matter in its post-meeting statement on Wednesday. But markets are on edge because its mortgage-bond holdings are so large. ... Fed staff next week will present models to forecast how different approaches to reducing the portfolio might play in markets. ... But Fed Chairman Ben Bernanke made his preferences clear. 'I currently do not anticipate that the [Fed] will sell any of its security holdings in the near term, at least until after policy tightening has gotten under way and the economy is clearly in a sustainable recovery,' he said in February testimony before Congress", Jon Hilsenrath at the WSJ, 24 April 2010, link:

When will Zimbabwe Ben (ZB) sell these fine securities? Try 2110! This is just more Fed smoke screening. If ZB sells this crap, it's true value might be exposed along with the Fed's insolvency.

Friday, May 14, 2010

Go Blago!-2

"With his trial on corruption charges weeks away, former Illinois Gov. Rod Blagojevich [Blago] sought an unusual witness for the defense: President Barack Obama. ... Spokesmen for the White House and federal prosecutors declined to comment. ... At a news conference this week, he called US Attorney Patrick Fitzgerald a coward. Mr. Fitzgerald brought the corruption charges against [Blago]. ... Mr. Obama has said no representative of his had anything to do with the alleged deals for the Senate seat, according to the motion. [Blago] argues that those statements 'contradict the testimony of an important government witness'," Douglas Belkin & Joe Barrett at the WSJ, 23 April 2010, link:

"[Blago] finally made good on a promise. He put President Barack Obama right in the middle of [Blago's] own political corruption case. And now it's finally clear why, from the moment of [Blago's] arrest in December 2008, White House spinners loudly portrayed our former Gov. Dead meat as some drooling, raving lunatic. ... But raving lunatics care little for their own survival. And in an amazing defense motion filed Thursday, [Blago] proved once again that he is quite sane. ... Obama's former patron and real estate fairy, the convicted influence peddler Tony Rezko, is a key player in the government's case. [Blago's] aim is to undercut what Rezko has told investigators. ... It is no secret that some in journalism get offended when anyone dares mention that the president was involved in Chicago politics. But the filing is not only a legal document, it's a political message from [Blago] to Obama. So allow me to translate the Chicago Way. 'Dear Barack, my old friend. I want you to use all your powers, all your skills, to make me an offer I can't refuse. I'm Mr. Celebrity-get-me-out-of-here, and you better get me out of here. Thanks, Rod.' ... US District Judge James Zagel surely isn't happy", John Kass at the Chicago Tribune, 23 April 2010, link:,0,983180.column.

Obama can voluntarily appear and potentially look bad. Or he can resist appearing and look worse. Apparently, Obama chose the latter course.

Who does Obama think he's fooling with? Terry Hodge, my 5 March 2010 post; My translation of Blago's action adds, "Or else you can follow Richard Nixon. I know where the bodies are buried."

Khuzami and and CDOs

"[SEC] enforcement chief Robert Khuzami oversaw a group of lawyers at his old firm, Deutsche Bank AG [DB], that was closely involved in developing collateralized debt obligations, the same product in the agency's fraud lawsuit against Goldman Sachs Group In., according to people familiar with the matter. ... As part of that job he worked with lawyers who advised on the CDOs issued by the German bank and how details about them should be disclosed to investors. ... Liek Goldman, [DB] has faced allegations of inadequate control over its creation of CDOs. It isn't clear if Mr. Khuzami personally reviewed any sturctured-finance deal documents in his role at the bank, and outside law firms were also involved in CDO work. ... Because of Mr. Khuzami's old job and his financial interest in the company, he has recused himself from any matters related to [DB], according to an SEC spokesman. ... SEC officials say Mr. Khuzami's resume is a nonissue, adding thjat the agency will go after illegal conduct wherever it occurs. ... Mr. Khuzami has vowed to pursue wrongdoing against Wall Street firms in high-profile areas such as subprime mortgages and CDOs. ... Mr. Khuzami is the first SEC enforcement director in recent history to come directly from an investment bank. ... Some securities lawyers say Mr. Khuzami's high-level position at [DB] could have given him insight into structured-finance products, an area where the SEC has been criticized for a shortage of expertise", Aaron Lucchetti & Kara Scannell at the WSJ, 24 April 2010, link:

Khuzami's appointment did nothing for me. It still doesn'. See my 20 February 2009 post:

Thursday, May 13, 2010

What 13th Amemdment?

"In October 2008, polls showed that the majority of the American people, 56 percent, were opposed to the $700 billion TARP bill that funded the bank bailouts at the cost of $2,334 to each and every 300 million of them. ... Unlike the unfortunate Americans, the people of Iceland were given the chance to exert their will directly on a similar banking bailout in the form of a referendum. As the US Congress had done before them, the politicians in the Icelandic parliament approved legislation covering the losses of a private Icelandic bank, a bill that would have cost every Icelander $16,400. But thanks to the brave resistance of their president, the Icelandic people took full advantage of their more democratic system to vote down the Icesave bailout on March. A full 93 percent of them voted against handing over $5.3 billion, nearly half their annual GDP, to repay the Dutch and British governments ... President Grimsson is the first true hero of the current financial crisis, which is far from over regardless of how many economic green shoots are spotted by keen-eyed central bankers or created by governement statisticians. In direct contrast to John McCain and Barack Obama, who didn't hesitate to throw over the American people on behalf of the bankers, President Grimsson personally intervened in the political process and, by forcing the referendum, gave the Icelandic people the opportunity to make a genuinely democratic decision on their financial future. ... It should be clear that what is much more dangerous to the economy of Iceland and every other country in the world is a political system that permits politicians such as Haarde, Sigurdardottir, Sigfusson, Brown, Bush, McCain and Obama to turn entire nations into unwilling serfs of a small number of short-sighted and woefully incompetent bankers. There is no one road to serfdom, and given their woeful performance over the last five decades, it would appear that the banking oligarchy would make for a de facto ruling class that is even less effective than the communist apparachiks, fascist bureaucrats, inbred aristocrats and clueless kings who preceded them", Vox Day at World Net Daily, 8 March 2010, link:

Well said Day. Eventually we will have an American president who is not owned by the banksters. When he is elected, woe to them.

Good Question Pat

"With the support of 70 percent of its citizens, Arizona has ordered sheriffs and police to secure the border and remove illegal aliens, half a million of whom now reside there. ... 'We in Arizona have been more than patient waiting for Washington to act,' said Gov. Jan Brewer. 'But decades of inaction and misguided policy have created an unacceptable situation.' ... Barack Obama ... is siding with the law-breakers. He is pandering to the ethnic lobbies. He is not berating a Mexican regime that aids and abets the invasion of the country of which he is commander in chief. Instead, he attacks the government of Arizona for trying to fill a gaping hole in law enforcement left by his own deriliction of duty. ... He has called on the Justice Department to ensure that Arizona's sheriffs and police do not violate anyone's civil rights. But he has said nothing about the rights of the people of Arizona who must deal with the costs of having hundreds of thousands of lawbreakers in their midst. ... The state has a fiscal crisis caused in part by the burden of providing schooling and social welfare for illegals and their families, who consume far more in services than they pay in taxes and who continue to pour in. Even John McCain is now calling for 3,000 troops on the border. ... If Arizona does not get control of the border and stop the invasion, US citizens will stop coming to Arizona and will begin to depart, as they are already fleeing California. ... Whose country is this, anyway?," Pat Buchanan at Vdare, 26 April 2010, link:

Well said Pat. As far as Obama is concerned, non-Minority Americans are just cows to be milked for money to be given to "his" people.

Wednesday, May 12, 2010

CPAs and the F-22

"The debate over the F-22 Raptor has been carried out at the customary level of simplemindedness we've become used to with Congress handling military questions. Since the early 60s, the favored method of killing a military program has been to come up with an argument easily expressed in a sound bite and stick with it. This time, the sound bite was, 'Why do we need two fighter planes, anyway?' The answer is even simpler: we need two fighters because we need two fighters. The historical record clearly reveals this: every air campaign carried out with two distinct and particularly formulated fighter designs has been a success, and every attempt to do otherwise has resulted in disaster. US Air Force doctrine on fighter procurement is known as the high/low mix. The 'high' component consists of a dedicated air superiority fighter, utlizing the latest aeronautical technology, fitted with state-of-the-art electronics, and carrying the most advanced air-to-air weapons. These aircraft have one mission--to kill enemy airplanes. This is the paramount goal of a fighter force. Without it, nothing else can be accomplished. That being the case, the high-end fighter is the more expensive and complex part of the mix. They are rare assets, to be utlized accordingly. ... The swing-role fighter is cheaper and more easily and quickly constructed than its haughtier brother, so there tend to be larger numbers of them. The high-low mix was pioneered in WW II. ... Following the war, the high/low mix was carried on into the jet age. .... Together, the F-15 and F-16 stand as the most effective fighter team on record. ... To the battle cry of who needs two fighters anyway!' the US is dropping the high end of the equation--the F-22 Raptor--in the mistaken conviction that the low end--the F-35 Lightning II--can cover all the bases. ... Even as the F-22 debate winds down, Sukhoi, Russia's premier aircraft company, is preparing to produce its own fifth-generation fighter, the PAK-FA. ... The Russians and the Chinese, on the other hand, have a slaphappy habit of making more weapons than they actually need. Suppose, if things get hot, our 120 planes are facing 500, 1,000, or even more fifth-generation enemy fighters? ... American voters and politicians simply cannot grasp that actions taken today can have consequences years and decades down the line, and that, in a majority of cases, there will be no second chances", my emphasis, JR Dunn at American Thinker, 4 March 2010, link:

I agree with Dunn. What's most shocking is our SecDef's role in this. President Bush squandered real American assets in Iraq and Afghanistan, places of no strategic significance, as opposed to spending money to procure modern weapons and update our strategic forces. What stupidity. Analysis of military affairs is carried out at such a low level, even George Stephanapolous should be able to understand it. Or does he think it's not important enough to understand?

Even Bolton Wan't Say It

"Benjamin Netenyahu's first term as Israeli prime minister collapsed in 1999 in part because he had an unhappy relationship with President Bill Clinton. It is understandable then that Mr. Netenyahu's current government had, until last week, strived to stay close to President Barack Obama. ... But Mr. Obama is different. He is our first post-American president. He looks beyond American exceptionalism and believes our role on the world stage should be merely one nation among many. Mr. Netenyahu's strategy is therefore out-of-date and flawed. Israel has sought to accommodate Mr. Obama on two critical issues: negotiations with Palestinians and Iranian nuclear weapons. ... But now the suppressed conflicts and fully visible and will either be resolved or cause a serious collision between Israel and the US. ... Mr. Obama almost certainly believes that the real obstacle to peace is not new housing or unfortunate timing but so-called Israeli intransigence. ... As time passes, Israel's military option grows more difficult and the chances for succes shrink as Iran seeks new air-defense systems and further buries and hardens nuclear facilities. Mr. Netenyahu's mistake has been to assume that Mr. Obama basically agrees that we must prevent Iran from acquiring nuclear weapons. But the White House likely believes that a nuclear Iran, though undesirable, can be contained and will therfore not support using military force to thwart Iran's nuclear ambitions. ... We are moving inexorably toward, and perhaps have now reached, and Israeli crisis with Mr. Obama. American's must realize that allowing Iran to obtain nuclear weapons is empowering an existential threat to the Israeli state, to Arab governments in the region that are friendly to the US, and to long-term global peace and security", my emphasis, John Bolton at the WSJ, 17 March 2010, link:

Obama, who Michael Beschless said has an "IQ off the charts", pushes his policy in the hope Iran destroys Israel. Once Israel ceases to exist all Middle Eastern problems will be solved. I believe Obama believes this. I can't believe double-Ivy League Obama is so stupid he doesn't see where his policies are leading.

Tuesday, May 11, 2010

The Vampire Squid's Serfs

"Mike Mayo is a veteran of six Wall Street [WS] banks. In the wake of the street's disaster, he found refuge at a boutique brokerage and has lately taken to startling his peers with the question 'What part of Goldman Sachs is good for the country?' Regular people will be tempted to answer, 'None of it,' but the question reminds us that, at least in theory, [WS] serves society (not the other way around). And as opposed to Harrah's, Trump Casino and their ilk, [WS] is endorsed and regulated--with marked restraint--so as to let it perform an important task. Because some people have savings and others need capital, some unifying force must bring the two together. ... [WS] privatized this function, aggregating the savings of disparate individuals through the sale of stocks and bonds. ... These instruments, in the main, did not involve selling bonds so that a DuPont could build new factories; they were rearrangements--new permutations, new alignments of risk--on flows of cash that already existed. ... The point of these and many other new financial instruments was to charge a hefty fee and to furiously trade them, and no one was in a bettter position to do that than their [WS] creators. If trading was, for society, a zero-sum game (someone wins, someone loses), it was, for the street, a gold mine. ... For much of [WS], capital-raising is now a sideshow", Roger Lowenstein at the NYT, 21 March 2010, link:

Decades ago WS performed a useful service as a "dating service" for capitalists. Now by and large, it's just a big fee-generating paper shuffle.

Gold and Conservatives

"Within the American conservative movement, opponents of the gold standard--any form of gold standard--have always dominated the leadership. Newcomers may be unaware of this. ... Debates are usually limited to whether the FED is wise in holding to, or changing, the federal funds rate. Few readers of the '[WSJ]' or viewers of CNBC could tell you exactly what the federal funds rate is, why it is important, or how the [Fed] controls it. ... No one raises the fundamental issue of why and how it posses the legal authority to set the federal funds rate, enforce banking rules, and control the money supply--sort of. No one argues that the [Fed] is the most powerful private agency that is covered by a veneeer of public accountability. ... Ron Paul for the first time in American history made the [Fed] an issue in a Presidential campaign. He called for the re-establishment of the gold standard. ... The early years of the Great Depression were a time of monetary deflation. ... One economist who predicted this was Ludwig von Mises. he warned in the late 1920's about the coming contraction. He was opposed by an American economist, Irving Fisher of Yale, who announced a plateau for the American stock market in September 1929. ... Mises argued that the gold standard has arisen as a market phenomenon becasue gold is the most marketable commodity. ... In sharp contrast, Fisher in Chapter XII dismissed the gold standard as an historical accident. he said the gold standard would be difficult to dislodge, but someday people would abandon it. Why? Because gold 'is a substance, of which the supply is excessive.' The most famous advocate of Fisher's monetary theory was Milton Friedman. Through Friedman, the academic free market economics community became committed to fiat money after 1950. Friedman was the dominant free market spokesman after 1960. He held a position at the University of Chicago There was not a single gold standard proponent in the economics department in 1950 or later. ... Critics of the FED have long been segregated out of the movement by the leadership. ... Only in the last decade have pro-gold standard economists appeared on the scene through ... Friedman viewed gold as just another commodity. ... in 1986 ... [Freidman] admitted that his advocacy of a fixed rules for the expansion of central bank-created money had been a waste of time. Such restraint was not in the self-interest of central-banking officals. ... The [Fed] has been the problem ever since 1914", Gary North at Lew Rockwell, 25 February 2010, link:

Chicago had no gold standard advocates when I was there in the early 1970s. If I recollect correctly, Uncle Miltie's gestalt was when he realized the Fed must lie to the public to influence the economy.

Monday, May 10, 2010

Banks and CPAs

"With all the attention to banking regulation, it seems strange that something called Basel III has escaped widespread notice, even though its various new rules have been up for public discussion since January and the window closed on that opportunity on Friday, April 16. Maybe it's because the Basel Accords, a set of rules agreed to by bank regulators around the world, have been something of an embarrasment to the authors. ... The idea was to give an increasingly globalized financial-services industry a common set of rules so that bankers could have more confidence in the solidity of their global counterparties. ... In an unsuprisingly generous gesture toward national treasuries, banks were allowed to regard government-issued securities as zero risk, meaning they would require not offsetting capital. ... Japanese banks were boasting that they were over-compliant with Basel standards right before they tanked in 1990. ... But the Basel standards proved to be largely irrelevant to the factors that caused the fall 2008 near-meltdown of global finance. For example, Lehman Brothers had close to triple the core capital required by the Basel standards when it crashed. ... The 2008 crisis resulted when the Fed-created credit bubble collapsed and soaring housing prices deflated as well. ... One of the great ironies of our times is that the two strongest defenders of the Fannie-Freddie shell game, Chris Dodd and Barney Frank, are now in charge of reforming banking regulation. ... Aside from giving Washington an even tighter grip on the banking industry, the Dodd bill partly institutionalizes what Ben Bernanke at the Fed and Henry Paulson at Treasury, and Timothy Geithner at the New York Fed did ad hoc in the fall of 2008. It permits backdoor bailouts and gives enormous powers to the same Fed that crafted the housing bubble", my emphasis, George Melloan at the WSJ, 24 April 2010, link:

The Dodd bill stinks. It's more of the same and more TBTF bailout. I agree with Melloan. There is virtually no rule that banks can't "engineer" around. Irony? Or as Yves Smith says, "Feature, not bug".

Another SEC Victory

"The [SEC] suspected Texas financier R. Allen Stanford of running a Ponzi scheme as early as 1997 but took more than a decade to pursue him seriously, according to a report further tarring the agency that missed Bernard Madoff's huge fraud. The report by the SEC's inspector general says SEC examiners concluded four times from 1997 to 2004 that Mr. Stanford's businesses were fraudulent, but each time decided not to go further. ... The former SEC official, Spencer Barasch, is now a partner at law firm Andrews Kurth LLP. ... The inspector general referred Mr. Barasch for possible disbarment from practising law. ... SEC Inspector General David Kotz's report suggests the agency's mistakes in the Stanford case were in part the result of a culture that favored easily resolved cases over messier ones. Cases such as the alleged Stanford fraud weren't considered 'quick hit' and 'slam dunk,' and examiners were discouraged from pursuing them, Mr. Kotz found. ... Examiners noted that Mr. Stanford was promising to pay investors a return well above the market, without any apparent way of delivering on that promise. ... SEC enforcement officials also appeared to have ignored warnings from insiders at Stanford's operations", my emphasis, Michael Crittenden & Kara Scannell at the WSJ, 17 April 2010, link:

Another day, another missed fraud at the SEC.

Sunday, May 9, 2010

Fat Tails and America

Harvard history professor, Niall Ferguson has a wonderful post about America's potential and sudden demise at the 28 February 2010 LA Times, link:,0,7706980.story. Damn he's sharp!

China's a Bubble-3

"James Tsai is the sort of MBA corporate recruiters covet. He went to a good prep school, earned a degree with honors from Middlebury College, and made vice-president in Bank of America's international wealth management group at the age of 26. ... And now he's hustling to land his first post-MBA job--in China. ... Every era has its version of the MBA dream. ... Now, the emerging narrative is about steroidal Asia and its promise of growth. At premier institutions such as the University of Chicago's Booth School, the University of Pennsylvania's Wharton School, and Northwestern's Kellogg, the percentage of MBAs taking jobs in Asia--including US students like Tsai as well as international students--has more than doubled in the past five yars, from roughly 5% of the graduating class to more than 10%. ... And right now, Asia is where the career velocity and opportunity are. 'This has never really happened before, except in little spurts, where you have a fairly large group of talented, recent MBAs asking for assignments in China, Vietnam, India,' says Jeff Joerres, CEO of global staffing firm Manpower. ... On Facebook, Twitter, and Skype, MBAs swap stories about the adrenaline rush of working in an emerging market and the joys of geographic arbitrage. ... The University of Chicago's Booth School is seeing so much interest from Chinese companies that it recently opened a career services office in Hong Kong. ... How much longer can the Asian allure hold?," my emphasis, Michelle Conlin at Businessweek, 22 March 2010, link:

This is 2010's Havard MBA indicator. China's a bubble.

Saturday, May 8, 2010

Obama's Brain?

"Why has President Barack Obama decided to foment a crisis in US relations with Israel? ... It is not credible to argue that Jerusalem's local planning board's decision to approve the construction of 1,600 housing units in Ramat Shlomo drove cool Obama into a fit of wild rage at Prime Minister Binyamin Netenyahu. Obama himself claims that he launched a political war against Israel in the interest of promoting peace. But this claim, too, does not stand up to scrutiny. ... First, Obama's assault on Israel is likely related to the failure of his Iran policy. ... By this line of thinking, if Israel simply returned to the indefensible 1949 armistice lines, Iran's centrifuges would stop spinning, and Syria al-Qaida, the Taliban, Hizbullah, Hamas and the Iranian Revolutionary Guards would all beat their swords into plowshares. Second, even more important that its usefulness as a tool to divert the public's attention away from his failure of Iran policy, Obama's assault on Israel may well be aimed at mantaining that failed policy. ... That is, the anti-Israel campaign may be a means to force Israel to stand by as Obama allows Iran to build a nuclear arsenal", Caroline Glick at Frontpage Mgazine, 22 March 2010, link:

Obama's letting Iran build nukes jeopardizes US interests in the Middle East. Does he not know this? Bad? Or does he know it? Worse. What Iran policy?

Bailout Bargain?

"It's way too early to tally the costs of the government's various efforts to help out our nation's financial institutions survive the credit debacle. But that hasn't stopped anonymous Treasury officials from claiming in recent days that their Armageddon-avoidance will wind up costing far less than many feared. One Treasury estimate, leaked to the [WSJ] last week, put a price tag on $89 billion on the financial bailout. That's far below the $250 billion the Congression Budget Office estimated last year or other analyses that put the all-in-number at $1 trillion or more. ... And given that the Treasury is run by Timothy F. Geithner, the man who doled out billions as president of the Federal Reserve Bank of New York, his current minions certainly have an interest in peddling the view that the price of those rescues has become less onerous. ... But if the Treasury wants to provde a full assessment of the costs of this financial debacle, it will have to add some more beads to its abacus. ... A major factor missing from the Treasury's math is the vast transfer of wealth to bank firm investors resulting from the Fed's near-zero interest-rate policy", Gretchen Morgenson at the NYT, 18 April 2010, link:

By George, Gretchen's got it!

Friday, May 7, 2010

Affirmative Action Navy

"Not only was this a possible naval disaster, but it was also a diplomatic one as well: the navigator was an officer in the British Royal Navy, a billet unique to the Churchill. ... Newly arrived Navy chaplain Maurice Kaprow could not believe what he was seeing and hearing. 'Someone came up to me and said,' "We've run aground--she's finished",' he recalls. ... As it turned out, one of the ship's propellers had broken. But seven years later, Kaprow still cannot fathom which was worse: that US sailors were openly heckling a captain or that the captain seemed to deserve it. ... [Holly] Graf was relieved of duty in January, after nearly two year on the Cowpens, for 'cruelty and maltreatment' of her crew, according to a blistering Navy inspector general's report obtained by TIME. ... The saga of Holly Graf [HG] suggests the Navy had long ignored warning signs about her suitability for command. And while news of her spectacular fall instantly raised questions about institutional sexism, the lesson may be the opposite, as he case highlights how the Navy has pushed to integrate women into its war-fighting fleet. [HG] had dreamed of skippering a Navy vessel ever since her high school days in Simsbury, Conn. ... After she graduated from the US Naval Academy in 1985, colleagues sensed that Graf was on a fast track to flag rank. ... She earned a bronze star during the Iraq war (along with the Legion of Merit, Defense Meretorious Service Medal and two Meretorious Medals). ... If the Navy had warning signs about Graf after her time on the Curtis Wilbur, it didn't seem to pay them any heed. Instead, in 2003, Graf made US Navy history by becoming the first female commander of a destroyer, the Churchill .... Morale was the lowest he had ever encountered on any vessel. Kaprow says he tried to talk to Graf about her leadership style. ... But his complaints, like those made by [Kirk] Benson and others, produced no apparent change in Graf's demeanor and did not slow her rise. ... The [HG] saga has left the Navy facing two uncomfortable questions: Would the Navy have relieved a man for the erros Graf committed? And if Graf's command style was so toxic, how did the Navy miss it in the first place? ... A better explanation is that the Navy failed to move on Graf earlier not in spite of her gender but because of it", Mark Thompson at Time, 15 March 2010, link:

Shades of Army Major Hassan. This is your affirmative action Navy at work, see my 29 July 2009 post:

What's A Rabba?

"Enthusiastic applause greeted Sara Hurwitz when she stepped to the podium last month to address a gathering of the Jewish Orthodox Feminist Alliance in New York. ... Rabbi Pinchos Lipshutz warned, 'We cannot allow someone whose guide is 20th century feminism ... to hijack and attmept to redefine Orthodixy.' ... The uproar threatens to formally splinter the long-volatile Orthodox movement into liberal and conservative factions. 'The two wings are moving further and further apart,' says Brandeis University historian Jonathan D. Sarna. 'The issue of women in a very significant divider, and it wlll take all the diplomacy that can be mustered to keep Orthodoxy from splitting.' ... In a 1984 essay she presciently wrote: 'It seems but a matter of time that a woman who is as well-versed in rabbinic sources as a male ... will say to herself" "Why not me?"' ... In March 2009, after months of deliberation, Rabbi Weiss invented a title for her, 'maharat,' which is an acronym of the Hebrew words for halachic, spiritual and Torah leader. ... The title failed to catch on. 'People didn't know what maharat meant,' Rabba Hurwitz says. 'Rabba is a more respectful and accurate description of who I am and what I do.' Speaking about the controversy, she adds: I understand that people are concerned. This is new, but nothing I am doing is outside the framework of Jewish law.' ... She can, moreover, do some things that a male rabbi cannot, like be a reasuring prescence on the female side of the barrier, or mechitzah, that separates men and women in an Orthodox synagogue; and she can field intimate questions that some women are more comfortable asking another woman. 'All of that,' Rabba Hurwitz says, 'adds to the community'," my emphasis, Evan Goldstein at the WSJ, 23 April 2010, link:

Interesting. Weiss "invented a title for her", yet "nothing [she] is doing is outside the framework of Jewish law." What would Antonin Scalia say about this if asked?