Skeptical CPA

Muni Madness

2010-07-09T07:45:00.000-07:00

"Investors are ignoring warning signs in the $2.8 trillion municipal-bond market, raising the risk of a reckoning, according to some market specialists. Numerous municipalities are struggling financially. ... But municipal-bond prices aren't reflecting much concern. Yields of municpal bonds, maturing in 2020 stood at 3.15% Friday, up slightly for the week but down from 3.3% in April. ... [Defaults] represented about $6.4 billion, or just .002% of outstanding municipal debt', [Matt Fabian] says", Ianthe Jeanne Dugan at the WSJ, 14 June 2010, link: http://online.wsj.com/article/SB10001424052748704067504575304782084631368.html.

Fabian, $6.4 billion / $2.8 trillion = .0023, not .002%. Check your arithmetic. Does anyone at the WSJ proofread anymore? I agree, the muni bond market is a disaster waiting to happen.

California Today, Texas Tomorrow-2

2010-07-08T07:05:00.000-07:00

"The demographer who warned a decade ago about Texas' unhappy mix of dismal education achievement and high poverty is more concerned than ever. Actually, he's frightened. ... Some don't see much leadership from politicians or the private sector in attacking the trend line that demographer Steve Murdock says will result in three of every 10 workers not having a high school decuation by 2040. ... The state's public schools have more and more low-income kids and persistently high dropout rates--and unless that changes, the future of Texas will contain more long-term unemployment and poverty--and more folks depending on food stamps, Medicaid and CHIP, Murdock said. ... The trend line also is clear: School districts with large numbers of low-income students have higher dropout rates. Large school districts where low-income students make up at least 80 percent of the enrollment have dropout/attrition rates of 50 percent or more. ... 'Every kid deserves to be educated, and we're going to figure out what it takes and do it,' said Bill hammond, president and CEO of the Texas Association of Business. ... If nothing changes, average Texas household incomes will be about $6,500 lower in 30 years than they were in 2000, according to Murdock's projections. That number is not adjusted for inflation, so it would be worse than it appears. ... He sees only two solutions: Texas must do more to prepare preschoolers anbd must boost grants to provide financial help for college. ... The exact extent of the dropout problem is unknown. ... Murdock said it's critical for Texans to understand 'that our future is tied to these kids' future'," Gary Scharrer at the Houston Chronicle, 21 June 2010, link:

http://www.chron.com/disp/story.mpl/metropolitan/7063520.html.

Our future looks bleak. Disagreeing with Murdock, there is another solution.

Why Rubashkin?

2010-07-07T07:56:00.000-07:00

"A federal judge in Iowa on Monday announced a prison sentence of 27 years on financial fraud charges for Sholom Rubashkin, the former manager of a kosher meatpacking plant where hundreds of illegal immigrant workers were arrested in a 2008 raid that garned national attention. Although the case against Mr. Rubashkin originally centered on immigration charges, during the trial in Cedar rapids prosecutors focused instead on financial abuses when he was in charge of the Agriprocessors slaughterhouse in Postville, Iowa. The sentence, two years more than prosecutors had requested, was unusually high in the recent history of financial crimes--longer than the term for Jeffrey K. Skilling, the former chief executive of Enron, and L. Dennis Kozlowski, the former chief executive of Tyco. ... The sentence is also likely to deepen the belief among some Orthodox Jewish leaders, who have sustained an international campaign on Mr. Rubashkin's behalf, that he was unfairly tried. ... The federal prosecutors had originally sought a life sentence for Mr. Rubashkin, but then revised their request to 25 years. Six former attorneys general, including Janet K. Reno and Edwin Meese III, wrote to Judge Reade in April arguing that a life sentence would be a severe misreading of the sentencing guidelines as applied to white-collar crimes", Julia Preston at the NYT, 22 June 2010, link:

http://www.nytimes.com/2010/06/22/us/22iowa.html.

Amazing, I agree with Janet Reno. Applying the sentencing guideline 2B1.1 to Rubashkin's crimes, I add four points as a manager of five or more, and 22 points for $26 million damage, total = 33 points, a 135-168 month sentence from the table. What's going on here? Is the Obama administration's (ad hominem attack notice) displaying its anti-semitism for all to see? A life sentence? Why?

California's Gestapo-3

2010-07-06T07:14:00.000-07:00

On 19 June 2010 I got the California State Board of Accountancy's Spring 2010 Update. From page 18, "Do you presently live and work out of state, but continue to maintain an active California CPA license? The CBA has some important tax-related information for you. Required by law, the CBA must provide the FTB, upon request, specific information including your name, address, social security number, and license status. The FTB may then use its authority under the Revenue and Taxation Code to generate a request for tax return information from any California-licensed CPA who does not file a California tax return, regardless of his/her state of residence, and require you to provide proof that you did not earn income in California. Failure to respond to the FTB request for tax return information for any reason, including non-receipt of the request, can result in the FTB filing a lien against you. The CBA does not receive any notification when such a demand letter is generated by the FTB and the CBA does not have access to any information in this regard. if you have any questions, regarding this process or want information, please contact the FTB at (916) 845-7057", my emphasis.

The FTB is desperate. Imagine, shifting the burden of production to an out-of-state resident. Is the FTB kidding? The FTB may wind up in federal court over this. Would the FTB knowingly and wilfully mail "requests" for "tax return information" to wrong addresses then file liens? Will the DOJ then pursue the FTB for mail fraud, 18 USC 1341? Don't hold your breath. What would the FTB accept as proof? An affidavit from a Texas Ranger that I did not set foot in California during 2009? Should each California CPA who lives out-of-state CPA have a "cop" follow him around all year to provide the affidavit? This is another FTB abuse. If you are financially solvent and can leave California, do. Why doesn't the CBA get notification? The CBA claims among other things to protect the interests of CPAs. Good luck.

One of my tax clients is in a dispute with Massachusetts about interstate tax allocation. Taxachusetts wants to tax his earnings in New Hampshire and Texas. He may wind up in court over this.

WSJ Shills For IRS

2010-07-05T07:04:00.000-07:00

"Congress wouldn't tax Roth IRAs, would it? ... But dozens of less-convinced readers have asked Tax Report about Congress's intentions, and well-known IRA expert Ed Slott says he hears it from consumers and advisers every time he makes a speech: '"If I pay tax to convert my IRA",' they ask, "how do I know Congress won't turn around and take away the benefits?"' ... Without a crystal ball, it is impossible to answer the question definitively. But the short answer appears to be: 'No Congress won't tax Roth conversions, at least not soon.' And the prospects of longer-term changes isn't deterring experts who are converting their own accounts. ... This particular tax was so hated that it is hard to imagine its return. Michael Graetz of Columbia University, a former top tax official at the Treasury Department, also thinks it is unlikely that lawmakers would enact a wholesale levy on Roth assets. 'That would be like taxing salary twice,' he says. ... They could try to tinker with income definitions for Medicare or Social Security, or perhaps require distributions for Roth owners. They might even tax an account's earnings if either the earnings or the account is above a certain threshold--although these would be such big changes in retirement policy that they don't seem likely, Prof. Graetz says", (LS) Laura Saunders at the WSJ, 19 June 2010, link:

http://online.wsj.com/article/SB10001424052748703280004575308953569367286.html.

"The thinking was that the rush to grab tax-free income down the road would raise a $6.4 billion windfall. ... Government mistrust is another factor. A TD Ameritrade survey found that 36% of ideal candidates for conversion suspect that Washington will somehow change the rules later to help reduce the national debt, partially at Roth IRA holders' expense", JR Brandstrader at Barron's, 18 January 2010, link: http://online.barrons.com/article/SB126360927771630223.html.

What fools these experts are. I expect, one way or another, Roth IRAs to be taxed. LS apparently selected IRS shills as her "experts" in this piece. Having read a few of his articles, I think Slott a clown. Taxing salary twice? We tax: estates and social security. You pay sales taxes on items bought with after-tax income. Why not Roths? We may get increased taxes on the rich, i.e., those making over say $250,000 a year. Why not tax Roth accounts over say $1 million by "imputing "distributions to their holders? See my 2 January 2009 and 5 May 2010 posts: http://skepticaltexascpa.blogspot.com/2009/01/hogan-v-mcquarrie-on-roths.html and http://skepticaltexascpa.blogspot.com/2010/04/vampire-squidking-canute-of.html.

The Roth IRA conversion law was changed to increase taxes.

Yves Smith and Junior on TARP

2010-07-04T07:55:00.000-07:00

Yves Smith (YS) has a 23 June 2010 post at her Naked Capitalism blasting "Timmy Boy" Geithner's recent comments about TARP's "success". YS's got this knocked. Here's a link: http://www.nakedcapitalism.com/2010/06/geithner-yet-again-misrepresents-tarp-performance.html. YS notes that to make TARP look successful the Fed and Treasury sanctioned accounting fraud. What else is new? Remember, the SEC, part of the Treasury, controls the PCAOB. Doesn't that give you the "warm and fuzzies"? The supposed "police force" of the CPA profession must ignore banks' accounting fraud. Think about it.

Junior at Junior Deputy Accountant delivers a Sonny Liston-like left hook on 23 June 2010 to Timmy Boy, here:

http://www.jrdeputyaccountant.com/2010/06/tim-geithner-has-completely-forgotten.html. Go Junior!

Wait Listed By Jail-17

2010-07-03T16:43:00.000-07:00

"As far as jails go, the Los Angeles Police Department's gleaming, new Metropolian Detention Center is about as good as it gets. ... The new detention center sits empty because of the city's dire fiscal crisis, which has left the LAPD unable to hire enough jailers to operate the large, labor-intensive facility", Joel Rubin at the LAT, 20 June 2010: http://latimesblogs.latimes.com/lanow/2010/06/lapd-new-74-million-dollar-jail-sits-empty.html.

Quoted without comment.

Continuing Wall Street Control of DOJ

2010-07-03T07:28:00.000-07:00

"The Justice Department on Thursday announced the arrests of nearly 500 people in what it billed as a nationwide 'takedown' of mortgage scams, many of them directed at homeowners in financial distress. ... Federal officials said they have identified losses of $2.3 billion stemming from hundreds of mortgage-fraud cases. High-profile convictions of Wall Street investment bankers have eluded authorities. On Thursday, Attorney General Eric Holder tried to showcase smaller cases. 'If you want to gauge the efficacy of this task force, you can't focus on simply what has happened with regards to the large institutions on Wall Street,' he said', my emphasis, Thomas Catan at the WSJ, 18 June 2010, link:

http://online.wsj.com/article/SB10001424052748704289504575312691317663972.html.

"It involves 1,215 criminal defendants in cases that uncovered more than $2.3 billion in losses. ... Hundreds of FBI agenst are working on the task forces with other law enforcement agencies to combat a type of crime that poses 'a risk to our economic stability' as a nation, FBI Director Rovert Mueller said at the news conference", Pete Yost at the Houston Chronicle, 18 June 2010, link:

http://www.chron.com/disp/story.mpl/business/7059319.html.

"Since taking office at the height of the financial crisis, President Barack Obama has promised to hold Wall Street accountabel for the meltdown. Attorney General Eric Holder reinforced that message in November when he vowed to prosecute Wall Street executives and others responsible for the crisis. ... His [DOJ] took steps to fulfill that promise this week when it arrested the ex-chairman of one of the nation's biggest mortgage firms--the largest crisis-related criminal case--and announced 1,215 people have been charged with mortgage fraud since March 1. But that success masks difficulties in the highest-profile probes: those of Wall Street banks. ... And law enforcement sources say no such charges are imminent. ... Justice officials say Holder did not over-promise and that the task force is targeting all financial fraud, not just on Wall Street. ... The shortage of Wall Street prosecutuions is not for lack of effort. ... But investigators are encountering obstacles in what they call their top-priority cases, which souces saud include probes of JP Morgan Chase, Citigroup, Deutsche Bank, UBS, Goldman Sachs, Morgan Stanley and the former Lehman Brothers", Jerry Markon at the Houston Chronicle, 18 June 2010, link: http://www.chron.com/disp/story.mpl/business/7059317.html.

More DOJ guerilla theater. Why not Eric? When I see Lloyd Antoinette Blankfein sentenced to 30 years for securities fraud, I might consider the DOJ is fighting securities fraud. Maybe. Let's apply my "Blankfein Test" and see if I would have bothered with the 1,215 arrests in question. $2.3 billion / 1,215 = $1.9 million a person. I would have selected some of them and ignored the rest. As they total $2.3 billion, I consider pursuing them in the aggregate, a waste of DOJ resources.

Quoted without comment.

Will Alan Greenspan and the other Fed Heads get indicted? What going on? The DOJ pursues these peanuts to turn firms like Vampire Squid into victims! Did any of these 1,215 peanuts get TARP money? Nonsense. I think the DOJ is running around in circles trying to figure out which peanuts working for these "top-priority" firms are safe targets.

Texas Schools Pass Stress Tests!

2010-07-02T16:01:00.000-07:00

"Even with such low standards, the Texas Education Agency decided to rate hundreds of Texas schools and scores of Texas districts as 'academically acceptable' last year--the lowest 'passing' catagory--by counting thousands of students who flunked the TAKS as passing it. ... For example, TEA reported that statewide the number of 'exemplary' campuses, the highest rating, more than doubled from 1,000 in 2008 to 2,158 in 2009. But without the statistical projections that some failing students would later pass, the increase would have been only 44 campuses. ... [Scott] Hochberg said the new system is disturbing not only because of the large number of schools that are receiving upgraded ratings under it, but also because of the statistical formula itself. ... 'But they're not doing that,' [Hochberg] said.'If you're projected going up, you're counted as passing. But if you're projected going down, you're not counted as not passing'," Rick Casey at the Houston Chronicle, 20 June 2010, link:

http://www.chron.com/disp/story.mpl/metropolitan/casey/7063167.html

Stress tests for Texas! Financial engineering for schools! I had noticed more schools with signs indicating they were exemplary. Yeah, sure. Accept no government statistic at face value.

SEC Takes Over Gulf of Mexico

2010-07-02T07:35:00.000-07:00

"In the five years before the Deepwater Horizon exploded, federal investigators documented nearly 200 safety and environmental violations in accidents on platforms in the Gulf of Mexico, describing a stunning array of hazards that resulted in few penalites. ... And yet, in their investigations of nearly 400 offshore incidents, Mineral Management Service officials failed to travel to one-third of the accident scenes, collected only 16 fines and did not investigate every blowout as their own rules require. BP, the region's leading offshore oil producer, reported more accidents and blowouts than any other oil company operating in Gulf waters, followed by Chevron, the region's third largest offshore oil producer. ... Each major oil company paid only a single fine related to violations linked to those incidents. Both Chevron and BP spokesmen defended their companies' safety records and said their employee injury rates are low. ... It was rare for any oil company to pay penalties for problems found in accidents investigated by the MMS, records show. The agency can charge $35,000 per day per violation. But many proposed violations get reduced or dropped during behind-the-scenes reviews. Records how that most final payments were small and took a year or more to collect. ... MMS officials did not respond to repeated requests for information and comment for this story", Lise Olsen and Eric Nadler at the Houston Chronicle, 7 June 2010, link:

http://www.chron.com/disp/story.mpl/business/deepwaterhorizon/7039960.html.

The MMS sounds as effective at regulating offshore oil drilling as the SEC is at the financial markets.

Financial Engineering and BP

2010-07-01T16:08:00.000-07:00

"In retrospect, the pattern seems clear. Years before the Deepwater Horizon rig blew, BP was developing a reputation as an oil company that took safety risks to save money. An explosion at a Texas refinery killed 15 workers in 2005, and federal regulators and a panel led by James A. Baker III, the former secretary of state, said that cost cutting was partly to blame. The next year, a corroded pipeline in Alaska poured oil into Prudhoe Bay. None other than Joe Barton, a Republican congressman from Texas and a global-warming skeptic, upbraided BP managers for their 'seeming indifference to safety and environmental issues.' ... The people running BP did a dreadful job of estimating the true chances of events that seemed unlikely--and may even have been unlikely--but that would bring enormous costs. ... For all the criticism BP executioves may deserve, they are far from the only people to struggle with such low-probability, high-cost events. Nearly everyone does. 'These are precisely the kinds of events that are hard for us as humans to get our hands around and react to rationally,' Robert N. Stavins, an environmental economist at Harvard says. We make two basic--and opposite--types of mistakes. When an event is difficult to imagine, we tend to underestimate its likelihood. This is the proverbial black swan. Most of the people running Deepwater Horizon probably never had a rig explode on them. So they assumed it would not happen, at least not to them. ... On the other hand, when an unliklely event is all to easy to imagine, we often go in the opposite direction and overestimate the odds. After the 9/11 attacks, Americans canceled plane trips and took to the road. There were no terrorist atttacks in this country in 2002, yet the additonal driving apprarently led to an increase in traffic fatalities. ... In a little-noticed provision in a 1990 law passed after the Exxon Valdez spill, Congress capped a spiller's liability over and above cleanup costs at $75 million for a rig spill. Even if the economic damages--to tourism, fishing and the like--stretch into the billions, the responsible party is on the hook for only $75 million. ... Without the cap, executives would have to weigh the possible revenue from a well against the cost of drilling there and the risk of damage. With the cap, they can largely ignore the potential damage beyond cleanup costs", David Leonhardt at the NYT, 6 June 2010, link:

http://www.nytimes.com/2010/06/06/magazine/06fob-wwln-t.html.

$50 million. Apply these principles to the CPA and rating agency businesses and see what happens.

States Repudiate Pensions

2010-07-01T07:50:00.000-07:00

"Many states are acknowledging this year that they have promised pensions they cannot afford and are cutting once-sacrosanct benefits, to appease taxpayers and attack budget deficits. ... 'We can't afford to deny reality or delay action any longer,'said Gov. Pat Quinn of Illinois, adding that his state's pension cuts, enacted in March, will save some $300 million in the first fiscal year alone. But there is a catch: Nearly all of the cuts so far apply only to workers not yet hired. Though heralded as breakthorugh reforms by state officials, the cuts phase in so slowly they are unlikely to save the weakest funds and keep them from running out of money. Some new rules may even hasten the demise of the funds they were meant to protect. ... That vaunted $300 million in immediate savings? The state produced it by giving itself credit now for the much smaller checks it will send retirees many years in the future--people who must first be hired and then, for full benefits, work until age 67. By recognizing those far-off savings right away, Illinois is letting itself put less money into its pension fund now, starting with $300 million this year. ... 'We're within a few years of having some of the pension funds run out of money,' said E. Eden Martin, president of the Commerical Club of Chicago, a business group that has been warning of a 'financial implosion' for several years. 'Funding for the schools is going to be cut radically. Funding for Medicaid. As these things all mount up, there;s going to be a lot of outrage.' ... If a state pension fund ran out of money, the state would be legally bound to make good on retirees' benefits. But paying public pensions straight out of general revenue would be ruinous. In Illinois's case, it would consume about half the state's cash every year, bringing other vital state services to a standstill", my emphasis, Mary Walsh at the NYT, 20 June 2010, link:

http://www.nytimes.com/2010/06/20/business/20pension.html.

The pensioners will not get paid all they were promised. Current services will be maintained. Who are Illinois CPAs? Price Waterhouse, the guys who audited AIG and Vampire Squid? Or some other Big 87654 firm? Anyone with eyes open saw this disaster coming decades ago.

Middle East Decision Time?

2010-06-30T16:57:00.000-07:00

"Yesterday I had an exchange with someone, formerly associated with an American intelligence agency, who claims to be knowledgable about the Middle East. I offered the following view on the Middle East, to which he later responded: Quite naturally the [US] has important interests in the Arab world, especially in terms of a commitment to protect certain Arab princes in the Gulf region, and to protect 'democracy' in Iraq. At the same time we wish to prevent a second holocaust--a second mass extermination of Jews. Seen by many to be an ally and friend to the Arabs, the [US] is an ally and friend to Israel as well. This is a very uncomfortable position for America, because the conflict between Israel and the Arabs appears to be non-negotiable (especially with the insertion of Islamism into the conflict). We are thus confronted with a dilemma. Either Israel will survive and Islamic power will be broken for centuries to come, or Israel will be destroyed and Europe will come under the same pressure Israel now feels. ... For peace to come about in the Middle East, it is not enough that the Israelis show sympathy for the plight of the Arbas. This is what we would all like to see. But what of Arab sympathy for the plight of the Jews? But no one is sufficently 'insensitive' as to insist on this. ... If Israel is considered an outpost of the West, can the Arabs agree upon a border with Israel? Or must we accept the destruction of Israel? Here the bitter experiences of India, alongside those of Israel, suggest that peace with Islam is always and forever problematic. Do we imagine there is no lesson to be found in the Islamic invasions of the Roman Empire, Europe and India. We are told to be sympathetic to the Islamists, to the plight of the Arabs. What about sympathy for Christians and Jews? ... The ultimate target of the hateful rhetoric in the Middle East is America and not Israel. It is capitalism and the West", JR Nyquist at Financial Sense, 4 June 2010, link:

http://www.financialsense.com/stormwatch/geo/pastanalysis/2010/0604.html.

"What do the following have in common: the piling on Israel after the botched interception of the Hamas relief flotilla, the Chinese military telling the US secretary of defense that he was not welcome in Beijing, and the declaration by Nick Clegg--now deputy prime minister of Great Britain--that his country's special relationship with America is over? Answer: The Obama adminstration has managed to convince most countries around the world that we are worth little as friends and even less as enemies. ... Last week, Israel walked into a trap set by a flotilla of Hamas sypathizers and what Lenin used to call useful idiots. Israeli commandos who were being attacked by burly men trying to throw them overboard or beat them senseless killed a bunch of people whom they would rather not have killed. ... The Israelis have a right to blockade Gaza, from which they withdrew only to soak up several thousand rockets in return, and they did what they could to get the ships to send supplies into Gaza through their ports. Until Vice President Jow Biden plucked up the courage to acknowledge on 'Charlie Rose' that the Israelis are at war with Hamas and have the right to prevent arms from entering Gaza, the Israelis could have been foregiven for thinking that we would hang them out to dry. ... The folly here is to think that leaving the Israelis open to these kinds of diplomatic attacks will buy good will in a Middle East that gets its opinions from Al Jazeera and a venomous media that routinely prints outratgeous lies and hate literature that echoes Nazi Germany. That part of the world, as Osama bin Laden once correctly observed, prefers a strong horse to a weak horse. ... When did the Israelis withdraw from Gaza? When they had a president in the White House upon whom they knew they could count. If, as is the case now, Israel is alone and desperate, is it more or less likely to conclude it has no choice but to attack Iran's nuclear facilities... What precisely have we gained from reaching out to the Syrian government", Eliot Cohen at the WSJ, 7 June 2010, link:

http://online.wsj.com/article/SB10001424052748704875604575280462094012870.html.

Quoted without comment.

It may be decision time for the US: we side with Israel or the Arabs. We'll see.

Just-In-Time For Disaster

2010-06-30T07:20:00.000-07:00

"Car production lines worldwide look set to grind to a halt as the flight ban over much of Europe begins to starve manufacturing of key electronic components. ... The problems highlight industry's dependence on complex, worldwide supply chains that need multiple modes of transport to deliver goods and compenents just in time to where they are needed. ... Air freight accounts to a tiny amount of world trade by weight--about 0.5 per cent for the UK. But the disruption has highlighted how it plays a vital role in supplying key, high-value components to many manufacturers. In spite of its tiny volume, it accounts for 25 per cent of UK trade by value. ... They are now looking to revert to a mixture of air and sea, moving goods from aircraft in Dubai on to ships to prevent goods piling up in one place. ... Companies have become more vulnerable to disruption since moving to just-in-time producton methods, where hardly any stock of products in held, said Emma Scott, representation manager for the Chartered Institute of Purchasing & Supply in the UK", John Reed at the FT, 21 April 2010, link:

http://www.ft.com/cms/s/0/a121ced2-4c6e-11df-8fe1-00144feab49a.html.

Just-in-time inventory is a disaster waiting to happen. See my 26 February 2010 post: http://skepticaltexascpa.blogspot.com/2010/02/lean-manufacturings-dangers.html.

The SEC and DOJ Fold

2010-06-29T16:26:00.000-07:00

"The Justice Department's decision last week to abandon a criminal probe against current and former exectuives at [AIG] underscores the difficulty facing prosecutors who want to hold individuals criminally accountable for the financial crisis. ... But, late last Friday, Mr. Cassano and two colleagues who were also investigated were told through their lawyers that they wouldn't face criminal charges after prosecutors found evidence supporting Mr. Cassano's account, people familar with the matters said. ... The conclusion of the two-year criminal investigation marks a setback for prosecutors who have come under public and political pressure to find evidence of criminal conduct in the wake of the recession. ... The travails aren't over for Mr. Cassano. The [SEC], which has to meet a lower standard of proof, is considering whether to file civil charges, according to people familiar with the matter. Mr. Cassano's lawyers declined to comment on the civil probe. ... For months, they believed Mr. Cassano hadn't disclosed to senior AIG executives or its auditors, PricewaterhouseCoopers LLC, that an accounting adjustment allowed his unit to avoid writing down the value of its swaps by billions of dollars, these people said. PwC declined to comment", Amri Efrati at the WSJ, 24 May 2010: http://online.wsj.com/article/SB10001424052748704904604575262942729708122.html.

"The [SEC] dropped its investigation of a former [AIG] executive who ran a subsidiary at the center of AIG's problems, following a similar move last month by prosecutors. ... Federal investigtors looked into whether [Joseph] Cassano misled investors with reassuring statements about AIG's exposure to mortgage losses, people familiar with the matter have said. A turning point came when prosecutors found evidence Mr. Cassano did make key disclosures. ... Mr. Cassano's lawyers called the SEC's move 'completely appropropriate in light of the facts.' They said the SEC staff 'realized that our client acted in good faith, kept his superiors informed, and was honest with investors", Kara Scannell at the WSJ, 17 June 2010, link: http://online.wsj.com/article/SB10001424052748703513604575311350142446886.html.

Well SEC? Will you now go after PWC for its wonderful AIG audit? Well PCAOB?

I expected this after the DOJ folded.

Are CPAs Racist?

2010-06-29T07:07:00.000-07:00

"Thomas Jones decided to go into accounting when a CPA spoke about the profession at his high school's career day. ... But Jones' story is uncommon. African-Americans make up only about 1 percent of all certified public accountants, according to a paper published this year by Howard University. ... Frank Ross, director of the Howard University School of Business Center for Accounting Education and one of the founders of the NABA, said lack of awareness about accounting, low success with the Uniform CPA Exam [UCPAE] and difficulty retaining African-Americans all contribute to the small number of African-American accountants. ... Often, young people in minority communities don't have the role models or mentors to teach them what accounting is about, said Gregory Johnson, executive director and chief operating officer of the NABA. ... The CPA Bound program, for example, supports people working to become certified, tracks their progress and recognizes them at NABA conferences after passing the [UCPAE]", my emphasis, Salvador Rodriguez at the Houston Chronicle, 15 June 2010, link:

http://www.chron.com/disp/story.mpl/headline/biz/7053295.html.

What percentage of CPAs does Jones expect to be black? 13%? Estimating you need at least 120 IQ to pass the UCPAE, that's 1.33 STDV above the caucasian mean or thanks to hyperstaz, the .909 level. It's also 2.40 STDV above the black mean, the .992 black level, so why be surprised with the result?

Where's the Crime?

2010-06-28T16:02:00.000-07:00

"US authorities arrested Lee Farkas, the high-rolling former chairman of a failed Florida mortgage lender, and charged him with orchestrating a seven-year, multibillion-dollar fraud that contributed to the collapse of a major bank and targeted the US government. ... On Wednesday, the US alleged in a criminal indictment that Mr. Farkas had been propping up his firm since 2002 using an array of fraudulent schemes that have cost investors and government programs in excess of $2 billion. ... The Federal Housing Administration said Wednesday it had lost $3 billion because Taylor Bean had lied about the health of loans it was servicing for the public housing agency. ... 'The fraud alleged here was truly stunning in its scale and complexity,' said Assistant Attorney General Lanny Breuer, who heads the [DOJ's] criminal division. ... The indictment is the largest case in which a bank has been accused of attempting to defraud the bank-bailout fund. It also comes as the Obama administration comes under pressure to hold bankers accountable for their perceived role in helping cause the financial crisis. According to the government's indictment, which was unsealed Wednesday, Mr. Farkas and his co-conspirators started the fraud by siphoning money from Colonial, which lent it billions of dollars to buy mortgages, and from its own funding arm, Ocala Financing", my emphasis, Thomas Catan & Evan Perez at the WSJ, 17 June 2010, link:

http://online.wsj.com/article/SB10001424052748704198004575310703342951666.html.

It seems Taylor Bean was run like a major Wall Street house, i.e., to benefit its officers. As much as possible was apparently stripped from it then it failed. So? Is Farkas' problem failing to install a "former" officer as Treasury Secretary? Didn't Fannie Mae have multiple accounting restatements involving billions of dollars? Won't Freddie and Fannie need about $400 billion in bailouts? Didn't AIG get $182 billion? Why is the DOJ bothering with Farkas? What's wrong with propping up a failing enterprise anyway? "Stunning in its scale"? Huh? Anyone remember Lehman and Repo 105?

Accounting Onion Almost Makes Me Cry

2010-06-28T07:17:00.000-07:00

Tom Selling's 15 June 2010 post at Accounting Onion applies SFAS 52, Foreign Exchange Accounting, giving an absurd result. He slams the SEC, FASB and Big 87654 all at once for this. Good show Tom. Here's a link:

http://accountingonion.typepad.com/theaccountingonion/2010/06/asu-2010-19-when-a-dollar-of-cash-is-more-than-a-dollar-on-the-balance-sheet.html. Thank you Hugo Chavez for creating this anomaly. In rereading Tom's post I got an idea for Citigroup's treasury department. Incorporate a Venezuelan subsidiary; put $50 billion USD in it and presto, instant profits. Well Vikram Pandit, whaddayasay? I figure this idea is worth 1%. I'll expect my $500 million check within 30 days. Tom: If I get the $500 million, half is yours. I'll let you know.

Congress Finds Revolving Door

2010-06-27T16:18:00.000-07:00

"A Senate panel asked the [SEC's] inspector general to review the agency's 'revolving door,' which shuttles many SEC staffers into jobs with the companies they once regulated. .... Mr. [Charles] Grassley also cited a Wall Street Journal article in April that reported how may former SEC employees have quickly turned around and represented clients before the commission, sometimes within days of leaving the agency. 'We need to ensure that SEC officials are more focused on regulation and enforcement than on getting their next job in the industry they are supposed to oversee,' Mr. Grassley said in a statement. ... '[W]e are currently conducting an investigation of allegations very recently brought to our attention that a prominent law firm's siginificant ties with the SEC, specifically, the prevalence of SEC attorneys leaving the agency to join this particular law firm, led to the SEC's failure to take appropriate actions in a matter involving the law firm,' Mr. [David] Kotz said. ... Last week, Sen. Edward Kaufman (D., Del.) said that restriction doesn't go far enough. Congress or the SEC should consider banning employees from taking jobs with companies affected by rule making in which the staffers had a significant role during the prior year, Mr. Kaufman said in a statement", Tom McGinty at the WSJ, 16 June 2010, link:

http://online.wsj.com/article/SB10001424052748703280004575309061471494980.html.

So what? "Max" and "Jack", two former SEC staffers can just switch "clients" to avoid the conflict of interest rules. The SEC is hopeless. Only one law firm Kotz? Get real.

More Self-Serving AICPA Claptrap

2010-06-27T07:59:00.000-07:00

I got an e-mail from the AICPA's "Center for Audit Quality" on 16 June 2010, saying it opposes a permanent exemption for companies with market capitalizations under $75 million from compliance with SOX section 404. The Center opposes this to protect investors. Would an AICPA organ favor creating make-work projects for CPAs? No. The Center is the old AICPA SEC Practice Section in new garb. Consider how much the AICPA has improved audit quality since 1976. Not much. Here's a link to the letter sent Congress:

http://www.thecaq.org/publicpolicy/pdfs/CAQCIICFAInstitutelettertoConfereesRESOX404b61510.pdf. Don't laugh too hard in reading this.

Mother of All Bubbles

2010-06-27T07:29:00.000-07:00

Jesse has a 16 June 2010 post as Jesse's Cafe Americain, calling the US dollar, "The Mother of All Bubbles". No argument here. Here's a link: http://jessescrossroadscafe.blogspot.com/2010/06/us-dollar-last-bubble.html.

TAKS Progress

2010-06-26T16:50:00.000-07:00

"Texas schoolchildren generally performed better on the all-important TAKS test this year, but some superintendents, state lawmakers and statisticians are casting doubt on the gains. That's because the Texas Education Agency required students to answer fewer questions correctly to pass most section of the Texas Assessnment of Knowledge and Skills. In some cases, students could pass by getting fewer than half of the items right--an unusually low standard, according to several education researchers. ... According to a Houston Chronicle analysis of TEA data, the state lowered the passing standards more this year than they have in at least the last two years. ... TEA Deputy Associate Commissioner Gloria Zyzkowski said agency officials set the bars high enough so 'students can't pass the test by chance alone", my emphasis, Ericka Mellon at the Houston Chronicle, 8 June 2010, link:

http://www.chron.com/disp/story.mpl/metropolitan/7041445.html.

Not by chance alone. That's reassuring. No government statistic should be accepted at face value. I note the standards are lowered yearly.

Butchering the Sacred Cow

2010-06-26T07:13:00.000-07:00

"This will not be done because Americans do not really want major spending cuts. To demonstrate my point, let us consider America's sacred cow, tax-funded education. ... That would mean expenditures in the range of $800 billion a year. If we assume that about 80% of these expenditres are funded by governments at various levels, we are talking something in the range of $600-$650 billion a year. ... There is also nothing that says that a government has the moral authority to coerce parents who hold to one view of education, or one view of how the world works, to subsidize the educations of other families, whose children attend schools that teach a view of the world closer to that approved by the subsidized parents. To say this is to announce one of the most hated heresies of the modern world. I mean 'heresy' in the good old-fashioned way that is was meant in the Middle Ages and in virtually any society prior to the Enlightenment. This heresy involved calling into question the legitimacy of a priesthood, self-appointed and self-policed, which gains its money from the civil government. ... The modern priesthood is the educational establishment in each nation. Tax funding goes to those institutions that have been certified as reputable by the priesthood. ... The state regulates educational establishments, even including home schools, in order to preserve control over the content and methodology of education. In earlier centuries, a similar oligarchy was run in conjunction with state funding and also state coercion. Churches policed the society, including the morals of society, by means of a monopoly granted to them by the civil government. ... The modern educational system is far more compulsory than churches were in New England in 1665. The school bus system is indicative of just how compulsory it is. On this point, read my story of the two buses. ... In the modern world, anyone who suggests that all tax money should be withdrawn from the funding of educational programs is regarded as a crackpot. I am such a crackpot. I believe that the state does not have a moral right to compel parents to support other people's educations. If it were my decision, I would shut off the funding by the state for every school in the [US], including the military academies. This would add something in the range of $600 billion to the private sector. Governments would not be able to persuade parents and others to hand over their money at the point of a gun from one person in order to subsidize the education of another person. ... In order to discuss tax-funded education, I want to change the topic from tax support of educational institutions to tax support of churches. The logic that I am about to present applies equally well to both forms of institutional arrangements. But the public is unwilling to accept the logic of the disestablishment of churches when it is applied to disestablishment of education. ... Politicians rarely give much thought to the fundamental issues of life. They are too busy getting elected and reelected. They cannot devote the time necessary to sort out fundamental truths from fundamental errors. ... To allow this year's majority in the state legislature to set standards for what should be taught in the churches is to grant them too much power to shape the thinking of the voters. ... The politicians will use the power of civil government to extend the public's acceptance of those political views and political conclusions that are favored by the present majority in the legislature. This will turn politics into a battle zone between rival churches. ... Competition is basic to progress in every area of life. ... The public is kept from hearing new ideas, better ideas, and more effectively preached ideas precisely because congratations are not in control of the purse strings. ... It is worth noting that within five years of the decision of the Massachusetts government to cease funding the Congregational churches of the state, the government began funding local schools", my emphasis., Gary North at Lew Rockwell, 12 June 2010, link:

http://www.lewrockwell.com/north/north853.html.

Certified? Like the PCAOB and CPAs? Monopoly? Sounds like Saudi Arabia. Political choice? Why do politicians like Keynesian economics anyway? Are government "economists" really priests? Five years. How interesting. Within four years of the Fed's creation we were in World War I.

Mary Schapiro's Mythology

2010-06-25T16:53:00.000-07:00

Tom Selling (TS) at Accounting Onion, blasts SEC Chairwoman Mary Schapiro (MS) with respect to her support of IFRS convergence, 26 May 2010, link:

http://accountingonion.typepad.com/theaccountingonion/2010/05/mary-schapiro-mythbuster-or-myth-maker.html. I agree with TS and expect MS to do nothing which will improve the quality of financial reporting during her SEC tenure.

Tax Nonsense

2010-06-25T07:49:00.000-07:00

"Nero fiddled while Rome burned, but at least he didn't strike the match. Members of Congress are doing Nero one better. In the middle of the second global financial crisis in two years, Congress is preparing to dramatically raise a key tax rate on long-term investment. ... Last week, Senate Finance Committee Chairman Max Baucus (D., Mont.) and House Ways and Means Chairman Sander Levin (D., Mich.) released joint legislation that would significantly raise the tax on 'carried interest'. ... Carried interest refers to the share of the capital gains (typically 20%) earned on long-term investments in real estate, venture capital, private equity and other investments organized as partnerships that is allocated to the general (managing) partner. ... Both general partners and limited partners pay taxes based on the character of the income earned by the partnership; ordinary income rates on dividends and short-term capital gains, and the long-term capital gains rate on the long-term capital gains", John Rutledge (JR) at the WSJ, 24 May 2010, link:

http://online.wsj.com/article/SB10001424052748704852004575258401601217646.html.

"Dear IRS: Please note that beginning this year, I am no longer earning an income. From now on, I am compensated through what I like to call column interest. It isn't pay. It's a capital gain that I receive in exchange for providing about 2,000 words a week to this newspaper. Please lower my tax rate accordingly. hey, you can't blame me for trying. After all, a similar strategy has worked for years for money managers at hedge funds and private equity firms. ... The private investment community is decrying the move as a massive tax increase, is if oblivious to the fact that it's enjoyed an unfair tax break for years. ... Let's set aside the rather silly notion of private equity as an engine of job creation--most buyouts result in big job cuts--and focus on the inequality. Private equity managers typically collect a 2 percent annual fee on assets in the fund, which is taxed as income. They also scoop up 20 percent of their funds' annual profits, which is known as carried interest. ... Profit-sharing plans for just about everyone else are taxed as income. ... Tax law is a murky world, but one basic principle of our tax code is that people who perform similar jobs for similar pay should receive similar tax treatment. That's not the case in the investment world", Loren Steffy at the Houston Chronicle, 26 May 2010, link:

http://www.chron.com/disp/story.mpl/business/steffy/7022356.html.

What nonsense. Carried interest is a form of managment fee. It should never have been treated as long-term capital gains. What's the holding period? JR is a professor at Claremont Graduate University.

Right on Steffy!

Government Alchemists

2010-06-24T16:32:00.000-07:00

"At 8:30 AM on Friday , June 4, the Bureau of Labor Statistics released its much anticipated monthly jobs report. ... The jobless rate decreased only because hundreds of thousands of people became so discouraged, they dropped out of the workforce. ... There is just one problem: these numbers are wrong. They always are. The jobs numbers are revised each month and then again in subsequent years. Sometime later this year, we may learn that twice as many jobs were lost in May as we thought or that, actually, hundreds of thousands more were created. ... If you examine almost any government statistic or calculation more closely, you will find that it is a guesstimate. ... On almost every level, we are making national economic policy on the basis of problematic data and inadequate models. ... We need better models, and we need them urgently", Zachary Karabell at Time, 21 June 2010, link:

http://www.time.com/time/magazine/article/0,9171,1995845,00.html.

I draw a different conclusion. We should stop trying to control the economy. Let it cycle by itself. Recognize there is no statistic we can collect which will give us the magic lever with which to ensure economic stability. It is human arrogance that leads our experts to think they can control anything.

Milton Friedman Was Right (Again)

2010-06-24T07:09:00.000-07:00

"Who is poor in America? This is a hard question to answer, and the Obama administration would make it harder. ... Except for recessions, when the poverty rate can rise to 15 percent, it's stayed in a narrow range for decades. ... But the apparent lack of progress is misleading for two reasons. First, it ignores immigration. Many immigrants are poor and low skilled. ... From 1989 to 2007, about three quarters of the increase in the poverty population occurred among Hispanics--mostly immigrants, their children and grandchildren. ... Poverty 'experts' don't dwell on immigration, because it implies that more restrictive policies might reduce US poverty. Second, the poor's material well-being has improved. ... Suppose that all Americans doubled their income tomorrow, and suppose that their spending on food, clothing, housing, and utilities also doubles. That would seem to signify less poverty--but not by the new poverty measure. ... The new indicator is a 'propaganda device' to promote income redistribution by showing that poverty is stubborn or increasing, says the Heritage Foundation's Robert Rector. He has a point. ... To paraphrase the late senator Daniel Patrick Moynihan: the adminstration is defining poverty up. ... Government statistics should strive for political neutrality. This one fails", my emphasis, Robert Samuelson at Newsweek, 7 June 2010, link:

http://www.newsweek.com/2010/05/30/defining-poverty-up.html.

This is old news. Without poor people what would our poverty warriors do? See my 4 June 2010 post:

http://skepticaltexascpa.blogspot.com/2010/06/california-today-texas-tomorrow.html.

Entrance Fee Taxation

2010-06-23T16:40:00.000-07:00

"Classic Residence [CR] by Hyatt, a group of businesses that run upscale retirement communities, is battling the [IRS] over allegations it underpaid its taxes by more than $107 million, in a dispute over the tax treatment of entrance fees paid by incoming residents. ... [CR] is chaired by 51-year-old Penny Pritzger, part of the Chicago-based Pritzger business dynasty, whose holdings range from Hyatt Hotels Corp. to TransUnion, the big credit-reporting company. She founded [CR] in 1987. Entrance fees can range from the low six figures to more than $2 million per person, depending on the size and amenities of the living unit involved. ... The IRS contends that the venture under-reported income by more than $300 million in 2005 alone. ... In court filings, [CR] attorneys say that a substantial portion of the entrance fee-in many cases at least 90%--is refundable when a resident leaves or dies; therefore, they say, the refundable portions should be treated as interest-free loans to the residence operator. As such, the filings add, the fees wouldn't be taxable as income. ... In its Dec. 30 tax-deficiency notice, the IRS said it 'determined that entrance fees constitute income from rental/occupancy of the living units, and as such, must be included in the income in the year received.' Given the federal government's huge revenue needs, the IRS is interpreting tax laws more aggressively, says David L. Rice, a Los Angles tax attorney and incoming chairman of the American Bar Association's Individual and Family Tax Committee. ... However, Mr. Rice adds that some some aspects of the [CR] entrance fees might lead the US Tax Court to agree with the IRS. To the degree entrance fees help hold down residents' monthly living charges, the payments could be viwed as a form of prepaid rent, which the IRS treats as income, he says. Plus the residence operator has free use of the funds, sometimes for 20 to 30 years. So 'technically, it might loook like a loan, but from the IRS's perspective, it smells like income,' he says", my emphasis, John Emshwiller at the WSJ, 3 June 2010, link: http://online.wsj.com/article/SB10001424052748704515704575282362670440450.html.

The IRS might not win this. If the entrance fees are income, and I conclude in part they are, can the residents can claim nursing home care expense? If not, why not? Depending on CR and its residents relative marginal tax rates, the IRS may get nothing from this.

Yves Smith on the Spill

2010-06-23T07:30:00.000-07:00

Yves Smith (YS) asks at her 11 June 2010 post at Naked Capitalism, "Is Team Obama Pushing for a Full Externalities Precedent?" May it be so. YS quotes Machiavelli's Prince, "it was much more importatnt to be feared than loved". Absolutely. The US should apply this in its foreign policy and use it to govern our military preparedness. Here's a link:

http://www.nakedcapitalism.com/2010/06/bp-is-team-obama-pushing-for-a-full-externalities-precedent.html.

Robin Hood In Australia

2010-06-22T07:30:00.000-07:00

"Australia's biggest mining companies Monday raised the stakes in the heated battle with the government over a planned new tax, warning that the proposal had already damaged the nation's reputation and accusing the government of misrepresentations. ... Fellow miner BHP Billiton Ltd. attacked the government for what it said were misrepresentations about the tax rate it pays on its Australian operations. ... Mr. [Tom] Albanese reiterated that Rio Tinto is carrying out reviews of all of its planned capital investments in Australia in light of the planned tax, and said the proposal had damaged Australia's reputation as a place to invest. ... The proposed levy would see companies taxed at a rate of 40% on profits above a rate of return in line with the long-term government bond rate of about 6%. ... If the tax had been enacted a decade ago, Mr. Albanese said companies such as Rio Tinto wouldn't have made the heavy capital investment in businesses like its iron ore operation in the Pilbara region of Western Australia state and the nation would have been poorer as a result", my emphasis, Alex Wilson at the WSJ, 25 May 2010, link:

http://online.wsj.com/article/SB10001424052748704226004575263203385448426.html.

"Wayne ... Swan said miners are effectively 'arguing that a government cannot change its pricing arrangements. It is the equivalent of the steel mills saying to the companies that they can't put up the price of iron ore. It has to stay the same for 40 years. That is nonsense. ... Swan rejected media reports that a visit to China later this week is intended to reassure Chinese steel makers that the proposed tax won't lead to higher commodities prices", Rachel Pannett at the WSJ, June 2010, link: http://online.wsj.com/article/SB10001424052748704875604575280444005329232.html.

"Swiss mining company Xstrata PLC on Thursday said it would stop development of two major projects in Australia, saying neither will be viable under the government's proposed resources tax. ... In its announcement Thursday, Xstrata said it will stop development of its A$6 biillion Wandoan thermal coal project and its A$600 million Ernest Henry underground copper project. The move follows Xstrata's decision in early May to also suspend a A$30 million three-year copper exploration program. ... Prime Minister Kevin Rudd cast doubts on Xstrata's move, saying it was strange that the company should stop spending on Wandoan when the legislation covering the new tax won't be drafted for 12 months and it won't come into effect for two years. ... The tax targets profits, not production. ... 'The resoruce super-profits tax has created significant uncertainty for the future of mining insvetment into Australia and would impair the value of previosuly approved projects and exploration to the point that continued investment can no longer be justified,' Xstrata Chief Executive Mick Davis said", my emphasis, Ray Brindal at the WSJ, 4 June 2010, link: http://online.wsj.com/article/SB10001424052748703561604575283461667881540.html.

"'The Australian people own those resources, and they deserve a fairer share of those resources,' said Kevin Rudd, prime minister, in a television interview", William MacNamara at the FT, 4 June 2010.

"'The impact of the tax eliminates the net present value of the Wandoan coal project almost entirely and substantially reduces the value of the Ernest Henry underground shaft project,' Mr. Davis said", Peter Smith at the FT, 4 June 2010.

Will Australia return 40% of a company's deficiency if an investment yields less than 6%? We note Australia wants to change taxes on existing investments. Does Australia's government believe mining ventures, 95% of which fail to find an economic orebody, are government bonds? Or are Australian government bonds as risky as mining ventures? Of course the investments wouldn't have been made. When Rio did its IRR calculations ten years ago, it assumed existing tax rates. If Rio had assumed a higher tax rate, its projected after-tax cash flows would have been smaller. What's not to understand? A substantial amount of ore in Australia will become "extra-marginal" if this tax goes through. In addition, the hurdle rate for all investments in Australia will increase as a result of "tax uncertainty". But "the ore belongs to the people". It did until Australia leased the land. See my 28 March 2008 post: http://skepticaltexascpa.blogspot.com/2008/03/stripper-well-economics.html. This proposed tax reminds me of 1980's "Windfall Profits Tax" which failed to produce the revenues Jimmy Carter & Co. projected, link:http://en.wikipedia.org/wiki/Windfall_profits_tax.

I reject Swan's argument. If one has a long-term supply contract at a fixed price, that's it. The price is fixed. If one forms a partnership, he also agrees to a profit division. Over the long run as mining investments decrease, the new tax will cause some increase in commodities prices.

Is Rudd really this stupid? Suppose Xstrata did an IRR calculation on a project which its expects to have cash flows for the next 25 years. If the new tax comes into effect in two years, it will reduce the project's cash flows in years 3-25. What's strange Rudd? The change in projections is made now. Henry, raise your own army. See my 21 March 2010 post:

http://skepticaltexascpa.blogspot.com/2010//03/whose-reserves.html.

Rudd ignores Australia's agreeing to its cut when the resource projects started. Australia and the miners made a deal. Stick with it. See my 12 June 2010 post:

http://skepticaltexascpa.blogspot.com/2010/06/magic-words.html.

Net present value? Have you ever heard of the term Rudd?

Another SEC Snow Job

2010-06-22T07:12:00.000-07:00

"A recent report by [SEC's] inspector general shows that the investigation of Bernard L. Madoff was not the only one to go badly awry. While the impact of the SEC's missteps were not nearly as significant as in the Madoff case, the report shows that the agency's enforcement division allowed itself to be manipulated by a company it should have been investigating more thoroughly while allowing former staff members to influence decisions on how to proceed. ... The report made available by the Post is redacted, but it gives a fairly damning picture of the SEC staff ignoring seious allegation of corporate misconduct while different offices failed to communicate about the subject matter of the investigation. ... Mr. [David] Einhorn also criticized the financial reporting of Lehman Brothers before that firm collapsed into bankruptcy in September 2008. As is often the case in these situations, each side proclaimed that the other was acting improperly. ... Allied Capital got the upper hand, at least initially, when the SEC started a 'vigorous' investigation of Greenlight Capital after its representatives met with enforcement division staff members. But the report notes that the investigation began 'without any evidence of wrongdoing.' Less than a year later, it ended without finding any violations, but the SEC did not officially close it until 2006 and never notified Mr. Einhorn of its conclusions. ... The investigation by the compliance officer was derailed because one of Allied Capital's representatives was a former SEC staff member, and an ssociate director of the office said that anyone who had worked at the commission was 'not going to be doing anything illegal.' ... The original supervising attorney on the Greenlight Capital investigation was effectively pushed out of his job for performance reasons, and a year later he ended up registering as a lobbyist for Allied Capital. The report notes that the former supervisor 'learned a susbtantial amount of sensitive, nonpublic information regarding Einhorn and Allied.' To make matters worse, when he sought clearance from the SEC's ethics office to represent the company, his response regarding prior involvement with the company while at the commission was incomplete'," Peter Henning at the NYT, 25 March 2010, link: http://dealbook.blogs.nytimes.com/2010/03/24/how-not-to-run-an-s-e-c-investigation.

This is SEC standard operating procedure. Do you really want these guys regulating the accounting industry?

Fed Newspeak

2010-06-21T16:56:00.000-07:00

"The Federal Reserve Bank of New York [FRBNY] has come under pressure from Fed officials in Washington to improve the performance of its supervisors overseeing the nation's biggest banks, new documents show. ... 'Our review found some examples where supervisory products were not fully completed, and supervisory processes were not fully performed,' the review said, adding it also found 'that supervisory ratings were not always updated on an ongoing basis to reflect the evolving risk profile and financial condition of the organization.' ... As the Fed has emphasized, we need to learn lessons from the crisis. We recognized that improvements can and should be made. ... Despite the criticisms, Washington officials were also sympathetic to the [FRBNY], lauding it for the 'exceptional work' in responding to the financial crisis 'in an extraordiarily challenging and stressful environment.' ... The government's efforts to stem the crisis 'were, in the end, fundamentally inadequate,' Mr. Geithner said. ... Like Mr. Geithner, Mr. Paulson cited 'huge gaping holes in the regulator system' that made it difficult for regulators to address the financial crisis", Jon Hilsenrath & Fawn Johnson at the WSJ, 7 May 2010, link:

http://online.wsj.com/article/SB10001424052748704370704575228010828622910.html.

Wasn't Timmy Boy at the FRBNY a few years ago? Why believe he knows any more now than he did then? What would have been an adequate response? Giving the FRBNY the right to control monetary policy and print dollars?

Spengler on the Flotilla

2010-06-21T07:36:00.000-07:00

"Israel mishandled the Gaza 'humanitarian aid' flotilla through extreme forebearance, and will suffer a marathon on tongue-clicking and hand-wringing by diplomatic hypocrites who know better. The Jewish state lost the propaganda battle the moment the floating time bomb disguised as a humanitarian mission sailed from Turkey. ... Jonathan Schanzer, a former US government official specializing in terrorist financing, provides the details and links to the relevant US government documents in a post at the Weekly Standard blog. ... Turkey's secular government of a decade ago banned the IHH from contributing to earthquake relief because of its terrorist ties, as Caroline Glick observes in the Jerusalem Post. The fact that the present Islamist government of Prime Minister Tayyip Erodgan has embraced IHH is consistent with Erdogan's public support for Iran. ... Israeli authorities offered to allow the flotilla to land at the Israeli port of Ashdod and ship its cargo of humanitarian aid to Gaza overland after appropriate security inspection; the flotilla refused. ... In short, the Gaza flotilla caper was the invention of an organization with deep ties to terrorist financing of Hamas to ameliorate a humanitarian problem that doesn't exist while refusing an Israeli offer to deliver its aid to Gaza. ... Evidently, Israel has trouble accepting the reality on the ground, just as other governments do. There is not going to be a peace negotiation, but rather a war, and that war will be terrible and bloody. ... The Gaza flotilla affair should teach Jerusalem that no matter how gingerly it approaches the threats on its borders, and how gently it responds, it ends up holding the bag for the region's problems. It might as well get down to the business of war", Spengler at Asia Times, 2 June 2010, link:

http://www.atimes.com/atimes/Middle_East/LF02Ak03.html.

As usual, I agree with Spengler. In part, the flotilla was designed to enable Turkey to unseat Iran as Hamas major '"protector".

LA End Game

2010-06-20T16:16:00.000-07:00

"Los Angeles is facing a terminal fiscal crisis: Between now and 2014 the city will likely declare bankruptcy. Yet Mayor Antonio Villaraigosa [AV] and the City Council have been either unable or unwilling to face this fact. ... Even if [AV] were to enact drastic pension reform today--which he shows no sign of doing--the city would only save a few hundred million per year. ... Five thousand is the number of employees added to the city's payroll during [AV's] first term as mayor. According to California's Economic Development Department, when [AV] took office there were 4.73 million jobs in Los Angeles and 252,000 unemployed people. Today, there are just 4.19 million jobs in [LA] and over 632,000 unemployed people. ... How have city leaders responded to this crisis? Pension officials have played accounting games, like smoothing the investment return over seven years rather than five years. ... And most egregiously, rather than laying off employees, city officials have shifted certain workers to agencies like the Department of Water and Power and the airport, which have their own funding. ... He continues to insist that bankruptcy is not an option for [LA] even as anyone who can count understands there is no other option", Richard Riordan & Alexander Rubalcava (R&R) at the WSJ, 5 May 2010, link:

http://online.wsj.com/article/SB10001424052748704608104575218392603082622.html.

Riordan is a former LA mayor. Rubalcava is an investment advisor. Yes, R&R, LA's bankruptcy looks inevitable. Got muni bonds? Sell!

Russia Faces East

2010-06-20T07:48:00.000-07:00

Michael Panzner gives us a clue as to which nation Russia views as its most dangerous adversary, 28 May 2010, link:

http://www.economicroadmap.com/2010/05/self-fulfilling-preparation.html. Surprise! It's not the US.

IA Short-Sells Dollar!

2010-06-20T07:46:00.000-07:00

Recently I short-sold the dollar for 30 years. In lieu of a good fath deposit with a commodities dealer, I made a down payment on a house "purchase". In the US a good way to issue long-term fixed-rate debt is to "buy" a house. So I did. WC Varones, I salute you, see WCV's 12 January 2010 post:

http://www.wcvarones.com/2010/01/how-i-learned-to-stop-worrying-and-love.html. Houston real estate is cheap compared to that in Los Angeles. I estimate my house would have cost 4X as much if in say Woodland Hills, CA, about 25 miles northwest of downtown LA. Zimbabwe Ben help me pay my mortgage. No exit! Tax credits! Panem et circenses!

KC's Scholastic Catastrophe

2010-06-19T16:13:00.000-07:00

"Westport High is a magnificent old building, all brick and fine masonry, set high on a hill in the heart of town. It's more than 100 years old, just a few blocks from where Ernest Hemmingway lived before he went off to drive ambulances in the Great War. So one might expect an angry roar against its inclusion in a plan to close nearly half of Kansas City's 57 public schools this summer. Instead the vibe is more, What took you so long? ... School districts all over the country are wrestling with problems in urban centers, but Kansas City's plan has caught national attention because of its scope. ... The situation n New Orleans was 'created by a natural disaster. [KC] is due to a human-made disaster,' says Jack Jennnings, president of the Center on Education Policy, a public-school advocacy group. ... Money hasn't been the problem. In 1985, a federal judge ordered the state to pony up $2 billion to address decades of unconstitutional treatment of black children. ... Meanwhile kids weren't proficient in the basics--and still aren't. At a majority of the schools, fewer than one-quarter of the students were proficient in math and English last year. On any given day, the buildings are half empty. [KC] had some 75,000 public-school students in the 1960s. Today it has about 17,000", my emphasis, Karen Ball at Time, 14 June 2010: http://www.time.com/time/magazine/article/0,9171,1993877,00.html.

Wow. KC's public schools have 17,000 students and 3,000 employees, one for every six students. What do they all do? Look at the money KC spent at the behest of an ignoramus federal judge. The time will come when localities ignore federal judges' orders and dare the judges to imprison everyone in the locality. The waiting lists for jail grow daily. What was supposedly unconstitutional about KC's treatment of black school children anyway?

What Law?

2010-06-19T07:13:00.000-07:00

"The Supreme Court on Monday ended the practice of sentencing juveniles to life imprisonment with no chance of parole for crimes short of homicide, the latest in a series of milestone decisions in which Justice Anthony Kennedy and four liberals have joined to set constitutional curbs on punishment. ... 'Life in prison without the possibility of parole gives no chance for fulfillment outside the prison walls, no chance for reconciliation with society, no hope,' Justice Kennedy wrote. ... Justice Clarence Thomas dissented, joined in full or in part by Justices Antonin Scalia and Samuel Alito. Justice Thomas said the majority reached 'far beyond any cogizable constitutional principle ... to ensure that its own sense of morality and retributive justice pre-empts that of the people and their representatives'," Jess Bravin at the WSJ, 18 May 2010, link:

http://online.wsj.com/article/SB10001424052748703315404575250263178132480.html.

I agree with Thomas. "Life in prison" no matter the period, "gives no chance for fulfillment outside the prison walls" during the period. So? This sounds tautological to me. You too can be a Supreme.

Texas Sex Offenders?

2010-06-18T16:36:00.000-07:00

"Texas has been unconstitutionally designating some prison inmates as sexual criminals without giving them an appropriate hearing the 5th Circuit Court of Appeals ruled Friday. The ruling could affect as many as 6,900 prison inmates who never have been convicted of a sex offense although they may be sexual predators. ... [Raul] Meza was not allowed to see the evidence against him or have a hearing before the board. ... Meza says he cannot get out of incarceration in a Travis County Correctional Complex because the terms of his release require a parole officer to accompany him at all times. ... The 5th Circuit noted that in previous cases it has ruled that inmates cannot be designated as a sex offender without a due process hearing. ... But the state does not allow inmates to review the record that is used to designate them as sex offenders or to put additonal provisions on their parole. ... Texas Department of Criminal Justice spokewoman Michelle Lyons said the agency plans to review the ruling with the Texas Attorney General's Office to see what step to take next", RG Ratcliffe at the Houston Chronicle, 22 May 2010, link:

http://www.chron.com/disp/story.mpl/metropolitan/7016583.html.

Hearing my ass. How about a conviction? Texas' BPP got slammed recently for similar actions, my 8 November 2009 post: http://skepticaltexascpa.blogspot.com/2009/11/lifting-immunity.html.

Einhorn on Truth

2010-06-18T07:07:00.000-07:00

Greenlight Capital's David Einhorn (DE) has an interesting 27 May 2010 post at the NYT:

http://www.nytimes.com/2010/05/27/opinion/27einhorn.html. DE asks, "how long will the capital markets continue to finance government borrowings that may be refinanced but never repaid on reasonable terms. And second, to what extent can obligations that are not financed through traditional fiscal means be satisfied through central bank monetization of debts--that is, by the printing of money? ... Despite the promises by the [Fed] chairman, Ben Bernanke, not to print money or 'monetize' the debt, when push comes to shove, there is a good chance the Fed will do so, at least to the point where significant inflation shows up even in government statistics. ... " DE raises other issues I have. My bottom line: eventually all will see the emperor is naked.

Illinois Deficit

2010-06-17T16:46:00.000-07:00

"Illinois lawmakers were in disarray Thursday as they groped for stopgap measures to address a $13 billion deficit equaling nearly half of the state's general-fund revenue. ... But the confusion in the legislature indicates that serious steps to fix state finances won't be taken until after the November elections--if then. ... An income-tax increase proposed by Democratic Gov. Pat Quinn is going nowhere. Even temporary steps, such as borrowing to make pension payments, have stalled. Illinois is months late on many of its bills and has no plan for catching up. ... A bill under consideration in the state House would give Mr. Quinn greater leeway to shift money among state funds and to require agencies to set aside part of their budgets now in case of future cuts. ... 'We are lucky in that we can still borrow,' [Donne] Trotter said, noting that lawmakers responded to rating-agency concerns last month by reducing pension benefits and lifting the retirement age for new state employees to 67 from 60. Lawmakers also are weighing the idea of postponing pension payments for the first half of the fiscal year until January, Mr. Trotter said. ... Mr. Quinn presented a budget in March that would still leave the state with a $10.6 billion deficit. His plan projected a deficit of $4.7 billion for the coming fiscal year beginning July 1--which he planned to cover through borrowing--and a $5.9 billion deficit carried over from the current budget. ... California officials said this week that April personal income tax collections lagged projections by 30% Federal estimates don't bode well for states, either", Amy Merrick at the WSJ, 7 May 2010: http://online.wsj.com/article/SB10001424052748703686304575228582377071698.html.

Illinois budget looks worse than California's. An old Chinese curse was, "May you live in interesting times". An updated version might be, "May your portfolio consist of 50% Illinois and 50% California muni bonds".

America's Coming Gulag

2010-06-17T07:19:00.000-07:00

"The Supreme Court said Monday that the federal government can keep 'sexually dangerous' prisoners in custody past the completion of their sentences, overruling arguments that only states hold such power. The vote was 7-2, with Justices Anotnin Scalia and Clarence Thomas in dissent. ... In dissent, Justice Thomas wrote that the majority gave Congress too much leeway", my emphasis, Jess Bravin at the WSJ, 18 May 2010, link:

http://online.wsj.com/article/SB10001424052748703315404575250220873756964.html.

Amazing. Will the Supremes next rule that "financially dangerous' prisoners can be held before their sentences end? Who determines one is "sexually dangerous"? A flak chosen by the (In)Justice Department? This ruling is appalling. I'm sure Stalin is smiling on reading it.

Late State Tax Refunds

2010-06-16T16:29:00.000-07:00

"Procrastination is no longer just for the taxpayers who wait until the last moment to file their tax returns. Thanks to the economic downturn, at least a half-dozen cash-poor states are now delaying their tax refund checks. ... 'We're sorry for the inconvenience. We understand that people are relying on the money for credit card bills, etc., etc., but we'll get them out as fast as we can,' said Paul L. Dion, the chief of Rhode Island's Office of Revenue Analysis, explaining that 34,423 refund checks were being held up as the state ensures it has enough cash on hand to pay its debts on time. 'For the record, mine is on hold as well.' ... Budget cuts left Iowa's Department of Revenue without the money to hire the 50 temporary workers it ususally adds around tax time. So some refund checks were slowed while nearly everyone in the department--from auditors and revenue agents to top agency officials--was directed to pitch in by opening up envelopes and processing tax returns. ... It is yet another change brought about by the longest recession since the Great Depression. Many state governments are as overextended as their residents, and find themselves balancing and rebalancing their checkbooks each week to make sure they have enough money to pay their bills. Of course, holding on to the money that many taxpayers count on is usually a last resort: several states were greeted with angry outcries when they delayed sending out refund checks last year; including Alabama, California and Georgia, made sure to pay out their refunds faster this year", Michael Cooper at the NYT, 2 June 2010, link:

http://www.nytimes.com/2010/06/02/us/02refund.html.

Will the involved states let you pay taxes late in sympathy?

What Secret?

2010-06-16T07:24:00.000-07:00

"It has been the dirty little secret of higher education for decades: Ten of thousands of college students can't do the work. ... But relatively few students who need the classes go on to earn a degree, raising questions about whether money spend on developmental education is a wise investment. 'It's all about efficiency,' said Jim Pickard, a program director at the Texas Higher Education Coordinating Board. 'What are we sending these kids to college for?' ... 'It's a matter of finances, and it's a matter of work force development,' said Donetta Goodall, vice chancellor of academic affairs and student success at Lone Star College, which serves suburban Houston and where about two-thirds of students require at least one remedial course. ... Well over half of community college students are unprepared for college classes--the number approaches 70 percent at Houston Community College--with low-income students more likely to need help than their wealthier peers. ... There are lots of reasons students aren't ready for college. ... And despite efforts to impose a more rigorous high school curriculum--including new standards requiring all students to take four years of math and science--not everyone who graduates from a Texas high school is ready for college. ... So there are, enrolled in college in the midst of a push from legislators, business leaders and others to produce more college graduates. ... In Texas, the pressure is heightened by a projected $18 billion budget deficit and a growing population of low-income Latinos, historically the group least likely to earn a college degree. ... Developmental education is one of the biggest stumbing blocks. Fewer than 10 percent of students who require more than a few remedial classes even make it to college-level classes, [Diane] Troyer said", my emphasis, Jeannie Kever at the Houston Chronicle, 23 May 2010, link:

http://www.chron.com/disp/story.mpl/metropolitan/7018694.html.

"We've lowered the education requirements so all can pass. By doing so, we have taken education out of the education system. ... We continue to dumb down the education system, and are producing better idiots", James West letter to the Houston Chronicle, 30 May 2010, link:

http://www.chron.com/disp/story.mpl/editorial/outlook/7028573.html.

Who is suprised by this? Why do we need more college graduates? Could IQ be a reason? What's the problem? Felipe Calderon (FC) said, "I have said that Mexico does not stop at its border, that wherever there is a Mexican there is Mexico", NYT, 3 September 2007. What percentage of Mexicans are college graduates? Why should a higher percentage be realized in the US? Calderon's statement is noteworthy. I believe FC made a DECLARATION OF WAR! Some other Americans see it that way too. Currently 12% of 18 year-old Mexicans are enrolled in higher education. What percentage of Mexicans who coincidentally are north of the border does say FC think should be enrolled in college in the US?

Yes West.

Peasants Wave Pitchforks!

2010-06-15T16:24:00.000-07:00

"As a new day damned over the Illinois State Legislature one morning in March, a 39-page bill hit the floor like none seen in decades. Public Act 96-0889 proposed slashing $71 billion from future state budgets. it did so by requiring newly hired state employees to work up to a dozen years longer than employees had to in the past, until age 67, to draw full pensions. ... Instead, by dinnertime that very day, virtually every memebr of Springfield's bluest of blue-state legislatures had voted in favor of making the bill law. ... In the shadow of financial Armageddon an outraged populace is beginning to stir. Yes, Washington is still goring on the public plastic by issuing trillions of dollars in ew debt. States and cities, however, fo not have their own printing presses and cannot count on the Chinese to fund their profligacy. ... After decades of ever bigger public payrolls and cushier benefits, the breaking point has arrived. It is giving rise to a potentially profound political realignment", Stephanie Fitch & Christopher Steiner at Forbes, 7 June 2010, link: http://www.forbes.com/forbes/2010/0607/outfront-pension-retirement-benefits-taxes-states-fiscal-hawks.html.

Financial Armageddon? Did anyone ask Michael Panzner about this?

He Throws Temper Tantrum

2010-06-15T07:12:00.000-07:00

"Just plug the damned hole! That, more or less, is the leadership and direction we are getting from our president as we grapple with the oil spill in the Gulf. What else should we expect from a socilaist theoretician who has never actually accomplished anything in his life? ... This is what happens when an academic finds himself in the position of actually having to get something done. Nothing written on a blackboard or recited from a textbook or lectured from a podium will plug the leak miles deep off Louisiana. Nothing in Barack Obama's background full of lectures and textbooks makes him fit for any job where getting things done is important. ... The professor has not a clue what to do. This stuff is hard. Well doggone! You mean if drilling five miles deep and than another mile below the mud on the bottom of the ocean is hard--then repairing a screw-up in the same location is hard to do, too? ... Now the professor child is upset about a spill in his little utopian sandbox. The child is whining and pointing fingers and demanding that someone fix it. It is eating into his playtime for shooting hoops and playing golf, and it is so much messier than theoretical issues. The problem is that the child has no clue how the sandbox was built or how the pristine sand got there", C. Edmund Wright at American Thinker, 29 May 2010, link:

http://www.americanthinker.com/2010/05/when_professor_obama_meets_dir.html.

Take the Bar and Beat Me, my 22 December 2007 post: http://skepticaltexascpa.blogspot.com/2007/12/us-injustice-system-at-work.html, describes Him.

Three-Card Monte Central Bankers

2010-06-14T16:33:00.000-07:00

"After all the massive bailouts, the federal debt is exploding. ... The US now has a heavier debt burden than several of the overleveraged countries that have been branded with the scornful nickname 'the PIIGS.' ... Yes, in recent months, there's been a lot of bullish talk about how the American balance sheet has been cleaned up. ... And banks and other financial institutions owe $1.4 trillion less than they did in late 2008. Those debts haven't disappeared. They have merely been shifted onto the books of the federal government--in what may be the highest-stakes shell game ever. ... There's no sign of a slowdown in debt growth. 'These processes are not linear,' warns [Carmen] Reinhart. 'You can increase debt for a while and nothing happens. Then you hit the wall, and--bang!--what seem to be minor shocks that the markets would shrug off in other circumstances suddenly become big.' ... 'If you flood the markets with more and more debt, its value is going to go down. We are silly to fool ourselves into believing otherwise.' ... In 1989, the great investor Sir John Templeton told me something that has rung in my ears ever since, this week more than ever: Those who spend too much will eventually be owned by those who are thrify.' ... But in my view, the obvious tools--gold and other commodities, emerging-markets stocks, inflation-protected bonds--are already so popular that they are likely overpriced", my emphasis, Jason Zweig at the WSJ, 8 May 2010, link: http://online.wsj.com/article/SB10001424052748704292004575230601932486166.html.

I disagree with Templeton, remembering something Brazil's finance minster said about 25 years ago, "If I owe the bank a million dollars and I can't pay, I'm in trouble. If I owe the bank a billion dollars and I can't pay, the bank is in trouble". Who is in trouble if Uncle Sam owes trillions? I think $1,225 gold is cheap.

China Sells Dollars-7

2010-06-14T07:18:00.000-07:00

"China is set to make its second largest investment in Africa outside the energy sector by ploughing $877m into South Africa's platinum industry. ... For the first time, Beijing will take a direct stake in the continent's platinum reserves, the majority of which are in South Africa. ... 'This is a very significant strategic play because it gives China its first direct access to platinum,' said Martyn Davies, chief executive of Frontier Advisory, a Johannesburg company that worked with [platinum miner] Wesizwe", Richard Lapper at the FT, 26 May 2010.

Go China. Better platinum than dollars.

Rating Agencies Overrun Houston Crime Lab

2010-06-13T16:24:00.000-07:00

"Consultants who re-tested fingerprint analyses in nearly 4,300 criminal cases found no erroneous identifications despite technical errors by Houston Police Department examiners in 62 percent of the cases, HPD officials said Tuesday. ... 'It seems like what we're doing with this contract [to Ron Smith & Associates, RSA] is buying some time while we figure this out,' said Council Member Melissa Noriega, who chairs the [Public Safety and Homeland Security] committee. ... 'The good thing about that audit is there were no erroneous identifications,' [HPD Assistant Chief Timothy] Oettmeir said. 'That means we did not find any instance where a person was put in jail or prison because of a mistake made in a fingerprint.' Troy McKinney, past president of the Harris County Criminal Lawyer's Association, said it was 'almost statistically impossible' for the lab to have such a high rate of technical errors and not have made any false identifications. 'Having 62 percent of cases having problem with methodology of the analysis is an indication there are fundamental flaws in that lab,' McKinney said", James Pinkerton at the Houston Chronicle, 26 May 2010, link:

http://www.chron.com/disp/story.mpl/headline/metro/7022293.html. .

What did the HPD hire RSA to do? Review HPD's fingerprint analyses practices or cover up false identifications? Finding about 2,650 cases with "technical errors", RSA found no false positives. If "techncial errors" do not produce real errors, should HPD's crime lab redefine the concept of a "technical error"? Did RSA, Moody's or S&P do this "audit"? The HPD must have studied in the Vampire Squid school, i.e., you can almost always find an "expert" to say whatever you want.

Forbes Exposes DOJ Extortion Racket

2010-06-13T07:46:00.000-07:00

"In 2007 Weatherford International, an oil service firm with roots in Houston, discovered it might have a bribery problem on its hands--one or more of its employees might have paid bribes in Europe. ... By that time [William] Jacobson had left Justice to join Fulbright [& Jaworski] as a partner and started doing compliance work for none other than Weatherford. ... Nice work if you can get it--and to the tune of billions of dollars, lawyers, accountants and consultants, many with past ties to the Justice Department, are getting it. ... Whether it's having any impact on reducing bribery is another matter. Instead, companies can find themselves getting extorted in foreign lands, only to get extorted again by Washington. ... More likely, the company pays out huge fines and then hires more lawyers as government-mandated compliance monitors, a job that can stretch into years of legal billings. ... Mark Mendelsohn, 42, headed the [DOJ's] FCPA unit when the surge in enforcement largely occurred. ... 'At some point a new person will sit in my seat,' said Mendelsohn while on stage with a group of FCPA defense lawyers at a conference in February. 'I will join Peter and Richard and Mary on the other end of the dais.' ... For decades the FCPA, which prohibits bribery of foreign officials, was a sleepy statute, hardly enforced. ... In 2000 federal prosecutors brought no FCPA actions. In 2004 there were 3. Last year ther ewere 34 criminal FCPA actions. A lot more are in the pipeline. The [DOJ] has 150 open FCPA investigations. ... The prosecutors, though, are doing something else at the same time. They are creating a lucrative industry--FCPA defense work--in which they will someday be prime candidates for the cushy assignments. ... But there is nothing to stop prosecutors from ginning up cases that will feed the lawyers who used to have their jobs or from looking forward to a payday in the private sector that will be made possible by their busy successors at Justice. ... The grandaddy of cases is the one involving Siemens, Europe's biggest engineering firm. ... Debevoise and Deloitte charged $850 million in fees and expenses. ... Lawyers and accountants also made a fortune off a recently resolved Daimler bribery case. ... Deloitte, which has an FCPA practice headed by Edward Rial, a former federal prosecutor, got its time at the feeding trough. Delotte declines to comment. [Robert] Bennett says his work was in the bet interest of the company facing serious prosecution", my emphasis, Nathan Vardi at Forbes, 24 May 2010, link: http://www.forbes.com/forbes/2010/0524/business-weatherford-kbr-corruption-bribery-racket.html.

I supppose MM was creating a job for himself for the time he was to leave the DOJ. The FCPA was rarely enforced until MM decided he needed a post-DOJ position. AUSAs "ginning up cases"? "Say it ain't so, Joe". Gag me with a spoon. Until you've seen the DOJ at work, you can't believe how incompetent and corrupt the typical AU attorney and AUSA is. You can't believe it. Why did my "girlfriend" Mary Jo White threaten to indict Joe Jett? If couldn't be because GE's Jack Welch wanted it, could it? GE didn't pay off by hiring Debevoise & Plimption to represent it in various matters? How dare you think such a thing. See my 31 December 2008 and 1 May 2010 posts:

http://skepticaltexascpa.blogspot.com/2008/12/justice-department-extortion-racket-4.html.
http://skepticaltexascpa.blogspot.com/2010/05/justice-department-extortion-racket-6.html.

Magic Words

2010-06-12T16:56:00.000-07:00

"The term 'social justice' is now commonly used by leftist activists, clergy, educators, judges, and politicians to describe the goal they seek to achieve with many of their polcies. No precise definition of 'social justice' is ever offered by the left. Instead, the term is always used in a vague way--as if everyone already knows, or should know, what the seemingly well-intentioned phrase 'social justice' means. ... In short, social justice is communism. ... 'Justice,' in the Marxist context, means economic equality. This is Marxist utopian ideal that all members of society should receive the same amount of compensation, regardless or occupation, skill, or work ethic", Jayme Sellards at American Thinker, 16 May 2010, link:

http://www.americanthinker.com/2010/05/what_exactly_is_social_justice.html.

"You might think that being a Supreme Court justice would be the top of the line job for someone in the legal profession. But, many Supreme Court decisions suggest that too many justices are not satisfied with their role, and seek more sweeping powers as supreme policy-makers, grand second-guessers or philosopher-kings. ... The role of an appellate court is not to simply second-guess the decision of the trial judge and jury, much less usurp the responsibility of legislatures to make social policy. But the pretense of applying the Constitution gives appellate judges the power to do both. ... If justices can pick and choose which legal principles and practices they will follow, from the many widely varying principles and practices in countries around the world, then they can find a basis for doing just about anything they feel like doing. ... Once appellate judges are free to base their rulings on what people do in India, Egypt or Germany, Americans are no longer a self-governing people", Thomas Sowell at Frontpage Magazine, 24 May 2010, link: http://frontpagemag.com/2010/05/24/judicial-power-grabs/

"Ever wonder why most of your credit-card mail comes from South Dakota? The answer is a 1978 Supreme Court decision called Marquette National Bank on Minneapolis v. First of Omaha Service Corp. ... The Court ruled that it referred to the location of the bank. ... What happened next was predicatble enough: Citibank offered to move to South Dakota, bringing much-needed jobs and tax revenue, if the state would let it write new credit-card regulation. ... If the Supreme Court had interpreted one word differently, credit-card regulation in this country would be entirely different. ... Bruce Ackerman, a legal scholar at Yale ... [said] 'For sure ... the status of undocumented aliens is going to me mcuh more salient in Americna law. We're going to have 10 [million] or 15 million people or more who'll find themselves in a position increasingly like black people in 1954. That will be a terribly serious issue, and the court will have to decide how to respond.' ... 'What happens when promised benefits are cut back dramatically?' he asked. 'Will the court protect the weak, or not?'," my emphasis, Ezra Klein at Newsweek, 24 May 2010, link: http://www.newsweek.com//id/238075. This reminds me of my meeting Al Sharpton in 1966 or 1967, my 5 March 2009 post: http://skepticaltexascpa.blogspot.com/2009/03/eric-holder-deceiver.html.

Many times I've said the Supremes do whatever they want and justifiy it later. I await Justice Ginsburg's using Saudi Arabian law as precedent. Will she say it is neither cruel nor unusual to cut off a thief's hand?

Aren't you impressed by Ackerman's reasoning? Negroes in 1954 were American Citizens. The 14th Amendment was created to ensure they were citizens. How dare you claim the same rights for illegal aliens? See, we are all legal scholars now. Why will the Supremes have to decide anything with respect to illegal aliens? What happens when taxes are increased? Will the court protect the solvent, or not? Aren't you impressed with legal reasoning? Wait, there is an answer! Have the Supremes decide no person need pay anything to support illegal aliens. Based on what? Extending the reach of the Third Amendment. Why should American citizens "quarter" members of the Aztlan Army?

China's Nukes

2010-06-12T07:37:00.000-07:00

"The commentary in the official Liberation Army Daily also reiterated China's longstanding stated policy that it 'will never be the first to use nuclear weapons at any time and under any circumstances.' Written by a retired general, the piece follows last week's international nuclear-security summit in Washington and comes amid questions in the US, Japan, and elsewhere about the intent behind China's efforts to strengthen its nuclear forces", Gordon Fairclough at the WSJ, 23 April 2010, link:

http://online.wsj.com/article/SB10001424052748704830404575199720063121034.html.

"I first began working on strategic arm control with the Russians in 1970, an effort that led to the first Strategic Arms Limitation Agreement with Moscow two years later. ... The same answer holds true for the new START agreement: The US is far better off with this treaty than without it. It strengthens the security of the US and out allies and promotes strategic stability between the world's two major nuclear powers. ... First, it limits significantly US and Russian strategic nuclear aresenals and establishes an extensive verification regime to ensure that Russia is complying with its treaty obligations. ... Second, the treaty preserves the US nuclear aresenal as a vital pillar of our nation's and our allies security posture. ... Third, abd related, the treaty is buttressed by credible modernization plans and long-term funding for the US nuclear weapons stockpile and the infrastructure that supports it. ... Fourth, the treaty will not constrain the US from developing and deploying defenses against ballistic missioles, as we have made clear to the Russian government. ... The new START treaty has the unanimous support of America's military leadership", my emphasis, Robert Gates at the WSJ, 13 May 2010: http://online.wsj.com/article/SB10001424052748703339304575240164048611360.html.

Can anyone play this game? You may as well look at goat entrails as attempt to ascertain China's "intent". Only capabilities count!

Gates is our Secretary of Defense. I don't remember the last time I read so many nonsequiters in as short a piece. That our military leadership unanimously supports this only convinces me they are a bunch of ticket-punching cowards. Why START? To give the Obamites a basis for not: moderninzing our nuclear weapons or developing ballistic missile defenses. Why do we need this thing if we have this wonderful piece of paper? Neville Chamberlain lives! How many French generals thought the Maginot Line would protect France?

Mark Faber's Positions

2010-06-11T16:03:00.000-07:00

"Central banks will never tighten monetary policy again, merely, print, print, print. ... Americans must re-think what constitutes a safe asset. ... '[T]he Federal Reserve will keep interest rates at 0 precisely 0. ... in real terms.' ... Contrary to what the talking heads are saying, markets are not out of control, central banks are out of control printing money. ... Eventually there will be war and one will want physical commodities 'not paper from UBS or JP Morgan.' ... 'Mugabe is the economic mentor of Ben Bernanke.' ... Sovereign credits in the Western world are all bankrupt, but before bankruptcy governments will print money. ... If deficits didn't matter as many like the Economist James Galbraith argue today, why should citizens even pay taxes?," my emphasis, Andrew Mellon at Big Government, 23 May 2010, link:

http://biggovernment.com/amellon/2010/05/23/faber-nations-will-print-money-go-bust-go-to-war-we-are-doomed/

I agree with Faber. Apparently the notion that he's Zimbabwe Ben is getting around. Why pay taxes indeed?

The New Black?

2010-06-11T07:08:00.000-07:00

"'Is white the new black?' ... For after a year of battering as 'un-American,' 'evil-doers' and 'racists, and praise from talk-show hosts and Sarah Palin as 'the real Americans,' Tea-Party America seems to be taking on a new and separate identity. ... Even as [Arthur] Schlesinger was writing his 'Disuniting of America,' Yugoslavia and the Soviet Union were disintegrating into 22 new nations, along the lines of ethnicity. In Dagestan, Ingushetia, Chechnya, Ossetia and Abkhazaia, the process proceeds apace. ... Obama in the campaign of 2008 recognized that 'out there' in Middle America existed another country, far from the one he grew up in, far from the privileged Ivy League community to which he belonged. ... Palin and the tea partiers now repeat Obama's disparaging line about their clinging to Bibles and guns--with defiant pride. ... Now Southerners are proudly commemorating ancestors who fought and fell in the Lost Cause and demanding recognition of Confederate History Month. And state governors are acceding. ... The imputation of racism to tea partiers hads not intimidated or cowed them. ... Why are the tea partiers not intimidated the way Republicans often are? Why is the charge of racism not working", Pat Buchanan at World Net Daily, 19 April 2010, link: http://www.worldnetdaily.com/index.php?pageId=143033.html.

Obama may not realize it yet, but many, perhaps most people in Texas, hold him in contempt. Hillary favored, "The politics of meaning". What did that mean? What policies did she favor? Who knows?

Ode to Obama

2010-06-10T16:08:00.000-07:00

"First came a stimulus bill that, while aimed mainly at ending a deep recession, also set out to remake the nation's education system and vastly expanded scientific research. Then President Obama signed a health care bill that was the biggest expansion of the safety net in 40 years. And now Congress is in the final stages of a bill that would tighten Wall Street's rules and probably shrink its profit margins. If there is a theme to all of this, it has been to try to lift economic growth while also reducing income inequality. ... By focusing on long-term problems, Mr. Obama and the Democrats have given less than their full attention to the economy's current weakness and turned off a good number of voters. ... Still, the turnabout since Jan. 20--the first anniversary of Mr. Obama's inauguration and the day after Scott Brown, a Republican, won a Senate seat in liberal Massachusetts--has been remarkable. ... Today, he looks more like a liberal answer to Ronald Reagan. ... Every major piece of the Obama agenda is meant, in part, to push back against inequality. ... The financial regulation bill, meanwhile, would take several steps likely to reduce Wall Street's profits--and Wall Street has created more multimillionaires in recent decades than any other industry. ... Most striking, the administration is trying to improve public education by introducing more market competition. ... These education changes--combined with increased spending on science research--are meant to lift economic growth. ... Economists have long considered education and technology to be main ingredients in growth", my emphasis, David Leonhardt (DL) at the NYT, 22 May 2010, link:

http://www.nytimes.com/2010/05/22/business/economy/22leonhardt.html.

What can I say? Yves Smith of Naked Capitalism wanted this pieced shredded, so here goes. "In the [1930s], [FDR] created the [SEC] and [FDIC]. Now [America] was formless and empty, darkness was over the surface of the [American continent], and the Spirit of [Obama] was hovering over the waters. And [Obama] said let there be [a stimulus bill], and there was a [stimulus bill]. [Obama] saw the [stimulus bill] was good, and he separated the [United States] from the [recession]. [Obama] called the [stimulus bill] '[American Recovery and Reinvestment Act]' and the darkness he called 'recession'. And there was evening and, and there was morning--the first [few months]. And [Obama] said, 'Let there be [no] expanse between the [ethnic groups educational attainments] to separate [group] from [group]. So [Obama and Duncan] made the expanse [shrink] and [no longer] separated the [group] under the expanse from the [group] above it. And it was so. [Obama] called the [ended] expanse [academic achievement]. And there was evening and morning--the next few months", Genesis, 1:1-10 (NIV) with apologies to the original.

DL's piece is so bad. It isn't even good pro-Obama propaganda. It's almost a parody. The current "Wall Street reform bill" looks like a show piece to mollify the peasants with pitchforks. Expand scientific research while reducing NASA spending? Sure. What big expansion of the "safety net"? It's a rearrangement: kill old white women and expand medical care for illegal aliens and their children. Focusing on "long-term problems"? The "never let a crisis go to waste crowd"? What about the combined social security and medicare actuarial deficits variously estimated at $60-115 trillion? His education bill is just another teachers' unions payoff. It will not improve education in the US, which is a big waste of money. We need more, not fewer dropouts. Voxeu had an interesting 18 May 2010 piece on education, link: http://voxeu.org/index.php?q=node/5058. One author, Robert Barro is a Harvard economics professor. The other, Jong-Wha Lee, got his PhD at Havard. "The estimates for the group of advanced countries, East Asia and the Pacific, and South Asia are the highest at 13.3%. In contrast, the estimated rates of return are only 6.6% in Sub-Saharan Africa and 6.5% in Latin America". Hmm. Hey Barro and Lee, have you read IQ and the Wealth of Nations? I think I can explain what you found! For that matter, have you read Vance Packard's The Status Seekers, 1959, about degrees and "signalling"? The bloom is falling off the educational rose.

Whose History?

2010-06-10T07:25:00.000-07:00

"The State Board of Education's proposed revisions for K-12 social studies curricula have come under fire from the radical left. ... Studies have revealed how unbalanced America's humanities departments are. Democrats outnumber Republicans by a large margin. In the history department at the University of Texas at Austin, out of 50 registered voters, only one is a Republican. Moderate and conservative Democrats are also rare. This political slant is reinforced by the economics of scholarship: Academic historians have been trained and have invested their careers in a profession that counts as legitimate only those subfields that support the leftist orthodoxy. Military history, for example, has almost entirely died off; not a single professor of history at UT-Austin lists military history as a primary speciality, while dozens list sexuality, ethnicity and anti-colonialism. ... Thus, robber barrons, the New Deal and the civil rights movement are in, but the contributuions of inventors and entrepreneurism, the decline of the family and the failures of welfare programs and public education are out. The new standards represent real progress. They don't go far enough in challenging orthodoxy, but they are a step in the right direction. ... This artificallly inflated controversy points to a larger issue: The people must not develp the habit of blind deference to so-called academic experts. ... The fundamental question is this: Shall we continue to have a government ruled by the people, or shall we instead, yield to a self-perpetuating caste of quasi-official experts", Robert Koons (RK) at the Houston Chronicle, 14 May 2010, link:

http://www.chron.com/disp/story.mpl/editorial/outlook/7004327.html.

Henry Ford said "History is bunk". Amen. RK is a UT philosphy professor.

Wait Listed By Jail-16

2010-06-09T16:13:00.000-07:00

"In one of the nation's most violent cities, officers are trying a new strategy. Baltimore police officers are focusing on violent offenders with guns rather than trying to lock up every person who commits a minor crime like using drugs. ... The number of arrest has declined in the past two years. Yet homicides and shootings are down, too--to totals not seen since the late 1980s. ... Experts and other police leaders don't see [Frederick] Bealefeld as an innovator, exactly, but he's notable for his focus on guns. 'I'm not trying to win the drug war,' Bealefeld said. 'I'm out to win the war on violence and deal effectively with violence.' ... The drop in shootings means city prosecutors are getting fewer guns cases, but also better ones", Ben Nuckols at the Houston Chronicle, 16 May 2010, link:

http://www.baynews9.com/content/36/2010/5/15/619429.html.

As police budgets get strained, the drug war will implode. Be patient.

The Coming Pacific War

2010-06-09T07:40:00.000-07:00

"The [US] and China are on a collision course in the Western Pacific. Far sooner than once anticipated, China will achieve effective military parity in Asia, general conventional parity, and nuclear parity. Then the short road to superiority will be impossible for it to ignore, as it is already on its way thanks to a brilliant policy borrowed from Japan and Israel. ... To wit, between 1988 and 2007, a tenfold increase in per-capita GDP ($256 to $2,539), but a 21-fold purchasing power parity increase in military expenditures to $122 billion from $5.78 billion. The major constraint has been that an ever increasing rate of technical advance can only be absorbed so fast even by a rapidly modernizing military. ... China is on the cusp of being able to use conventional satellities, swarms of miniature satellities, and networked surface, undersea, and aerial cuing for real-time terminal guidance with which to direct its 1,500 short-range ballistic missiles to the five or six aircraft carriers the [US] (after ceding control of the Panama Canal and reducing the size of its carrier fleeet by one-third since 1987) could dispatch to meet an invasion of Taiwan. ... If [Taiwan capitulates], as it likely will, America's alliances in the Pacific will collapse. Japan, Korea, and countries in Southeast Asia and even Australaisa (when China's power projection forces mature) will strike a bargain so as to avoid pro forma vassalage, and their chief contribution to the new arrangement will be to rid themselves of America bases. ... In the military, economic, and social trajectories of the two principals, the shape of the future comes clear. In 2007, a Chinese admiral suggested to Adm. Timothy J. Keating, chief of the US Pacific Command, that China and the [US] divide the Pacific into two spheres of inflence. Though the American admiral firmly declined the invitation, as things go now, his successors will not have the means to honor his resolution, and by then the offer may seem generous", my emphasis, Mark Helprin (MH) at the WSJ, 17 May 2010, link:

http://online.wsj.com/article/SB10001424052748704342604575222092593622512.html.

I agree with MH. We saw this play before. In 1925 Hector Bywater, a journalist wrote The Great Pacific War. Here's a link describing it: http://en.wikipedia.org/wiki/The_Great_Pacific_War. My favorite military historian, Basil Hart wrote about Great Britain's inability to support Poland militarily and how this helped bring about World War II, my 24 February 2008 post: http://skepticaltexascpa.blogspot.com/2008/02/kosovo-and-polish-colonels.html. Don't nobody know nuttin' anymore? As Obama bin-Laden said, "When one sees a strong horse and a weak horse, he is naturally attracted to the strong horse". Indeed. Our carriers will be lucky to survive more than a week in a war with China, see my 10 November and 10 December 2008 posts: http://skepticaltexascpa.blogspot.com/2008/11/us-air-force-rip-2.html. http://skepticaltexascpa.blogspot.com/2008/12/floating-coffins.html.

Henny Youngman, Central Banker

2010-06-08T16:30:00.000-07:00

"The principle of central-bank independence, a mainstay of economic orthodoxy for two decades, has taken a battering over the past week. Investors should be on their guard. ... Allowing central banks freedom to set interest rates without political interference is the best way to anchor inflation expectations, reducing borrowing costs and deliver faster growth. ... But independence also allows central banks huge power with limited accountabilty. ... The ECB's decision to start buying goverment debt is even more troubling. it says it is responding to dysfunctional' bond markets. How does it know high goverment borrowing costs reflect liquidity problems rather than legitimate solvency fears that will expose the central bank to losses? ... Might its decision to buy bonds increase moral hazard, removing the incentive for governments to tackle their deficits?," my emphasis, Simon Nixon at the WSJ, 14 May 2010, link:

http://online.wsj.com/article/SB10001424052748704635204575242400983963766.html.

Of course that's the intent: to enable deficit spending! What principle? Independent of who? I have another way to "anchor inflation expectations": gold. My more basic question: "high borrowing costs", as Henny Youngman would ask, "compared to who"?

Uncle Sam and SFAS 106

2010-06-08T07:53:00.000-07:00

"Texas doctors are opting out of Medicare at alarming rates, frustrated by reimbursement cuts they say make participation in government-funded care of seniors unaffordable. ... 'This new data shows the Medicare system is beginning to implode,' said Dr. Susan Bailey, president of the Texas Medical Association. 'If Congress doesn't fix Medicare soon, there'll be more and more doctors dropping out and Congress' promise to provide medical care to seniors will be broken.' ... The largest number of doctors opting out comes from primary care, a field already short of practitioners nationally and especially in Texas. ... The opt-outs follow years of declining Medicare reimbursement that culminated in a looming 21 percent cut in 2010. Congress has voted three times to postpone the cut, which was originally to take effect Jan. 1. It is now set to take effect June 1. ... Guy Culpepper, a Dallas-area family practitioner [said] 'The only way to provide cost-effective care is outside the Medicare system, a system without constant paperwork and headaches and inadequate reimbursement.' ... The issue caused the Texas Medical Association to break with the American Medical Association and oppose health care reform efforts throughout 2009. ... US Sen. John Cornyn, R-Texas, said he isn't surprised by the new opt-out numbers, allowing that Congress' inability to reform Medicare is leaving 'seniors without access and breaking the promise we made to them'," Todd Ackerman at the Houston Chronicle, 18 May 2010, link:

http://www.chron.com/disp/story.mpl/metropolitan/7009807.html.

"One of the many fashionable notions that have caught on among some of the intelligentsia is that old people have 'a duty to die,' rather than become a burden to others. ... Already the government-run medical system in Britain is restricting what medications or treatments it will authorize for the elderly. Moreover, it seems almost certain that similar attempts to contain runaway costs will lead to similar policies when American medical care is taken over by the government. ... If a government-run medical system is going to save any serious amount of money, it is almost certain to do so by sacrificing the elderly", my emphasis, Thomas Sowell at Townhall, 11 May 2010: http://townhall.com/columnists/ThomasSowell/2010/05/11/a_duty_to_die.

Let's repeal the 13th Amendment with respect to doctors. Problem solved. Didn't we get an Obamacare cost estimate for the next ten years? Aren't you comfortable with it? Didn't the CBO say it would be $849 billion? Various goverments will break many promises over the next ten years. Got bonds? Sell! As I've written before, "Kill the old white women"! That's how Medicare costs will will be reduced. I wonder if a Big 87654 firm would opine on the CBO's estimate?

I agree with Sowell. Kill the old white women!

The SEC Wins Another One

2010-06-07T16:44:00.000-07:00

"Former hedge-fund titan Arthur Samberg agreed Thursday to pay nearly $28 million to settle insider-trading allegations, ending a long-running case that got an unexpected boost from disclosures in the divorce case of the accused tipper. ... But the divorce of a former Microsoft Corp. employee who allegedly told Mr. Samberg about Microsoft earnings gave the SEC the break it needed, more than seven years after the alleged insider trading. Mr. Samberg, whe once managed $15 billion, didn't admit or deny wrongdoing. ... Mr. Samberg, 69 years old, will pay nearly $18 million in disgorgement and $10 million in penalties. ... The SEC said it also filed civil-fraud charges against Mr. [David] Zilka, and accused him of withholding information from regulators during an earlier probe that concluded without charges. 'The two cases have two particularly troubling aspects: a hedge-fund manager trading on illegal inside information, and his tipper source who withheld crucial information about the scheme during an SEC investogation,' said Robert Khuzami, the SEC's director of enforcement. 'Both are high-priority targets for SEC enforcement'. ... The agency reopened the probe after new evidence came to light from Mr. Zilkha's divorce proceeding in January 2009, which included new emails, allegations of hush money and a confession to a therapist. The discoveries proved to be a critcial link for the SEC, which had known that Mr. Samberg was looking for information about Micrisoft from Mr. Zilkha but didn't have evidence that Mr. Zilkha provided it ," my emphasis, Kara Scannell at the WSJ, 28 May 2010, link:

http://online.wsj.com/article/SB10001424052748704269204575270451427692356.html.

Hasn't the SEC anything important to do, like investigate bank "earnings"? This case looks like another wasted SEC effort. Why should the SEC make cases like this "high-priority"? What is the SEC trying to divert our attention from?

Atomic Accounting

2010-06-07T07:14:00.000-07:00

"The Pentagon has now told the public, for the first time, precisely how many nuclear weapons the [US] has in its arsenal: 5,113. That is exactly 4,802 more than we need. ... The treaty's ceiling of 1,550 warheads deployed on 700 missiles and bombers will leave us with fewer warheads than an any time since John F. Kennedy was president. Yet the [US] could further reduce its reliance on nuclear weapons without sacrificing security. Indeed, we have calculated that the country could address its conceivable national defense and military concerns with only 311 strategic nuclear weapons (While we are civilian Air Force employees, we speak only for ourselves and not the Pentagon.) This may seem a trifling number compared with the arsenals built up in the cold war, but 311 warheads would provide the equivalent of 1,900 megatons of explosive power, or nine-and-a-half times the amount that Secretary of Defense Robert McNamara argued in 1965 could incapacitate the Soviet Union by destroying 'one-quarter to one-third of its population and about two-thirds of its industrial capacity.' ... In addition, should we want to hit an enemy without destroying its society, the 311 weapons would be adequate for taking out a wide range of 'hardened targets' like missile silos or command-and-control bunkers", my emphasis, Gary Schaub & Joseph Forsyth (S&F) at the NYT, 24 May 2010, link: http://www.nytimes.com/2010/05/24/opinion/24schaub.html.

David Deming tells us, "Never Give Up Your Weapons", American Thinker, 31 May 2010, link: http://www.americanthinker.com/2010/05/never_give_up_your_weapons.html. Right on.

Tom Hoffman writes, "A nation that renounces violence, no matter how just the cause, signs its own death certificate--and for a violent death at that", American Thinker, 31 May 2010, link: http://www.americanthinker.com/2010/05/when_masculine_virtues_go_out.html.

What arrogant, ignorant buffoons. Precisely? In the real world: weapons fail to detonate, miss their targets, etc., etc. What do S&F know about Russian targeting strategy and Russia's concept of "nuclear battles within a war"? I almost titled this piece "Megaton Morons". S&F could be financial engineers and work for the Vampire Squid. McNamara was our worst SecDef in my lifetime, see my 20 August 2009 post: http://skepticaltexascpa.blogspot.com/2009/08/mcnamaras-ghost.html. I wonder if S&F realize Russia "hardened" many of its military facilities after 1965? The buffoons "teach" at Air War College and Advanced Air and Space Studies. Wow! What course do they teach? "Road to National Suicide-301"?

Let's do some arithmetic. Would 1,900 megatons be adequate? Would 1,900 megatons have the same war fighting capability on 38 "Tsar Bombas" or 3,800 500 KT warheads? Well? A nuclear weapon's destructive capability is roughly proportional to the 2/3 root of its size. I'll explain. When Little Boy (LB) exploded over Hiroshima, it yielded 15 KT and had a fireball 410 meters in diameter. When Castle Bravo exploded over Bikini Atoll in 1954 with a 15 MT yield it had a 7,000 meter fireball. Whaaaat? 15 MT divided by 15 KT is 1,000. 1,000 x 410 = 410,000 meters, not 7,000. What's going on here? The cube root of 1,000 is: 10 (10 x 10 x 10 = 1,000). Now 10 x 10 = 100. Ergo Castle Bravo only had about 100X LB's destructive capability. 7,000 / 410 = 17.1, not too far from 10. Why square 10? Because the "footprint" an atomic weapon leaves approximates the square of its diameter. See? Two five MT bombs can do more damage than one ten. Similarly, five ones can do more damage than one five.

Tsar Bomba's fireball has been reported at 4,600 and 8,000 meters in diameter. Using 8,000 meters, at least it's larger than Castle Bravo's. Note: neither figure is close to 23,300 meters (7,000 x 3.33). 8,000 / 7,000 = 1.14, close to the cube root of 3.33, 1.49.

Why did the "Rooskies" stop building bigger warheads in the early 1960s? Does anyone remember the SS-6? It had a 3 MT warhead and a 5,000 meter CEP (circular error probable). Why did the Russians outfit the SS-18 with smaller warheads? Because they were more accurate! The SS-18 typically was fitted with ten 600 KT warheads, each with about a 400 meter CEP and 40 "pendevs", penetration devices to confuse potential defenders as to which were the real warheads. More accurate targeting leads to less destruction. That's why we use JDAMs today. After the Big War in the 1940s, the Army Air Corps, now Air Force, estimated that 97% of the bombs we dropped in WWII did not hit their targets, falling in fields destroying crops, not military installations and factories. That's a lot of wasted ordinance.

Guys like S&F, if working for say a manufacturing company, would look at the company's total inventory and ignore its components. You can have plenty of inventory dollars and still suffer "stockouts" if lacking item 15789 while having 5,000 units of 15788. I can imagine S&F endorsing just in time inventory. Of course, if the factory is located in a place which snows in the winter ... S&F's piece is appalling. It's so bad, I'm sure George Stephanopolous would endorse it.

Three Strikes And California's Out

2010-06-06T16:34:00.000-07:00

"Williams, who is 46, was a homeless drug addict in 1997 when he was convicted of petty theft, for stealing a floor jack from a tow truck. It was the last step on his path to serving life. ... Still, for the theft of the floor jack, Williams was sentenced to life in prison under California's repeat-offender law: three strikes and you're out. In 2000, three years after Williams went to prison, Steve Cooley becaume the district attorney for Los Angeles County. Cooley is a Republican career prosecutor, but he campaigned against the excesses of three strikes. 'Fix it or lose it,' he says of the law. In 2005, Cooley ordered a review of cases, to identify three-strikes inmates who had not committed violent crimes and whose life sentences a judge might deem worthy of second looks. His staff came up with a lost of more than 60 names, including Norman Williams's. ... In 1994, the three-strikes ballot measure in California passed with 72 percent of the vote, after the searing murder of 12-year-old Polly Klaas, who was kidnapped from her slmuber party and murdered while her mother slept down the hall. When the killer turned out to be a violent offender recently granted parole, support surged for the three-strikes ballot initiative, which promised to keep 'career criminals who rape women, molest children and commit murder behind bars where they belong.' The complete text of the bill swept far more broadly. ... But in California, 'serious' is a term of art that can also include crimes like Norman Williams's nonconfrontational burglaries. After a second-strike conviction for such an offense, almost any infraction beyond jaywalking can trigger a third strike and the life sentence that goes with it. One of [Michael] Romano's clients was sentenced to life for stealing a dollar in change from the coin box of a parked car. ... Now California is in the midst of fiscal calamity", Emily Bazelon at the NYT, 23 May 2010, link:

http://www.nytimes.com/2010/05/23/magazine/23strikes-t.html.

My favorite three-strikes criminal stole three 75 cent candy bars from a convenience store. At $62,000 a year, California's taxpayers will spend about $1.6 million to incarcerate him for the next 25 years. Over $2.25! Really! The Mikado's Lord High Executioner would not be pleased. As a practical matter most three-strikers will be parolled; eventually. My barber opposed this law. I asked him why. He said because it would make witness murders "free". Why not kill the witness? It won't add to your time. I told him strictly speaking it would cheapen witness murders as robberies accompanied by murders would be more likely to be investigated than "straight" robberies. He thought about this for a minute, said I was right and still opposed the law. My barber was a college dropout who took one economics class at NYU in the late 1940s.

New Texas Taxes?

2010-06-06T07:31:00.000-07:00

"From car washes to tattoos to bottled water, the list of items and services exempt from the sales tax totals $30 billion in forgone revenue--a tempting target for some lawmakers as the state faces a budget gap as big as $18 billion. ... [Rene] Oliveira's plowing ahead with his work, which has included determining the policy reason for each exemption and whether that reason remains vaild. Other lawmakers have joined in seriously discussing the idea of removing some exemptions. ... 'Certainly a sales tax on food, medicine and providers of medical services would probably not receive any serious consideration,' [Olivera said]. ... The state sales tax is 6.25 percent, and local taxing jurisdictions may impose additional sales taxes of up to 2 percent. ... Senate Finance Committee Chairman Steve Ogden R-Bryan, said any change in exemptions should be part of an overall tax reform effort and should be revenue-neutral, meaning any additional money raised would be used for something such as lowering the tax rate", my emphasis, Peggy Fikac at the Houston Chronicle, 31 May 2010, link:

http://www.chron.com/disp/story.mpl/headline/biz/7029819.html.

Texas budgets for two years, so the $18 billion is $9 billion a year. I have seen Texas become more aggressive in collecting sales taxes. Why go through this effort for a "revenue-neutral" result? Who are these guys kidding?

Incentives Count

2010-06-05T16:27:00.000-07:00

"Why are profit-seeking corporations so much more efficient and innovative that bureaucracies? A significant part of the answer to that question lies in the fact that bureaucracies are often hamstrung by legislation, and amending legislation is always a cumbersome and politics-ridden process. But another significant part of the answer lies in the phrase 'profit-seeking.' ... For the employees who come up with the really bright ideas prosper even more than their fellow workers, being rewarded with raises, bonuses and promotions. ... In fact, they are highly disincentivized to increase efficiency and to innovate. In business a penny saved is a penny earned, the savings flowing to the all-important bottom line. But in a bureaucracy, a penny saved is a penny likely to be cut from next year's budget. And prestige in a bureaucracy comes not from profit but from the size of one's budget. So even accidental savings are likely to suppressed with make-work. ... Had the personnel of the [SEC] been as richly and personally incentivized to uncover securities fraud as the sailors of the Royal Navy were to capture enemy ships, Bernard Madoff would have been in jail years ago", John Gordon at the WSJ, 14 May 2010, link: http://online.wsj.com/article/SB10001424052748703915204575104113794207730.html.

I have commented on the role of incentives many times. Gordon, welcome aboard.

Obama in Wonderland

2010-06-05T07:06:00.000-07:00

"When I was a little girl, at the height of the Cold War, I used to wish, deeply, and fervently, that nuclear weapons had never been invented. An accompanying fantasy placed me at the center of world events. Just as the two superpowers were preparing to launch a devastating exchange of nuclear weapons, I would step between the two. Seeing an innocent child, the hard-boiled men of the world would soften and reconsider their terrible course. In other words, at the age of seven or eight, I was a liberal. As I grew, I came to understand a) that it was not possible to put the nuclear genie back in the bottle, and b) that the way to safety lay not in arms control but in strength prudently pursued. Liberal approaches to foreign policy continue to rely more on wishful thinking than on realism or maturity. But even in the context of liberalism, President Obama's recent policy declarations on the matter of nuclear weapons are juvenile and disturbing. ... Here's a thought experiment: Imagine that all of the existing nuclear powers agreed that their weapons were more of a threat to 'peace and security' than they were worth, and voluntarily destroyed them all. Would the world immediately become a safer place? No. It would become far more dangerous. ... So, one outcome might be that North Korea would instantly become a superpower. ... We have to insist, 'Yes, we can.' That's security policy by bumper sticker. ... So as Iran closes in on a nuclear weapon--a result the adminstration has repeqatedly declared to be 'unacceptable'--the administration is getting really serious by ... setting a good example. ... Underlying all of these naive gestures is the belief that it is the weapons that threaten the peace, not their owners. ... This is a fatuous distraction from the main issue--Iran. It is also a transparent attempt to gang up on Israel. ... But above all, it ignores the glaring fact that the treaty has been a total failure", Mona Charen (MC) at National Review, 11 May 2010, link:

http://article.nationalreview.com/433868/a-world-without-nuclear-weapons/mona-charen.

"Now boys and girls, remember, in case of nuclear attack do not face the windows. You don't want to have your faces hit with flying glass. Duck and cover!". I remember. I never shared MC's fantasy. Arms control? Anyone remember 1922's Washington naval conference? Boy, I must have been a skeptical kid. I made MC's "thought experiment" in 1958! Really!!!!! Concluding the experiment would fail. Now Obama aren't "arms for hugging"?

Spengler Exposes Petraeus

2010-06-04T16:34:00.000-07:00

"Memo to heads of state: beware the clever general who turns up at a tough moment, and says 'Leave it to me. I can fix it for you.' ... General David Petraeus, who heads America's Central Command (CENTCOM), taught the land to live off him. Petraeus' putative success in the Iraq 'surge' of 2007-2008 is one of the wierdest cases of Karl Marx's quip of history repeating itself first as tragedy second as farce. The consequences will be similar, that is, hideous. ... And now America is engaged in a grand strategic withdrawal from responsibility in the region, leaving behind men with weapons and excellent reasons to use them. ... With American money, weapons and training, the remnants of Saddam Hussein's regime have turned into a fighting force far more effective than the defunct dictator's state police. ... America is pouring money--which is to say weapons--into disputed areas of Afghanistan, and building the core of a Palestinian army. The latter's mission is to impose a pro-Western Palestinian government on a population of whom two-thirds oppose the two-state solution. It more likely will end up fighting Israel. ... Iran is patient, playing for time, possibly to acquire nuclear weapons--which Washington has all but conceded--and until the Americans withdraw, which they must sooner or later. ... Having armed all sides of the conflict and kept them apart by the threat of arms, the [US] now expects to depart leaving in place governments of national reconciliation that will pursuade well-armed and well-organized militias to play by the rules. ... At some point the whole sorry structure will collapse, and no-one knows it better than Petraeus. ... Petraeus made his reputation on the surge, and needs someone to blame for its prospective failure. His choice is Israel. ... 'The upshot of this could not be clearer: Petraeus is echoing the narrative peddled incessantly by leftists in the government he serves and by Islamists in the countries where he works.' ... Because Petraeus sold the 'surge' to former president George W, Bush, allowing the Republicans to claim a certain degree of success for the largely unpopular Iraq War, his influence vastly exceeds that of a career officer. ... The Republicans are like investors involved in a Ponzi scheme; if any of them disavows it, everyone will, and the scheme will collapse. In order to justify their past support of nation-building in Iraq, they have difficulty disowning Petraeus--even when Petaeus puts the onus for the failure of American policy on Israel. ... Petraeus' formulation lends respectability to the fanciful idea that Iran would listen to reason if only Israel would stop building apartments in East Jerusalem. ... There is not a government in world that believes that 'effective sanctions against Iran' are anything more than a euphemism for catastrophic failure of American policy. ... If the [US] merely is going through the motions, why should the Russians or Chinese prejudice their commercial interests in order to assist the face-saving inanities of American diplomacy?", Spengler at Asia Times, 3 May 2010, link:

http://www.atimes.com/atimes/Middle_East/LE04Ak01.html.

I agree with Spengler. As usual.

California Today, Texas Tomorrow?

2010-06-04T07:36:00.000-07:00

"If you want to see how profoundly the state's population is changing, look at the faces of the children in Texas public school classrooms. In all but rural areas, Hispanic enrollment is rapidly surpassing that of whites. Hispanic schoolchildren make up nearly 49 percent of Texas' 4.8 million pre-K through 12th-grade students, according to the Texas Education Agency. ... Now, they must confront the realization that the state is not adequately funding education of a growing population that is generally poorer and less proficient in English. ... The shift appears to be driven by birth rates and immigration, not simply 'white flight' to private schools. The gap grows every year and is wider in the early elemanetary school grades, where Hispanic children now make up a majority. ... But the combination of high numbers of limited english-proficient students, even higher numbers of children from low-income families and persistently high dropout rates worry some educators and demogaphers. During the past decade, enrollment from low-income families has grown to 2.8 million, or nearly 59 percent of all students. The number of English-language learners has increased to nearly 816,000. ... Manuel Rodriguez Jr, president of the Texas Mexican American School Board Association and a member of the Houston ISD board [said], 'millions and millions have been spent on dropout prevention measures, and it hasn't changed the numbers.' ... Steve Murdock, now on the faculty of Rice University [said], 'The demographics are very overpowering, and we clearly show signs of falling farther behind. It is, as we have noted, the major challenge to Texas' future'," my emphasis, Gary Scharrer at the Houston Chronicle, 16 May 2010, link: http://www.chron.com/disp/story.mpl/metropolitan/7007046.html.

"If the American Dream is upward economic mobility and arrival in the middle class, the grim statistics show only a small percentage of Texas' Hispanics are on the road to success. As the state's Latino population continues to expand over the next two decades, if current treands stay the same, Texas is in danger of developing what one academic describes as a 'permanent underclass.' Widespread poverty could pull down the standard of living for all Texans. ... Hispanic girls accounted to 62 percent of all births to teen mothers in 2006, the most recent year reported by the National Center for Health Statistics. ... St. Mary's University political scientist Henry Flores said ... 'Texas has been the cradle of the Hispanic middle class, what there is of it nationally. ... But if you look at the overall percentages of Hispanics of higher degrees and professional occupations, it's very, very small.' ... 'If things don't change, you're going to see a continuing Hispanic underclass'," RG Ratcliffe at the Houston Chronicle, 17 May 2010: http://www.chron.com/disp/story.mpl/headline/metro/7008236.html.

Quoted without comment.

Isn't creating an underclass what our "open borders" advocates want? "Feature, not bug", as Yves Smith says. If we didn't have enough poor people, what would our poverty warriors fight? What's Flores' problem? Absent an underclass, what would he have to study? See my 4 April 2008 post:

http://skepticaltexascpa.blogspot.com/2008/04/no-mexican-child-left-behind.html. As Texas demographics approach Mexico's, Texans average living standard will approach that of Mexicans. It's that simple.

Oswald Spengler Confronts America

2010-06-03T16:15:00.000-07:00

"A couple of months ago, I by accident came across a book called In God's Image: The Natural History of Intelligence and Ethics. One of the blurbs on the back was written by Richard Lynn, so I thought it might be worth a look. ... Why can't we get people to wake up to the demographic crisis America is facing? Mostly because prehistoric man gained little from thinking about the distant future. ... Also, before private property, there wasn't much you could do for those more than one generation removed from you anyway. So evolution selected those who looked after themselves and their own children, and against idealists who dreamed of changing the world. ... Death rather than advancement is the fate of most species. ... The white population of South Africa stayed constant over the twentieth century while the number of blacks doubled every few decades. The whites are now being driven out of the country that they built. ... [Gerhard] Meisenberg believes that he's come up with a theory about the workings of history. Think Oswald Spengler meets biohistory. ... At the most primitive level of development, people have only magical explanations for the workings of the universe. Manliness and patriarchy are in style. Intelligence is selected for, as the very weakest die out. ... Finally decadence sets in. Hedonism, feminsim and materialism are the preferred values. Faith declines, and scientific (or at least scientistic) arguments replace religious and magical ones. The population drops as people smart enough to plan ahead limit their fertiity in order to have more money for self-fulfillment. ... But the stupid and irresponsible continue to breed away, as compassion and medical advancement make sure that almost anyone who is born lives to pass on his genes. Instead of the eugenic Flynn effect, we see dysgenics. Civilization collapses and people go back to their original primitive state. ... So, Like Richard Lynn (and myself), Meisenberg sees the future of the West in the long run as a tug-of-war between technology used for eugenic purposes pulling us one way, and dysgenic differential fertility and immigration pulling another", my emphasis, Richard Hoste at Vdare, 20 February 2010, link:

http://www.vdare.com/hoste/100210_spengler.htm.

As it is written, "If anyone does not provide for his relatives and especially for immediate familiy, he has denied the faith and is worse than an unbeliever", 1 Timothy 5:8 (NIV). Those who bear children they cannot support would appear to lack biblical sanction. In 1938 Cyril Burt wrote of "differential fertility" and the danger if had for England. We are becoming the dystopia of "Idiocracy".

Mayor Reconquista's Tactical Retreat

2010-06-03T07:49:00.000-07:00

"To get from downtown to the residence of the man who, in 2005, became the first Hispanic elected mayor since 1870, you drive through a sliver of Korea. With 125,000 people packed into 2.7 of the city's 469 square miles, Koreatown is typical of this polyglot city where more than 100 languages are spoken and nothing is typical except recentness: 46 percent of the residents are foreign-born. So when His Honor Antonio Villaraigosa [AV] was invited to appear at a recent rally protesting Arizona's law concerning illegal immigrants, he went. But he stipulated: 'I want American flags.' ... They say [AV] should 'face the fact' that 'between now and 2014 the city will likely declare bankruptcy.' [AV] says this will not happen. But look at what has happened. ... So [AV] must like with the arithmetic of interest-group liberalism. The federal government, he says, can run deficits and print money; the state government (supposedly) must balance the budget but can push burdens down onto cities. There, he says, 'you have 10 cookies in the cookie jar and every interest wants all 10.' The nightmare numbers include the state's unemployment rate (12.6 percent)--it is higher than the nation's (9.9)--and the city's rate (13.5), which is higher than the state's. The city's long-term success depends on its schools, in which many of the children come from homes without fathers", George Will at Newsweek, 17 May 2010, link: http://www.newsweek.com/id/237640.

If LA's future depends on 73%-Hispanic LAUSD, it is bleak. Think about this: AV told his handlers which flags not to bring. Would AV want American flags at a similar rally in say 2020? Remember, AV is a former La Raza member. Hahahahaha. Do you still want to own California muni bonds?

Greece Today, America Tomorrow

2010-06-02T16:15:00.000-07:00

"Are Europe and America headed to where Athens is today? ... Protected by the [US] through a half-century of Cold War, Europe cut back on defense and ratcheted up spending for La Dolce Vita. ... As the cradle-to-grave welfare states rose, an ever-increasing share of the labor force left the private sector for the security of the public sector. ... The fertility rate of Greece and every European nation fell below 2.1 births per woman needed to replace an existing population. Greece's birth rate has been below zero population growth for three decades. ... Were Greece a company, the solution would be bankruptcy. ... Because, should Greece decide not to take a chainsaw to her welfare state, but walk away from her debts and default, she would blow a hole in the balance sheets of the biggest banks in Europe. ... Rather than savage their welfare-state programs, and risk riots in the streets and a massacre at the polls, Madrid and Lisbon, too, might look ageeably at default. ... For how much longer will Greeks work longer, retire later and live on smaller pensions, so holders of Greek bonds can get their interest payments right on time? ... But the crisis will return. For the nations of Europe have made commitments beyond their capacity to keep, given their growing debts and aging population. ... And the unfunded liabilities of Social Security, Medicare and federal pensions rival those of Western Europe. States like California and New York, larger than Greece, look a lot like Greece. ... While the temptation is great for Washington to bail them out again, the [US] government itself has now begun to attract the concerned notice of holders of US debt", my emphasis, Pat Buchanan at World Net Daily, 6 May 2010, link:

http://www.worldnetdaily.com/index.php?pageId=150649.

"Crisis--from the Greek word 'Krisis'--is one of the many English words we owe to the ancient Athenians. Now their modern descendants and reminding us what it really means. ... So serious was the situation that it took a European version of the 2008 TARP bailout of US banks to save the euro. ... If fully implemented, it will be the mother of all bailouts--and one of the biggest admissions of error in modern financial history. The design of the European currency has been fatally flawed from the outset. It just took the Greek crisis to expose it. .... It would end forever the exchange-rate volatility that has bedeviled the continent since the breakdown of the Bretton Woods system of fixed exchange rates in the 1970s. ... A single European currency also seemed to offer a sweet deal. Countries with excessive public debt would get German-style low inflation and interest rates. And the Germans could quietly hope that the euro would be a little weaker than their own super-strong Deutsche mark. ... But the worst defect in the design of the Economic and Monetary Union (EMY), we argued, was that it united Europe's currecies but left its fiscal policies completely uncoordinated. ... The design of the EMU illustrates a profoundly important truth about human institutions. Just because you don't create a formal procedure for something you would rather not happen, that doesn't mean it won't happen. ... Problem solved? Unfortunately not. ... For one thing, it's simply not credible that the Greek government will be able to deliver the fiscal tightening it has promised at a time of deep recession. ... It will surely be at least a year before investors wake up to the fact that the fiscal predicament of the [US] is actually worse than that of the euro zone", Niall Ferguson at Newsweek, 24 May 2010, link:

http://www.newsweek.com/id/237645.

In about 1985 I remember reading a Fortune interview of Barton Biggs (BB). The substance of what BB said was, "The notion of 250 million South Americans slaving away in the hot sun to repay some New York banks does not comport with my notion of political reality". Well said BB Mine neither. Between now and 2017 I expect the "Venezuelanization" of most of Europe and the US. Got bonds? Sell while there's still time.

I disagree with NF. The Greek bailout did not save the euro. It saved banks holding Greek paper. It will kill the euro. There is nothing any European country could have done with respect to taxing and spending before the coming of the euro it couldn't do after. The euro was and is a "whole lotta nuttin". The euro was sold as a piece of financial engineering!

Collegescam

2010-06-02T07:43:00.000-07:00

"In a town dominated by the University of Missouri's flagship campus and two smaller colleges, higher education is practially a birthright for high school seniors like Kate Hodges. ... But in June, Hodges is headed to the Tulsa Welding School in Oklahoma, where she hopes to earn an associate's degree in welding technology in seven months. ... The notion that a four-year degree is essential for real success is being challenged by a growing number of economists, policy analysts and academics. ... They pose a fundamental question: Do too many students go to college? ... President Barack Obama wants to restore the country's status as the world leader in the proposrtion of citizens with college degrees. The US now ranks 10th among industrial nations, behind Canada, Japan, Korea and several European countries. ... And while the unemployment rate for college graduates still trails the rate for high school graduates (4.9 percent versus 10.8 percent), the figure has more than doubled in less than two years. ... At Rock Bridge High School, one of Columbia's two high schools, 72 percent of the class of 2008 moved on to four-year colleges, with another 10 percent attending community college. That college attendance rate is consistent with national statistics. ... Ohio University economics professor Richard Vedder blames the cultural notion of 'credential inflation' for the stream of unqualified students into four-year colleges. His research has found that the number of new jobs requring college degrees is less than the number of college graduates. Vedder's work also yielded something surprising: The more money states spend on higher education, the less the economy grows--the reverse of long-held assumptions", my emphasis, Alan Zagier at Yahoo, 15 May 2010, link:

http://news.yahoo.com/s/ap/20100513/ap_on_bi_ge/us_too_much_college.

I keep saying compare the US to our new peer group members: Mexico, Argentina, Colombia, etc. What's the problem? What did Vance Packard tell us in 1959, see my 23 August 2008 post: http://skepticaltexascpa.blogspot.com/2008/08/college-investment.html. I am not surprised with Vedder's result. I've believed college is largely a waste of money for about 40 years. Consider: college attendance is subsidized. Should that tell you something?

Left and Right vs. The Center

2010-06-01T16:58:00.000-07:00

"Sen. Bernie Sanders can seem like a character from another era with his rumpled suits and oratory about economic justice. But his anger at bankers and Wall Street runs high, Congress's only self-declared socialist is moving to center stage. ... Mr. Sander's amendment, which is likely to be voted on within days, is worrying White House officials, who say it would violate the central bank's independence and cripple its ability to protect the economy. ... The amendment has drawn an unusally broad alliance of backers. Mr. Sanders's 19 co-sponsors include such liberals as Sen. Patrick Leahy (D., Vt.) and conservatives like Sen. Jim DeMint (R., SC). The measure is supported with equal fervor by the AFL-CIO labor union and the conservative lobby group Americans for Tax Reform. ... 'Nobody in America, or very few people, think that makes any sense at all,' he said. 'Putting trillions of dollars at risk, and you don't know who got it, who made the decisions, the possible conflicts of interests, what they did with it?' ... Critics say the auditors would be able to interview Fed policy makers and staffers and monetary-policy decisions, a scenario they say would weaken investors' confidence that decisions are free from politicial influence. ... 'One of the great strengths of our financial structure is that we keep monetary policy separate from the political winds of the day,' Sen. Judd Gregg (R., NH) said in an interview. 'That was the whole idea in setting up the Fed'," my emphasis, Naftali Bendavid at the WSJ, 5 May 2010, link: http://online.wsj.com/article/SB10001424052748704866204575224591171078912.html.

Amazing. I agree with Sanders. Kill this monster. Is Gregg crazy? I now have 2012's winning ticket: Putin-Sanders!

That Four-Letter Word Again

2010-06-01T07:42:00.000-07:00

"Washington's elites are quietly preparing a post-election fiscal compromise that will fund much of President Barack Obama's domestic spending agenda with huge tax increases. ... But there is an alternative. The US could return to a gold standard, a system that would not only prevent the government from running chronic budget deficits but would also curb attempts to manipulate the value of the dollar for political reasons. ... The value of a gold standard was proven in the 19th century. ... Countries that adopted to international gold standard prospered. This remarkably successful monetary system only blew apart with the outbreak of World War I in 1914. The reason it came apart then--and not at other times when countries abandoned the gold standard to finance wars with deficit spending--was that World War I was the first conflict to affect every major economically advanced country in the world. ... This might not have mattered, and the major economic powers might have re-established a monetary system similar to what existed before the war if not for the central reason why political elites dislike the gold standard: It leaves them little room to run the economy and claim credit for its successes. ... But their deeper reason is that they prefer to retain power over the economy that they would not have under a gold standard. ... But foreign central banks don't stack their greenbacks in vaults. They maintain monetary reserves mainly as interest-bearing US government-backed debt securities--in effect, as unsolicited loans to the US government. ... That increase in borrowing capacity creates liquidity that is unrelated to any need of Americans involved in economic transactions. ... The government of Charles DeGaulle, president of France from 1958 to 1969 and a supporter of returning to the gold standard, once assailed this American liquidity advantage as as 'exorbitant privilege.' ... Now Ben Bernanke's Fed is repeating recent patterns of keeping interest rates too low for too long, creating new bubbles and risking a whack-a-mole encore: 1970s-style stagflation. ... The first step in cutting off the addictive flow of foreign central-bank capital to Washington is an American commitment to a dollar convertible to gold on a date certain. The second step is allowing the market, in the run-up to that date, to find and fix a dollar price of gold that would encourage other nations to replace their dollar reserves with gold holdings as their new monetary base, whether or not they choose initially to join the new international gold standard. ... Legislation restoring dollar-gold convertibility should be accompanied by passage of a constitutional amendment guaranteeing the American people a right to conduct their economic affairs in gold, regardless of the future status of gold as the official money of the [US]", my emphasis, Sean Fieler and Jeffrey Bell (F&B) at the WSJ, 7 May 2010, link:

http://online.wsj.com/article/SB10001424052702303695604575181693906532202.html.

Absent repealing the Federal Reserve Act any US gold remonitization will be another scam to be reversed at Uncle Sam's whim. F&B work at the American Principles Project. See my 8 January 2009 post:

http://skepticaltexascpa.blogspot.com/2009/01/galbraiths-dialectic.html.

Eisenhower's Warning

2010-05-31T16:14:00.000-07:00

"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:

http://online.wsj.com/article/SB10001424052748704250104575238841836433282.html.

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

2010-05-31T07:43:00.000-07:00

"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:

http://www.worldnetdaily.com/index.php?pageId=151689.

"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:

http://www.americanthinker.com/2010/05/the_real_reason_the_left_loves.html.

I agree with Michael Panzer's interesting 22 May 2010 post at When Giants Fall about Turkey, Iran and nuclear weapons, link: http://www.economicroadmap.com/2010/05/not-so-positive.html.

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: http://skepticaltexascpa.blogspot.com/2009/01/usa-rip.html.

Christie as FDR

2010-05-30T16:53:00.000-07:00

"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:

http://www.nytimes.com/2010/05/04/nyregion/04christie.html.

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

2010-05-30T07:11:00.000-07:00

"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: http://online.wsj.com/article/SB10001424052748703880304575236290266862342.html.

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!

IRS Doublecross?

2010-05-29T16:30:00.000-07:00

"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: http://online.wsj.com/article/SB10001424052748704866204575224651536102026.html.

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

2010-05-29T07:55:00.000-07:00

"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: http://www.latimes.com/news/custom/topofthetimes/topstories/la-fg-israel-idle-20100511,0,6313284.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.

EU in Wonderland

2010-05-28T16:28:00.000-07:00

"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: http://online.wsj.com/article/SB10001424052748704879704575236572824559304.html.

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

2010-05-28T07:30:00.000-07:00

"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:

http://www.americanthinker.com/2010/05/defining_dumbness_down.html.

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

The WSJ's Got It!

2010-05-27T16:43:00.000-07:00

"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:

http://online.wsj.com/article/SB10001424052702303491304575188352960427106.html.

Yes, convenient. Coincidence? We don't think so. Why did the SEC choose this case? See my 5 May 2010 post: http://skepticaltexascpa.blogspot.com/2010/04/vampire-squidking-canute-of_25.html. 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

2010-05-27T07:34:00.000-07:00

"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:

http://www.time.com/time/magazine/article/0,9171,1987598,00.html.

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?

Old News at S & P

2010-05-26T16:44:00.000-07:00

"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:

http://www.nytimes.com/2010/04/23/business/23ratings.html.

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?

2010-05-26T07:30:00.000-07:00

"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:

http://online.wsj.com/article/SB10001424052748703322204575226721369616334.html.

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.

Indian Affirmative Action

2010-05-25T16:43:00.001-07:00

"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:

http://online.wsj.com/article/SB10001424052748703871904575215810722146240.html.

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:

http://skepticaltexascpa.blogspot.com/2008/09/dead-elephant-in-living-room.html.

ObamaCare Accounting

2010-05-25T07:15:00.000-07:00

"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:

http://online.wsj.com/article/SB10001424052748704423504575212422971814134.html.

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

Greece and California

2010-05-24T16:25:00.000-07:00

"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:

http://online.wsj.com/article/SB10001424052748703876404575200013667934980.html.

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?

2010-05-24T07:33:00.000-07:00

"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:

http://online.wsj.com/article/SB10001424052702304222504575174071159514594.html.

I wish Citigroup and its CPAs, KPMG, good luck. I last commented on Citi's deferred-tax assets on 16 March 2009: http://skepticaltexascpa.blogspot.com/2009/03/peter-wallison-advocate.html.

What's The Good News?

2010-05-23T16:10:00.000-07:00

"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:

http://online.wsj.com/article/SB10001424052748703832204575210244203411342.html.

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

2010-05-23T07:51:00.000-07:00

"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:

http://online.wsj.com/article/SB10001424052748704608104575219400863016496.html.

"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: http://online.wsj.com/article/SB10001424052748704342604575221700829646686.html.

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?

Russia Upgrades Penal Colonies

2010-05-22T16:27:00.000-07:00

"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:

http://www.nytimes.com/2010/03/23/world/europe/23russia.html.

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

Where is Eugene Fama on Portugal?

2010-05-22T07:18:00.000-07:00

"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: http://online.wsj.com/article/SB10001424052748704471204575210533489119748.html.

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?

Christie Ain't Old Hickory

2010-05-21T16:44:00.000-07:00

"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:

http://online.wsj.com/article/SB10001424052748704423504575211783113726408.html.

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: http://skepticaltexascpa.blogspot.com/2009/11/christies-potential-andrew-jackson.html.

Another Impossible Product

2010-05-21T07:41:00.000-07:00

"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:

http://online.wsj.com/article/SB10001424052748703572504575214723494032604.html.

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.

Stanford's 96%

2010-05-18T16:39:00.000-07:00

"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: http://pajamasmedia.com/blog/a-model-school-flops/

"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: http://www.americanthinker.com/2010/04/rethinking_education.html.

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: http://skepticaltexascpa.blogspot.com/2009/10/lake-wobegon-does-toronto.html.

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

2010-05-18T07:03:00.000-07:00

"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:

http://gatesofvienna.blogspot.com/2010/04/vast-canyon-of-gas-and-dust-inshallah.html.

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.

Even Bill Gross!

2010-05-17T16:21:00.000-07:00

"'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:

http://www.businessweek.com/magazine/content/10_15/b4173072286105.htm.

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

2010-05-17T07:13:00.000-07:00

"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:

http://www.americanthinker.com/blog/2010/04/china_wants_us_and_russia_to_d.html.

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.