Middle East Decision Time?

"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.

Indian Affirmative Action

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

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.

China's a Bubble-3

"James Tsai is the sort of MBA corporate recruiters covet. He went to a good prep school, earned a degree with honors from Middlebury College, and made vice-president in Bank of America's international wealth management group at the age of 26. ... And now he's hustling to land his first post-MBA job--in China. ... Every era has its version of the MBA dream. ... Now, the emerging narrative is about steroidal Asia and its promise of growth. At premier institutions such as the University of Chicago's Booth School, the University of Pennsylvania's Wharton School, and Northwestern's Kellogg, the percentage of MBAs taking jobs in Asia--including US students like Tsai as well as international students--has more than doubled in the past five yars, from roughly 5% of the graduating class to more than 10%. ... And right now, Asia is where the career velocity and opportunity are. 'This has never really happened before, except in little spurts, where you have a fairly large group of talented, recent MBAs asking for assignments in China, Vietnam, India,' says Jeff Joerres, CEO of global staffing firm Manpower. ... On Facebook, Twitter, and Skype, MBAs swap stories about the adrenaline rush of working in an emerging market and the joys of geographic arbitrage. ... The University of Chicago's Booth School is seeing so much interest from Chinese companies that it recently opened a career services office in Hong Kong. ... How much longer can the Asian allure hold?," my emphasis, Michelle Conlin at Businessweek, 22 March 2010, link: http://www.businessweek.com/magazine/content/10_12/b4171086653619.htm.

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

Israel and Iran

"The fact that Ha'aretz, Israel's left-leaning daily, found it necessary on February 17 to warn the Benjamin Netenyahu government not to attack Iran strongly suggests that the option is on the table. ... Hillary ... Clinton was quoted as saying that the 'evidence doesn't support' Iran's claim it is pursuing a peaceful nuclear program. ... Israel ... can act like an American client state, or a regional superpower. Either decision would have substantial costs. ... That is the concern of the editors of Ha'aretz: 'The chairman of the US Joint Chiefs of Staff, Admiral Michael Mullen, warned in Tel Aviv on Sunday of the unepected consequences of an Israeli attack on Iran, just as he did during the days of the [George W] Bush administration. ... No matter how much 'intelligence help' and diplomatic support' Israel might get from the [US], Israel's capacity to deliver conventional munitions at a distance of 1,250 miles (2012 kilometers) could not eradicate the Iranian nuclear program, which is located in hardened underground facilities. ... Iran's perceived attempt to acquire nuclear weapons, though, is not Israel's problem as such; the problem is that Israel is the ally of a superpower that does not want to be a superpower, headed by a president with a profound emotional attachment to a nostalgic image of the Third World. If America were in fact acting like a superpower, the problem would not have arisen in the first place, for the [US] would use its considerably greater resources to destroy Iran's nuclear program. Rather than focus on the second-order effect--the consequences of Iran's possible acquisition of nuclear weapons--Israeli analysts should consider the primary issue, namely the strategic zimzum of the [US]. The correct questions are: 1) can Israel act as a regional superpower independently of the [US], and 2) what would Israel do to establish its regional superpower status? ... To act as a regional superpower, Israel would have to take actions that shift the configuration of forces in its favor. ... First, the Sunni Arab states have a stronger interest than Israel's to stop Iran from possibly going nuclear. ... The Saudis have done everything but take out a full-page ad in the Washington Post to encourage the Obama adminstration to attack Iran. Prince Saud al-Faisal, Saudi Arabia's foreign minister, warned on February 15 that sanctions were a long-term measure while the world faces a short-term threat from Iran. Egypt reportedly has allowed Israeli missile ships to pass through the Suez Canal en route to the Persian Gulf. Secondly, Russia might well prefer to deal with Israel as an independent regional power than as an ally of the [US]. ... Russian-Israeli cooperation in a number of military fields has improved markedly during the past year, including the first-ever sale of Israeli weapons to Russia (drones) and Israeli help for the Russian-Indian 'fifth generation' fighter project", my emphasis, Spengler at the Asia Times, 17 February 2010, link: http://www.atimes.com/atimes/Middle_East/LB18Ak01.html.

I think Spengler has this knocked. Israel fought the Arabs in 1948 using Czech weapons. Huh? Did Stalin supply those? Yes.

June 1941, Again?

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

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

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

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

Pax Obamicana

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

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

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

Israel, Iran, Russia and Obama

"Iran has blamed the [US] for Sunday's suicide bombing in Sistan-Balochistan province in which six Iranian Revolutionary Guards Corps commanders were killed, as well as 37 other people. In an indirect way, the charge is true. ... The most dramatic response to Washington's abdication of power may be Israel's. ... A complex negotiation involving Russia and Israel is underway. ... The question is: what does Russia want from Israel in return for refraining from arming Iran? ... For the first time since World War II, America's rule of the skies may be challenged by its failure to invest adequately in the next generation of American aircraft. Russia and India have already agreed on joint development of a fifth generation fighter based on existing Russian airframes. ... If Israel joined the consortorium, the product might challenge the F-35 in the world market for military aviation. ... Were Israel to strike Iran during the next few weeks, it might do so not as a proxy for the US, but as part of a broader agreement with Russia. America may have missed the point of Russian policy. The entire issue of sanctions on Iran may seem like diplomatic idiocy to the Russians; the question, in Moscow's judgment, may come down to a digital decision: either attack Iran, or don't. ... The [US] may cast away its technological edge in air power without a second thought, but Russia understands that superpower status today depends more on military technology than any other factor. ... If Israel were to set back Iran's nuclear weapons development, the position of the Tehran regime would deteriorate, particularly at the expense of Pakistan. ... The world's attention will shift from the shadow-play of interests between Israel and the Palestinian Arabs, to the Pakistan-India theater. Pakistan is the natural center of militant Islam. ... What is most astonishing is that official Washington seems entrely oblivious to the crack-up of American influence occuring in front of its eyes. ... The reason for Obama's peculiar mode of governance, though, may have less to do with his apparent narcissim than with his objectives. It is a credible hypothesis that this president holds views that he cannot easily share, even with his own staff. ... There is some basis for the conjecture that his innermost sentiment is hard-core, left-wing Third World antipathy to the [US]", my emphasis, Spengler at Asia Times, 19 October 2009, link:

http://www.atimes.com/atimes/Middle_East/KJ20Ak03.html.

As ususal, I agree with Spengler. Obama is the first US president whose administration I've lived through who I suspect of treason. I can't believe double-Ivy League Obama is as ignorant as he appears. He is disarming the US and pushing Israel into Russia's lap. Brilliant.

Strategy?!

"While the Army struggles to train top-performing officers as strategists, the institution remains trapped in an operational culture. ... When the Pentagon stages a 'strategic review,' it's just a game of musical chairs for defense contractors. ... Afghanistan's no more than a big patch of worthless dirt, but we're obsessed with controlling terrain. Our true enemies, the terrorists of al-Qadia, aren't even in Afghanistan anymore--they were merely transient tenants of a terrorist motel. ... Meanwhile, extremists tear apart neighboring Pakistan, a state with nuclear weapons and five times Afghanistan's population. ... Pakistan has been sponsoring terrorist attacks against India, relying on us to prevent New Delhi from retaliating. In effect, we're protecting terrorists. But what if we reduced our commitment in Afghanistan, concentrated strictly on destroying our enemies (rather than on nation-building where no nation exists), and told Pakistan it was on its own. Without us to protect it from India, Pakistan would have to behave responsibly at last--or face a nuclear was it would lose catatrophically. ... But Afghanistan is the black hole of black holes, consuming forces, energy and wealth for a trivial return. ... Washington consistenly chooses expedience over long-term advantage. The greatest power in history no longer even knows what strategy is", my emphasis, Ralph Peters at Armchair General, November 2009.

Yes Peters.

What Gold Frenzy?

"'It could be your grandmother's gold or the gift of an ex-boyfriend,' said Erhard Oberli, the chief executive of Argor-Heraeus, a major refiner [in Mendriso, Switzerland] that processes roughly 400 tons of gold a year. 'Gold doesn't disappear.' ... Long considered the ultimate refuge for nervous investors, gold has climbed as the dollar has steadily weakened, budget deficits have expanded in the [US] and Europe, and central banks have continued to pump trillions of dollars into weak economies, creating fears of another asset bubble that will ultimately pop. ... Jim Rogers, an investor who has made his name investing overseas and in commodities, predicted to Bloomberg Television last week that gold might reach $2,000 an ounce--prompting a rebuke from Nouriel Roubini, an economist who gained attention for his early warnings about the global economic crisis. At a conference in New York on Wednesday, Mr. Roubini described Mr. Roger's forecasts as 'utter nonsense,' saying that there aren't any inflationary or economic pressures that would drive the price of gold to $2,000 an ounce. Even the most bullish of gold lovers were surprised last week when the Reserve Bank of India stepped in and bought 220 tones of gold from the [IMF] for $6.7 billion, a sign that other central banks might move away from dollar-denominated assets like Treasury bonds in favor of the precious metal. ... 'We have money to buy gold,' said Pranab Mukherjee, India's finance minister. 'We have enough foreign exchange reserves.' ... 'Gold has been around as an investment for 6,000 years,' Mr. Oberli said. 'When there is no alternative, it's there'," my emphasis, Nelson Schwartz at the NYT, 8 November 2009, link: http://www.nytimes.com/2009/11/08/business/global/08gold.html.

Disagreeing with Roubini, inflation is everywhere. Look. The inflationary pressures I see could drive gold to multiples of $2,000 an ounce. Unlike paper currencies, "gold doesn't disappear". Trillions of dollars? What is Zimbabwe Ben's marginal cost of producing a dollar? Or a trillion? How overvalued is it? When mankind sees "there is no alternative" it will return to gold. When? When the price is high enough. India's buying $6.7 billion of gold did not surprise me. It's peanuts in the world market.

What Gold Frenzy?

"'It could be your grandmother's gold or the gift of an ex-boyfriend,' said Erhard Oberli, the chief executive of Argor-Heraeus, a major refiner here that processes roughly 400 tons of gold a year. 'Gold doesn't disappear.' ... Long considered the ultimate refuge for nervous investors, gold has climbed as the dollar has steadily weakened, budget deficits have expanded in the [US] and Europe, and central banks have continued to pump trillions of dollars into weak economies, creating fears of another asset bubble that will ultimately pop. ... At a conference in New York on Wednesday, Mr. [Nouriel] Roubini described Mr. Roger's forecasts as 'utter nonsense,' saying that there aren't any inflationary or economic pressures that would drive the price of gold to $2,000 an ounce. Even the most bullish of gold lovers were surprised last week when the Reserve Bank of India stepped in and bought 220 tons of gold from the [IMF] for $6.7 billion, a sign that other central banks might move away from dollar-denominated assets like Treasury bonds in favor of the precious metal. ... 'We have money to buy gold,' said Pranab Mukherjee, India's Finance Minister. 'We have enough foreign exchange reserves.' ... 'Gold has been around as an investment for 6,000 years,' Mr. Oberli said. 'When there is no alternative, it's there'," my emphasis, Nelson Schwartz (NS) at the NYT, 8 November 2009, link: http://www.nytimes.com/2009/11/08/business/global/08gold.html.

Yes, NS, gold is "there", and has been for 6,000 years. When will the world remonitze gold? "When there is no alternative". Roubini, you are lost. Gold could easily go to multiples of $2,000 by 2017, perhaps 5-10X. Really. NS, don't speak for me. What's $6.7 billion on the world stage? Peanuts. Zimbabwe Ben can create that many dollars in five minutes!

India and Nukes

"Since World War II, US military dominance has underpinned the Asia-Pacific region's properity and relative peace. So it's cause for concern when one of America's closest allies sees that power ebbing amid unstable nuclear regimes such as Pakistan and North Korea and the expanding military power of China. In the preface to a sweeping defense review released Saturday, Australian Defense Minister Joel Fitzgibbon writes: 'The biggest changes to our outlook ... have been the rise of China, the emergence of India and the beginning of the end of the so-called unipolar moment; the almost two-decade-long period in which the pre-eminence of our principal ally, the [US], was without question.' ... But without sustained US defense spending and focus on the Asia-Pacific, it's unclear which nation will ulitmately dominate the region--and that could have profound effects on security and trade. ... In response to this outlook, Canberra is retooling its defense. It is doubling the size of its submarine fleet to 12 from six and buying about 100 Joint Strike Fighters, three destroyers and eight frigates", Editorial at the WSJ, 8 May 2009.

"Once, India was part of the problem. ... 'A stable, unitary Pakistan is in our interest,' says G. Parthasarathy, former Indian ambassador to Pakistan. And a Pakistan torn apart from the inside is an existential threat to a new India defined by an economic awakening and with a recently forged alliance with the US. ... India's election result gives President Barack Obama a pretext to drop his strange reluctance thus far to engage New Delhi, which got on famously with his predecesssor. After all, most of the worst-case scenarios in Pakistan (including nuclear war) involve South Asia's leading power. Start with Pakistan's nukes. From the Indian vantage point, Pakistani assurances, echoed by US leaders, about the security of the arsenal are worth little to nothing. Imagine the Taliban, another extremist group or rogue elements of the Pakistani military get their hands on one or more of the country's nearly 100 warheads. Then what? ... Compounding concerns are what Indian and US officials believe are ongoing Pakistani efforts to enlarge and modernize its nuclear arsenal, including by developing plutonium warheads, as well as to improve delivery systems. The Chinese, who share Islamabad's dislike of India, 'help us upgrade,' says a Pakistani official. That only serves to heighten Indian anxieties. ... But potentially more worrisome are signs of radicalization in the Punjab. Contagion in this traditionally moderate and most populous Pakistani province could encircle Islamabad and bring instability to India's borders. ... Team Obama wants India to draw down along the frontier and give Pakistan's military cover to shift forces westward against the Taliban. Back have come lectures from Indians about Pakistan's superior force strength on the border. India won't take orders from Washington lightly", my emphasis, Matthew Kaminski, at the WSJ, 22 May 2009.

Our actions are not being ignored by Iran or the Arab world either.

Does Obama think India is Israel? "Obama ... [has a] strange reluctance thus far to engage New Delhi". Hmm. Obama & Co., don't seem to like Netanyahu's Israel either. Hmm. How dare those damn Kaffirs, Hindus, not accept "Pakistani assurances" at face value. After all, Obama & Co. vouch for them. Suppose India withdrew say 100,000 troops from near the Pakistani border. Would Pakistan then redeploy its troops to fight the Taliban? I think not.

Price Watergate-5

"Hyderabad's Central Prison is no country club jail. ... Behind its hulking, metal-studded door live more than 900 men, held for crimes like pick-pocketing and murder. Then there are the two accountants. ... But Satyam's independent auditors, two partners from the Indian office of [PWC], say they are innocent and remain in prison, charged with multiple offenses, including dishonesty, cheating, falsification of accounts and using forged documents. ... In an interview in the prison's dim, noisy, concrete visitor's hall this week, the accountants said they were scapegoats for a system that failed to catch years of wrongdoing. 'I've been 31 years in this profession, and I have never seen auditors being booked.' said Subramani Gopalakrishnan, one of the jailed auditors and the founder of the [PWC] office in Hyderabad. ... [PWC] audited Satyam's books worldwide from 2001 until the company's founder, B. Ramaliga Raju, confessed in January that he had been manipulating the accounts for years and that more than $1 billion in cash on the balance sheet did not exist. ... [PWC], facing numerous shareholder class-action suits and investigations, is under intense pressure to prove that its partners were not complicit. But a preliminary report from India's Central Bureau of Investigation accuses the auditors of 'consciously' overlooking accounting irregularities and 'knowingly' certifying inflated and falsified data. In a petition for bail for the partners, [PWC] said that the government had 'no material or iota of evidence to even remotely suggest' that the partners 'had any knowlege' that Satyam documents were falsified. .. 'The whole world believes that preventing and detecting fraud is my responsibility,' [Srinivas Talluri] yelled through the wire fence. 'No concerns were ever brought to us by anyone.' He said he 'could not imagine'; the company would forge depository receipts, or balances on fake bank letterheads. Banks in India are not required to give balances directly to auditors, he added", my emphasis, Heather Timmons, 29 May 2009 at the NYT, link: http://www.nytimes.com/2009/05/29/business/global/29prison.html.

This is laughable. At best these two "auditors" should get an "ostrich instruction" if tried in a US Federal District Court. That they apparently chose not to get bank confirmations is their and PWC's problem. I think this admissible "res gestae" showing consciousness of guilt. Let the trier of fact decide. This has been US practice for about 60 years. Is PWC one firm"? Well PCAOB, did you know Indian chartered accountants don't get bank confirms? If not, why not? If CPA audits cannot detect material frauds, who needs them? This case seems to be PWC's world-wide declaration of incompetence, or worse. PWC, you should be ashamed of yourself. You, who does litgation support work, should know: fraud is inferred from acts. Fraud is rarely if ever "proven" through direct evidence. Anyone using PWC's litigation support services, take note. Apparently PWC don't know nuttin'. Has PWC world-wide seminars for its partners who audit SEC registrants? Did PWC mention US v. Simon, 425 F2d 796 (2d Cir., 1969)? I realize it's a 40-year old case, but in it, a Big 87654 CPA went to prison. He was a partner in Lybrand, Ross Brothers & Montgomery, a PWC predecessor. One reason fraud is as common as it is, is CPAs and attorneys are rarely indicted for aiding and abetting fraud. "Could not imagine"? What about "professional skepticism"? My last Satyam post was on 22 April 2009, link: http://skepticaltexascpa.blogspot.com/2009/04/satyam-and-pwc.html. I once saw this in a case, "to aver that an act is fraudulent is to aver a matter of law, not a matter of fact". The same act may be fraudulent or negligent. The difference is: intent.

Satyam and PWC

"Three employees from the finance department of software-services firm Satyam Computer Services Ltd. [SCSL] were arrested Sunday, while separately, the company's former chief financial officer told the head of an Indian accounting body that the company's outside auditors weren't complicit in cooking the books. ... Separately, Mr. Valdamani told the president of the Insititute of Chartered Accountants of India on Sunday that Satyam's outside auditors from Price Waterhouse weren't complicit in the fraud, said Uttam Prakash Agarwal, the president of the accounting body, in an interview. Price Waterhouse in the Indian affiliate of [PWC]. ... According to Mr. Agarwal, Mr. Vadlamani said the forged documents were given to the auditors and they 'relied on the documents provided by the management'," Jackie Range and R. Jai Krishna at the WSJ, 7 April 2009.

"The Indian federal agency investigating the accounting issues at [SCSL] said Tuesday it had filed charges of cheating and forgery against the former chairman of the Indian software exporter, B. Ramalinga Raju, and eight others. ... All the people charged worked for Satyam or a Raju family company except for Messers. Gopalakrishnana and Taluri, who worked for Price Waterhouse. ... Price Waterhouse said it was 'surprised and disappointed' that the CBI pressed charges against the two auditors. 'The fraud perpetrated by Mr. Maju and his cohorts was designed to and did circumvent PW India's audit process; the two Satyam audit partners--and PWC India--were victims of that fraud,' the statement said", my emphasis, Romit Guha and R. Jai Krishna at the WSJ, 8 April 2009.

This stinks. Was Vadlamani paid to try to exculpate PWC? I don't buy his story for a minute. Suppose the documents were forged, did PWC have the relevant banks authenticate them?

PWC makes a public profession of incompetence at best and expects it and its' partners to be let off the hook. I don't buy any of this. Pity poor PWC's "audit process". It's worthless as are PWC's audits. PWC, the fraud "victim", boo hoo.

Price Watergate-4

"The auditor PricewaterhouseCoopers [PWC] is overhauling its operations in India two months after starting an investigation into fraud at one of its Indian clients. The auditor, which has nine offices in India, said Thursday that it would make sweeping changes to 're-emphasize quality.' They include addind a five-member advisory board in India, appointing a new head of risk managment from outside India to oversee work done in the country and a new auditing team in India, and changing the managment in its office in Hyderabad. ... [PWC] has said that there was no evidence that the two auditors were complicit in the suspected fraud. Still the changes announced Thursday may raise questions about whether quality problems are more widespread in India. ... [PWC's] new advisory board will comprise four executives from outside the company and one [PWC] executive from outside India. A new head of quality assurance and risk management, who will review the company's work in India, will also come from [PWC] operations outside India. The global firm fully supports the new steps taken in India, Samuel A. DiPiazza Jr., chief executive of [PWC] International, said in a statement. 'It is essential that the quality, expertise and behavior and partners in PWC firms all over the world are, and are clearly seen to be,of the highest standards,' he said", Heather Timmons at the NYT, 6 March 2009, link: http://www.nytimes.com/2009/03/06/business/worldbusiness/06audit.html.

More PWC smoke and mirrors. Will PWC agree to be sued for its Indian "affiliate's" actions? If not, PWC doesn't exist. PWC can apparently force changes on its Indian affiliate, yet claims to be a legal separate entity. Well PCAOB, where are you? End this nonsense. Now. Did PWC fail to emphasize "quality" before? What does audit "quality" mean anyway? A new advisory board, bah humbug. More corporate governance nonsense. See also my 12 February 2009 post: http://skepticaltexascpa.blogspot.com/2009/02/price-watergate-3.html.

Whistleblowing, Why?

"Many whistleblowers--employees who alert their bosses to fraud or recklessness in how a business is being run--do not fare as well as the Fool. They are not only ignored, but are sacked for being persistent irritants and naysayers. Yet, many of those who disdain or sack whistleblowers regret it later. ... Sir James Crosby resigned this week as deputy chairman of the UK Financial Services Authority after a controversy over a whistleblower at HBOS, the banking group of which he was formerly chief executive. Paul Moore, the former head of regulatory risk at HBOS, accused Sir James of firing him for warning about the bank's rapid growth. ... Meanwhile, another whistleblower is discomfiting US regulators. Harry Markopolos, a former fund manager, gave the [SEC] a dossier of evidence that Bernard Madoff was running a Ponzi scheme. He was ignored until Mr. Madoff had drawn in $50 billion. ... There are two reasons why [whistleblowers are ignored]. One is that they can be annoying. ... Someone who is a fraudster or is knowingly taking reckless risks has, of course, a motive for suppressing a whistleblower. But in many cases, the managers to whom a whistleblower complains are not themselves at fault but but simply dismiss the complaint as wrong or overblown. ... But some things are more complicated. 'Some people become whistleblowers because they feel that they were denied a bonus or a promotion or were not treated property,' says Steven Skalak [SS], a partner of PWC who investigates corporate fraud. The second obstacle is that not all complaints are well founded. The details given by Mr. Markopolos may have been underestimated by SEC officials because he was a rival to Mr. Madoff and seemed to have an axe to grind", my emphasis, John Gapper (JG) at the FT, 14 February 2009.

"A whistleblower contacted US regulators more than five years ago with allegations that Sir Allen Stanford's businesses were involved in an 'illegal Ponzi scheme', the Financial Times has learnt, raising new questions about why authorities waited until last week to shut down the alleged $8bn fraud. ... Leyla Basagoitia, a former Stanford employee, raised a series of red flags about the tycoon's empire in a 2003 employment dispute with her company at a tribunal run by the US finance industry's self-regulatory body. Ms. Basagoitia also alerted the US [SEC] at about the same time, her lawyer said, echoing criticisms that the agency ignored early warnings about Mr. Madoff's alleged fraud. ... Basagoitia's allegations were denied by Stanford Group Company and dismissed by the dispute resolution panel. She was ordered to pay Stanford $107,782 in damages, in repayment of a loan advanced to her while an employee of the company", Robert Cookson, Michael Peel and Joanna Chung at the FT, 27 February 2009.

JG's is one of the stupidest articles I've seen in months. What difference does it make why one becomes a whistleblower? What matters is: was he right. PWC investigates corporate fraud, since when? PWC investigates low level employee fraud committed against corporations. Will SS go to India to find out what happened at Satyam and see how many hundreds of millions PWC should pay to settle lawsuits against it? SS discredits whistleblowers. That's what SS's corporate masters pay him to do. How many times in the last five years did SS testify in court that another Big 87654 firm screwed up an audit? My guess: none. Why listen to PWC? It's one more parasite. Didn't PWC audit AIG, recipient of $170 billion in federal bailouts? People who live in glass houses shouldn't throw stones. Who cares if Markopolos had an "axe to grind"? Was he right? See my 18 January 2009 post about Meaghan Moron, link: http://skepticaltexascpa.blogspot.com/2009/01/meaghan-moron.html and 3 March 2009 post: http://skepticaltexascpa.blogspot.com/2009/03/see-no-evil-speak.html.

Was the body FINRA, Mary Schapiro's old outfit? Will the "dispute resolution panel" be investigated? If so, by whom? Will anyone get indicted at: FINRA, the SEC or the law firm which represented Stanford? Don't hold your breath. Self-regulatory body? Whaat? Like the AICPA used to regulate CPAs auditing SEC registrants?

Woodrow Wilson Infects Obama's "State"

"President Obama and Secretary of State Hillary Clinton reportedly believe that the key to world peace is an international welfare state to equalize wealth distribution worldwide. Both the President and ... [Clinton] are on record as believing that they key to world peace and the end of Islamic Jihad is to buy-off the enemy with welfare benefits, funded by American taxpayers. ... Theirs is an approach based on social justice, the liberal-progressive hypothesis that institutions supporting private property rights foster unfair accumulation of wealth in the hands of greedy capitalists, leading to discontent. ... Those views are a reversion to pre-World War I progressivism, when European and American liberal-progressives were firmly convinced that the world was moving inevitably toward social perfection. ... In his exposition of positivistic philosophy and the Religion of Humanity, Auguste Comte had expressed confidence that all people of the world, after becoming aware of his new scientific era ethical principles, would voluntarily and happily come to study peace and harmony at his feet. ... The savagery of World Wat I, followed by the 1917 Russian Revolution, brutally questioned the validity of that worldview, as did the abject failure of the League of Nations. ... Apparently having learned nothing from the dismal showing of liberal-progressive foreign policy in the 19th and 20th centuries ... Obama and [Clinton] propose to run the same banner up the flagpole once again", Thomas Brewton, 25 January 2009 at http://www.intellectualconservative.com/2009/01/25/social-justice-as-foreign-policy.

Cherson has a 27 January 2009 post about Palestinian "refugees" history and unique "refugee" status. He compares their situation to Sikhs and Hindus thrown out of Pakistan in 1947 and Moslems who left India in 1947. He also notes that Israel has many Arabs who are descended from the 450,000 Arabs who stayed in Israel in 1948. Here's a link, learn some history: http://www.faithfreedom.org/2009/01/27/whom-gods-want-to-punish/

Let's see: Obama, AB Columbia, JD Harvard; Clinton, AB Wellseley, JD Yale. Three Ivy League degrees out of four. You might think these two know something. Islam's jihad began in 622 AD, long before Marx was born. Did either of these two ever hear the term, "jiyza"? What do they think Islamists believe Western foreign aid is? Fools! Do Islamists attack India or the Phillipines because of each's great wealth? What's going on here? See also my 11 September 2008 post: http://skepticaltexascpa.blogspot.com/2008/09/foreign-policy-and-other-realists.html.

Price Watergate-3

"Indian police arrested two partners of an Indian arm of accounting giant PricewaterhouseCoopers [PWC] Saturday on charges of criminal conspiracy and cheating in connection with the fraud investigation at Satyam Computer Services Ltd., [[SCSL], according to senior police official A. Siva Narayana. ... Srinivas Talluri and S. Gopalakrishnan, the two partners at [PWC], one of [PWC'] Indian businesses, couldn't be reached for comment Sunday. The men are in judicial custody. ... 'Like everyone else, we were shocked by the massive fraud at Stayam and by the steps undertaken to conceal it,' [PWC] said. ... The firm has offices in nine Indian Cities. [PWC] said that the Indian firm is a member of its international network and is owned by the Indian partners", Jackie Range at the WSJ, 26 January 2009.

"A U.S. judge issued a ruling in the Parmalat securities litigation that could worry large accounting firms with offices in many countries. ... At issue in Tuesday's ruling, by U.S. District Judge Lewis Kaplan of New York, was whether Deloitte Touche Tomahatsu potentially could be held liable for an allegedly defective Parmalat audit by its Italian member firm. ... 'This is huge,' says Stuart Grant, counsel for people who bought Parmalat shares. 'Judge Kaplan has finally made the law reflect reality. These accounting firms sell themselves as worldwide, seamless organizations. Now they are going to be held responsible in the same fashion'," Nathan Koppel at the WSJ, 29 January 2009.

"The Satyam case is just the latest in a sequence of events which have begged the age-old question: 'Where were the auditors?' ... First, BDO. A case next month will determine whether BDO International, the umbrella organisation that links all the BDO firms, is resposible for BDO Seidman, the US arm of the firm. ... If BDOI is brought in, this could open the floodgates for all sorts of litigation against the big accounting firms, which because they face unlimited liability in most countries, have sought to present a single global brand but to distance themselves from each other when trouble looms. ... 'It makes sense, that they want to have a brand just like IBM or Mercedes. But when they get sued, they say "that's not us, it's someone elase". No-one else gets to do that, why should accounting firms be able to?' says Steven Thomas, the lawyer leading the case against BDO. ... We also know that the PCAOB, the US audit regulator, was in India last spring and, as part of its inspections of US registered firms, looked at the Satyam files of PWC and raised concerns about the file with the firm", my emphasis, Jennifer Hughes at the FT, 29 January 2009.

"Common complaints about India's disclosure regime include the absence of a requirement on companies to file full balance sheets along with quarterly results. The other problems is enforcement. ... And almost no serious white collar criminal inIndia has ever served time after sentencing. ... 'Corporate crime in India can't be addressed by more laws or indeed more governance,' says Krishnamurthy Vijayan, executive chairman of JP Morgan Asset Managemant in Mumbai. 'I suspect that rapid and forceful action against the perpetrators is the main answer'," Joe Leahy at the FT, 30 January 2009.

PWC must be incompetant if it was "shocked by the massive fraud". This is a Captain Renault line from Casablanca, 1942. Some day the SEC may put an end to this Big 87654 fiction of being one firm for all purposes except being sued.

Judge Kaplan's ruling is over 30 years late. The SEC should have intervened in the case as should the PCAOB. I read Judge Kaplan's 30-page ruling. It looks good to me, link: http://online.wsj.com/public/resources/documents/parm.pdf.

How nice, the PCAOB "raised concerns". Why believe the PCAOB knows what it's doing? I agree with Thomas, the reform is long overdue: if you use the name PWC, and get sued, all PWC firms get sued. Period. Well Madame Schapiro, how about it?

I agree with Krishnamurthy. Corporate governance is another scam to put to bed.

Silver Blaze and the CPAs

"Here's hoping the big audit firms get busy living, and start sounding alarms at banks that are dying. ... And yet barely a glove has landed on the Big Four accounting firms that didn't bark. One after another, huge financial institutions collapsed last year bearing fantasyland balance sheets, while their accounting firms couldn't manage to find anything wrong. ... The public's patience may be running out. One sure sign in that investors are starting to blame big accounting firms for frauds at places they never even audited. .... Then there are the scandals where the firms have lots of explaining to do. Last week, PWC's India affiliate issued a statement about its work for Satyam Computer Services Ltd., which overstated its cash by $1 billion. The firm said its audits were conducted 'in accordance with applicable auditing standards and were supported by appropriate audit evidence.' The statement came only one day after Satyam's chairman disclosed the fraud. How could that have been enough time to conduct a thorough investigation? Beats me. ... Undoubtedly there will be pressure the next several weeks--if not express pleas by banking regulators--for auditors to let lots of phony asset values slide. ... KPMG, for one is fortunate to still be alive. On June 13, 2005, its new chairman, Timothy Flynn, ... promised that KPMG would 'go back to our core business' of auditing corporations and focus on being an audit watchdog. ... Almost four years later, we're still waiting for the auditor to bark at Citigroup Inc.", my emphasis, Jonathan Weil (JW), 16 January 2009 at http://www.bloomberg.com/apps/news?pid=20670001&refer=columnist_weil&sid=acBPDxgc7Et8.

JW's comments are like mine at my "31 More Years" series. PWC's deciding its Satyam audit was fine in one day is easily explained. PWC could have said that in one minute! Since any audit PWC does is by definition done in accordance with GAAS, why delay? JW hits at another area of concern: pressure on the Big 87654 to conceal banks' cooked books. Some people think replacing the Big 87654 with federal auditors would improve audits. Huh? Who will run the federal audit agency: the SEC, PCAOB or Social Security Administration actuaries? Who? Does anyone remember "regulatory capital" created to delay the S&Ls collapse? Or Congress recent attempt to have the SEC suspend bank mark-to-market accounting? A federal audit agency would be even more compromised than the Big 87654. As for the Big 87654 resisting Treasury, FDIC, SEC, OCC pressure to keep the banks afloat, can you imagine this: a Big 87654 firm buys newspaper ads in the WSJ, NYT, LAT, Chicago Tribune, WaPo, Houston Chronicle, SF Chronicle and Dallas Morning News that starts with: "Last night at 6:00 PM one of our partners, Jack Spratt (JS) received a phone call from Zimbabwe Ben (ZB). ZB told JS "the Fed put $25 billion into Megabank and if Big 87654 makes Megabank write its assets down under GAAP, Megabank would need $75 billion in writedowns, making it insolvent. That Big 87654 would help the Fed by letting Megabank not record the $75 billion. And oh, yes, Big 87654 would be in the good graces of the: Fed, Treasury, DOD, DOJ, etc., and would get billions in computer consulting contracts over the next five years. Further a grateful country would appreciate Big 87654's help in keeping Megabank alive". Big 87654 partners ain't got those stones. Imagine a Big 87654 having its general counsel stroll into the SDNY US attorneys office screaming that ZB attempted to aid and abet securities fraud, 18 USC 2, 1348. IA must be eating too many magic mushrooms to have dreamed this up.

JW apparently referred to the Sherlock Holmes story, Silver Blaze, 1892. See http://en.wikipedia.org/wiki/Silver_Blaze for a description of the relevant part of the story. The Big 87654 are paid not to bark. At least when they audit banks.

Price Watergate-2

"This week, Wipro, India's third-largest software exporter, revealed that it had been barred by the World Bank more than 18 months ago for four years for offering bank employees shares in its 2000 stock offer in the US. ... [Ramalinga] Raju, in judicial custody until January 23, has reportedly confessed to interrogators that he diverted Satyam funds in speculative land deals for Maytas. He came unstuck after land prices crashed in his home state of Andhra Pradesh. ... [Ramesh] Gupta, a former secretary of the Bombay Shareholders Association, predicted more checks for fraud at other clients of Satyam's auditor, PriceWaterhouseCoopers (PWC). Gupta in particular queried the credibility of PWC and its operations in Dalal Street, Mumbai's financial center. 'Why does PWC get four times the fee that other auditors of companies such as Infosys?', he asked. The Hyderabad police have raided the PWC office since the fraud confession by Raju. The multinational auditor, with offices in 150 countries, is yet to explain haw it passed Satyam's fudged accounts for eight years. ... The fraud opened numerous credibilty cracks, bringing market regulators, various government institutions and market analysts themselves under investigation. The Institute of Chartered Accountants of India (ICAI), which is looking into the role of PWC, is also likely to question market consultants Ernst & Young on its valuation of two Maytas companies, as well as the basis on which E&Y declared Raju the 'E&Y Entrepreneur of the year 2007.' ICAI is itself under the cosh, with the Mumbai-based Small Investors Grievances Forum declaring India's top chartered accountants body, the second-largest in the world, to be among respondents in High Court public interest litigation filed by the Forum on the Satyam fraud. ... The plethora of investigating agencies had not impressed cynics who fear too many sleuths probing the Satyam soup may be a complex coverup for senior politician friends of Raju", Raja Murthy, 16 January 2009 at http://www.atimes.com/.

"The fraud investigation at India's Satyam Computer Services Ltd. [SCSL] could spread to hundreds of other companies connected to the company's jailed founder, B. Ramalinga Raju, prosecutors said Friday. Investigators also have approached several banks to determine whether Satyam account statements were forged to show inflated cash balances, according to people familar with the situation. Satyam bank documents from India's largest private bank, ICICI Bank Ltd., had been forged according to a person familar with the matter", Eric Bellman (EB) and Jackie Range (JR) at the WSJ, 17 January 2009.

"[SCSL], the Indian outsourcer embroiled in a fraud scandal, used forged documents from at least four major banks to claim a cash balance in excess of $1 billlion, according to a person close to the investigation. Investigators have sent Satyam's account-balance statements and letters of confirmation of account balances to officials at HSBC Holdings PLC of the U.K., Citigroup Inc. of the U.S., and HDFC Bank and ICICI Bank Ltd. of India. Based on the banks' reviews, investigators have determined that the documents were forgeries, according to the person close to the investigation. Spokesmen for all four banks declined to comment", Geeta Anand and Romit Guha at the WSJ, 20 January 2009.

"The disgraced former chairman of [SCSL], B. Ramalinga Raju, used salary payments to 13,000 fictitious employees to siphon millions of dollars from the Indian outsourcer for land purchases, prosecutors said Thursday. Prosecutors said ... Satyam has only about 40,000 employees instead of the 53,000 it claims. ... 'The funds of Satyam have been diverted to many other companies,' K. Ajay Kumar, assistant prosecutor, told a packed courtroom. ... S. Bharat Kumar, a defense lawyer for the Raju family ... said it would be impossible for anyone to juggle 13,000 fake employee accounts", EB and Nirag Sheth at the WSJ, 23 January 2009.

"Satyam's former chairman had ticked all of the boxes normally associated with good governance. He had stacked his board with luminaries including professors from Harvard Business School and the Indian School of Business. He chose as his auditor one of the 'Big Four' international accountancies, PWC", Joe Leahy and James Fontanella-Khan at the FT, 23 January 2009.

"Prosecutors pursuing the fraud at [SCSl] said Tuesday the technology outsourcer's founder, B. Ramalinga Raju, should be denied bail because he could slow the investigation if released. Their assertions came after an employee of a company managed by Mr. Raju's familiy told police that he had been instructed to hide documents connected to land purchases by the Raju family, according to prosecutors and a court document reviewed by the [WSJ]. ... Meanwhile, Satyan's government-sponsored board hired Goldman Sachs and Aventus Capital to advise on strategic options", EB and JR at the WSJ, 28 January 2009.

Gupta's point is well taken. In 2008: Infosys paid KPMG $695,000; Satyam paid PWC $1,919,000 in fees. Infosys is slightly larger than Satyam. Did Satyam pay PWC say $600,000 for the (shoddy) audit and $1,319,000 to close its eyes? The ICAI suit is interesting. About 20 years ago, a plaintiff named the AICPA in an accounting malpractice case, alleging the AICPA's defective auditing standards gave rise to the plaintiff's damage. The suit was not permitted to proceed. We'll see if India's courts are more plaintiff friendly than America's.

Did PWC get bank confirmations and monthly statements directly from the banks in question? If not, why not?

Unless people at each of the banks made the forgeries and sent them directly to PWC, PWC is in big trouble here.

.

Disagreeing with Bharat Kumar, based on 1973's Equity Funding (EF) scandal, link: http://en.wikipedia.org/wiki/Equity_Funding, it was possible. What is impossible is PWC's not finding a fraud involving 24% of employee accounts. If PWC is so incompetant it couldn't find this, its license should be revoked and it should be put out of business. In the old days, 30 years ago, Arthur Andersen, remember them, used the "TFA", transaction flow approach to auditing. If PWC used TFA it could not have missed this. If the prosecutor is correct, many SCSL employees were involved in this as were some PWC partners and employees. Goldman Sachs (GSG), ready your CNC guillotine, it has some serious work to do in India. SCSL smells more like EF every minute, see US v. Weiner, 578 F2d 757 (9th Cir., 1978) which grew out of the EF case. In it, three CPAs went to prison, link: http://bulk.resource.org/courts.gov/c/F2/578/578.F2d.757.75-2973.html.

Good govenance, whatever that is, is another scam.

GSG? Will those who lost money in this scam arrange for GSG to sell their stock at original cost to the Fed?

Price Watergate

"The chairman of one of India's largest technology companies said he concocted key financial results, including a fictitious cash balance of more than $1 billion, sending shock waves across India and likely prompting investors to question other corporate results as the once-hot economy slows. B. Ramalinga Raju, founder and chairman of Satyam Computer Services Ltd., [SCSL] said in a letter of resignation that he also overstated profits for the past several years, overstated the amount of debt owed to the company and understated the liabilities. Eventually, he said, the scheme reached 'simply unmanageable proportions' and he was left in a position that was 'like riding a tiger, not knowing how to get off without being eaten.' ... Satyam--the name means 'truth' in Sanscrit--was audited by PricewaterhouseCoopers [PWC] and has had high-profile independent directors, including a Harvard Business School professor on its board. With 49 world-wide offices including eight in the U.S., Satyam was also one of India's flagship technology companies that have come to define a new, modern Indian industry that competes on the world stage. [PWC] said it was examining Mr. Raju's statement and declined to comment further. ... Immediate comparisons were drawn to the watershed in U.S. corporate accounting and governance standards that stemmed from the Enron crisis a few years ago", my emphasis, Niraj Sheth, Jackie Range (JR) and Geeta Anand at the WSJ, 8 January 2009.

"The implosion of [SCSL] may batter the World Bank, which kept quiet until last month about its suspicions the firm engaged in bribery", Bob Davis at the WSJ, 8 January 2009.

"The huge accounting scandal at [SCSL], ... could lead to an overhaul of corporate-governance standards in the country and force changes in how Indian companies do business. ... Yet there is no indication it was detected by the company's auditors, [PWC]. 'It's kind of hard to miss $1 billion of cash,' said Dennis Beresford, a former chairman of the Financial Accounting Standards Board, a U.S. accounting watchdog. ... It also could embarass the World Council for Corporate Governance, a London-based organization that helped create the 'Golden Peacock Awards.' Satyam received a Golden Peacock Award for Corporate Governance last year", my emphasis, JR and Joann Lublin at the WSJ, 8 January 2009.

"[PWC], the long-standing auditor of stricken software company Satyam, faces the prospect of disciplinary action by market regulator SEBI if it is found that it failed to verify the autheticity of financial documents furnished by the company. ... Independent auditors feel the regulator's approach may be too harsh. Officials at audit firms say that if they start verufying the veracity of all documents given to them, would become a full-fledged investigation into the company. ... 'How can we verify the authenticity of millions of pages while auditing a company with a turnover of thousands of crores in a few days?' said an auditor working with one of the big four accounting firms, who asked not to be named. Auditors certify that the financial statement reflect a "true and fair" picture of the state of affairs of the company, and not an accurate picture", he added. The SEBI official, however, rubbished this argument", my emphasis, Junior, 8 January 2009 at http://jraccountant.blogspot.com/2009/01/pwc-epic-indian-failure.html.

"Debate in Mumbai is now focusing on whether Satyam, India's fourth-largest computer software company, or its multinational auditors [PWC], was more to blame for what is possibly corporate India's worst scandal. ... Contrary to perceptions that this is a brand new financial scandal, the Satyam fraud appears to be the latest variant of financial scams involving manipulating information with the aim of duping investors, while involving regulatory and accounting practices not traditionally used in India. ... The general verdict of accountants in Mumbai is that Satyam's auditors blew it big time, whatever fraud and forgery the management could have produced to hoodwink them in a scandal that is estimated to have cost Satyam investors $2 billion on January 7 alone as the stock plunged by 77% on news of the fraud. ... PWC, formed in 1998 through the merger of Price Waterhouse and Coopers & Lybrand of London, faces a choice of either being found so utterly incompetent that it could not spot a $1.5 billion-sized accounting crater, or that it was party to the investor fraud that presented an annual 24% growth rate in Satyam balance sheets instead of an actual 3% growth rate. ... In other words, Satyam auditors have not apparently undertaken what traditionallly would have been the minimum independent verification of the client's accounts as a chartered accountant firm is supposed to do", Raja Murthy, 9 January 209 at http://www.atimes.com/.

"[PWC] , which signed off on [SCSL] finances for several years without detecting the fraud by Satyam's founder and chairman, defended its procedures on Thursday. [PWC] said, in a statement send by email, 'The audits were conducted by [PWC] in accordance with applicable auditing atandards and were supported by appropriate audit evidence.' It said it is cooperating with regulators. ... A [PWC] spokesman declined further comment. Srinivas Talluri, the [PWC] partner who signed off on Satyam's most recent annual accounts in Hyderabad in April last year, couldn't be reached. ... Also in his letter, Mr. Raju said the company's cash and bank balances had been inflated by more than $1 billion dollars. 'This is the easiest thing to verify,' said Vinesh Chandok, national managing partner of accountant Grant Thornton", JR and Scott Patterson at the WSJ, 9 January 2009.

"Indian authorities moved to contain the fallout from the fraud at [SCSL] by arresting the company's founder, firing its remaining board members and launching an accounting review of India's biggest publicly traded companies. ... In an unprecedented action, the government also said it will install directors on a new 10-member Satyam board that will meet within one week. A board meeting that had been scheduled for Saturday was canceled. ... The Securities and Exchange Board of India [SEBI], the chief markets regulator, said Friday it will review auditors' working papers relating to companies in the Sensex and the National Stock Exchange 50-share index in a bid to boost investor confidence in financial disclosures. ... C.B. Bhave, SEBI's chairman ... said recent results for big companies would be subject to peer review by another auditor; other company results will be subject to peer review by accounting firms on a random basis", Eric Bellman and John Kumar at the WSJ, 10 January 2009.

"If this scandal proves anything to transnational investors and corporations it would be that doing business in India may be less risky than doing so in the more criminal friendly USA. India is demonstrating that it has very little tolerance for white collar fraud and they are showing that corporate criminals will be swifly punished. It is yet to be seen if most of those arrested will bribe themselves out of trouble but so far the punishment is more severe than aything we see in the U.S. In contrast to India, the U.S. coddles its corporate criminals by allowing them to stay on the job with big pay raises, or giving them golden parachutes so that they can retire in the Bahamas", Rob Sanchez, 12 January 2009 at http://blog.vdare.com/achieves/2009/01/12/satyam-scandal-wont-change-anything/

"Suresh Senapathy, the chief financial officer of Satyam rival Wipro (WIT) said it was 'impossible to imagine that this could happen. I can't believe that five or six years' worth of misappropriated books and accounts missed the scrutiny of auditors'," Elliot Wilson at Barron's, 12 January 2009.

"The board at troubled [SCSL], freshly appointed by the Indian government, said it is looking for a new auditor. ... 'New independent accountants that we appoint shortly will restate the numbers and confirm the veracity of those numbers,' [Deepak] Parekh told a news conference in Hyderabad following the first meeting of the government-appointed board", Eric Bellman and JR at the WSJ, 13 January 2009.

"Indian regulators and police are trying to unravel how the chairman of [SCSL], who has admitted to falsifying corporate figures, may have managed for years to fool his top financial officer and the company's audit committee. ... Satyam's chief financial officer, Srinivas Vadlamani, was arrested over the weekend on suspicion that he was involved with fraud, forgery and other charges. In a written statement, presented in the local courts Sunday, Mr. Vadlamani said that while he wasn't directly involved in fudging the company's accounts, he knew that there was something suspicious for more than five years. The statement didn't say why he didn't report the suspicions. He said he wasn't in charge of keeping track of the company's deposits. 'I was specifically asked not to look into that area of operations,' Mr. Vadlamani said in the statement. ... Mr. Vadlamani didn't admit to any crime in the statement. ... Sandeep Parekh, a professor at the Indian Institute of Management in Ahmedabad ... said another clue came when an analyst from Mumbai-based securities firm Kotak Securities Ltd. [KSL] raised questions about why the company was keeping such large amounts of money interest-free current accounts rather than a 9% fixed deposit with a bank. Kawaljeet Saluja, a senior research analyst with the institutional equities arm of [KSL], raised the question during an investor call with Satyam in April, a [KSL] spokeswoman said", my emphasis, Eric Bellman and JR at the WSJ, 14 January 2009.

"[SCSL] began a search Wednesday for a new chief executive and new chief financial officer, while the software exporter's board named Deloitte Touche Tohmatsu and KPMG as interim auditors to assess the company's financial health. ... The new board had said Monday it would name new auditors to assess the true financial condition of Satyam, based in Hyderabad, India. Satyam is India's fourth-largest software exporter by revenue. ... In a separate statement Wednesday, [PWC] said its audit opinion on the financial statements of the software exporter may be rendered inaccurate and unreliable. ... 'We placed reliance on management controls over financial reporting and the information and explanations provided by management and also the verbal and written representations made to us during the course of our audits,' the firm said", Romit Guha at the WSJ, 15 January 2009.

"Minutes from a crucial December board meeting at [SCSL] shed light on how the giant outsourcer's directors would up approving two deals that were a key part of the massive fraud that has since engulfed the company. ... The deals at issue were the acquisition by Satyam of two infrastructure companies--Maytas Properties Ltd. and Maytas Infra Ltd.--that are run by the sones of the founder and then-chairman of Satyam, B. Ramalinga Raju. Mr. Raju also had a financial interest in the companies. ... In a prepared statement, Ernst & Young said it had prepared the valuation for another purpose and was 'not given to understand by any party, explicitly or implicitly, during the valuation exercise, about Satyam's plans to acquire Maytas Properties.' ... 'The proposed acquisitions have two complicated aspects--unrelated diversification, and realted party transcation,' said Krishna Palepu, a Satyam director and a Harvard Business School professor of corporate governance,who participated in the meeting by telephone conference, according to the minutes", Niraj Sheth and JR at the WSJ, 16 January 2009.

Shut the World Bank.

It is difficult to miss $1 billion in cash. I must hand it to PWC. I noted PWC avoided the ITF scandal in my 1 January 2009 post, http://skepticaltexascpa.blogspot.com/2009/01/cpa-triple-header.html, Not to be slighted, it gives us Satyam. Great going fellas.

This is too rich, a Big 87654 Indian Chartered Accountant doesn't think his clients financials need be stated accurately. He exposes a dirty secret of the CPA business, i.e., given the Big 87654's time constraints, many times they can't finish the work. It would take something lacking in Big 87654 partners to tell the SEC we can't finish audits when you want, a backbone. The damn SEC keep moving up SEC registrant filing deadlines. That's crazy. Indians use crores, 10 million and lakhs, 100,000 as counting units. 10 million rupees is $208,000 at R48.1 = $1.

Good luck PWC, fool or knave? Satyam's audited 31 March 2008 financials show $2,243 and $827 million of total assets and "investment in bank deposits" respectively. Were 65% of these assets fictitious? What did PWC look at? Who at PWC did this audit? The AIG audit team?

Chandok is correct. Auditing cash is simple.

Compare India's actions to those of US regulators. What would happen to: Mozzillo, Blankfein, Pandit, Fuld et. al., if they were in India.? I have bad news for Bhave. US peer review was a fraud. Why will India's chartered accountant peer review be anything else? SEBI's review of auditors' workpapers is nice. Will SEBI have its Meaghan Cheung (MC) do it? Will MC, who is currently "available" fly to Hyderabad and offer to do it pro bono to atone for her sins?

Sanchez has got it. Now if we can only find a way to ship say Bernie Madoff, Lloyd Blankfein, Richard Fuld, et. al. to China or India.

I can't believe it either.

We'll see if the new auditors conclude PWC's audit was deficient.

I find PWC's being unaware of this fraud inconceivable. Saluja asked a question any CPA should have asked during an audit as part of "analytic review". As for CFO Vadlamani, under US law he said enough to be convicted. US law has a "wilful blindness" concept, i.e., when you ignore the obvious, knowledge may be imputed to you. In criminal law, the judge gives the jury an "ostrich instruction". If Indian law follows the US, Vadlamani is going to prison. In all likelihood, along with many others. See West's criminal law key 772(5).

Isn't PWC wonderful? It now admits its opinions may be unreliable. What audit work did PWC do? SCSL's board should not hire any Big 87654 firm to do anything. Why? These firms cover up for each other whenever possible.

Now E&Y is in the pool too! All the Big 87654 are here. What was the valuation's purpose, if not in connection with a proposed merger? Satyam was smart. It had a corporate governance professor on its board. Governance, bah humbug! See my 10 August 2008 post; http://skepticaltexascpa.blogspot.com/2008/08/is-anyone-surprised.html.