Financial Engineering and BP

"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.

Yves Smith on the Spill

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.

Ode to Obama

"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.

Eisenhower's Warning

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

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.

Old News at S & P

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

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?

What 13th Amemdment?

"In October 2008, polls showed that the majority of the American people, 56 percent, were opposed to the $700 billion TARP bill that funded the bank bailouts at the cost of $2,334 to each and every 300 million of them. ... Unlike the unfortunate Americans, the people of Iceland were given the chance to exert their will directly on a similar banking bailout in the form of a referendum. As the US Congress had done before them, the politicians in the Icelandic parliament approved legislation covering the losses of a private Icelandic bank, a bill that would have cost every Icelander $16,400. But thanks to the brave resistance of their president, the Icelandic people took full advantage of their more democratic system to vote down the Icesave bailout on March. A full 93 percent of them voted against handing over $5.3 billion, nearly half their annual GDP, to repay the Dutch and British governments ... President Grimsson is the first true hero of the current financial crisis, which is far from over regardless of how many economic green shoots are spotted by keen-eyed central bankers or created by governement statisticians. In direct contrast to John McCain and Barack Obama, who didn't hesitate to throw over the American people on behalf of the bankers, President Grimsson personally intervened in the political process and, by forcing the referendum, gave the Icelandic people the opportunity to make a genuinely democratic decision on their financial future. ... It should be clear that what is much more dangerous to the economy of Iceland and every other country in the world is a political system that permits politicians such as Haarde, Sigurdardottir, Sigfusson, Brown, Bush, McCain and Obama to turn entire nations into unwilling serfs of a small number of short-sighted and woefully incompetent bankers. There is no one road to serfdom, and given their woeful performance over the last five decades, it would appear that the banking oligarchy would make for a de facto ruling class that is even less effective than the communist apparachiks, fascist bureaucrats, inbred aristocrats and clueless kings who preceded them", Vox Day at World Net Daily, 8 March 2010, link: http://www.worldnetdaily.com/index.php?pageId=127206.

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

Financial Reform, Chicago-Style

"A 'trilemma' is like a dilemma, only there are three things to choose from and you can have just two. The current debate over post-crisis financial regulation suggests we face such a trilemma: We can choose any two of the following: but not all three: 1) efficient capital markets 2) no bailouts to big banks and 3) a depression-free economy. ... But the idea that big banks might be able to get new capital from the Treasury was scarcely even contemplated. Choosing one and two resulted in a global financial and economic crisis worthy of the name depression. ... Either the bill does not imply future bailouts, as Republicans argue. Or, as seems more plausible to us, it is going to introduce such a wide range of new financial regulations that the efficiency of our capital markets will be significantly diminshed. ... Whether or not there is any basis for the SEC's claim that [Goldman] misled investors, the key point is that the collateralized debt obligation (CDO) at issue was nothing more than an elaborate wager on the future price of some mortgage-backed securities--a wager with as much economic utility as a gigantic bet on a roulette wheeel or a horse race. ... But [derivatives] increased the instability of the global financial system. And taxpayers have paid a heavy price since the system all but collapsed in late 2008. ... There was never a good reason for treating credit default swaps and their ilk differently from commodity futures, which are standardized and traded on exchanges. ... The nightmare possibility arises: Could the proposed cure turn out to be just another symptom of the same disease? As the rules become ever so more convoluted, so the opportunities for the unscrupulous increase--and the efficency of the financial system as a whole decreases. ... First, in the more controlled capital markets of the 1970s, borrowers generally paid more for their loans because there was less competition. ... Second, it is not at all clear that our crisis was exclusively caused by a failure of regulation as opposed to a failure of monetary policy. ... Third, the crisis of 2007-2009 originated in one of the most highly regulated sectors of the financial system: the US residential mortgage market", my emphasis, Niall Ferguson & Ted Forstmann (F&F) at the WSJ, 23 April 2010, link:

http://online.wsj.com/article/SB10001424052748703876404575200104219993576.html.

I only disagree with F&F over this: we cannot have a "depression-free economy". Apparently F&F don't favor the Dodd bill either.

Alan Meltzer Strikes Again!

"Last year the New York Times ran several articles about the end of capitalism. ... Then--just in the nick of time--we were allegedly saved by timely, forceful and intelligent government actions. The groundwork was laid for the next phace: more government regulation of financial and economic life. Left out of this narrative, is the government's disastrous mortgage and housing policy. Without the policies followed by Fannie Mae and Freddie Mac--and the destructive changes in housing and mortgage policies, like authorizing subprime and Alt-A mortgages for impecunious borrowers--the crisis would not have happened. ... Would bankers have made so many errors if there had never been a too-big-to-fail policy? ... Quite the opposite. The new financial regulations, spearheaded by Sen. Chris Dodd (D., Conn.), only bring back too big to fail by authorizing a Systemic Risk Council headed by the Treasury Secretary. ... Consider the Basil Accord, passed following bank failures in Germany and the US in the 1970s. This was supposed to reduce banking risk by requiring banks to increase capital if they incresed holdings of risky assets. But financial markets circumvented it by putting the risky assets off their balance sheets. Unusual? Not at all. ... This is because regulation is static, while markets are dynamic. If markets don't circumvent costly regulations ar first they will find a way later. The answer is to use regulation to change incentives by making the bankers and their shareholders bear the losses. ... Secretaries Timothy Geithner and Hank Paulson told Congress at the AIG hgearing earlier this month that they faced a choice: a bailout or another Great Depression. This is not true. ... The market is not perfect. It is run by humans who make mistakes. But the same humans run government where they make different, often more costly, mistakes for which the public pays. ... Regulators talk a lot about systemic risk. They do not--and probably cannot--give a tight operational definition of what this means. So setting up an agency to prevent systemic risk, as Mr. Dodd has just proposed, is just another way to pick the public's purse. ... We will not get sound banking until the CEOs of the large banks and their shareholders are forced to pay for their mistakes", my emphasis, Allan Meltzer (AM) at the WSJ, 19 March 2010, link:

http://online.wsj.com/article/SB10001424052748704231304575092141898417002.html.

As usual, I agree with AM. AM says it all. Imagine, incentives count!

Obama, Corporatist

"Socialists believe that the way to paradise is for governments to own 'the means of production'. ... Today's neosocialists are smarter than their ancestors. Instead of outright takeovers, they are achieving much the same goal through rigid regulations. ... Entitlements go hand in hand with sweeping, overbearing regulations. President Obama wants higher education in this country to be free of charge, which is why his Administration is pushing for a government takeover of student lending. ... Senator Chris Dodd's (D-Conn.) recently unveiled package of financial regulatory reforms is a neosocialist's dream. It is also destructively stupid. The bill doesn't address the key causes of the recent economic crisis: the Fed's too loose monetary policy, the behavior of Fannie Mae and Freddie Mac in buying or guaranteeing almost $1.5 trillion in junk mortgages and the failure to properly regulate credit default swaps and other derivatives. ... In the name of fighting Washington's too-big-to-fail doctrine for major financial institutions, Dodd's bill is a de facto institutionalization of them. ... Thus these biggies, like Fannie and Freddie, will have lower costs of borrowing--debt is by far the biggest component of their capital--which will put their smaller competition at a crippling disadvantage. ... Thus the paradox of today: bargain-basement rates of interest for larger firms and higher costs--or no credit at all--for smaller borrowers. ... Chief among its tasks would be assessing the risk of banks and their products and activities, yet Washington has demonstrated that it is incapable of judging risk. ... Sensible debt-to-equity ratios, including stiffer equity requirements for volatile short-term debt, and clearinghouses for almost all derivatives would effectively accomplish what Dodd's monstrosity purports to do and manifestly does not", Steve Forbes (SF) at Forbes, 12 April 2010, link:

http://www.forbes.com/forbes/2010/0412/fact-comment-steve-forbes-neosocialists-obama-obamacare-marx-impressed_print.html.

Amazing. I agree with SF. The Dodd bill will not reform the TBTF banks. Feature or bug?

TBTF?-4

"There is no US government guarantee to protect the largest financial firms, a Treasury Department official said, as a congressional watchdog criticized the $45 billion in government aid provided to Citigroup Inc. ... 'There is no "too-big-too-fail" guarantee on the part of the US government,' Mr. [Herbert] Allison said. ... 'The market clearly perceives that there is a too-big-too-fail guarantee,' Ms. [Elizabeth] Warren said. 'That gives Citi an advantage in raising capital. ... That is very valuable to Citi.' ... 'I do not understand why it is that the [US] government cannot admit what everyone in the world knows, which is that in that week that Citigroup was a failing institution,' Mr. [Damon] Silvers said. Citigroup Chief Executive Vikram Pandit, also appearing before the panel, said the bank owes a 'large debt of gratitude' to taxpayers for aiding the firm", Michael Crittenden and Matthias Rieker at the WSJ, 5 March 2010, link:

http://online.wsj.com/article/SB10001424052748704187204575101511215418730.html.

This is a joke. Can't Uncle Sam ever stop lying? Citigroup should be closed.

Pravda Gets It!

"But unlike the perpetrators of the Watergate scandal, who wound up looking at jail time, Geithner evidently has a golden parachute waiting at Goldman Sachs [GS], not coincidentally the largest recipient of the AIG bailout. ... Hank Paulson, Geithner's predecessor, was CEO of [GS] before coming to the Treasury. Geithner, who has come up through the ranks of government, could be walking through the revolving door in the other direction. ... Critics are calling the New York Fed's [FRBNY] decision a back-door bailout for the banks, which received 100 cents on the dollar for contract that would have been worth far less had AIG been put through bankruptcy proceedings in the normal way. ... The [FRBNY] is a quasi-governmental institution that isn't subject to citizen intrusions such as freedom of information requests, unlike the [Fed]. This impenetrability comes in handy since the bank is the preferred vehicle for many of the Fed's bailout progrqams. It's as though the [FRBNY] was a black-ops outfit for nation's central bank. ... Eevn after the GM autoworkers, bondholders and vendors all received a government-enforced haircut on their contracts, [Geithner] still had the audacity to claim the 'sanctity of contracts' in the dealings with these companies like AIG. ... The contention that the Fed had no choice is also belied by a recent holding in the Lehman Brothers bankruptcy, in which New York Bankruptcy Judge James Peck set aside the same type of onvestment contracts that Secretaries Paulson and Geithner repeatedly swore under oath had to be paid in full in the case of AIG", my emphasis, Ellen Brown (EB) at Pravda, 8 February 2010, link: http://english.pravda.ru/business/finance/112085-aig_gate-0.

EB is a Los Angeles attorney. Why is this in Pravda? Is the American press afraid of the Vampire Squid (VS)? I disagree with one thing EB wrote. Timmy Boy will not leave Treasury for a VS position, but more likely BlackRock or Pimco. Timmy's joining VS would be too obvious.

Pravda on Vampire Squid

"I am a capitalist pig, and proud of it, thus you would not expect me to support government interference and more strenuous regulation of financial institutions--after all, capitalism (free markets) and tight regulation don't mix well. Well, at the risk of being kicked out of the Capitalist Pig Party, I am in support of tighter regulation of too-big-to-fail (TBTF) institutions--the likes of Citigroup, JPMorgan, Bank of America and (God forbid, after all, they are doing 'God's work' their CEO's words, not mine) Goldman Sachs. Lack of tight regulation in the TBTF space leads to the worst economic system of all: asymmetric socialism. The enormous gains are reaped by employees and shareholders, but losses are socialized and paid by taxpayers. That is simply immoral. Letting companies fail is at the core of capitalism's DNA, and I still stand by that", Vitaliy Katsenelson at Pravda, 30 January 2010, link:

http://english.pravda.ru/opinion/columnists/111922-capitalism-0.

More right-wing opinion from Pravda. Who would have believed this 20 years ago?

The Bloodless Coup Continues-8

"BlackRock, Inc. is adding a former US Treasury official and well-known investment banker to its executive team as it seeks to digest a major acquisition and manage $3.3 trillion of client assets. Kendrick R. Wilson, 63 years old, will join the New York-based money manager Feb. 1 as vice chairman and will have a broad role supporting client relationships and adivisng the management team, BlackRock said on Friday. ... He previously held senior investment-banking roles at Goldman Sachs Group Inc. and Lazard Freres & Co. Mr. Wilson will be 'a valued adviser to BlackRock's management team as we evolve our operating and governance models,' Laurence Fink, BlackRock chairman and chief executive said in a statement", Eleanor Laise at the WSJ, 30 January 2010, link:

http://online.wsj.com/article/SB10001424052748704343104575033551129111816.html.

Quoted without comment.

Flying Foolishness

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

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

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

Obama's Bank Dance

"Over the weekend, President Barak Obama went on the offensive against Wall Street for not lending more to Main Street. On CBS's '60 minutes,' the president declared, 'I did not run for office to be helping out a bunch of fat cat bankers on Wall Street.' ... Wall Street fat cats are always a convenient political target, but bankers are responding to the incentives generated by the economic policies of the Treasury and the [Fed]. First and foremost is the Fed's policy of near-zero interest rates. ... In today's troubled times, only the best credits will be bankable. Meanwhile, financial institutions are happy to service their new, best customer: the US Treasury. That play on the yield curve is open to banks of all sizes. The Fed's policy makes sense if the goal is restoring bank profitability by generating cash flow. It is a terrible policy is the goal is fueling small business, the engine of economic growth and job creation. Large, nonfinancial corporations have access to banks. ... While the public is upset with $10 million to $20 million banker bonuses, public policy should focus on what is generating them. ... Sending scare resources to major banks in the form of funds from the ... (TARP), ultra-low interest rates, and the Fed's targeted credit schemes has diverted needed capital from real, productive activity. Now the politicians feel the public's anger and are complaining about the lack of lending and the size of executive compensation", my emphasis, Gerald O'Driscoll (GO) at the WSJ, 17 December 2009, link: http://online.wsj.com/article/SB10001424052748704398304574597910616856696.html.

I agree with GO. GO is with Cato and once worked for the Fed and Citigroup. I consider GO an Austrian economist. GO wrote Economics as a Coordination Problem, 1977. A good read.

Follow China?

"Make no mistake about it: the health care bill that moved forward to debate in the Senate on Saturday is simply a power play by the government to gain more control over how we live our lives. It could easily lead to government control over the continuation of our families. ... Still in force today, the technical policy requires IUDs for women of childbearing age with one child, sterilization for couples with two children (usually performed on the woman), and abortions for women pregnant without authorization. By the mid-eighties, according to Chinese government statistics, birth control surgeries--abortions, sterilizations, and IUD insertions--were averaging more than thirty million a year. ... China did not initiate their one-child policy to be cruel to their people, nor did they do it because they do not respect life. They initiated the policy simply due to the growing fiscal demands of a rapidly expanding population. ... We talked about 'death panels' in reference to the health care bills now under consideration by Congress, but another approach is simply to control the number of people entering the system--new births. ... As to whether or not it could happen in the [US] ... yes, it could", Robert Bonelli at American Thinker, 25 November 2009, link: http://www.americanthinker.com/2009/11/after_a_takeover_of_healthcare.html.

Would such ban be enforced against illegal aliens? Would they be deported if population growth is a problem? Who are we kidding?

Vampire Squid Smacked Again

"One of the biggest disconnects on Wall Street today is between the way Goldman Sachs [GSG] sees itself (they're the smartest) and the way everyone else sees [GSG] (they're the smartest, greediest, and most dangerous). ... And Buffett has said that while no one could ever understand the balance sheet of any Wall Street firm, he has confidence that [Lloyd] Blankfein is both very smart and very conservative. But there was another reason he invested: 'If I didn't think the government was going to act, I would not be doing anything this week,' he explained to CNBC's Becky Quick. 'I might be trying to undo things this week.' ... Widespread rage. 'Complete crap,' says a former [GSG] managing director. Even Neel Kashkari, a former [GSG] banker, who became assistant secretary of the Treasury last summer, told the [NYT] that 'every single Wall Street firm, despite their protest today, every single one benefited from our actions. And when they get up and say, "Well we didn't need it" that's bull.' ... Despite the public financial statements that [GSG] files evey quarter, no outsider can tell how the firm really makes its money. ... In the aftermath of the crisis, criticism erupted that [GSG] had continued to sell mortgage-backed securities to its clients while betting against those very sercurities for its own account. ... But a less generous interpretation was given in a recent McClatchy Newspapers series, which quotes an analyst report that describes [GSG] as being 'solely interested in pushing its dirty inventory onto unsuspecting and obviously gullible investors.' ... When I ask Gary Cohn is he was worried about [GSG's] stock price, which plunged from $207.78 in Ferburary 2008 to $47.41 in November, he says, 'It wasn't scary at all.' 'Complete and utter nonsense,' says someone who knows Cohn well. ... For all [GSG's] tough talk, when the market made a judgment on [GSG] itself, the firm blinked. ... A memo written by Joseph Cassano, the former head of the AIG financial-products division, shows that some of the securities [GSG] insured with AIG were created by none other than [GSG] itself", my emphasis, Bethany McLean at Vanity Fair, January 2010: http://www.vanityfair.com/business/features/2010/01/goldman-sachs-200101?printable=true.

PriceWaterhouseCoopers (PWC), did you read this? Preet Bharara, did you read this? Where are some indictments of Vampire Squid executives for securities fraud? Like Alice in Wonderland, "stuff and nonsense", Cohn.

Yves Smith on Rating Agency non-Reform

Yves Smith has an 8 December 2009 post at her Naked Capitalism about rating agency non-Reform which I generally agree with, link: http://www.nakedcapitalism.com/2009/12/non-reform-of-rating-agencies.html. I oppose creating a rating agency PCAOB. If created, it would be as successful at improving ratings as the PCAOB has been at improving the Big 87654's work, i.e., not at all.

Uncle Sam Protects You

"How do you turn an industry that costs $700 million annually into one that eats $6 billion? Nationalize it, as Congress did airport screening after Sept. 11, 2001. ... Federal and local governments long controlled most aspects of aviation safety, from municipalities that policed the airports they owned to the Federal Aviation Administration's air-traffic control system. When political protestors began hijacking planes in the 1960s, Uncle Sam elbowed his way into security too. Airlines didn't hire experts to invent checkpoints; the Feds imposed them. ... The Aviation and Transportation Security Act of 2001 brought that control of security into the open. ... Foisting the TSA on us protected politicians of both parties far more than it did passengers. 'After 9/11,' said the former chairman of the Homeland Security Committee, Christopher Cox (R-Calif.), 'we had to show how committed we were by spending hugely greater amounts of money than ever before, as rapidly as possible.' ... What they haven't done after eight years and $48 billion is catch a single terrorist. ... One tourist claimed the sex toy that screeners fished from his luggage was a bomb rather than explain it in front of his family, while Democratic Representative John Lewis (D-Ga.) and the late Senator Ted Kennedy (D-Mass.) so menaced America that the TSA added their names to its No-Fly List. This lunacy ruins lives: The embarrassed tourist and other Americans without criminal records or motives have gone to jail. ... The TSA's response? Assistant Secretary David Stone huffed that since the attacks on Sept. 11 cost Americans over $100 billion and took thousands of lives, every dollar the agency spends 'in an era of threatened terrorism' is worth it. Taxpayers might disagree. ... More expensive and more infuriating are the gee-whiz contraptions that don't work: Puffer machines at $160,000 a pop were supposed to detect residues of explosives by blowing air at passengers and dislodging particles for analysis. ... Unfortunately [CTX machines are] 'chemically blind,' as the manufacturer of a rival technology out it: They can't differentiate peanut butter, fruitcake and other foods from explosives of similar density. So many false alarms resulted that screeners resorted to asking passengers what they had packed. Apparently, an agency that believes Listerine and Crest turn explosive at 30,000 feet also believes terrorists answer questions honestly. ... But screeners typically fail to find 60%, 75% and even 90% of the weapons undercover investigators smuggle past them. ... Before Sept. 11, there was no TSA. Can we really credit the agency with stopping any terrorists in the past eight years. Whether weighed against history, common sense, or economics, the conclusion reamins the same: The TSA is another terrorist victory. It's time we sent this boondoggle of a bureaucracy packing", my emphasis, Becky Akers at Barron's, 14 September 2009, link: http://online.barrons.com/article/SB125270793866604679.html.

Chris Cox, we know him. He's late of the SEC. Could we apply these thoughts to the SEC, PCAOB and Sarbox? Screeners miss at last 60% of weapons people try to smuggle on planes. What percentage of frauds does the SEC miss?

Yves Smith Smashes the Fed's Looking Glass

Zimbabwe Ben (ZB) wrote a Washington Post, 29 November 2009, opinion piece. I planned to write about it and repeat my call to repeal the Federal Reserve Act and liquidate the Fed, when I read Yves Smith's (YS) 29 November 2009 post at her Naked Capitalism, link: http://www.nakedcapitalism.com/2009/11/bernanke-tries-to-defend-the-fed.html. YS dissected ZB's Fed apologia, comprehending everything I intended to say. Thank you YS. ZB's appeal to "global consensus", is an "argument" that would not have swayed my fifth-grade class. We would have said, "Bandwagon Propaganda", no argument. The Fed supposedly has "teams of economists, financial market specialists and other experts". So? My fellow fifth-graders would have said, "Appeal to authority. No argument". ZB, give up. Do you believe we here in the real world think your stress tests were any more than a public relations exercise? ZB notes, "Our financial statements are public and audited by an outside accounting firm". So? Didn't Deloitte & Touche (D&T) audit Merrill Lynch? ZB, call me about that audit. I'll give you an estimate. I wonder if the PCAOB "inspected" D&T's Fed audit?

Junior at Junior Deputy Accountant, 28 November 2009, has some choice words for ZB, link: http://www.jrdeputyaccountant.com/2009/11/zimbabwe-ben-defending-fed.html.

Robert Higgs smacks ZB at Beacon, 28 November 2009, link: http://www.independent.org/blog/?p=4214. "Such a warning seizes the high ground by creating the presumption that Bernanke and the present Fed have proved themselves to be beneficial to the causes of financial reform and economic recovery. ... Independent? Of you and me, to be sure, but not of Goldman, BofA, JPMorgan Chase, and the other old boys up there in the big city".