SEC Faulted, Lacks Gulag

"Fraud investigator Harry Markopolos blamed the [SEC's] 'financial illiteracy' for failing to heed his warnings about money manager Bernard Madoff. ... 'There was an abject failure by the regulatory agencies we entrust as our watchdogs,' Mr. Markopolos said in prepared remarks for the meeting. ... Markopolos had harsh words for the SEC. Officials asked few questions and made little effort to understand the derivative instruments Mr. Madoff said he was using, according to Mr. Markopolos. His experience blowing the whistle to the SEC led him to conclude 'that the SEC securities' lawyers if only through their ineptitude and financial illiteracy colluded to maintain large frauds such as the one to which Mr. Madoff later confessed'," Michael Crittenden at the WSJ, 4 February 2009.

"Rep. Paul Kanjorski, D-Pa., the House Financial Services subcommittee's chairman, vented frustration after the SEC's acting general counsel said the five officials appearing before the panel couldn't answer lawmakers' questions about the Madoff case because its under investigation. ... Kanjorski accused the agency of impeding the panel's investigation, calling it an 'abuse of authority.' ... Linda Thomsen, the agency's enforcement director, said the SEC takes the Madoff case very seriously, but asserted there were confidential areas related to an ongoing investigation that couldn't be publicly discussed", Marcy Gordon at the Houston Chronicle, 5 February 2009.

"In the torrent of criticism that Mr. Markopolos and lawmakers heaped on the SEC and its senior staff members, some complaints were serious--that the agency lacked the expertise to tackle major fraud by big players and had no systematic way of dealing with whistle-blowers. ... [Lawmakers] had been far more riveted by Mr. Markopolos testimony, which at times seemes to enter verbal territory more often explored at organized crime hearings. He referred to his fear that he would be killed if Mr. Madoff learned of his investigation. At one point, noting his experience in military intelligence, he described an offer he made to 'go undercover' for the SEC--a proposal that was rebuffed. ... While one lawmaker asked whether this all wasn't 'a little paranoid,' others agreed that Mr. Markopolos was wise to be cautious, given the scale of the fraud he was trying to bring to light", my emphasis, Diana Henriques, 5 February 2009, at the NYT, link: http://www.nytimes.com/2009/02/05/business/05madoff.html.

That SEC lawyers are financially illiterate is part of their calling. They are lawyers. Look at Congress. See my 22 December 2007 post, link: http://skepticaltexascpa.blogspot.com/2007/12/us-injustice-system-at-work.html.

This is nonsense. These SEC clowns should be held for contempt of Congress or obstructing a Congressional investigation, 18 USC 1505.

I am grateful "the agency" has "no systematic way of dealing with whistle-blowers". Why? Because the "agency" would model it after another "agency", Stalin's NKVD, and build a whistle-blowers gulag! That's how things work in the NY-Washington Axis. See my 10 January 2009 post about the UN, link: http://skepticaltexascpa.blogspot.com/2009/01/un-whistle-blowers.html. I'm not surprised these hearings sounded like they dealt with "organized crime". Didn't they? Bring back Estes Kefauver, (1903-1963), link: http://en.wikipedia.org/wiki/Estes_Kefauver! How bad is the SEC? Look at Joe Jett's case, my 8 August 2008 post, link: http://skepticaltexascpa.blogspot.com/2008/08/joe-jetts-alive.html. The SEC already has Andrey Vyshinskys. They're called adminstrative law judges. The SEC as currently run, is an "agency" that operates on the other side of Alice's looking glass.

Wall Street Headhunting

"The new guidelines on executive pay--which technically would only apply to top officers at those firms requiring still more capital--were seen as an evisceration of a professional culture rooted at the likes of J.P. Morgan Chase & Co., Goldman Sachs Group Inc., Morgan Stanley and Citigroup Inc. ... They are sending out resumes and making calls to smaller investment banks--often called 'boutiques' for their smaller size--and European banks that haven't taken government money, such as Credit Suisse Group AG and Deutsche Bank AG. Many who left boutiques to seek their fortunes at larger firms are returning. ... Citing the wave of negative coverage of plane trips and junkets, one executive of a boutique groused, ' ... Who knows? Next week, we may have to shoot every third employee. I just look out my window and look for the guillotine'," Heidi Moore at the WSJ, 5 February 2009.

I wonder how many of these people are traders as opposed to investment bankers. See my 16 February and 16 April 2008 and 13 January 2009 posts:

http://skepticaltexascpa.blogspot.com/2008/02/incentives-count-for-bankers-too.html.

http://skepticaltexascpa.blogspot.com/2008/04/incentives-count-for-bankers-too-2.html.

http://skepticaltexascpa.blogspot.com/2009/01/incentives-count-for-bankers-too-3.html.

A third, I'll take it! What's going on? Why is he still waiting for the guillotine? It must be busy. We'll just wait list him for it. Alternatively, sell limited partnership units and use the proceeds to build a second guillotine.

Lehman's Vultures

"Turnaround firm Alvarez & Marsal earned more than $30 million for less than three months of work for Lehman Brothers Holdings Inc., a fraction of what could be ultimately paid to advisers, experts say. ... The Alvarez fees highlight the potentially hefty cost to compensate the range of professionals working on the largest bankruptcy ever filed. ... Two law professors who have studied fees in large bankruptcy cases have separately estimated that the Lehman case could ultimately cost between $800 million and $1.4 billion in professional fees. Seton Hall University School of Law professor Stephen Lubben ... estimates that Weil and law firm Milbank, Tweed, Hadley and McCloy, which is representing Lehman's unsecured creditors, will earn about $400 million. He expects most of the remaining $400 million to to go Alvarez", David McLaughlin at the WSJ, 4 February 2009.

What conflicts of interest? All these clowns should be pushed out of there. I could easily see these fees doubling Macy's total of $500 million. See also my 26 January 2009 post: http://skepticaltexascpa.blogspot.com/2009/01/we-are-all-experts-now.html.

Moscow's "Firm"

"Now it's the Russian lawyers turn. ... With the brazen daytime murder of human rights attorney Stanislav Markelov on Jan. 19. it became clear that members of the Russian bar are also targets in the murky vendettas that taint commerce and politics in Moscow and throughout the country. ... Corporate lawyers, too, face increasing threats. 'It is now impossible in Russia to defend a client who is in a politically motivated case or in a [commercial] case where the other side has a lot of money and is willing to play dirty,' says Jamison R. Firestone [JFR], managing partner of Firestone Duncan, an American corporate law firm in Moscow. ... [JFR] argues that the case against [Sergei] Magnitsky is entirely fabricated and intended as a form of pressure on Magnitsky's client, Hermitage Capital, by hostile forces within the Russian state, possibly in collusion with corporate raiders. ... 'What's especially disturbing in Russia is that the state investigators and prosecutors appear to have been quite superficial in such cases [Markelov's],' says Martin Solc, co-chair of the Human Rights Institute at the International Bar Assn. Novaya Gazeta, which has had four of its reporters murdered since 2000, observed: 'The perpetrators have no fear because they know that they will not be punished'," Jason Bush at Businessweek, 9 February 2009.

Are these murderers who "have no fear because they know that they will not be punished", NY investment bankers? Moscow legal practice is not NY's, see my 9 November 2008 post: http://skepticaltexascpa.blogspot.com/2008/11/moscow-vs-ny-justice.html.

Does JFR think he is practising in front of the SEC? Things just don't seem to work that way in Moscow. Moscow legal practice is a John Grisham novel! See my 23 October 2008 post, link: http://skepticaltexascpa.blogspot.com/2008/10/who-is-stephen-cutler-2.html.

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.

Los Angeles as Mexico City

"With new data suggesting that a net 50,000 to 100,000 people left Los Angeles County last fiscal year, the San Fernando Valley [SFV] is emerging as the poster child for middle-class flight--even as LA politicians try to spin an almost opposite tale. ... Its more than 1 million people poured such a wealth of taxes into downtown's municipal treasury--subsidizing other areas--that Valley sucession was seen as an attack on LA's fiscal health. ... But, in fact, an LA Weekly analysis based on US Census data clearly shows that for the middle class, the opposite is true. LA grew in 2007-8 due to high birth rates among the poor and working class, mostly Latinos, and due to illegal immigration. But since 2001, on the key measure of an area's ability to attract the middle class, 901,426 more citizens have fled the county for other states than arrived from other states, and last year, they continued that flight. ... At the current rate, within 60 years, the Valley will have no discernible middle class. ... LA, 'exists for the rich and the poor. It's policies have gotten more that way since 2000,' says [Joel] Kotkin, now completing a study of New York's fleeing middle class. ... Paul Taylor, Pew Research Center's executive vice president and lead author of 'Inside the Middle Class: Bad Times Hit the Good Life,' says the Valley has undergone a fundamental 'compositional change in the population itself.' It is increasingly made up of generally lower-skilled Latinos who are much poorer than those moving out. ... JJ Popowich, whose Winnetka Neighborhood Council represents the most ethnically diverse middle-class area of the Valley, says simply, 'If they don't stabilize the middle class, the city will collapse'," Beth Barrett at LA Weekly, 29 January 2009, link: http://www.laweekly.com/content/printVersion/451812.

The SFV story is being repeated all over California. At present trends, California will collapse economically, socially and in other ways within ten years. At present trends, by 2030 Mexico won't want California back.

Keynes' Inflation Bomb

Chan Akya's 30 January 2009 Asia Times post, "Keynesian spending will likely create ... hyperinflation that could well take hold before the year is over. ... The gap between the write-offs of banks and those of insurers probably requires a study unto itself; however it suffices to say here that altering actuarial assumptions and differences in accounting logic help point to a significant pile of undeclared losses at various insurance companies as well as banks in Europe and Asia", link: http://www.atimes.com/atimes/Global_Economy/KA31Dj01.html.

"Altering actuarial assumptions", say it ain't so. I don't expect US hyperinflation, defined as inflation of at least 20% a month. However, I expect higher inflation than any "respectable" prognosticator.

A Rated California

"Standard & Poors Corp. cut California's credit rating Monday to the lowest level among all 50 states because of a budget impase between Gov. Arnold Schwarzenegger and state lawmakers. ... The downgrade reflects the rating agency's view of 'the lack of political progress around the budget negotiations that we believe is serving to exacerbate the state's current and projected cash position,' said Gabriel Petek, an S&P analyst, adding that 'the state's cash position is rapidly eroding.' Because of the stalemate, California's controller on Monday began delaying more than $3 billion in tax refunds, welfare checks and other payments to pregvent a cash shortfall. ... S&P downgraded California's $46 billion of general obligation bonds to single-A from single-A-plus, the rating agency's fifth-lowest of 10 investment grades", Stu Woo at the WSJ, 4 February 2009.

S&P is on the ball. It downgrades California's debt after California is unable to pay it's current bills. Who needs these guys? Further, these S&P fools think the problem is a "stalemate" as opposed to California's spending.

SEC Expertise

"Two events occurred last week that seem unrelated. But, as often occurs in our interwoven world, connecting the dots is revealing. ... Linda ... Thomsen, the director of enforcement at the [SEC], offered her take on how the nation's top securities cop missed the ponzi scheme Bernard Madoff is said to have run for decades, noting how assiduously the SEC chases tips it receives. 'Without fear or favor,' she said. ... The two events are linked by this: Just as the SEC failed Mr. Madoff's investors as tipsters told the agency he might be up to no good, it also seems to have let down Allied's shareholders by ignoring analyses of aggressive accounting at the company. ... It wasn't until five years after critics began questioning Allied's books that the commission moved against the company. ... In a settlement, Allied neither admitted nor denied the allegations, not a nickel in fines or penalties was assessed. ... But given the crisis of confidence in our markets--in their participants and overseers--the story of how Allied quelled its critics and managed its regulator is intriguing. ... 'Fooling Some of the People' [by David Einhorn] should be required reading for Mary L. Schapiro, the new chairwoman of the SEC. Ditto for anyone else interested in assessing our nation's broken-down regulatory apparatus. ... H. David Kotz, the new inspector general of the SEC, already seems to have paged through Mr. Einhorn's book. Mr. Kotz's most recent report to Congress indicates that he is investigating the problems Mr. Einhorn encountered with the SEC, when he gave it information about Allied's aggressive accounting. ... On the call was Joan M. Sweeny, [Allied's] chief financial officer, who had worked in the enforcement division of the SEC. Joining her was William L. Walton, Allied's president, who complained--falsely, as it turned out--that Mr. Einhorn had not spoken with the company and was trying to 'scare people, make a quick buck and move on'. ... According to the book, the SEC did not respond to accounting analyses of Allied he sent the agency in 2002. Instead, early the next year, it began investigating him. ... The SEC inquiry into Mr. Einhorn went nowhere. Not long after his SEC visit, [Mark] Braswell left the agency. He joined a law firm, where he registered as a lobbyist for Allied in 2004. ... He said the SEC ethics office OK'd his lobbying for Allied", emphasis mine, Gretchen Morgenstern, 1 February 2009 at http://www.nytimes.com/2009/02/01/business/01gret.html?_r=1&ref=us&pagewanted=print.

SEC ethics office? Hahahahaha, the Mogambo Guru would say. "Without fear or favor", what? Braswell went to Venable on 25 September 2003. "Braswell also has first-hand experience investigating a wide range of SEC violations, including corporate financial fraud, insider trading, market manipulation and broker/dealer misconduct. Prior to joining the SEC, Braswell spent four years at a major national law firm, where his practice focused on complex commerical litgation. ... Braswell joins a very active corporate governance practice at Venable. Led by firm, chairman Benjamin R. Civilietti, former Attorney General of the United States. ... Venable has an interdisciplinary firm of attorneys from across its various practices to assist senior executives, boards of directors and audit committees in managing their risk, ensuring compliance and protecting company reputations. ... The firm has four former attorneys with SEC experience and more than a dozen former prosecutors and regulators, including former senior [US] Justice Department officials [AUSAs], former federal banking regulators, as well as former Assistant State's Attorneys and Public Defenders. ... 'Working at the Commission has been extremely rewarding and has made me understand why the US financial marketplace remains a model of transparency and liquidity, despite a series of headline abuses and scandals in the past several years', Braswell said. ... 'For the past nine years, Mark Braswell has been at the center of securities law enforcement,' said Geoffrey Garinther, who co-heads Venable's Corporate Governance and Investigations Group. ... 'At the SEC, Mark was known as a creative problem solver,' said Venable partner Nancy Grunberg", link: http://goliath.ecnext.com/coms2/gi_0199-3155356/SEC-Veteran-Mark-K-Braswell.html. The entire federal law enforcement apparatus seems to have been "Mary Jo Whiteized".

Consensus Foreign Policy

"In almost any discussion of world affairs, there is one thing on which doves and hawks invariably agree: much more needs to be done to shore up states that are failing, in a state of collapse, or so poor that they are heading in that direction. ... In America these days, defence planners say they worry more about weak states, even non-states, than about strong ones. ... To the chagrin of old-school sceptics, nation-building is now an integral part of American strategy. Similarly, the European Union's declared security strategy sees state failure as an 'alarming' phenomenon. It opines that: 'Neighbors who are engaged in violent conflict, weak states where organized crime flourishes, dysfunctional societies or exploding population growth on its borders all pose problems for Europe.' ... Strategists have worried about failing states ever since the end of the cold war", my emphasis, The Economist, 29 January 2009, link: http://www.economist.com/world/international/PrinterFriednly.cfm?story_id=13035718.

"Gone are the days when support for the radical right cane from neo-Nazi elements in European society; they now come from ordinary citizens, concerned not only about bleeding social welfare programs, but also from worries about the continued influx of immigration--a feeling that it is likely to worsen as recession hangs over the continent. 'I voted for the Freedom Party to stop immigrants from burdening our social welfare system,' says Lukas, a grandfatherly figure and government employee. ... Such is the dynamic in today's European race relations. A December Pew Research Center's Golbal Attitudes Project reports anti-immigrant, and especially anti-Muslim sentiments, to be growing steadily across the continent. ... As European Muslims demand more mosques, state-funded Islamic schools, and even the implementation of Sharia (Islamic law) in their host countries, the term [Islamization] refers to the gradual process by which European society is becoming increasingly and visibly Muslim. ... Sharia courts have already been adopted in many cities in the UK after persistent demands by British Muslims. ... High immigration from Muslim nations, combined with fertility advantages, means that ethnic Europeans might lose their demographic counterpoise: a fact that touches a raw nerve with many. ...The sense that Europe is under seige is further heightentd by concerns over the welfare system being overtaxed by non-natives", my emphasis, Handan Satiroglu, 29 January 2009, link: http://www.alternet.org/module/printversion/122868.

When you lack war fighting ability, like most European states, you can worry about "failing states". This strikes me as a militarily impotent continent's busy work. Disagreeing with the "experts", I do not think failing states strategically important. As I read in Barron's decades ago, "consensus may be comforting, but rarely proves profitable". Or in this instance, correct. "Declared security strategy"; my declared security strategy is: I can fly by flapping my arms! What nonsense! Europe should be more concerned about a real threat to its future: 25 million Moslems living within its borders.

About 40 years ago Milton Friedman said you can't have unlimited immigration and a welfare state. How right he was.