Cook the Books

"Banking regulators must not allow their attempts to build up bank capital to distort financial statements, the top international accounting rulemaker has warned. ... Regulators are widely expected to develop some form of so-called 'dynamic provisioning' by forcing banks to salt away funds in the good times to help them through the bad. But accountants have warned that how this is done could seriously affect the transparency of banks' financial statements. ... Accountants worry that doing the latter could raise the risks of 'cookie jar' accounting where executives would boost provisions during periods of bumper profits to quietly release them in poorer periods to cover up bad performance. The complexity of accounting makes this hard for investors to spot. ... 'There has always been a battle between prudential regulators and the securities regulators over stability versus transparency,' said Sir David [Tweedie]. 'Our job is to show what's happened, not to have reserves that actually are not losses at the moment'," Jennifer Hughes at the FT, 24 February 2009.

In theory, this issue was settled in the US with SFAS 5's adoption in 1975. This accounting crap never ends. Banking regulators usually try to protect banks from the public. Look at the NCC fiasco, 9 and 18 June 2008 posts:

http://skepticaltexascpa.blogspot.com/2008/06/msm-begins-to-understand.html.

http://skepticaltexascpa.blogspot.com/2008/06/occ-vs-sec.html.

China's Dilemma?

"With Blackstone's shares down 84 percent since flotation, CIC's new executives have become the target of furious attacks by bloggers who think China was conned. 'They are worse than wartime traitors,' says one recent chatroom posting. 'Blind worship of the US by so-called "experts",' complains another. ... But within China, [dollar reserves] are increasingly seen by the public and even some policymakers as something of an albatross--a huge pool of resources not being used at home that will plunge in value if the US dollar collapses. Why, people ask, should such a relatively poor country bankroll such a rich one. Even at the elite level, the sense of frustration occasionally bubbles over. ... As China's economy slows sharply, the debate on how to manage its reserves is intensifying. ... But the consensus behind recycling foreign currency into US government securities is coming under attack. ... 'There should be more give and take; some sort of guarantee that our interests will be defended,' sas Yu Yongding, a leading economist at the Chinese Academy of Social Sciences. Given the vital role that China has played in financing US deficits, Washington 'should at least be a little nicer,' he says. ... Last year, when its economy was under extreme stress, China lent the US more than $400bn--the equivalent to more than 10 per cent of Chinese gross domestic product. ... Founded in 2007, CIC controls assets equivalent to only about 10 per cent of the total reserves, yet it has become a lightning rod for criticism. Not only has its Blackstone investment gone sour, but CIC also invested $5bn in Morgan Stanley before the bank's shares slumped. CIC also had money in Reserve Primary Fund, the US money market fund which froze redemptions after the collapse of Lehman Brothers. A European banker who has been advising CIC on its overseas strategy says: 'This is a completely unique situation for Chinese bureaucrats to face--having their every decision debated, analysed and often attacked in the media and on the internet. I get the feeling that they are all shell-shocked.' Almost every week, a new proposal is launched to find a better way of investing the money. State media reported this week that a fund might be set up using reserves to back overseas investments by oil companies. Such ideas follow a flurry of recent natural-resources deals involving Chinese companies--most notably Chinalco's planned investment in Rio Tinto. ... Yet, if China has few options but to keep buying US Treasuries, it can still try to turn its investments into some sort of leverage. ... Chinese policymakers are also becoming increasingly critical of US financial policies", my emphasis, Goeff Dyer at the FT, 23 February 2009.

Bring back the worker-student alliance (WSA). But this time an international WSA to fight banker oppression of the masses. I am in solidarity with the Chinese peasants. Many decades ago Brazil's finance minster said something to the effect, "If I owe the banks $1 million and I can't pay, I am lost. If I owe the banks $1 billion and I can't pay, they are lost". China should figure out how to get something of value for its $1.9 trillion in foreign exchange reserves. China is now buying natural resource companies, my 8 March 2009 post. See also my 13 August 2007 and 20 October 2008 posts: http://skepticaltexascpa.blogspot.com/2007/08/private-equitys-bubble.html and http://skepticaltexascpa.blogspot.com/2008/10/agents-of-influence.html.

Gold Fever?

"Some investors are so worried about the prospect of economic collapse that they are buying gold and having it delivered to them, rather than holding the precious metial in the form of futures contracts of other securities. ... But more surprising is that buyers are taking the unusual and expensive step of taking possession of it. ... At the U.S. Mint, a total of 147,500 ounces of American Eagle gold bullion coins were sold in the first two months of this year, a surge of 176% from the same period last year", Carolyn Cui and Allen Sykora at the WSJ, 25 February 2009.

Big deal. 147,500 ounces annualized is 885,000 ounces. At $960 per ounce that's $850 million. Peanuts. George Soros can make more than that in a year. Zimbabwe Ben can print more than that in a day.

Real Estate Bottoming?

"The relative cost of owning versus renting is swinging back in favor of homeownership in some US markets, buoyed by several quarters of sharp declines in home prices. ... Now, after two years of rapid home-price depreciation, the relartionship between the cost of rental payments versus after-tax mortgage payments is tilting toward ownership in a number of metropolitan areas. ... A separate report by Moody's Economy.com also finds that home prices relative to rents are more in line with their historical relationship", Nick Timiraos at the WSJ, 25 February 2009.

Real estate prices may be bottoming in a number of areas.

America's Foreign Legion

"Mark Benjamin and Michael de Yoanna, who have just completed a major multi-part examination of Army suicides at Salon.com, record this official reaction to the military health crisis: 'Why do the numbers keep going up?' ... The two reporters find a wealth of evidence of military misdiagnosis, mistreatment, and plain, outright lack of desire to face a plague of suicides. ... But above all, of course, there are simply those endlessly repeated tours of duty in the Afghan and Iraq war zones. Suicides, in this sense, can be thought of as the individual symptoms of a larger military disaease. In these last years, the US military has been, like the individuals who committted suicide, overstrained, overstressed, and made to fight wars that consumed America's treasure, while becoming ever more unpopular at home. ... The obvious response, the one that could bring the military back to a state of health, is of course roundly ignored: Downsize the global mission. ... A leaner, meaner, higher tech force--that was what George W. Bush and his [SecDef] Donald Rumsfeld promised to transform the American military into. Instead, they came close to turning it into a foreign legion. ... Now would be a good time for President Obama and [SecDef] Robert Gates to begin to reclaim that military for its proper purpose: to support and defend the Constitution of the [US] against all enemies, foreign and domestic. ... A few fortnights ago and forever ago, in the Bush years, our 'expeditionary' military came remarkably close to resembling an updated version of the French Foreign Legion in the ways it was conceived and used by those in power--and even, to some extent, in its makeup. ... Its members, recruited worldwide, but especially from French colonial possessions, were considered expendible, a fate captured in its grim, sardonic motto: 'You joined the Legion to die. The Legion will send you where you can die!'. Looking back on the last eight years, what's remarkable is the degree to which Rumsfeld and others in the Bush administration treated the US military in a similarly dismissive manner. Bullying his generals and ignoring their concerns, the [SecDef] even dismissed the vulnerability of the troops in Iraq, who, in the early years, motored about in inadequately armored Humvees and other thin-skinned vehicles. ... Put another way, [Bush's] administration made the very idea of national 'sacrifice'--by anyone but our troops--foreign to most Americans. In response to the 9/11 attacks, Americans were, as the President famously suggested only 16 days after the attacks, to show their grit by visiting Disney World and shopping until they dropped. Military service instills (and thrives on) an ethic of sacrifice that was, for more than seven years, consciously disavowed domestically. ... Is the fate of our troops no longer of much importance to most Americans? . ... Troops are now regularly recruited in 'foreign' places like South Central Los Angeles and Appalachia that more affluent Americans wouldn't be caught dead visiting. In some cases, those new recruits are quite literally 'foreign'--non US citizens allowed to seek a fast-track to citizenship by volunteering for frontline, war-zone duty in the the US Army or Marines. ... Caught in the shock and awe of 9/11, we allowed our military to be transformed into a neocon imperial police force. ... Our military may not yet be a foreign legion--but don't fool yourself, it's getting there", Tom Englehard and William Astore, 16 February 2009 at: http://lewrockwell.com/engelhardt/engelhardt374.html.

Well said. Even more troubling is the prospect of this national police force coming home to do "policing". See my 28 October 2008 post: http://skepticaltexascpa.blogspot.com/2008/10/posse-comitatus-rip.html.

Junior at Junior Deputy Accountant has a 23 February 2009 related post you should read, link: http://jraccountant.blogspot.com/2009/02/call-to-american-military-personnel.html.

China Sells Dollars

"China Minmentals Corp. is leading its home country's latest push to secure natural resources abroad, launching a takeover bid for Autralian miner OZ minerals Ltd. ... OZ Minerals--one of the world's largest producers of zinc--has been struggling to refinance US$560 million of loans by a Feb. 27 deadline. ... Chinese companies have seen a buying opportunity. The OZ Minerals offer follows on the heels of Aluminum Corp. of China's US$19.5 billion deal last week to invest in Rio Tinto, a global supplier of iron ore, copper and coal", Rick Carew at the WSJ, 17 February 2009.

"China reached a long-term deal to lend $25 billion to two Russian energy companies in exchange for an expanded supply of Russian oil, highlighting how the world's No. 3 economy is using itas financial muscle to lock up access to natural resources. ... The overseas agreements are fueling concern in Australia, where China has been especially active lately. ... The Chinese companies say their investments are driven by business, not political considerations. ... China Development, a government-controlled lender that has been the major source of financing for China's resource push, declined to comment. ... [Russia's] crude-oil production fell in 2008 for the first time in 10 years. The loan from China Development will allow Rosneft to invest in its relatively undeveloped East Siberian fields and refineries", my emphasis, David Winning, Shai Oster and Alen Wilson at the WSJ, 18 February 2009.

Invest? Or is China "selling" dollars for real assets?

China may have decided not to buy gold with its dollar hoard as politically infeasible, so it is doing the next best thing, buying claims to real assets. Siberia. Interesting.

50 Years of Denial

"They are afraid to say so in public, but many of the North's big-city mayors groan in private that their biggest and most worrisome problem is the crime rate among Negroes. In 1,551 U.S. cities, according to the FBI tally for 1956, Negroes, making up 10% of the U.S. population, accounted for about 30% of all arrests, and 60% of the arrests for crimes involving violence or threat of bodily harm--murder, non-negligent manslaughter, rape, robbery and aggravated assault. ... Negro leaders sometimes argue passionately that arrest statistics wildly distort the comparative incidence of crime among Negroes and whites because cops are more likely to arrest Negroes for petty crime or on mere suspicion. ... But inequality of treatment by the police may actually tend to shrink rather than inflate the statistics of Negro crime. Says Newsman [Charles] Wartman in the next breath: 'When Negroes violate social morals--six, drinking, gambling--white cops bypass this as "typically Negro'." ... Whether the statistics of Negro crime overstate or understate the reality, they are shrouded from public attention by what a Chicago judge last week cllled a 'conspiracy of concealment.' In many cities, Negro leaders and organizations such as the [NAACP] put pressure on politicians, city officials and newpapers to play down the subject. Fearing loss of Negro votes, few elected officials dare to resist the pressures. ... But in fact, some studies have shown that, contrary to popular conviction, crime rates among foreign-born whites were lower than among U.S.-born whites. ... But the moderate crime rates among European immigrants, subject to similar stresses of poverty and bad housing, suggets that other factors may be more important. ... Crime rates run high in the Negro slums of Harlem and South Side Chicago, but they also run high in the Negro districts of [LA] and San Francisco, where the houses are comparatively decent. ... Slum dwellers who move into brand-new public-housing projects often turn them into new slums as verminous and crime-ridden as the tenements they left behind. ... But even heroic efforts by Negro leadership could only dent the Negro crime problem, because essentially it is a white problem. And it will remain a severe problem until Northern whites, private citizens as well as civic officials, recognize that Negro crime is basically a symptom of a failure in integration. ... Negroes are more prone than whites to break the laws, rules and customs of society, because they are excluded from full membership in it", my emphasis, Time, 21 April 1958, link: http://www.time.com/time/printout/0,8816,810262,00.html.

See, Time solved the Negro crime problem 50 years ago, whites cause it. After $6 trillion in anti-poverty money spent in 2009 dollars and various affirmative action programs, what does Time think we should do next? Integrating schools did not improve Negroes scholastic attainments either.

Mortgage Insurance, RIP

"Bond insurer MBIA Inc., in an attempt to salvage what is left of its business, is separating its troubled mortgage exposure from its U.S. municipal-bond insurance portfolio. Insurance regulators touted the move, announced Wednesday, as the only way for the nation's largest insurer of municipal bonds to restart its underwriting business for new debt, which stalled over the past year in investor concerns about the company's long-term solvency. ... The move divides its muncipal-bond insurer from the business that guaranteed 'structure-finance' securities, including the subprime mortgage-backed bonds and [CDOs] whose performance has deteriorated with the housing downturn. ... MBIA's move to ring-fence its relatively good positions from questionable ones dovetails with thinking on Wall Street and in Washington that segregating assets may be the best way to revive the financial system. ... [S&P] cut MBIA Insurance Corp.'s credit rating five notches to triple-B plus", Serena Ng at the WSJ, 19 February 2009.

This looks like a zero-sum game to me. Who was hurt by it? Anyone holding guaranteed CDOs and such.

WWMD-2

"Abdul Wahid Pedersen [AWP] is a prominent Danish convert to Islam, and has been a controversial figure in the Danish media for some time. The latest uproar concerns an interview in which Mr. Pedersen refused to condemn stoning as a punishment, and the resulting reactions by politicians and in the media. ... Nowhere does the Bible prescribe crucifixion as a punishment. The crucifixion of Christ (and the two thieves) was not normative, and to assign it such equivalence is a vile canard. ... 'Sharia is the set of rules surrounding Islam, concerning what to eat, how to pray, etc. I consider Islam as a whole, where you have no option of cherry-picking individual parts, for this would set oneset above God. When I'm asked about stoning, I must confirm that stoning exists in Islam. I'm no liar. I acknowledge that it exists, and I can't change the fact that stoning is part of the Islamic system of justice. This then, has been turned into my "supporting stoning. ... If I would condemn stoning, I'd apostasize myself from Islam. ... I've made a choice, I've chosen Islam, and to me Islam is a package deal.' ... If a person commits adultery, the punishment according to Sharia law, and by implication imam [AWP], is execution by stoning. ... 'It is impossible to comprehend how one can actually stone another human being to death, setting aside every trace of empathy and common sense. This is beyond my understanding', [said Henriette Kjaer, a Danish MP]", Baron Bodissey, 22 February 2009 at: http://gatesofvienna.blogspot.com/2009/02/to-stone-or-not-to-stone.html.

Kjaer's biblical illiteracy is astounding. I welcome AWP's comments. He is a breath of fresh air. However, AWP should study the tradition which the Prophet (PBUH) followed, the Bible. "And the Lord spoke to Moses, saying, "Take outside the camp him who has cursed; then let all who heard him lay their hands on his head, and let all the congregation stone him. Then you will speak to the children of Israel, saying: 'Whoever curses his God shall bear his sin. And whoever blasphemes the name of the Lord shall surely be put to death.' All the congregation shall certainly stone him, the stranger as well as him who is born in the land", Lev 24:13-16 (NKJV). This is clear. "Then Moses spoke to the children of Israel; and they took outside the camp him who had cursed and stoned him with stones. So the children of Israel did as the Lord commanded Moses", Lev 24:23 (NKJV). What's the controversy?

"Then the scribes and the Pharisees brought to [Jesus] a woman caught in adultery. And when they had set her in the midst, they said to Him, 'Teacher, this woman was caught in adultery, in the very act. Now Moses, in the law, commanded us that such should be stoned. But what do You say?' This they said, testing Him, that they might have something of which to accuse Him", John 8:3-6 (NKJV). "The man who commits adultery with another man's wife, he who commits adultery with his neighbor's wife, the adulterer and the adulteress, shall surely be put to death", Lev 20:10 (NKJV). Jewish scholars 2,000 years ago knew stoning was Mosaic Law for adultery, what's Kjaer's problem with AWP? That AWP takes his religion straight, no ice, no club soda.

Cheap Crude

"Matthew Simmons has given 30-plus speeches in the past year, to audiences as diverse as the Pentagon and the Colorado School of Mines. ... Simmons believes Moscow's saber rattling is political cover for a more serious problem: a shortage of gas in Gazprom's pipeline system. 'This is really serious stuff. We've had a peak in Russian gas. Next year Europe is toast. Cold toast.' ... Can the deepest commodities market on earth be getting it so wrong? 'What would be really unfortunate is if 80% of the collapse in oil prices were the unforseen implications of the credit freeze,' he says. ... It wouldn't be the first time the market miscalculated. Simmons points to a framed copy of a 1999 cover story in the Economist--'Drowning in Oil'--which asserted that crude, then around $10 a barrel, would fall to $5 and stay there for a decade. Simmons (interviewed, but excluded from the article) insisted plentitude was a mirage and prices were set to soar. Nine months later oil passed $25 and the magazine issued a mea culpa. ... Simmons fears overproduction today will bring total collpase tomorrow. A fourth of the world's oil comes from the 20 biggest fields, 60% from the 800 biggest", Christopher Helman at Forbes, 2 March 2009.

I agree with Simmons. The commodities we are drowning in are: dollars and euros.