Harvard's Taxes

"Tax specialist Steven Rose, who is based in Walpole, Mass., resigned in protest in 2001 as Harvard Management's [HM] corporate tax director. ... According to Rose, a [CPA] who had worked for Coopers & Lybrand and consulted for [HM] for 10 years before he was hired there, the financial arrangements between Harvard and the private firms may have allowed Harvard for avoid taxes on [Unrelated-business taxable income] UBTI. Harvard sometimes would offset the fees it owed the firms for their services with a cut of the firms' overall revenue, in an arrangement known as netting. ... In effect, the netting canceled out both the fees Harvard would have owed the firms for their services and revenue that could have been seen as [UBTI]. ... Tom Ochsenschlager, a vice president of taxation at the [AICPA], said the IRS would have a strong case for viewing income derived from such an agreement as UBTI. ... Lawrence ... Summers is believed to have been concerned about UBTI, but an investigation by an independent party ended without recommendations. Rose then took his campaign to regulators and lawmakers", Robin Blumenthal (RB) at Barron's, 3 August 2009, link: http://online.barrons.com/article/SB124908669502998405.html.

"Iris ... Mack, 52, blasted the management company in March, telling the Harvard Crimson, the student newspaper, of a 'frightening' use of derivatives and statistical-modeling techniques during her brief tenure in 2002. ... Rose ..., too, talked to the Crimson, becoming, with Mack, a thorn in the side of Harvard just as it was trying to explain to students, professors and alumni exactly why the huge endowment was plunging 30%. In the ensuing months, Mack and Rose have compared notes on the phone and become friends. ... Mack ... had earned a doctoral degree in applied Mathematics at Harvard--only the second African-American woman to do so--and she had put in a stint as an executive in the derivatives group of BNP Paribas in London. Right before Harvard, she worked at Enron, the doomed energy concern. ... Mack raised her concerns privately in a letter to then-Harvard President Lawrence Summers. ... She was fired several days later; her attorney has cited a letter from [Jack] Meyer faulting her for spreading 'baseless allegations.' ... Mack has since returned to academia, teaching graduate-level math and finance at Embry-Riddle Aeronautical University in Daytona Beach, Fla. ... As with Mack, Harvard says, its investigations found Rose's charges to be 'without merit'," RB at Barron's 3 August 2009.

I agree with Ochsenschlager. Who were Harvard's "experts"?

Enron, poor dear. I'll bet Mack saw lots of economically senseless derivatives at Enron. Imagine, HM, with a $30 billion portfolio, might not understand the derivatives it uses to "manage" its risks.

BigLaw Loses One!

"A little-publicized ruling is a recent case involving the [IRS] is causing lawyers for big companies some sleepless nights. Last week, in a widely anticipated ruling, a federal appeals court in Boston said the IRS could gain access to documents created by a defense-contracting firm, to determine whether the company's calculation of its tax liabilities would pass muster during a possible IRS audit. The decision in US v. Textron Inc. reversed a January ruling by a smaller panel of judges on the same court. ... In its ruling, the First Circuit Court of Appeals said the documents at Textron weren't protected under the [work-product] doctrine becase they weren't specifically prepared 'for use' in litigation. The ruling 'eviscerates the work-product doctrine,' says Frederick Krebs, president of the Association of Corporate Counsel, an organization for in-house corporate lawyers. ... Some tax experts say the concern in misplaced. Corporate lawyers are 'trying to expand the work-product doctrine far beyond its original intent,' says Dennis Ventry, a law professor at the University of California, Davis, whose analaysis of the Textron case was cited by the court in its opinion", Amir Efrati at the WSJ, 20 August 2009, link: http://online.wsj.com/article/SB125072397055744533.html.

I agree with Ventry. Lawyer-client and work-product privilege abuse is endemic to BigLaw practice. Attorneys routinely attend meetings or prepare documents to attempt to abuse these privileges. Good show, First Circuit.

The WSJ Criticizes DOJ!

"One of the pleasures of government is the opportunity occasionally to do justice. Team Obama has two such opportunities before it. ... Never mind that this story flew in the face of the publicly known facts or that the government's sole witness, a junior finance department official, later recanted, saying she had been bullied by prosecutors. Hilariously, even as Justice argued in one courtroom that Brocade's finance department had been kept 'in the dark' about backdating, the SEC was simultaneously impaling two former heads of Brocade's finance department for adiing, abetting and benefitting from backdating. In a final indignity, after Mr. Reyes's conviction, the government admitted it knew its central contention was false, thanks to numerous statements from finance department officials. ... Hundreds of executives and companies have been implicated in backdating, but Mr. Reyes was singled out for criminal prosecution on the grounds that he's concealed the practice from his staff. In fact, all the evidence shows backdating was a routine, accepted, mostly uncontroversial practice at Brocade and dozens of other Silicon Valley companies whose CEOs have not been subjected to criminal prosection. ... The ethical culture of the plaintiffs' bar is clearly infiltrating the prosecutor's sanctum. Facts were deliberately distorted to make criminals out of everyday citizens", my emphasis, Holman Jenkins (HM) at the WSJ, 19, August 2009, link: http://online.wsj.com/article/SB10001424052970203550604574358831574964664.html.

"A federal appeals court overturned the conviction of Gregory Reyes, the former chief executive of Brocade Communications Systems Inc., and accused prosecutors of lying during Mr. Reyes's landmark 2007 stock-options backdating trial. ... In throwing out the conviction, the appeals court didn't dispute that backdating took place or that Mr. Reyes played a key role in awarding such grants to valued employees. But the court said that Brocade's finance department was aware of the practice and the prosecutors knew it. In telling the jury that the finance department didn't know, the government committted 'prosecutorial misconduct,' the appeals court ruled", Philip Shishkin at the WSJ, 19 August 2009, link: http://online.wsj.com/article/SB125062156757340801.html.

HJ, are you serious? Backdating requires violating, among other laws, the FCPA's "books and records" section. Feds suborning perjury is news to you? Get another job. Do you believe prosecutors, particularly feds, do not routinely violate the law? It would be interesting to look at the cases prosecutors decline. I disagree with HJ as to whether Enron's Nigerian Barge deal was criminal. Prosecutors in my opinion behave less ethically than the plaintiffs' bar. HJ, who disciplines errant prosecutors? Are feds exempt from "moral hazard"? That the feds needed a witness to make the Reyes case shows they are incompetent. The case could have been built only on circumstantial evidence. It should have been. The WSJ's big business shills use prosecutorial misconduct to attack the plaintiffs' bar. Amazing.

I agree with the appeals court. Reyes is likely guilty, but like any other defendant he is entitled to a fair trial. Even millionaires are entitled to fair trials? Yes.

Wither Disparate Impact

"The cost of caring for patients who are near death accounts for a big piece of the government's medical spending. But a furor over a provision for government-paid counseling to plan for end-of-life care is steering lawmakers away from the issue. ... Opponents say the provision shows that architects of the health-care overhaul want to ration seniors' care. Democratic lawmakers say no part of the House bill calls for rationing care. Physician counseling would be voluntary. ... Dumping the counseling provision would thwart a broad effort in recent years by doctors and hospitals to encourage patients to plan for end-of-life care. Advocates say such planning relieves the burden on families and helps doctors know how to treat those who are very ill. ... But spending during the last year of life accounted for 27.4% of total Medicare spending, the report found. ... The Urban Institute, a non-partisan research center, found that the government could save $90.8 billion over 10 years by better managing end-of-life care", Janet Adamy at the WSJ, 13 August 2009, link: http://online.wsj.com/article/SB125012322203627701.html.

"Ezekiel Emanuel, a top health-care adviser and older brother of White House Chief of Staff Rahm Emanuel, is emerging as a target of conservatives critical of Democrats' health-care effort. ... Critics are using his writings to suggest Dr. Emanuel favors withhold care from the elderly and disabled. ... In another article, in the Lancet last January, Dr. Emanuel said age was one of several factors that could be considered in deciding who receives scarce organs or vaccines. 'Unlike allocation by sex or race, allocation by age is not invidious discrimination,' he wrote. 'Every person lives through different stages.' ... Other Republicans, including former Alaska Gov. Sarah Palin and former House Speaker Newt Gingrich, have suggested the Democrats' plans could lead to euthanasia, a notion dismissed as ludicrous by the bill's authors", my emphasis, Naftali Bendavid at the WSJ, 13 August 2009, link: http://online.wsj.com/article/SB125012376373527721.html.

"A health clinic in this blue-collar city north of Oakland, partly funded by the county, is saving local hospitals thousands of dollars in emergency-room visits by treating uninsured patients who suffer only non-urgent ailments. A watchdog group is now calling on county officials to cut funding for clinic patients who can't prove they are in the US legally, a debate certain to surface in the national health-care overhaul ... A provison in the House's health-care-overhaul bill rules out federal funding for illegal immigrants. But in many ways, illegal immigration is at the nexus of two key health issues: uninsured and ballooning costs. ... Like others who can't afford medical care, illegal immigrants tend to flock to hospital emergency rooms, which, under a 1986 law, can't turn people away, even if they can't pay. ... The role illegal immigrants play in US health-care costs is 'one hot button that no one wants to touch,' says Stephen Zuckerman, an economist at the Urban Institute, a nonpartisan think tank in Washington", my emphasis, Miriam Jordan at the WSJ, 15 August 2009, link: http://online.wsj.com/article/SB125027261061432585.html.

"There was a time when rushing a thousand-page bill through Congress so fast that no one has time to read it would have provoked public outrage. But now, this has been attempted twice in the first six months of a new administration. ... But the first bill simply spent hundreds of billions of dollars. The current 'health care' bill threatens to take life-and-death decisions out of the hands of individuals and their doctors, transferring those decisions to Washington bureaucrats. ... The mainstream media are again circling the wagons to protect Barack Obama, but this time in may not work. ... At one time, it would have been none of Dr. Emanuel's business if your physician prescribed the latest medications for you, rather than the cheaper and obsolete medications they replaced. ... As for a 'death panel,' no politician would ever use that phrase when trying to get a piece of legislation passed. 'End of life' care under the 'guidance' of 'some independent group' sounds so much nicer--and these are the terms President Obama used in an interview with the New York Times back on April 14. He said, 'The chronically ill and those toward the end of their lives are accounting for potentially 80 percent of the total health care bill out there.' he added: 'It is very difficult to imagine the country making those decisions just through the normal political channels. That is why you have to have some independent group that can give you guidance'," my emphasis, Thomas Sowell (TS), 17 August 2009, link: http://www.worldnetdaily.com/index.php?pageId=107221.

"Although administration officials are eager to deny it, rationing health care is central to President Obama's health plan. The Obama strategy is to reduce health costs by rationing the services that we and future generations of patients will recieve. The White House Council of Economic Advisers issued a report in June explaining the Obama administration's goal of reducing projected health spending by 30% over the next two decades. That reduction would be achieved by eliminating 'high cost, low-value treatments,' by 'implementing a set of performance measures that all providers would adopt,' and by 'directly targeting individual providers ... (and other) high-end outliers.' ... One reason the Obama administration is preparing to use rationing to limit health care is to rein in the government's exploding health-care budget", my emphasis, Martin Feldstein at the WSJ, 19 August 2009, link: http://online.wsj.com/article/SB10001424052970204683204574358233780260914.html.

"But now I am finally scared of a White House administration. ... But the Obama administration claims those fateful consultations are 'purely voluntary.' ... As more Americans became increasingly troubled by this and other fearful elements of Dr. Obama's cost-efficient health care regimen, [Wesley] Smith adds this vital advice, no matter what legislation Obama finally signs into law: 'Remember that legislation itsef is only half the problem with Obamacare. Whatever bill passes, hundreds of bureaucrats in the federal agencies will have years to promulgate scores of regulations to govern the details of the law.' ... Condemning the furor at town-hall meetings around the country as 'un-American,' Harry Reid and Nancy Pelosi are blind to truly participatory democracy--an many individual Americans believe they are fighting, quite literally for their lives", my emphasis, Nat Hentoff (NH), 20 August 2009, link: http://www.realclearpolitics.com/articles/2009/08/20/i_am_finally_scared_of_a_white_house_administration_97969.html.

"And while [Sarah Palin] has been fairly criticized for hyperbole about the end-of-life counselors in the House bill, she drew such attention to the provision that Democrats chose to dump it rather than debate it. ... But Medicare is a system whereby 140 million working Americans pay 2.9 percent of all wages and salaries into a fund to pay for health care for 42 million mostly older Americans. And Medicare is going bust. ... In 2000, the Average American male in a population of 300 million lived to 74, the average female to 80. But in 2050, the average male in a population of 435 million Americans will live to 80 and the average female to 86. ... Now if a primary purpose of Obamacare uis to 'bend the curve' of soaring health care costs, and half of those costs are incurred in the last six months of life, and the number of seniors will grow by scores of millions, how do you cut costs without rationing care. And how do you ration care without denying millions of elderly and aged the prescriptions, procedures and operations they need to stay alive?," Pat Buchanan (PB), 20 August 2009, link: http://www.vdare.com/buchanan/090820_death_panels.htm.

Mike Shedlock smacks Obamacare at Mish's, 20 August 2009: http://globaleconomicanalysis.blogspot.com/2009/08/health-care-young-and-wealthy-subsidize.html. Who does "He" think he's fooling?

"Dr. Ezekiel Emanuel, health adviser to President Barack Obama is under scrutiny. As a bioethicist, he has written extensively about who should get medical care, who should decide, and whose life is worth saving. ... Dr. Emanuel says that health reform will not be pain free, and that the usual recommendations for cutting medical spending (often urged by the president) are mere window dressing. ... Dr. Emanuel believes doctors should serve two masters, the patient and society, and that medical students should be trained 'to provide socially sustainable, cost-effective care'," my emphasis, Betsy McCaughey at the WSJ, 27 August 2009, link: http://online.wsj.com/article/SB10001424052970203706604574374463280098676.html.

How much could Uncle Sam save by rounding up all people over 80 and shooting them? Over $9.1 billion a year? How can Obamacare save money without rationing? I can see the "near death" concept changing as the need arises, just like the CPI, PPI, etc. You're 70, you're near death. How do we know? "He" said so. Counseling? To do what? Voluntary? You eat at the King's table, you follow his rules! How much could Uncle Sam save by deporting millions of illegal aliens and ending birthright citizenship? Obamacare is designed to extend illegal aliens medical care. As Yves Smith would say, "it's a feature, not a bug". All else is secondary. Counseling, like a Big 87654 firm "counseling out" an employee in lieu of firing him?

I agree with Palin. She sees where this is going. Not "invidious discrimination". According to Table 8 of National Vital Statistics Reports, 17 April 2009, the average life span of American white men is 75.7 years, women 80.6, Negro men 69.7 and women 76.5. How much counseling will be aimed at old white women? Assume most. Where are our feminists? Well Gloria Steinem? You're 75. Not invidous? How did the Ivy League discriminate against Jews? See my 7 July 2009 post: http://skepticaltexascpa.blogspot.com/2009/07/columbia-changes.html. Identify a characteristic related to the characteristic of interest and use it. Like disperate impact, see Steve Sailer's 28 June 2009 comment, link: http://www.vdare.com/sailer/090628_bazelon.htm. Will Obamacare survive the 4/5th rule? Well Eric Holder?

The provision making illegal aliens ineligible for Obamacare will not be enforced. Who are guys like Peter Orzag kidding? Can't turn people away? When there is no more money, law or no law, that will happen. Hey Obama, repeal the 1986 law. Or does "He" think he can incarcerate all say Vallejo, California taxpayers for not suppporting illegal aliens? Hey, Zuckerman, I'll touch it. I have an idea for you, advocate "counseling" illegal aliens, to leave. Now.

Thank you TS. 80% of the relevant health care spending goes to the chronically ill and elderly. How does "He" expect to save money if not denying these groups care? The mainstream media are protecting "Him"? Really now.

Yes, Professor Feldstein. Let's make this easy for His Obamaness, kill all old people. Now we the second benefit: saving social security! Sarah Palin, is correct, we will have "death panels", which will be given some euphemism.

Yes, NH. War story time. I opposed 1964's Civil Rights Act. Racist, racist, racist! Really? I remember Martin Luther King and Hubert Humprey both said the bill would not lead to quotas. I concluded both were fools or lying. As to Obamacare, why might Obamites want computerized medical records? To determine average patient cost for each gerontologist. As to those whose costs are "too high", "Doctor, we summon you to the local health commissar to explain yourself". Why not, the DEA monitors physicians' pain killer prescriptions. Oops. Pain killers? Hmm. Obama may now have the mechanism to run death panels. Deny the elderly pain relievers to encourage them to commit suicide. Paranoid? I don't think so.

Yes, PB, how indeed. I'll go further.

Yes Mish.

The "usual recommendations" are window dressing The thrust of the Obamacare is letting old people, predominantly white females, die. Make no mistake.

Avoiding the Obvious

"Development strategies ... tend to focus on quantitative goals, such as achieving certain levels of educational enrolment or attainment. Thus, the two Millenium Development Goals that refer to education--universal primary education and gender parity by 2015--are solely phrased in terms of educational quantity (United Nations 2009). Similarly, while UNESCO's Education for All Initiative mentions quality, its explicit goals mostly focus on school quantity (UNESCO 2008). Amidst educational progress, development strategies built on schooling have diasppointed because expansion of school attainment has not guaranteed improved economic conditions (Easterly 2001). ... Still, economic growth in Latin America over the four decades since 1960 lagged so much behind growth in East Asia and MENA that Latin American income per capita, which was considerably above that of the other three regions in 1960, has been overtaken by East Asia and MENA, leaving one Sub-Shaharan Africa behind. The poor growth performance of Latin America despite its relatively high initial schooling level remains a puzzle by conventional thinking. ... Quite to the contrary, the level of cognitive skills is a crucial component of the long-run growth picture. What has been missing is a focus on the quality, rather than the quantity, of education--ensuring that students actually learn. ... As the figure makes patently clear, considering this low level of cognitive skills is sufficient to reconcile the poor growth performance of Latin America with outcomes in the rest of the world over the past four decades. ... School attainment does not even have a significant relationship with economic growth after one accounts for cognitive skills. ... In sum, schooling appears relevant for economic growth only insofar as it actually raises the knowledge that students gain as depicted in tests of cognitive skills", my emphasis, Eric Hanushek and Luger Woessmann (H&W), 15 August 2009, link: http://voxeu.org/index.php?q=node/3869.

Cognitive skills? Are H&W using a "proxy" for the dreaded "I word"? "Conventional thinking" cannot explain this. We need a worldwide "No Child Left Behind" law.

Contracts at Citigroup

"In your editorial 'The $100 Million Banker' (Aug. 5), you say 'a contract is a contract, and if Mr. Hall is owed $100 milliion then Citigroup ought to pay it.' Not so fast! If Citigroup were in bankruptcy court where it ought to be, Mr. Hall's contract could have been voided, leaving him to stand in line with Citigroup's other hapless creditors", Edward Kalaidjian letter to the WSJ, 11 August 2009, link: http://online.wsj.com/article/SB10001424052970204908604574332731443282324.html.

My sentiments precisely. This is a job not for Superman, but our new SDNY US attorney who should tell Andrew Hall (AH), however delicately, "You have no contract". Of course, if AH is so stupid as to try to enforce his "contract", Preet Bharara (PB) can "go Beria" on AH. I'm sure with all the SDNY talent, it can find something to nail AH with. Alternatively PB can take AH to the CNC guillotine room and remind AH this encounter sounds like a "Marie Antoinette" moment.

Welcome Aboard WSJ

"We're beginning to wonder if the Ben Bernanke [Fed] isn't populated with French existentialists. A la Jean-Paul Sartre, they have a 'no exit' strategy when it come to unwinding their extraordinarily easy monetary policy", Editorial at the WSJ, 13 August 2009, link: http://online.wsj.com/article/SB10001424052970203863204574346793914454028.html.

Welcome aboard WSJ, see my 4 August 2009 post: http://skepticaltexascpa.blogspot.com/2009/08/zimbabwe-ben-our-sartre.html.

TIPSY China

"The Treasury Department, responding to growing demand from China and other investors, will boost the sale of inflation-protected bonds that hold their value as consumer prices rise. ... The decision to increase sales of Treasury Inflation-Protected Securities, or TIPS, is part of a broader effort to ensure there is enough demand for Treasury bonds to help the US fiinance its swelling budget deficit. ... Chinese officials had indicated they want inflation-protected securities, especially as the US economy starts to recover. 'Inflation is the No. 1 worry,' said Marc Chandler, global head of currency strategy for Brown Brothers Harriman & Co. [BBH] 'This is the government saying, "we will take that inflation risk away from you,'''," Rob Copeland and Maya Randall at the WSJ, 6 August 2009, link: http://online.wsj.com/article/SB124951450326009277.html.

We'll know China is "serious" when it demands US "gold notes". Even better, the real McCoy, gold. Apparently BBH learned something in 47 years, since Robert Roosa had the Treasury issue "Roosa Bonds", my 8 November 2007 post: http://skepticaltexascpa.blogspot.com/2007/11/stupidity-must-be-inherited.html. Better TIPS than yuan Roosa bonds.

IRS Hold 'Em

"The [IRS] is staging a massive poker game. It has invited 52,000 UBS AG account holders to the table. ... Or do they stay quiet, hoping to avoid detection, but risk far greater penalties or even criminal prosecution if exposed to authorities? ... One factor in play: The IRS only has the resources to prosecute about 1,000 criminal tax cases each year. 'I'm surprised at how many are willing to gamble,' said Kevin Packman of Holland & Knight in Miami. ... Coming forward to the IRS has its hazards. The agency is offering a special voluntary disclosure program to holders of any offshore accounts that promises a measure of clemency to those who report before Sept. 23", Laura Saunders at the WSJ, 14 August 2009, link: http://online.wsj.com/article/SB125020653689430645.html.

I'm not surprised few people came forward. The IRS is very limited in the number of prosecutions it can bring. Look at Olenicoff, my 20 May 2008 post: http://skepticaltexascpa.blogspot.com/2008/05/sentencing-snipes-2.html. I think the IRS is holding a pair of dueces in this game of "Texas Hold 'Em" with the UBS account holders.

Free Banking

"It is our purpose, in this and its succeeding articles, to discuss the subject of Free Banking. ... Whilst we will attempt no formal defense of the banking laws of Louisiana now in operation, we will, as fairly as possible, meet all the arguments urged in favor of the New York system, and endeavor to prove it faulty in its nature, and ill-adapted to the wants of our condition. ... Free Banking is a taking phrase, and well adapted to the popular ear, but its meaning is highly technical; and when the words are used, that system only is referred to which has for the basis and guarantee of its circulation, municipal, state or national stocks. [Note: by stocks the author means debts] ... Without such debt no stock would exist; and in its proper place we will discuss the propriety of making state or municipal credits the basis of our medium of exchange. ... We will make our inquiry still easier if we go at some length into the nature of banks in general, and from the history and experience of the past, eliminate such general truths as may guide us in the coming discussions. By the term banks, we of course allude to those institutions which receive deposits, discount notes, and issue paper money. Important as all their functions are, the last named is far the most potent", 610.

"Far more extensive are the powers of banks of issue. Their operations touch every branch of industry, and either for weal or woe, most sensibly affect the great producing and laboring classes of the community. ... Trite as the truth is, we must in this discussion unceasingly remember that paper money is nothing but a loan from the public to the bank which issues it. They are mere substitutes for money, and bear no higher relation to the public wealth than individual promissory notes. ... But such institutions can no more create money than the mill which converts rags into paper. ... Another fruitful source of popular error here stares us in the face. It is the supposed influence of banks on credit. The earnest advocates of these institutions generally commence by an exaggerated statement of the benefits resulting to individuals and nations from the greatest possible extension of credit. Assuming that the banking system is the one more likely to effect this object, they forthwith declare it is the credit system, and denounce any attempt to reform its abuses as a war upon credit itself. ... For it is not true that individuals or nations are benefitted by the greatest possible extension of credit. Credit may be pushed to an excess which generates extravagance and wild speculation, results that bear with them, as we of the South know too well, a train of the most disastrous consequences. It is not true, as is often urged by the friends of this system, that the great prosperity of the United States has been owing to the principle of credit", original italics, 611.

"The favorite topics of our fathers were not the advantages of getting credit, but of industry, economy, temperance and freedom from debt. ... There are two parties to all transactions of credit. If one gives credit, the other gets into debt. Now debt, absolutely viewed, is a bad thing, and it is only by comparing the results of the operation as viewed under both of these aspects, that we can decide whether it will prove beneficial or otherwise. ... But where credit is articifically stimulated by law--when companies are incorporated for the express purpose of making loans, and virtually supplied by the state with unlimited amounts of fictitious capital, to be employed in this way, it is apparent that the principle will and must be pushed to ruinous excess. ... The first essential of sound banking is, that its paper shall be instantly, and on demand, convertible into the money it professes to represent. ... Already we hear of schemes advocating inconvertible and irredeemable paper money, based on the landed property of the state. It is true that they are mere theories, and ever may they remain such. ... Legislatures have in vain enacted penal clauses to prevent mismanagement of banks. In vain have they attempted a supervisory control over them, through boards of currency and examining committees. All such expedients, good enough as far as they go, utterly fail to guarantee to us a sound paper currency. The ingenuity of man is superior to the restraints of law; and where interest impels, legal hindrances are mere cob-webs in the path of the adroit. 'To drive a coach and four through a bill in chancery' is not easier than to drive one through a banking law. Instant convertibility to specie is therefore vitally important in securing a sound paper currency", 612.

"It is clear that gold and silver, whilst they have in themselves an inherent value, are not desired by the tradesman, the laborer, and the merchant for such innate worth. ... First, like corn, tobacco, and cotton, they are worth precisely the cost and just return for their labor and capital in the price of the ore, they would at once abandon its production, until a decrease of supply enabled them to obtain a fair remuneration for their toil and outlay. ... 'On the whole, no commodities are so little exposed to causes of variation. They are more constant than almost any other things in their cost of production; and from their durability, their total quantity in existence is at all times so great in proportion to the annual supply, that the effect of value, evne of a change in the cost of production, is not sudden. ... In order that the value of the currency may be secured from being altered by design, and may be as little as possible liable to fluctuations from accident, the articles least liable of all known commodities to vary in their value, the precious metals, have been made in all civilized countries the standard of value for the circulating medium; and no paper currency ought to exist, of which the value cannot be made to conform the theirs'," 614, internal quote from Mill's Political Economy, 1848.

What is this wisdom's source? It deals with current issues. DeBow's Review, "Free Banking", Vol. 2, No. 6 (June, 1852). 157 years ago?! Yes. No new monetary theory in 157 years? Mill anticipated my 1980 "stock-flow ratio" concept by 132 years! Believers in regulation, repent. Come forward, tear your clothes. Don ashes. End your idolatry. That you may be forgiven. "You shall not made for yourself an idol in the form of anything in heaven above or on the earth beneath or in the waters below. You shall not bow down to them or worship them; for I the LORD your God, am a jealous God, punishing the children for the sin of the fathers to the third and fourth generation of those who hate me", Exodus 20: 4-5 (NIV). Not to paper money? Is paper money an idol? Not to the: Fed, Treasury, FDIC, OCC, Goldman, etc. Well only to Goldman. California would like its "stocks" to be locally used as money. I wonder what DeBow thinks of: Freddie, Fannie, Sallie and such. "Artificially stimulated by law"? Like Zimbabwe Ben's suppressing interest rates? "Unlimited amount of fictitious capital", like TARP funds? Timmy Boy Geithner should read this. He might abandon his Quixotic quest to "reform banking regulation". See also my 1 March 2008 post: http://skepticaltexascpa.blogspot.com/2008/03/get-gold.html.