Putin and Wen on Finance

"The premiers of Russia and China slammed the U.S. economic system in speeches Wednesday, holding it responsible for the global economic crisis. Both focused on the role of the U.S. dollar, with China's Premier Wen Jiabao urging better regulation of major reserve currencies and Russia's Vladimir Putin calling over-reliance on the dollar 'dangerous.' ... 'The entire economic growth system, where one regional center prints money without respite and consumes material wealth, while another regional center manufactures inexpensive goods ... has suffered a major setback,' Mr. Putin said. ... While Mr. Wen never names the U.S., his critique of its failings was as sweeping as Mr. Putin's. The financial crisis, he said was 'attributable to inappropriate macroeconomic policies of some economies and their unsustainable model of development characterized by low savings and high consumption; excessive expansion of financial institutions in blind pursuit of profit'--and other excesses", Marc Chapman and Andrew Batson at the WSJ, 29 January 2009.

"We have truly entered a Bizarro World universe, where up is down, right is left--and the Russians of all people, are now lecturing us about the virtues of free enterprise. ... Putin likened the economic crisis the world is facing to 'the perfect storm, which denotes a situation when nature's forces converge in one point of the ocean and increase their destructive potential many times over.' ... Well, hang in there, dear reader, because we're just getting to the good part: 'Add to this colossal disproportions that have accumulated over the last few years. This primarily concerns disproportions between the scale of financial operations and the fundamental value of assets, as well as those between the increased burden on international loans and the sources of their collateral.' This realistic perspective is in sharp contrast to the frantic gyrations of our own political and financial leaders. ... Whether the Russian leader has been boning up on the works of the Austrian economists and has absorbed or at least understood their critique of central banking as the flaw in the otherwise beneficial ointment of Western-style capitalism, or has independently come to similar conclusions, is open to speculation. Suffice it to say the parallelism is astonishing. ... I lived to see an American president red-baited by the Kremlin! That, in itself, is utterly amazing, and proof positive that we have indeed slipped into an alternate universe, a Bizzaro World where history runs backward--and in reverse. Sounding more like Barry Goldwater than any Russian leader I have ever heard of, Putin took aim at the Obama-commies: 'Nor should we turn a blind eye to the fact that the spirit of free enterprise, including the principle of personal responsibility of businesspeople, investors, and shareholders for their decisions, is being eroded in the last few months. There is no reason to believe that we can achieve better results by shifting responsibility onto the state'," my emphasis, Justin Raimondo, 2 February 2009 at http://antiwar.com/justin/?articleid=14178.

"China will continue to buy US Treasury bonds even though it knows the dollar will depreciate because such investments remain its 'only option' in a perilous world, a senior Chinese banking regulator said yesterday. ... 'Except for US Treasuries, what can you hold/' [Luo Ping] asked. 'Gold? You don't hold Japanese government bonds or UK bonds. US Treasuries are the safe haven. For everyone, including China, it is the only option.' ... 'We hate you guys. Once you start issuing $1 trillion-$2 trillion ... we knw the dollar is going to depreciate, so we hate you guys but there is nothing much we can do'," Henry Sender at the FT, 12 February 2009.

Either Putin or Wen would make a better US Treasury Secretary than Tim Geithner.

I love this guy Putin! His arguments sound like Uncle Miltie wrote them! Wait, if Putin keeps this up, Russia will become the preferred destination for people fleeing the oppressive (American) state. Would Ayn Rand believe this? Putin may have an advantge over Obama: he may have read Marx and knows Marx favored a central bank!

Yes there is. Buy gold. Suppose China gave up on the dollar, would Luo say so? I still remember what the UK Chancellor of the Exchequer did in 1967 before the UK's pound devaluation. See my 27 September 2007 post: http://skepticaltexascpa.blogspot.com/2007/09/bush-lies-dollar-dies.html.

Toothless SEC-12

"Merrill Lynch failed to disclose certain conflicts of interest to its pension consulting clients, the [SEC] charged on Friday. ... The company didn't admit or deny the allegations but did agree to a censure and a cease-and-desist order", my emphasis, Michael Crittenden at the WSJ, 31 January 2009.

Yet another SEC enforcement triumph.

Are Insurers Next?-6

"State insurance regulators voted down a package of proposals to ease reserve and capital requirements for life-insurance products, after the move came into a firestorm of criticism from consumer advocates. ... In recent weeks, the NAIC encountered criticism from consumer-advocacy groups charging it was unnnecessarily rushing to ease rules that would hurt owners of life-insurance policies and auuniities. The groups, which included the Consumer Federation of America and the Center for Economic Justice, maintained the changes would reduce the financial cushion that life isurers had to keep on hand to pay claims. A trade group of life insurers, an actuarial firm and at least two credit-ratings firms have maintained that many of the changes make economic sense. They said that some of the rules in question are overly conservative and, in some cases, redundant. ... 'So far, the insurance industry is in much better shape than most of the rest of the financial-services sector because of strong state solvency regulations', said Roger Sevigny, NAIC president and New Hampshire insurance commissioner", my emphasis, Leslie Schism at the WSJ, 30 January 2009.

That seals it. Two of the ratings agencies said the proposed changes are OK, therefore, they must be fine. What idiots run the insurers! They actually hired ratings agencies to lobby for the rules changes. Who at the agencies said the proposed changes are OK? Yuri Yoshizawa, my 17 June 2008 post, link: http://skepticaltexascpa.blogspot.com/2008/06/monolines-are-dead-rating-agencies.html.

US Dollar, RIP-2

"When President Barak Obama called for 'sacrifice' in his inaugural address, he was really talking about the Chinese, Japanese and British who collectively continue to buy our Treasury bills. For some reason politicians think that these folks will continue to 'fund' our serial stimulus spending. ... Buyers of Treasurys must ask themselves: 'How long will it be before the U.S. government arbitrarily changes the terms of its outstanding debt?' ... The primary risk in our economy today is not economic performance, it is political risk. No one knows which shareholders the government might wipe out next", Richard Wottrich letter to the WSJ, 29 January 2009.

The US changed the terms of its debt before. In 1933 we took gold out of our money; in 1964 the silver. We repudiated the gold clause in the 1930s. Buy Treasurys at your peril.

Wait Listed by Jail-3

"Faced with a surging prison population and a state budget more that $1 billion in the red, Gov. Steve Beshar and Kentucky lawmakers last year took a dramtic step that they hoped would save $30 million over two years: granting early release to more than 1,800 inmates, including some felons convicted of murder, rape and other violent crimes. ... From California to Connecticut, states are under pressure to bring corrections spending in line with the reality of gaping budget shortfalls. At any given time, more than 2.3 million people are locked up in federal, state and local facilities in the [US], and, more than half of those released from prison are back behind bars within three years, according to the federal Bureau of Justice Statistics", John Gramlich at Stateline, 26 January 2009, link: http://www.stateline.org/live/printable/story?contentId=365279.

Laugh all you want. Some state prisons will see waiting lists. See my 7 February 2009 post, link: http://skepticaltexascpa.blogspot.com/2009/02/wait-listed-by-jail-2.html.

Price Watergate-3

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

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

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

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

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

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

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

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

Linda Thomsen, Fool or Knave?

"Lawmakers expressed frustration at regulators' explanations for failing to catch Bernard L. Madoff's alleged multibillion-dollar fraud but drew little blood because officials declined to discuss details of the case. Linda Thomsen, chief of the [SEC's] enforcement division, suggested in Tuesday's hearing at the Senate Banking Committee that federal prosecutors may pursue charges against Mr. Madoff over what they believe were his past lies to SEC officials during past examinations. ... 'We want to be sure to preserve the integrity of any criminal investigation,' she told the committee. ... An SEC spokesman declined to comment beyond Ms. Thomsen's testimony. The US. attorney's office decline to comment. ... SEC officials said they were understaffed to deal with the fast-growing investment-advisory business and tried to conduct examinations are frequently as they could", my emphasis, Kara Scannell at the WSJ, 28 January 2009.

"Government and industry regulators were put sharply on the defensive Tuesday at a Senate hearing over their failure to uncover the multibillion-dollar fraud scheme that Bernard Madoff allegedly carried out under their noses. ... SEC Enforcement Director Linda Thomsen said the SEC is committed to finding ways to bolster fraud detection after its breakdown in the Madoff case", Marcy Gordon at the Houston Chronicle, 28 January 2009.

If you read carefully, Thomsen said: the SEC didn't corroborate anything Madoff said. Now should the US attorney's office investigate Madoff, or the SEC as a securities fraud co-conspirator? Should the US attorney's office dust off the "ostrich instruction" and inform some SEC personnel, they will be indicted and were at best "wilfully blind" to the obvious. The SEC chose not to corroborate Madoff's statements. Why? The SEC is always understaffed. For what?

How will the SEC "bolster fraud detection"? Will it corroborate statements made by future Madoffs?

MBA & JD Teachers

"Officially, Adria Berry is an attorney. ... Berry has sent more than 200 resumes seeking work as a lawyer, but after not landing a single interview, she has resorted to substitute teaching. ... School administrators say the unusally high caliber of the applicants--some with MBAs and other prestigious advanced degrees--allows them to be choosier when assigning substitutes to classrooms. ... The job doesn't come with health insurance and the pay ranges from about $60 to $100 a day in the Houston area", Ericka Mellon at the Houston Chronicle, 28 January 2009, link: http://www.chron.com/disp/story.mpl/front/6233674.html.

When the Houston Independent School District starts receiving former Goldman Sachs managing directors' resumes the crisis will be over.

Tea Leaves and China's Navy

"About a decade ago the foreign policy establishment was busy dismissing China's efforts to build a powerful, modern military. Writing in the Washington Post in 1997, Michael Swaine, a China specialist then at the RAND corporation, declared that the 'enduring deficiencies in China's military logistics system call into question its ability to operate [naval and aviation] weapons over a sustained period, particularly outside China's borders. Well, right now, Chinese naval vessels are deploying in the Gulf of Aden to assist in the international anti-piracy mission. It's 4,000 miles from China to the Gulf of Aden. Swaine further predicted that China 'will remain at least a full generation behind the world's leading military powers.' In January 2007, Beijing used a ground-based medium range ballistic missile to destroy one of its own aging weather satellities. ... A 1998 Foreign Policy Research Institute article written by Avery Goldstein asserted that Beijing was so far behind other advanced industrial states that 'successful moderization will leave China with forces by the second or third decade of the next century most of which would have been state of the art in the 1990s.' ... The Chinese carriers will build on one of the [People's Liberation Army Navy] PLAN's most significant accomplishments: the creation of a fleet of attack and ballistic missile submarines. ... If we assume the year 2020 as a reasonable target for China's gaining genuine competency at naval aviation--particularly the joint operation of carriers with the rest of the fleet--it will have taken just 35 years for China to transform its navy from a large collection of aging World War II landing ships, patrol boats, shore-based aircraft, and submarines with very limited range into a modern naval force with an offensive ballistic missile capability. ... The span is about the same amount of time it took Japan to turn its coastal defense navy into the battle fleet that destroyed a Russian rival at the Battle of Tsushima Strait in May 1905. ... Thomas Barnett, a researcher and a professor at the Naval War College until 2004, urged in a 2005 article ('The Chinese Are Our Friends') in Esquire that the president stop the 'rising tide of Pentagon propaganda in the Chinese 'threat' and tell Secretary of Defense Donald Rumsfeld ... that our trigger pullers on the ground today deserve everything they need to conduct counterinsurgency operations.' ... Allowing the current U.S. naval slippage to continue will result in a combat fleet of a size we haven't seen since 1911", my emphasis, Seth Cropsey (SC), 26 January 2009 at http://www.weeklystandard.com/Content/Public/Articles/000/000/016/025ibosb.asp.

Who needs these military "experts"? Are they on China's payroll and traitors, or fools? SC was Navy deputy undersecretary for Reagan and Bush. I disagree with Barnett. We should get our trigger pullers out of Iraq and Afghanistan. Neither place has strategic significance to the US. As for "the Chinese are our friends", is Barnett crazy? Anyone who knows anything about military history could tell you: only capabilites count. You may as well read tea leaves, study goat entrails or consult Ed McMahon's hermetically sealed mayonnaise jar as attempt to ascertain another country's intentions.

No Stimulus Tax Cuts

"This week the House will be voting on a two-year, $825 billion economic stimulus package. ... The program is immense. Will it work? ... Still, Republicans apparently like that $275 billion, or a third of the package, comes in the form of tax cuts. But to boost output and income, a tax cut must be the right type--one that cuts taxes 'at the margin' on the additional income associated with additional output (supply). And it should be permanent if the gains are to last. ... Except for firms getting TARP money, businesses could carry back losses for five years instead of only two against past profits to get a refund. The carry-back would give businesses cash. But unless taxes are cut on future earnings, it would not encourage more investment and hiring", Stephen J. Entin at the WSJ, 27 January 2009.

I agree with Entin. Much of the tax cut will have no effect "at the margin". Thinking of the effects of a policy "at the margin" seems to be very difficult for politicians.