Wednesday, June 30, 2010

Middle East Decision Time?

"Yesterday I had an exchange with someone, formerly associated with an American intelligence agency, who claims to be knowledgable about the Middle East. I offered the following view on the Middle East, to which he later responded: Quite naturally the [US] has important interests in the Arab world, especially in terms of a commitment to protect certain Arab princes in the Gulf region, and to protect 'democracy' in Iraq. At the same time we wish to prevent a second holocaust--a second mass extermination of Jews. Seen by many to be an ally and friend to the Arabs, the [US] is an ally and friend to Israel as well. This is a very uncomfortable position for America, because the conflict between Israel and the Arabs appears to be non-negotiable (especially with the insertion of Islamism into the conflict). We are thus confronted with a dilemma. Either Israel will survive and Islamic power will be broken for centuries to come, or Israel will be destroyed and Europe will come under the same pressure Israel now feels. ... For peace to come about in the Middle East, it is not enough that the Israelis show sympathy for the plight of the Arbas. This is what we would all like to see. But what of Arab sympathy for the plight of the Jews? But no one is sufficently 'insensitive' as to insist on this. ... If Israel is considered an outpost of the West, can the Arabs agree upon a border with Israel? Or must we accept the destruction of Israel? Here the bitter experiences of India, alongside those of Israel, suggest that peace with Islam is always and forever problematic. Do we imagine there is no lesson to be found in the Islamic invasions of the Roman Empire, Europe and India. We are told to be sympathetic to the Islamists, to the plight of the Arabs. What about sympathy for Christians and Jews? ... The ultimate target of the hateful rhetoric in the Middle East is America and not Israel. It is capitalism and the West", JR Nyquist at Financial Sense, 4 June 2010, link:

"What do the following have in common: the piling on Israel after the botched interception of the Hamas relief flotilla, the Chinese military telling the US secretary of defense that he was not welcome in Beijing, and the declaration by Nick Clegg--now deputy prime minister of Great Britain--that his country's special relationship with America is over? Answer: The Obama adminstration has managed to convince most countries around the world that we are worth little as friends and even less as enemies. ... Last week, Israel walked into a trap set by a flotilla of Hamas sypathizers and what Lenin used to call useful idiots. Israeli commandos who were being attacked by burly men trying to throw them overboard or beat them senseless killed a bunch of people whom they would rather not have killed. ... The Israelis have a right to blockade Gaza, from which they withdrew only to soak up several thousand rockets in return, and they did what they could to get the ships to send supplies into Gaza through their ports. Until Vice President Jow Biden plucked up the courage to acknowledge on 'Charlie Rose' that the Israelis are at war with Hamas and have the right to prevent arms from entering Gaza, the Israelis could have been foregiven for thinking that we would hang them out to dry. ... The folly here is to think that leaving the Israelis open to these kinds of diplomatic attacks will buy good will in a Middle East that gets its opinions from Al Jazeera and a venomous media that routinely prints outratgeous lies and hate literature that echoes Nazi Germany. That part of the world, as Osama bin Laden once correctly observed, prefers a strong horse to a weak horse. ... When did the Israelis withdraw from Gaza? When they had a president in the White House upon whom they knew they could count. If, as is the case now, Israel is alone and desperate, is it more or less likely to conclude it has no choice but to attack Iran's nuclear facilities... What precisely have we gained from reaching out to the Syrian government", Eliot Cohen at the WSJ, 7 June 2010, link:

Quoted without comment.

It may be decision time for the US: we side with Israel or the Arabs. We'll see.

Just-In-Time For Disaster

"Car production lines worldwide look set to grind to a halt as the flight ban over much of Europe begins to starve manufacturing of key electronic components. ... The problems highlight industry's dependence on complex, worldwide supply chains that need multiple modes of transport to deliver goods and compenents just in time to where they are needed. ... Air freight accounts to a tiny amount of world trade by weight--about 0.5 per cent for the UK. But the disruption has highlighted how it plays a vital role in supplying key, high-value components to many manufacturers. In spite of its tiny volume, it accounts for 25 per cent of UK trade by value. ... They are now looking to revert to a mixture of air and sea, moving goods from aircraft in Dubai on to ships to prevent goods piling up in one place. ... Companies have become more vulnerable to disruption since moving to just-in-time producton methods, where hardly any stock of products in held, said Emma Scott, representation manager for the Chartered Institute of Purchasing & Supply in the UK", John Reed at the FT, 21 April 2010, link:

Just-in-time inventory is a disaster waiting to happen. See my 26 February 2010 post:

Tuesday, June 29, 2010

The SEC and DOJ Fold

"The Justice Department's decision last week to abandon a criminal probe against current and former exectuives at [AIG] underscores the difficulty facing prosecutors who want to hold individuals criminally accountable for the financial crisis. ... But, late last Friday, Mr. Cassano and two colleagues who were also investigated were told through their lawyers that they wouldn't face criminal charges after prosecutors found evidence supporting Mr. Cassano's account, people familar with the matters said. ... The conclusion of the two-year criminal investigation marks a setback for prosecutors who have come under public and political pressure to find evidence of criminal conduct in the wake of the recession. ... The travails aren't over for Mr. Cassano. The [SEC], which has to meet a lower standard of proof, is considering whether to file civil charges, according to people familiar with the matter. Mr. Cassano's lawyers declined to comment on the civil probe. ... For months, they believed Mr. Cassano hadn't disclosed to senior AIG executives or its auditors, PricewaterhouseCoopers LLC, that an accounting adjustment allowed his unit to avoid writing down the value of its swaps by billions of dollars, these people said. PwC declined to comment", Amri Efrati at the WSJ, 24 May 2010:

"The [SEC] dropped its investigation of a former [AIG] executive who ran a subsidiary at the center of AIG's problems, following a similar move last month by prosecutors. ... Federal investigtors looked into whether [Joseph] Cassano misled investors with reassuring statements about AIG's exposure to mortgage losses, people familiar with the matter have said. A turning point came when prosecutors found evidence Mr. Cassano did make key disclosures. ... Mr. Cassano's lawyers called the SEC's move 'completely appropropriate in light of the facts.' They said the SEC staff 'realized that our client acted in good faith, kept his superiors informed, and was honest with investors", Kara Scannell at the WSJ, 17 June 2010, link:

Well SEC? Will you now go after PWC for its wonderful AIG audit? Well PCAOB?

I expected this after the DOJ folded.

Are CPAs Racist?

"Thomas Jones decided to go into accounting when a CPA spoke about the profession at his high school's career day. ... But Jones' story is uncommon. African-Americans make up only about 1 percent of all certified public accountants, according to a paper published this year by Howard University. ... Frank Ross, director of the Howard University School of Business Center for Accounting Education and one of the founders of the NABA, said lack of awareness about accounting, low success with the Uniform CPA Exam [UCPAE] and difficulty retaining African-Americans all contribute to the small number of African-American accountants. ... Often, young people in minority communities don't have the role models or mentors to teach them what accounting is about, said Gregory Johnson, executive director and chief operating officer of the NABA. ... The CPA Bound program, for example, supports people working to become certified, tracks their progress and recognizes them at NABA conferences after passing the [UCPAE]", my emphasis, Salvador Rodriguez at the Houston Chronicle, 15 June 2010, link:

What percentage of CPAs does Jones expect to be black? 13%? Estimating you need at least 120 IQ to pass the UCPAE, that's 1.33 STDV above the caucasian mean or thanks to hyperstaz, the .909 level. It's also 2.40 STDV above the black mean, the .992 black level, so why be surprised with the result?

Monday, June 28, 2010

Where's the Crime?

"US authorities arrested Lee Farkas, the high-rolling former chairman of a failed Florida mortgage lender, and charged him with orchestrating a seven-year, multibillion-dollar fraud that contributed to the collapse of a major bank and targeted the US government. ... On Wednesday, the US alleged in a criminal indictment that Mr. Farkas had been propping up his firm since 2002 using an array of fraudulent schemes that have cost investors and government programs in excess of $2 billion. ... The Federal Housing Administration said Wednesday it had lost $3 billion because Taylor Bean had lied about the health of loans it was servicing for the public housing agency. ... 'The fraud alleged here was truly stunning in its scale and complexity,' said Assistant Attorney General Lanny Breuer, who heads the [DOJ's] criminal division. ... The indictment is the largest case in which a bank has been accused of attempting to defraud the bank-bailout fund. It also comes as the Obama administration comes under pressure to hold bankers accountable for their perceived role in helping cause the financial crisis. According to the government's indictment, which was unsealed Wednesday, Mr. Farkas and his co-conspirators started the fraud by siphoning money from Colonial, which lent it billions of dollars to buy mortgages, and from its own funding arm, Ocala Financing", my emphasis, Thomas Catan & Evan Perez at the WSJ, 17 June 2010, link:

It seems Taylor Bean was run like a major Wall Street house, i.e., to benefit its officers. As much as possible was apparently stripped from it then it failed. So? Is Farkas' problem failing to install a "former" officer as Treasury Secretary? Didn't Fannie Mae have multiple accounting restatements involving billions of dollars? Won't Freddie and Fannie need about $400 billion in bailouts? Didn't AIG get $182 billion? Why is the DOJ bothering with Farkas? What's wrong with propping up a failing enterprise anyway? "Stunning in its scale"? Huh? Anyone remember Lehman and Repo 105?

Accounting Onion Almost Makes Me Cry

Tom Selling's 15 June 2010 post at Accounting Onion applies SFAS 52, Foreign Exchange Accounting, giving an absurd result. He slams the SEC, FASB and Big 87654 all at once for this. Good show Tom. Here's a link: Thank you Hugo Chavez for creating this anomaly. In rereading Tom's post I got an idea for Citigroup's treasury department. Incorporate a Venezuelan subsidiary; put $50 billion USD in it and presto, instant profits. Well Vikram Pandit, whaddayasay? I figure this idea is worth 1%. I'll expect my $500 million check within 30 days. Tom: If I get the $500 million, half is yours. I'll let you know.

Sunday, June 27, 2010

Congress Finds Revolving Door

"A Senate panel asked the [SEC's] inspector general to review the agency's 'revolving door,' which shuttles many SEC staffers into jobs with the companies they once regulated. .... Mr. [Charles] Grassley also cited a Wall Street Journal article in April that reported how may former SEC employees have quickly turned around and represented clients before the commission, sometimes within days of leaving the agency. 'We need to ensure that SEC officials are more focused on regulation and enforcement than on getting their next job in the industry they are supposed to oversee,' Mr. Grassley said in a statement. ... '[W]e are currently conducting an investigation of allegations very recently brought to our attention that a prominent law firm's siginificant ties with the SEC, specifically, the prevalence of SEC attorneys leaving the agency to join this particular law firm, led to the SEC's failure to take appropriate actions in a matter involving the law firm,' Mr. [David] Kotz said. ... Last week, Sen. Edward Kaufman (D., Del.) said that restriction doesn't go far enough. Congress or the SEC should consider banning employees from taking jobs with companies affected by rule making in which the staffers had a significant role during the prior year, Mr. Kaufman said in a statement", Tom McGinty at the WSJ, 16 June 2010, link:

So what? "Max" and "Jack", two former SEC staffers can just switch "clients" to avoid the conflict of interest rules. The SEC is hopeless. Only one law firm Kotz? Get real.

More Self-Serving AICPA Claptrap

I got an e-mail from the AICPA's "Center for Audit Quality" on 16 June 2010, saying it opposes a permanent exemption for companies with market capitalizations under $75 million from compliance with SOX section 404. The Center opposes this to protect investors. Would an AICPA organ favor creating make-work projects for CPAs? No. The Center is the old AICPA SEC Practice Section in new garb. Consider how much the AICPA has improved audit quality since 1976. Not much. Here's a link to the letter sent Congress:

Mother of All Bubbles

Jesse has a 16 June 2010 post as Jesse's Cafe Americain, calling the US dollar, "The Mother of All Bubbles". No argument here. Here's a link:

Saturday, June 26, 2010

TAKS Progress

"Texas schoolchildren generally performed better on the all-important TAKS test this year, but some superintendents, state lawmakers and statisticians are casting doubt on the gains. That's because the Texas Education Agency required students to answer fewer questions correctly to pass most section of the Texas Assessnment of Knowledge and Skills. In some cases, students could pass by getting fewer than half of the items right--an unusually low standard, according to several education researchers. ... According to a Houston Chronicle analysis of TEA data, the state lowered the passing standards more this year than they have in at least the last two years. ... TEA Deputy Associate Commissioner Gloria Zyzkowski said agency officials set the bars high enough so 'students can't pass the test by chance alone", my emphasis, Ericka Mellon at the Houston Chronicle, 8 June 2010, link:

Not by chance alone. That's reassuring. No government statistic should be accepted at face value. I note the standards are lowered yearly.

Butchering the Sacred Cow

"This will not be done because Americans do not really want major spending cuts. To demonstrate my point, let us consider America's sacred cow, tax-funded education. ... That would mean expenditures in the range of $800 billion a year. If we assume that about 80% of these expenditres are funded by governments at various levels, we are talking something in the range of $600-$650 billion a year. ... There is also nothing that says that a government has the moral authority to coerce parents who hold to one view of education, or one view of how the world works, to subsidize the educations of other families, whose children attend schools that teach a view of the world closer to that approved by the subsidized parents. To say this is to announce one of the most hated heresies of the modern world. I mean 'heresy' in the good old-fashioned way that is was meant in the Middle Ages and in virtually any society prior to the Enlightenment. This heresy involved calling into question the legitimacy of a priesthood, self-appointed and self-policed, which gains its money from the civil government. ... The modern priesthood is the educational establishment in each nation. Tax funding goes to those institutions that have been certified as reputable by the priesthood. ... The state regulates educational establishments, even including home schools, in order to preserve control over the content and methodology of education. In earlier centuries, a similar oligarchy was run in conjunction with state funding and also state coercion. Churches policed the society, including the morals of society, by means of a monopoly granted to them by the civil government. ... The modern educational system is far more compulsory than churches were in New England in 1665. The school bus system is indicative of just how compulsory it is. On this point, read my story of the two buses. ... In the modern world, anyone who suggests that all tax money should be withdrawn from the funding of educational programs is regarded as a crackpot. I am such a crackpot. I believe that the state does not have a moral right to compel parents to support other people's educations. If it were my decision, I would shut off the funding by the state for every school in the [US], including the military academies. This would add something in the range of $600 billion to the private sector. Governments would not be able to persuade parents and others to hand over their money at the point of a gun from one person in order to subsidize the education of another person. ... In order to discuss tax-funded education, I want to change the topic from tax support of educational institutions to tax support of churches. The logic that I am about to present applies equally well to both forms of institutional arrangements. But the public is unwilling to accept the logic of the disestablishment of churches when it is applied to disestablishment of education. ... Politicians rarely give much thought to the fundamental issues of life. They are too busy getting elected and reelected. They cannot devote the time necessary to sort out fundamental truths from fundamental errors. ... To allow this year's majority in the state legislature to set standards for what should be taught in the churches is to grant them too much power to shape the thinking of the voters. ... The politicians will use the power of civil government to extend the public's acceptance of those political views and political conclusions that are favored by the present majority in the legislature. This will turn politics into a battle zone between rival churches. ... Competition is basic to progress in every area of life. ... The public is kept from hearing new ideas, better ideas, and more effectively preached ideas precisely because congratations are not in control of the purse strings. ... It is worth noting that within five years of the decision of the Massachusetts government to cease funding the Congregational churches of the state, the government began funding local schools", my emphasis., Gary North at Lew Rockwell, 12 June 2010, link:

Certified? Like the PCAOB and CPAs? Monopoly? Sounds like Saudi Arabia. Political choice? Why do politicians like Keynesian economics anyway? Are government "economists" really priests? Five years. How interesting. Within four years of the Fed's creation we were in World War I.

Friday, June 25, 2010

Mary Schapiro's Mythology

Tom Selling (TS) at Accounting Onion, blasts SEC Chairwoman Mary Schapiro (MS) with respect to her support of IFRS convergence, 26 May 2010, link: I agree with TS and expect MS to do nothing which will improve the quality of financial reporting during her SEC tenure.

Tax Nonsense

"Nero fiddled while Rome burned, but at least he didn't strike the match. Members of Congress are doing Nero one better. In the middle of the second global financial crisis in two years, Congress is preparing to dramatically raise a key tax rate on long-term investment. ... Last week, Senate Finance Committee Chairman Max Baucus (D., Mont.) and House Ways and Means Chairman Sander Levin (D., Mich.) released joint legislation that would significantly raise the tax on 'carried interest'. ... Carried interest refers to the share of the capital gains (typically 20%) earned on long-term investments in real estate, venture capital, private equity and other investments organized as partnerships that is allocated to the general (managing) partner. ... Both general partners and limited partners pay taxes based on the character of the income earned by the partnership; ordinary income rates on dividends and short-term capital gains, and the long-term capital gains rate on the long-term capital gains", John Rutledge (JR) at the WSJ, 24 May 2010, link:

"Dear IRS: Please note that beginning this year, I am no longer earning an income. From now on, I am compensated through what I like to call column interest. It isn't pay. It's a capital gain that I receive in exchange for providing about 2,000 words a week to this newspaper. Please lower my tax rate accordingly. hey, you can't blame me for trying. After all, a similar strategy has worked for years for money managers at hedge funds and private equity firms. ... The private investment community is decrying the move as a massive tax increase, is if oblivious to the fact that it's enjoyed an unfair tax break for years. ... Let's set aside the rather silly notion of private equity as an engine of job creation--most buyouts result in big job cuts--and focus on the inequality. Private equity managers typically collect a 2 percent annual fee on assets in the fund, which is taxed as income. They also scoop up 20 percent of their funds' annual profits, which is known as carried interest. ... Profit-sharing plans for just about everyone else are taxed as income. ... Tax law is a murky world, but one basic principle of our tax code is that people who perform similar jobs for similar pay should receive similar tax treatment. That's not the case in the investment world", Loren Steffy at the Houston Chronicle, 26 May 2010, link:

What nonsense. Carried interest is a form of managment fee. It should never have been treated as long-term capital gains. What's the holding period? JR is a professor at Claremont Graduate University.

Right on Steffy!

Thursday, June 24, 2010

Government Alchemists

"At 8:30 AM on Friday , June 4, the Bureau of Labor Statistics released its much anticipated monthly jobs report. ... The jobless rate decreased only because hundreds of thousands of people became so discouraged, they dropped out of the workforce. ... There is just one problem: these numbers are wrong. They always are. The jobs numbers are revised each month and then again in subsequent years. Sometime later this year, we may learn that twice as many jobs were lost in May as we thought or that, actually, hundreds of thousands more were created. ... If you examine almost any government statistic or calculation more closely, you will find that it is a guesstimate. ... On almost every level, we are making national economic policy on the basis of problematic data and inadequate models. ... We need better models, and we need them urgently", Zachary Karabell at Time, 21 June 2010, link:

I draw a different conclusion. We should stop trying to control the economy. Let it cycle by itself. Recognize there is no statistic we can collect which will give us the magic lever with which to ensure economic stability. It is human arrogance that leads our experts to think they can control anything.

Milton Friedman Was Right (Again)

"Who is poor in America? This is a hard question to answer, and the Obama administration would make it harder. ... Except for recessions, when the poverty rate can rise to 15 percent, it's stayed in a narrow range for decades. ... But the apparent lack of progress is misleading for two reasons. First, it ignores immigration. Many immigrants are poor and low skilled. ... From 1989 to 2007, about three quarters of the increase in the poverty population occurred among Hispanics--mostly immigrants, their children and grandchildren. ... Poverty 'experts' don't dwell on immigration, because it implies that more restrictive policies might reduce US poverty. Second, the poor's material well-being has improved. ... Suppose that all Americans doubled their income tomorrow, and suppose that their spending on food, clothing, housing, and utilities also doubles. That would seem to signify less poverty--but not by the new poverty measure. ... The new indicator is a 'propaganda device' to promote income redistribution by showing that poverty is stubborn or increasing, says the Heritage Foundation's Robert Rector. He has a point. ... To paraphrase the late senator Daniel Patrick Moynihan: the adminstration is defining poverty up. ... Government statistics should strive for political neutrality. This one fails", my emphasis, Robert Samuelson at Newsweek, 7 June 2010, link:

This is old news. Without poor people what would our poverty warriors do? See my 4 June 2010 post:

Wednesday, June 23, 2010

Entrance Fee Taxation

"Classic Residence [CR] by Hyatt, a group of businesses that run upscale retirement communities, is battling the [IRS] over allegations it underpaid its taxes by more than $107 million, in a dispute over the tax treatment of entrance fees paid by incoming residents. ... [CR] is chaired by 51-year-old Penny Pritzger, part of the Chicago-based Pritzger business dynasty, whose holdings range from Hyatt Hotels Corp. to TransUnion, the big credit-reporting company. She founded [CR] in 1987. Entrance fees can range from the low six figures to more than $2 million per person, depending on the size and amenities of the living unit involved. ... The IRS contends that the venture under-reported income by more than $300 million in 2005 alone. ... In court filings, [CR] attorneys say that a substantial portion of the entrance fee-in many cases at least 90%--is refundable when a resident leaves or dies; therefore, they say, the refundable portions should be treated as interest-free loans to the residence operator. As such, the filings add, the fees wouldn't be taxable as income. ... In its Dec. 30 tax-deficiency notice, the IRS said it 'determined that entrance fees constitute income from rental/occupancy of the living units, and as such, must be included in the income in the year received.' Given the federal government's huge revenue needs, the IRS is interpreting tax laws more aggressively, says David L. Rice, a Los Angles tax attorney and incoming chairman of the American Bar Association's Individual and Family Tax Committee. ... However, Mr. Rice adds that some some aspects of the [CR] entrance fees might lead the US Tax Court to agree with the IRS. To the degree entrance fees help hold down residents' monthly living charges, the payments could be viwed as a form of prepaid rent, which the IRS treats as income, he says. Plus the residence operator has free use of the funds, sometimes for 20 to 30 years. So 'technically, it might loook like a loan, but from the IRS's perspective, it smells like income,' he says", my emphasis, John Emshwiller at the WSJ, 3 June 2010, link:

The IRS might not win this. If the entrance fees are income, and I conclude in part they are, can the residents can claim nursing home care expense? If not, why not? Depending on CR and its residents relative marginal tax rates, the IRS may get nothing from this.

Yves Smith on the Spill

Yves Smith (YS) asks at her 11 June 2010 post at Naked Capitalism, "Is Team Obama Pushing for a Full Externalities Precedent?" May it be so. YS quotes Machiavelli's Prince, "it was much more importatnt to be feared than loved". Absolutely. The US should apply this in its foreign policy and use it to govern our military preparedness. Here's a link:

Tuesday, June 22, 2010

Robin Hood In Australia

"Australia's biggest mining companies Monday raised the stakes in the heated battle with the government over a planned new tax, warning that the proposal had already damaged the nation's reputation and accusing the government of misrepresentations. ... Fellow miner BHP Billiton Ltd. attacked the government for what it said were misrepresentations about the tax rate it pays on its Australian operations. ... Mr. [Tom] Albanese reiterated that Rio Tinto is carrying out reviews of all of its planned capital investments in Australia in light of the planned tax, and said the proposal had damaged Australia's reputation as a place to invest. ... The proposed levy would see companies taxed at a rate of 40% on profits above a rate of return in line with the long-term government bond rate of about 6%. ... If the tax had been enacted a decade ago, Mr. Albanese said companies such as Rio Tinto wouldn't have made the heavy capital investment in businesses like its iron ore operation in the Pilbara region of Western Australia state and the nation would have been poorer as a result", my emphasis, Alex Wilson at the WSJ, 25 May 2010, link:

"Wayne ... Swan said miners are effectively 'arguing that a government cannot change its pricing arrangements. It is the equivalent of the steel mills saying to the companies that they can't put up the price of iron ore. It has to stay the same for 40 years. That is nonsense. ... Swan rejected media reports that a visit to China later this week is intended to reassure Chinese steel makers that the proposed tax won't lead to higher commodities prices", Rachel Pannett at the WSJ, June 2010, link:

"Swiss mining company Xstrata PLC on Thursday said it would stop development of two major projects in Australia, saying neither will be viable under the government's proposed resources tax. ... In its announcement Thursday, Xstrata said it will stop development of its A$6 biillion Wandoan thermal coal project and its A$600 million Ernest Henry underground copper project. The move follows Xstrata's decision in early May to also suspend a A$30 million three-year copper exploration program. ... Prime Minister Kevin Rudd cast doubts on Xstrata's move, saying it was strange that the company should stop spending on Wandoan when the legislation covering the new tax won't be drafted for 12 months and it won't come into effect for two years. ... The tax targets profits, not production. ... 'The resoruce super-profits tax has created significant uncertainty for the future of mining insvetment into Australia and would impair the value of previosuly approved projects and exploration to the point that continued investment can no longer be justified,' Xstrata Chief Executive Mick Davis said", my emphasis, Ray Brindal at the WSJ, 4 June 2010, link:

"'The Australian people own those resources, and they deserve a fairer share of those resources,' said Kevin Rudd, prime minister, in a television interview", William MacNamara at the FT, 4 June 2010.

"'The impact of the tax eliminates the net present value of the Wandoan coal project almost entirely and substantially reduces the value of the Ernest Henry underground shaft project,' Mr. Davis said", Peter Smith at the FT, 4 June 2010.

Will Australia return 40% of a company's deficiency if an investment yields less than 6%? We note Australia wants to change taxes on existing investments. Does Australia's government believe mining ventures, 95% of which fail to find an economic orebody, are government bonds? Or are Australian government bonds as risky as mining ventures? Of course the investments wouldn't have been made. When Rio did its IRR calculations ten years ago, it assumed existing tax rates. If Rio had assumed a higher tax rate, its projected after-tax cash flows would have been smaller. What's not to understand? A substantial amount of ore in Australia will become "extra-marginal" if this tax goes through. In addition, the hurdle rate for all investments in Australia will increase as a result of "tax uncertainty". But "the ore belongs to the people". It did until Australia leased the land. See my 28 March 2008 post: This proposed tax reminds me of 1980's "Windfall Profits Tax" which failed to produce the revenues Jimmy Carter & Co. projected, link:

I reject Swan's argument. If one has a long-term supply contract at a fixed price, that's it. The price is fixed. If one forms a partnership, he also agrees to a profit division. Over the long run as mining investments decrease, the new tax will cause some increase in commodities prices.

Is Rudd really this stupid? Suppose Xstrata did an IRR calculation on a project which its expects to have cash flows for the next 25 years. If the new tax comes into effect in two years, it will reduce the project's cash flows in years 3-25. What's strange Rudd? The change in projections is made now. Henry, raise your own army. See my 21 March 2010 post:

Rudd ignores Australia's agreeing to its cut when the resource projects started. Australia and the miners made a deal. Stick with it. See my 12 June 2010 post:

Net present value? Have you ever heard of the term Rudd?

Another SEC Snow Job

"A recent report by [SEC's] inspector general shows that the investigation of Bernard L. Madoff was not the only one to go badly awry. While the impact of the SEC's missteps were not nearly as significant as in the Madoff case, the report shows that the agency's enforcement division allowed itself to be manipulated by a company it should have been investigating more thoroughly while allowing former staff members to influence decisions on how to proceed. ... The report made available by the Post is redacted, but it gives a fairly damning picture of the SEC staff ignoring seious allegation of corporate misconduct while different offices failed to communicate about the subject matter of the investigation. ... Mr. [David] Einhorn also criticized the financial reporting of Lehman Brothers before that firm collapsed into bankruptcy in September 2008. As is often the case in these situations, each side proclaimed that the other was acting improperly. ... Allied Capital got the upper hand, at least initially, when the SEC started a 'vigorous' investigation of Greenlight Capital after its representatives met with enforcement division staff members. But the report notes that the investigation began 'without any evidence of wrongdoing.' Less than a year later, it ended without finding any violations, but the SEC did not officially close it until 2006 and never notified Mr. Einhorn of its conclusions. ... The investigation by the compliance officer was derailed because one of Allied Capital's representatives was a former SEC staff member, and an ssociate director of the office said that anyone who had worked at the commission was 'not going to be doing anything illegal.' ... The original supervising attorney on the Greenlight Capital investigation was effectively pushed out of his job for performance reasons, and a year later he ended up registering as a lobbyist for Allied Capital. The report notes that the former supervisor 'learned a susbtantial amount of sensitive, nonpublic information regarding Einhorn and Allied.' To make matters worse, when he sought clearance from the SEC's ethics office to represent the company, his response regarding prior involvement with the company while at the commission was incomplete'," Peter Henning at the NYT, 25 March 2010, link:

This is SEC standard operating procedure. Do you really want these guys regulating the accounting industry?

Monday, June 21, 2010

Fed Newspeak

"The Federal Reserve Bank of New York [FRBNY] has come under pressure from Fed officials in Washington to improve the performance of its supervisors overseeing the nation's biggest banks, new documents show. ... 'Our review found some examples where supervisory products were not fully completed, and supervisory processes were not fully performed,' the review said, adding it also found 'that supervisory ratings were not always updated on an ongoing basis to reflect the evolving risk profile and financial condition of the organization.' ... As the Fed has emphasized, we need to learn lessons from the crisis. We recognized that improvements can and should be made. ... Despite the criticisms, Washington officials were also sympathetic to the [FRBNY], lauding it for the 'exceptional work' in responding to the financial crisis 'in an extraordiarily challenging and stressful environment.' ... The government's efforts to stem the crisis 'were, in the end, fundamentally inadequate,' Mr. Geithner said. ... Like Mr. Geithner, Mr. Paulson cited 'huge gaping holes in the regulator system' that made it difficult for regulators to address the financial crisis", Jon Hilsenrath & Fawn Johnson at the WSJ, 7 May 2010, link:

Wasn't Timmy Boy at the FRBNY a few years ago? Why believe he knows any more now than he did then? What would have been an adequate response? Giving the FRBNY the right to control monetary policy and print dollars?

Spengler on the Flotilla

"Israel mishandled the Gaza 'humanitarian aid' flotilla through extreme forebearance, and will suffer a marathon on tongue-clicking and hand-wringing by diplomatic hypocrites who know better. The Jewish state lost the propaganda battle the moment the floating time bomb disguised as a humanitarian mission sailed from Turkey. ... Jonathan Schanzer, a former US government official specializing in terrorist financing, provides the details and links to the relevant US government documents in a post at the Weekly Standard blog. ... Turkey's secular government of a decade ago banned the IHH from contributing to earthquake relief because of its terrorist ties, as Caroline Glick observes in the Jerusalem Post. The fact that the present Islamist government of Prime Minister Tayyip Erodgan has embraced IHH is consistent with Erdogan's public support for Iran. ... Israeli authorities offered to allow the flotilla to land at the Israeli port of Ashdod and ship its cargo of humanitarian aid to Gaza overland after appropriate security inspection; the flotilla refused. ... In short, the Gaza flotilla caper was the invention of an organization with deep ties to terrorist financing of Hamas to ameliorate a humanitarian problem that doesn't exist while refusing an Israeli offer to deliver its aid to Gaza. ... Evidently, Israel has trouble accepting the reality on the ground, just as other governments do. There is not going to be a peace negotiation, but rather a war, and that war will be terrible and bloody. ... The Gaza flotilla affair should teach Jerusalem that no matter how gingerly it approaches the threats on its borders, and how gently it responds, it ends up holding the bag for the region's problems. It might as well get down to the business of war", Spengler at Asia Times, 2 June 2010, link:

As usual, I agree with Spengler. In part, the flotilla was designed to enable Turkey to unseat Iran as Hamas major '"protector".

Sunday, June 20, 2010

LA End Game

"Los Angeles is facing a terminal fiscal crisis: Between now and 2014 the city will likely declare bankruptcy. Yet Mayor Antonio Villaraigosa [AV] and the City Council have been either unable or unwilling to face this fact. ... Even if [AV] were to enact drastic pension reform today--which he shows no sign of doing--the city would only save a few hundred million per year. ... Five thousand is the number of employees added to the city's payroll during [AV's] first term as mayor. According to California's Economic Development Department, when [AV] took office there were 4.73 million jobs in Los Angeles and 252,000 unemployed people. Today, there are just 4.19 million jobs in [LA] and over 632,000 unemployed people. ... How have city leaders responded to this crisis? Pension officials have played accounting games, like smoothing the investment return over seven years rather than five years. ... And most egregiously, rather than laying off employees, city officials have shifted certain workers to agencies like the Department of Water and Power and the airport, which have their own funding. ... He continues to insist that bankruptcy is not an option for [LA] even as anyone who can count understands there is no other option", Richard Riordan & Alexander Rubalcava (R&R) at the WSJ, 5 May 2010, link:

Riordan is a former LA mayor. Rubalcava is an investment advisor. Yes, R&R, LA's bankruptcy looks inevitable. Got muni bonds? Sell!

Russia Faces East

Michael Panzner gives us a clue as to which nation Russia views as its most dangerous adversary, 28 May 2010, link:

IA Short-Sells Dollar!

Recently I short-sold the dollar for 30 years. In lieu of a good fath deposit with a commodities dealer, I made a down payment on a house "purchase". In the US a good way to issue long-term fixed-rate debt is to "buy" a house. So I did. WC Varones, I salute you, see WCV's 12 January 2010 post: Houston real estate is cheap compared to that in Los Angeles. I estimate my house would have cost 4X as much if in say Woodland Hills, CA, about 25 miles northwest of downtown LA. Zimbabwe Ben help me pay my mortgage. No exit! Tax credits! Panem et circenses!

Saturday, June 19, 2010

KC's Scholastic Catastrophe

"Westport High is a magnificent old building, all brick and fine masonry, set high on a hill in the heart of town. It's more than 100 years old, just a few blocks from where Ernest Hemmingway lived before he went off to drive ambulances in the Great War. So one might expect an angry roar against its inclusion in a plan to close nearly half of Kansas City's 57 public schools this summer. Instead the vibe is more, What took you so long? ... School districts all over the country are wrestling with problems in urban centers, but Kansas City's plan has caught national attention because of its scope. ... The situation n New Orleans was 'created by a natural disaster. [KC] is due to a human-made disaster,' says Jack Jennnings, president of the Center on Education Policy, a public-school advocacy group. ... Money hasn't been the problem. In 1985, a federal judge ordered the state to pony up $2 billion to address decades of unconstitutional treatment of black children. ... Meanwhile kids weren't proficient in the basics--and still aren't. At a majority of the schools, fewer than one-quarter of the students were proficient in math and English last year. On any given day, the buildings are half empty. [KC] had some 75,000 public-school students in the 1960s. Today it has about 17,000", my emphasis, Karen Ball at Time, 14 June 2010:,9171,1993877,00.html.

Wow. KC's public schools have 17,000 students and 3,000 employees, one for every six students. What do they all do? Look at the money KC spent at the behest of an ignoramus federal judge. The time will come when localities ignore federal judges' orders and dare the judges to imprison everyone in the locality. The waiting lists for jail grow daily. What was supposedly unconstitutional about KC's treatment of black school children anyway?

What Law?

"The Supreme Court on Monday ended the practice of sentencing juveniles to life imprisonment with no chance of parole for crimes short of homicide, the latest in a series of milestone decisions in which Justice Anthony Kennedy and four liberals have joined to set constitutional curbs on punishment. ... 'Life in prison without the possibility of parole gives no chance for fulfillment outside the prison walls, no chance for reconciliation with society, no hope,' Justice Kennedy wrote. ... Justice Clarence Thomas dissented, joined in full or in part by Justices Antonin Scalia and Samuel Alito. Justice Thomas said the majority reached 'far beyond any cogizable constitutional principle ... to ensure that its own sense of morality and retributive justice pre-empts that of the people and their representatives'," Jess Bravin at the WSJ, 18 May 2010, link:

I agree with Thomas. "Life in prison" no matter the period, "gives no chance for fulfillment outside the prison walls" during the period. So? This sounds tautological to me. You too can be a Supreme.

Friday, June 18, 2010

Texas Sex Offenders?

"Texas has been unconstitutionally designating some prison inmates as sexual criminals without giving them an appropriate hearing the 5th Circuit Court of Appeals ruled Friday. The ruling could affect as many as 6,900 prison inmates who never have been convicted of a sex offense although they may be sexual predators. ... [Raul] Meza was not allowed to see the evidence against him or have a hearing before the board. ... Meza says he cannot get out of incarceration in a Travis County Correctional Complex because the terms of his release require a parole officer to accompany him at all times. ... The 5th Circuit noted that in previous cases it has ruled that inmates cannot be designated as a sex offender without a due process hearing. ... But the state does not allow inmates to review the record that is used to designate them as sex offenders or to put additonal provisions on their parole. ... Texas Department of Criminal Justice spokewoman Michelle Lyons said the agency plans to review the ruling with the Texas Attorney General's Office to see what step to take next", RG Ratcliffe at the Houston Chronicle, 22 May 2010, link:

Hearing my ass. How about a conviction? Texas' BPP got slammed recently for similar actions, my 8 November 2009 post:

Einhorn on Truth

Greenlight Capital's David Einhorn (DE) has an interesting 27 May 2010 post at the NYT: DE asks, "how long will the capital markets continue to finance government borrowings that may be refinanced but never repaid on reasonable terms. And second, to what extent can obligations that are not financed through traditional fiscal means be satisfied through central bank monetization of debts--that is, by the printing of money? ... Despite the promises by the [Fed] chairman, Ben Bernanke, not to print money or 'monetize' the debt, when push comes to shove, there is a good chance the Fed will do so, at least to the point where significant inflation shows up even in government statistics. ... " DE raises other issues I have. My bottom line: eventually all will see the emperor is naked.

Thursday, June 17, 2010

Illinois Deficit

"Illinois lawmakers were in disarray Thursday as they groped for stopgap measures to address a $13 billion deficit equaling nearly half of the state's general-fund revenue. ... But the confusion in the legislature indicates that serious steps to fix state finances won't be taken until after the November elections--if then. ... An income-tax increase proposed by Democratic Gov. Pat Quinn is going nowhere. Even temporary steps, such as borrowing to make pension payments, have stalled. Illinois is months late on many of its bills and has no plan for catching up. ... A bill under consideration in the state House would give Mr. Quinn greater leeway to shift money among state funds and to require agencies to set aside part of their budgets now in case of future cuts. ... 'We are lucky in that we can still borrow,' [Donne] Trotter said, noting that lawmakers responded to rating-agency concerns last month by reducing pension benefits and lifting the retirement age for new state employees to 67 from 60. Lawmakers also are weighing the idea of postponing pension payments for the first half of the fiscal year until January, Mr. Trotter said. ... Mr. Quinn presented a budget in March that would still leave the state with a $10.6 billion deficit. His plan projected a deficit of $4.7 billion for the coming fiscal year beginning July 1--which he planned to cover through borrowing--and a $5.9 billion deficit carried over from the current budget. ... California officials said this week that April personal income tax collections lagged projections by 30% Federal estimates don't bode well for states, either", Amy Merrick at the WSJ, 7 May 2010:

Illinois budget looks worse than California's. An old Chinese curse was, "May you live in interesting times". An updated version might be, "May your portfolio consist of 50% Illinois and 50% California muni bonds".

America's Coming Gulag

"The Supreme Court said Monday that the federal government can keep 'sexually dangerous' prisoners in custody past the completion of their sentences, overruling arguments that only states hold such power. The vote was 7-2, with Justices Anotnin Scalia and Clarence Thomas in dissent. ... In dissent, Justice Thomas wrote that the majority gave Congress too much leeway", my emphasis, Jess Bravin at the WSJ, 18 May 2010, link:

Amazing. Will the Supremes next rule that "financially dangerous' prisoners can be held before their sentences end? Who determines one is "sexually dangerous"? A flak chosen by the (In)Justice Department? This ruling is appalling. I'm sure Stalin is smiling on reading it.

Wednesday, June 16, 2010

Late State Tax Refunds

"Procrastination is no longer just for the taxpayers who wait until the last moment to file their tax returns. Thanks to the economic downturn, at least a half-dozen cash-poor states are now delaying their tax refund checks. ... 'We're sorry for the inconvenience. We understand that people are relying on the money for credit card bills, etc., etc., but we'll get them out as fast as we can,' said Paul L. Dion, the chief of Rhode Island's Office of Revenue Analysis, explaining that 34,423 refund checks were being held up as the state ensures it has enough cash on hand to pay its debts on time. 'For the record, mine is on hold as well.' ... Budget cuts left Iowa's Department of Revenue without the money to hire the 50 temporary workers it ususally adds around tax time. So some refund checks were slowed while nearly everyone in the department--from auditors and revenue agents to top agency officials--was directed to pitch in by opening up envelopes and processing tax returns. ... It is yet another change brought about by the longest recession since the Great Depression. Many state governments are as overextended as their residents, and find themselves balancing and rebalancing their checkbooks each week to make sure they have enough money to pay their bills. Of course, holding on to the money that many taxpayers count on is usually a last resort: several states were greeted with angry outcries when they delayed sending out refund checks last year; including Alabama, California and Georgia, made sure to pay out their refunds faster this year", Michael Cooper at the NYT, 2 June 2010, link:

Will the involved states let you pay taxes late in sympathy?

What Secret?

"It has been the dirty little secret of higher education for decades: Ten of thousands of college students can't do the work. ... But relatively few students who need the classes go on to earn a degree, raising questions about whether money spend on developmental education is a wise investment. 'It's all about efficiency,' said Jim Pickard, a program director at the Texas Higher Education Coordinating Board. 'What are we sending these kids to college for?' ... 'It's a matter of finances, and it's a matter of work force development,' said Donetta Goodall, vice chancellor of academic affairs and student success at Lone Star College, which serves suburban Houston and where about two-thirds of students require at least one remedial course. ... Well over half of community college students are unprepared for college classes--the number approaches 70 percent at Houston Community College--with low-income students more likely to need help than their wealthier peers. ... There are lots of reasons students aren't ready for college. ... And despite efforts to impose a more rigorous high school curriculum--including new standards requiring all students to take four years of math and science--not everyone who graduates from a Texas high school is ready for college. ... So there are, enrolled in college in the midst of a push from legislators, business leaders and others to produce more college graduates. ... In Texas, the pressure is heightened by a projected $18 billion budget deficit and a growing population of low-income Latinos, historically the group least likely to earn a college degree. ... Developmental education is one of the biggest stumbing blocks. Fewer than 10 percent of students who require more than a few remedial classes even make it to college-level classes, [Diane] Troyer said", my emphasis, Jeannie Kever at the Houston Chronicle, 23 May 2010, link:

"We've lowered the education requirements so all can pass. By doing so, we have taken education out of the education system. ... We continue to dumb down the education system, and are producing better idiots", James West letter to the Houston Chronicle, 30 May 2010, link:

Who is suprised by this? Why do we need more college graduates? Could IQ be a reason? What's the problem? Felipe Calderon (FC) said, "I have said that Mexico does not stop at its border, that wherever there is a Mexican there is Mexico", NYT, 3 September 2007. What percentage of Mexicans are college graduates? Why should a higher percentage be realized in the US? Calderon's statement is noteworthy. I believe FC made a DECLARATION OF WAR! Some other Americans see it that way too. Currently 12% of 18 year-old Mexicans are enrolled in higher education. What percentage of Mexicans who coincidentally are north of the border does say FC think should be enrolled in college in the US?

Yes West.

Tuesday, June 15, 2010

Peasants Wave Pitchforks!

"As a new day damned over the Illinois State Legislature one morning in March, a 39-page bill hit the floor like none seen in decades. Public Act 96-0889 proposed slashing $71 billion from future state budgets. it did so by requiring newly hired state employees to work up to a dozen years longer than employees had to in the past, until age 67, to draw full pensions. ... Instead, by dinnertime that very day, virtually every memebr of Springfield's bluest of blue-state legislatures had voted in favor of making the bill law. ... In the shadow of financial Armageddon an outraged populace is beginning to stir. Yes, Washington is still goring on the public plastic by issuing trillions of dollars in ew debt. States and cities, however, fo not have their own printing presses and cannot count on the Chinese to fund their profligacy. ... After decades of ever bigger public payrolls and cushier benefits, the breaking point has arrived. It is giving rise to a potentially profound political realignment", Stephanie Fitch & Christopher Steiner at Forbes, 7 June 2010, link:

Financial Armageddon? Did anyone ask Michael Panzner about this?

He Throws Temper Tantrum

"Just plug the damned hole! That, more or less, is the leadership and direction we are getting from our president as we grapple with the oil spill in the Gulf. What else should we expect from a socilaist theoretician who has never actually accomplished anything in his life? ... This is what happens when an academic finds himself in the position of actually having to get something done. Nothing written on a blackboard or recited from a textbook or lectured from a podium will plug the leak miles deep off Louisiana. Nothing in Barack Obama's background full of lectures and textbooks makes him fit for any job where getting things done is important. ... The professor has not a clue what to do. This stuff is hard. Well doggone! You mean if drilling five miles deep and than another mile below the mud on the bottom of the ocean is hard--then repairing a screw-up in the same location is hard to do, too? ... Now the professor child is upset about a spill in his little utopian sandbox. The child is whining and pointing fingers and demanding that someone fix it. It is eating into his playtime for shooting hoops and playing golf, and it is so much messier than theoretical issues. The problem is that the child has no clue how the sandbox was built or how the pristine sand got there", C. Edmund Wright at American Thinker, 29 May 2010, link:

Take the Bar and Beat Me, my 22 December 2007 post:, describes Him.

Monday, June 14, 2010

Three-Card Monte Central Bankers

"After all the massive bailouts, the federal debt is exploding. ... The US now has a heavier debt burden than several of the overleveraged countries that have been branded with the scornful nickname 'the PIIGS.' ... Yes, in recent months, there's been a lot of bullish talk about how the American balance sheet has been cleaned up. ... And banks and other financial institutions owe $1.4 trillion less than they did in late 2008. Those debts haven't disappeared. They have merely been shifted onto the books of the federal government--in what may be the highest-stakes shell game ever. ... There's no sign of a slowdown in debt growth. 'These processes are not linear,' warns [Carmen] Reinhart. 'You can increase debt for a while and nothing happens. Then you hit the wall, and--bang!--what seem to be minor shocks that the markets would shrug off in other circumstances suddenly become big.' ... 'If you flood the markets with more and more debt, its value is going to go down. We are silly to fool ourselves into believing otherwise.' ... In 1989, the great investor Sir John Templeton told me something that has rung in my ears ever since, this week more than ever: Those who spend too much will eventually be owned by those who are thrify.' ... But in my view, the obvious tools--gold and other commodities, emerging-markets stocks, inflation-protected bonds--are already so popular that they are likely overpriced", my emphasis, Jason Zweig at the WSJ, 8 May 2010, link:

I disagree with Templeton, remembering something Brazil's finance minster said about 25 years ago, "If I owe the bank a million dollars and I can't pay, I'm in trouble. If I owe the bank a billion dollars and I can't pay, the bank is in trouble". Who is in trouble if Uncle Sam owes trillions? I think $1,225 gold is cheap.

China Sells Dollars-7

"China is set to make its second largest investment in Africa outside the energy sector by ploughing $877m into South Africa's platinum industry. ... For the first time, Beijing will take a direct stake in the continent's platinum reserves, the majority of which are in South Africa. ... 'This is a very significant strategic play because it gives China its first direct access to platinum,' said Martyn Davies, chief executive of Frontier Advisory, a Johannesburg company that worked with [platinum miner] Wesizwe", Richard Lapper at the FT, 26 May 2010.

Go China. Better platinum than dollars.

Sunday, June 13, 2010

Rating Agencies Overrun Houston Crime Lab

"Consultants who re-tested fingerprint analyses in nearly 4,300 criminal cases found no erroneous identifications despite technical errors by Houston Police Department examiners in 62 percent of the cases, HPD officials said Tuesday. ... 'It seems like what we're doing with this contract [to Ron Smith & Associates, RSA] is buying some time while we figure this out,' said Council Member Melissa Noriega, who chairs the [Public Safety and Homeland Security] committee. ... 'The good thing about that audit is there were no erroneous identifications,' [HPD Assistant Chief Timothy] Oettmeir said. 'That means we did not find any instance where a person was put in jail or prison because of a mistake made in a fingerprint.' Troy McKinney, past president of the Harris County Criminal Lawyer's Association, said it was 'almost statistically impossible' for the lab to have such a high rate of technical errors and not have made any false identifications. 'Having 62 percent of cases having problem with methodology of the analysis is an indication there are fundamental flaws in that lab,' McKinney said", James Pinkerton at the Houston Chronicle, 26 May 2010, link:

What did the HPD hire RSA to do? Review HPD's fingerprint analyses practices or cover up false identifications? Finding about 2,650 cases with "technical errors", RSA found no false positives. If "techncial errors" do not produce real errors, should HPD's crime lab redefine the concept of a "technical error"? Did RSA, Moody's or S&P do this "audit"? The HPD must have studied in the Vampire Squid school, i.e., you can almost always find an "expert" to say whatever you want.

Forbes Exposes DOJ Extortion Racket

"In 2007 Weatherford International, an oil service firm with roots in Houston, discovered it might have a bribery problem on its hands--one or more of its employees might have paid bribes in Europe. ... By that time [William] Jacobson had left Justice to join Fulbright [& Jaworski] as a partner and started doing compliance work for none other than Weatherford. ... Nice work if you can get it--and to the tune of billions of dollars, lawyers, accountants and consultants, many with past ties to the Justice Department, are getting it. ... Whether it's having any impact on reducing bribery is another matter. Instead, companies can find themselves getting extorted in foreign lands, only to get extorted again by Washington. ... More likely, the company pays out huge fines and then hires more lawyers as government-mandated compliance monitors, a job that can stretch into years of legal billings. ... Mark Mendelsohn, 42, headed the [DOJ's] FCPA unit when the surge in enforcement largely occurred. ... 'At some point a new person will sit in my seat,' said Mendelsohn while on stage with a group of FCPA defense lawyers at a conference in February. 'I will join Peter and Richard and Mary on the other end of the dais.' ... For decades the FCPA, which prohibits bribery of foreign officials, was a sleepy statute, hardly enforced. ... In 2000 federal prosecutors brought no FCPA actions. In 2004 there were 3. Last year ther ewere 34 criminal FCPA actions. A lot more are in the pipeline. The [DOJ] has 150 open FCPA investigations. ... The prosecutors, though, are doing something else at the same time. They are creating a lucrative industry--FCPA defense work--in which they will someday be prime candidates for the cushy assignments. ... But there is nothing to stop prosecutors from ginning up cases that will feed the lawyers who used to have their jobs or from looking forward to a payday in the private sector that will be made possible by their busy successors at Justice. ... The grandaddy of cases is the one involving Siemens, Europe's biggest engineering firm. ... Debevoise and Deloitte charged $850 million in fees and expenses. ... Lawyers and accountants also made a fortune off a recently resolved Daimler bribery case. ... Deloitte, which has an FCPA practice headed by Edward Rial, a former federal prosecutor, got its time at the feeding trough. Delotte declines to comment. [Robert] Bennett says his work was in the bet interest of the company facing serious prosecution", my emphasis, Nathan Vardi at Forbes, 24 May 2010, link:

I supppose MM was creating a job for himself for the time he was to leave the DOJ. The FCPA was rarely enforced until MM decided he needed a post-DOJ position. AUSAs "ginning up cases"? "Say it ain't so, Joe". Gag me with a spoon. Until you've seen the DOJ at work, you can't believe how incompetent and corrupt the typical AU attorney and AUSA is. You can't believe it. Why did my "girlfriend" Mary Jo White threaten to indict Joe Jett? If couldn't be because GE's Jack Welch wanted it, could it? GE didn't pay off by hiring Debevoise & Plimption to represent it in various matters? How dare you think such a thing. See my 31 December 2008 and 1 May 2010 posts:

Saturday, June 12, 2010

Magic Words

"The term 'social justice' is now commonly used by leftist activists, clergy, educators, judges, and politicians to describe the goal they seek to achieve with many of their polcies. No precise definition of 'social justice' is ever offered by the left. Instead, the term is always used in a vague way--as if everyone already knows, or should know, what the seemingly well-intentioned phrase 'social justice' means. ... In short, social justice is communism. ... 'Justice,' in the Marxist context, means economic equality. This is Marxist utopian ideal that all members of society should receive the same amount of compensation, regardless or occupation, skill, or work ethic", Jayme Sellards at American Thinker, 16 May 2010, link:

"You might think that being a Supreme Court justice would be the top of the line job for someone in the legal profession. But, many Supreme Court decisions suggest that too many justices are not satisfied with their role, and seek more sweeping powers as supreme policy-makers, grand second-guessers or philosopher-kings. ... The role of an appellate court is not to simply second-guess the decision of the trial judge and jury, much less usurp the responsibility of legislatures to make social policy. But the pretense of applying the Constitution gives appellate judges the power to do both. ... If justices can pick and choose which legal principles and practices they will follow, from the many widely varying principles and practices in countries around the world, then they can find a basis for doing just about anything they feel like doing. ... Once appellate judges are free to base their rulings on what people do in India, Egypt or Germany, Americans are no longer a self-governing people", Thomas Sowell at Frontpage Magazine, 24 May 2010, link:

"Ever wonder why most of your credit-card mail comes from South Dakota? The answer is a 1978 Supreme Court decision called Marquette National Bank on Minneapolis v. First of Omaha Service Corp. ... The Court ruled that it referred to the location of the bank. ... What happened next was predicatble enough: Citibank offered to move to South Dakota, bringing much-needed jobs and tax revenue, if the state would let it write new credit-card regulation. ... If the Supreme Court had interpreted one word differently, credit-card regulation in this country would be entirely different. ... Bruce Ackerman, a legal scholar at Yale ... [said] 'For sure ... the status of undocumented aliens is going to me mcuh more salient in Americna law. We're going to have 10 [million] or 15 million people or more who'll find themselves in a position increasingly like black people in 1954. That will be a terribly serious issue, and the court will have to decide how to respond.' ... 'What happens when promised benefits are cut back dramatically?' he asked. 'Will the court protect the weak, or not?'," my emphasis, Ezra Klein at Newsweek, 24 May 2010, link: This reminds me of my meeting Al Sharpton in 1966 or 1967, my 5 March 2009 post:

Many times I've said the Supremes do whatever they want and justifiy it later. I await Justice Ginsburg's using Saudi Arabian law as precedent. Will she say it is neither cruel nor unusual to cut off a thief's hand?

Aren't you impressed by Ackerman's reasoning? Negroes in 1954 were American Citizens. The 14th Amendment was created to ensure they were citizens. How dare you claim the same rights for illegal aliens? See, we are all legal scholars now. Why will the Supremes have to decide anything with respect to illegal aliens? What happens when taxes are increased? Will the court protect the solvent, or not? Aren't you impressed with legal reasoning? Wait, there is an answer! Have the Supremes decide no person need pay anything to support illegal aliens. Based on what? Extending the reach of the Third Amendment. Why should American citizens "quarter" members of the Aztlan Army?

China's Nukes

"The commentary in the official Liberation Army Daily also reiterated China's longstanding stated policy that it 'will never be the first to use nuclear weapons at any time and under any circumstances.' Written by a retired general, the piece follows last week's international nuclear-security summit in Washington and comes amid questions in the US, Japan, and elsewhere about the intent behind China's efforts to strengthen its nuclear forces", Gordon Fairclough at the WSJ, 23 April 2010, link:

"I first began working on strategic arm control with the Russians in 1970, an effort that led to the first Strategic Arms Limitation Agreement with Moscow two years later. ... The same answer holds true for the new START agreement: The US is far better off with this treaty than without it. It strengthens the security of the US and out allies and promotes strategic stability between the world's two major nuclear powers. ... First, it limits significantly US and Russian strategic nuclear aresenals and establishes an extensive verification regime to ensure that Russia is complying with its treaty obligations. ... Second, the treaty preserves the US nuclear aresenal as a vital pillar of our nation's and our allies security posture. ... Third, abd related, the treaty is buttressed by credible modernization plans and long-term funding for the US nuclear weapons stockpile and the infrastructure that supports it. ... Fourth, the treaty will not constrain the US from developing and deploying defenses against ballistic missioles, as we have made clear to the Russian government. ... The new START treaty has the unanimous support of America's military leadership", my emphasis, Robert Gates at the WSJ, 13 May 2010:

Can anyone play this game? You may as well look at goat entrails as attempt to ascertain China's "intent". Only capabilities count!

Gates is our Secretary of Defense. I don't remember the last time I read so many nonsequiters in as short a piece. That our military leadership unanimously supports this only convinces me they are a bunch of ticket-punching cowards. Why START? To give the Obamites a basis for not: moderninzing our nuclear weapons or developing ballistic missile defenses. Why do we need this thing if we have this wonderful piece of paper? Neville Chamberlain lives! How many French generals thought the Maginot Line would protect France?

Friday, June 11, 2010

Mark Faber's Positions

"Central banks will never tighten monetary policy again, merely, print, print, print. ... Americans must re-think what constitutes a safe asset. ... '[T]he Federal Reserve will keep interest rates at 0 precisely 0. ... in real terms.' ... Contrary to what the talking heads are saying, markets are not out of control, central banks are out of control printing money. ... Eventually there will be war and one will want physical commodities 'not paper from UBS or JP Morgan.' ... 'Mugabe is the economic mentor of Ben Bernanke.' ... Sovereign credits in the Western world are all bankrupt, but before bankruptcy governments will print money. ... If deficits didn't matter as many like the Economist James Galbraith argue today, why should citizens even pay taxes?," my emphasis, Andrew Mellon at Big Government, 23 May 2010, link:

I agree with Faber. Apparently the notion that he's Zimbabwe Ben is getting around. Why pay taxes indeed?

The New Black?

"'Is white the new black?' ... For after a year of battering as 'un-American,' 'evil-doers' and 'racists, and praise from talk-show hosts and Sarah Palin as 'the real Americans,' Tea-Party America seems to be taking on a new and separate identity. ... Even as [Arthur] Schlesinger was writing his 'Disuniting of America,' Yugoslavia and the Soviet Union were disintegrating into 22 new nations, along the lines of ethnicity. In Dagestan, Ingushetia, Chechnya, Ossetia and Abkhazaia, the process proceeds apace. ... Obama in the campaign of 2008 recognized that 'out there' in Middle America existed another country, far from the one he grew up in, far from the privileged Ivy League community to which he belonged. ... Palin and the tea partiers now repeat Obama's disparaging line about their clinging to Bibles and guns--with defiant pride. ... Now Southerners are proudly commemorating ancestors who fought and fell in the Lost Cause and demanding recognition of Confederate History Month. And state governors are acceding. ... The imputation of racism to tea partiers hads not intimidated or cowed them. ... Why are the tea partiers not intimidated the way Republicans often are? Why is the charge of racism not working", Pat Buchanan at World Net Daily, 19 April 2010, link:

Obama may not realize it yet, but many, perhaps most people in Texas, hold him in contempt. Hillary favored, "The politics of meaning". What did that mean? What policies did she favor? Who knows?

Thursday, June 10, 2010

Ode to Obama

"First came a stimulus bill that, while aimed mainly at ending a deep recession, also set out to remake the nation's education system and vastly expanded scientific research. Then President Obama signed a health care bill that was the biggest expansion of the safety net in 40 years. And now Congress is in the final stages of a bill that would tighten Wall Street's rules and probably shrink its profit margins. If there is a theme to all of this, it has been to try to lift economic growth while also reducing income inequality. ... By focusing on long-term problems, Mr. Obama and the Democrats have given less than their full attention to the economy's current weakness and turned off a good number of voters. ... Still, the turnabout since Jan. 20--the first anniversary of Mr. Obama's inauguration and the day after Scott Brown, a Republican, won a Senate seat in liberal Massachusetts--has been remarkable. ... Today, he looks more like a liberal answer to Ronald Reagan. ... Every major piece of the Obama agenda is meant, in part, to push back against inequality. ... The financial regulation bill, meanwhile, would take several steps likely to reduce Wall Street's profits--and Wall Street has created more multimillionaires in recent decades than any other industry. ... Most striking, the administration is trying to improve public education by introducing more market competition. ... These education changes--combined with increased spending on science research--are meant to lift economic growth. ... Economists have long considered education and technology to be main ingredients in growth", my emphasis, David Leonhardt (DL) at the NYT, 22 May 2010, link:

What can I say? Yves Smith of Naked Capitalism wanted this pieced shredded, so here goes. "In the [1930s], [FDR] created the [SEC] and [FDIC]. Now [America] was formless and empty, darkness was over the surface of the [American continent], and the Spirit of [Obama] was hovering over the waters. And [Obama] said let there be [a stimulus bill], and there was a [stimulus bill]. [Obama] saw the [stimulus bill] was good, and he separated the [United States] from the [recession]. [Obama] called the [stimulus bill] '[American Recovery and Reinvestment Act]' and the darkness he called 'recession'. And there was evening and, and there was morning--the first [few months]. And [Obama] said, 'Let there be [no] expanse between the [ethnic groups educational attainments] to separate [group] from [group]. So [Obama and Duncan] made the expanse [shrink] and [no longer] separated the [group] under the expanse from the [group] above it. And it was so. [Obama] called the [ended] expanse [academic achievement]. And there was evening and morning--the next few months", Genesis, 1:1-10 (NIV) with apologies to the original.

DL's piece is so bad. It isn't even good pro-Obama propaganda. It's almost a parody. The current "Wall Street reform bill" looks like a show piece to mollify the peasants with pitchforks. Expand scientific research while reducing NASA spending? Sure. What big expansion of the "safety net"? It's a rearrangement: kill old white women and expand medical care for illegal aliens and their children. Focusing on "long-term problems"? The "never let a crisis go to waste crowd"? What about the combined social security and medicare actuarial deficits variously estimated at $60-115 trillion? His education bill is just another teachers' unions payoff. It will not improve education in the US, which is a big waste of money. We need more, not fewer dropouts. Voxeu had an interesting 18 May 2010 piece on education, link: One author, Robert Barro is a Harvard economics professor. The other, Jong-Wha Lee, got his PhD at Havard. "The estimates for the group of advanced countries, East Asia and the Pacific, and South Asia are the highest at 13.3%. In contrast, the estimated rates of return are only 6.6% in Sub-Saharan Africa and 6.5% in Latin America". Hmm. Hey Barro and Lee, have you read IQ and the Wealth of Nations? I think I can explain what you found! For that matter, have you read Vance Packard's The Status Seekers, 1959, about degrees and "signalling"? The bloom is falling off the educational rose.

Whose History?

"The State Board of Education's proposed revisions for K-12 social studies curricula have come under fire from the radical left. ... Studies have revealed how unbalanced America's humanities departments are. Democrats outnumber Republicans by a large margin. In the history department at the University of Texas at Austin, out of 50 registered voters, only one is a Republican. Moderate and conservative Democrats are also rare. This political slant is reinforced by the economics of scholarship: Academic historians have been trained and have invested their careers in a profession that counts as legitimate only those subfields that support the leftist orthodoxy. Military history, for example, has almost entirely died off; not a single professor of history at UT-Austin lists military history as a primary speciality, while dozens list sexuality, ethnicity and anti-colonialism. ... Thus, robber barrons, the New Deal and the civil rights movement are in, but the contributuions of inventors and entrepreneurism, the decline of the family and the failures of welfare programs and public education are out. The new standards represent real progress. They don't go far enough in challenging orthodoxy, but they are a step in the right direction. ... This artificallly inflated controversy points to a larger issue: The people must not develp the habit of blind deference to so-called academic experts. ... The fundamental question is this: Shall we continue to have a government ruled by the people, or shall we instead, yield to a self-perpetuating caste of quasi-official experts", Robert Koons (RK) at the Houston Chronicle, 14 May 2010, link:

Henry Ford said "History is bunk". Amen. RK is a UT philosphy professor.

Wednesday, June 9, 2010

Wait Listed By Jail-16

"In one of the nation's most violent cities, officers are trying a new strategy. Baltimore police officers are focusing on violent offenders with guns rather than trying to lock up every person who commits a minor crime like using drugs. ... The number of arrest has declined in the past two years. Yet homicides and shootings are down, too--to totals not seen since the late 1980s. ... Experts and other police leaders don't see [Frederick] Bealefeld as an innovator, exactly, but he's notable for his focus on guns. 'I'm not trying to win the drug war,' Bealefeld said. 'I'm out to win the war on violence and deal effectively with violence.' ... The drop in shootings means city prosecutors are getting fewer guns cases, but also better ones", Ben Nuckols at the Houston Chronicle, 16 May 2010, link:

As police budgets get strained, the drug war will implode. Be patient.

The Coming Pacific War

"The [US] and China are on a collision course in the Western Pacific. Far sooner than once anticipated, China will achieve effective military parity in Asia, general conventional parity, and nuclear parity. Then the short road to superiority will be impossible for it to ignore, as it is already on its way thanks to a brilliant policy borrowed from Japan and Israel. ... To wit, between 1988 and 2007, a tenfold increase in per-capita GDP ($256 to $2,539), but a 21-fold purchasing power parity increase in military expenditures to $122 billion from $5.78 billion. The major constraint has been that an ever increasing rate of technical advance can only be absorbed so fast even by a rapidly modernizing military. ... China is on the cusp of being able to use conventional satellities, swarms of miniature satellities, and networked surface, undersea, and aerial cuing for real-time terminal guidance with which to direct its 1,500 short-range ballistic missiles to the five or six aircraft carriers the [US] (after ceding control of the Panama Canal and reducing the size of its carrier fleeet by one-third since 1987) could dispatch to meet an invasion of Taiwan. ... If [Taiwan capitulates], as it likely will, America's alliances in the Pacific will collapse. Japan, Korea, and countries in Southeast Asia and even Australaisa (when China's power projection forces mature) will strike a bargain so as to avoid pro forma vassalage, and their chief contribution to the new arrangement will be to rid themselves of America bases. ... In the military, economic, and social trajectories of the two principals, the shape of the future comes clear. In 2007, a Chinese admiral suggested to Adm. Timothy J. Keating, chief of the US Pacific Command, that China and the [US] divide the Pacific into two spheres of inflence. Though the American admiral firmly declined the invitation, as things go now, his successors will not have the means to honor his resolution, and by then the offer may seem generous", my emphasis, Mark Helprin (MH) at the WSJ, 17 May 2010, link:

I agree with MH. We saw this play before. In 1925 Hector Bywater, a journalist wrote The Great Pacific War. Here's a link describing it: My favorite military historian, Basil Hart wrote about Great Britain's inability to support Poland militarily and how this helped bring about World War II, my 24 February 2008 post: Don't nobody know nuttin' anymore? As Obama bin-Laden said, "When one sees a strong horse and a weak horse, he is naturally attracted to the strong horse". Indeed. Our carriers will be lucky to survive more than a week in a war with China, see my 10 November and 10 December 2008 posts:

Tuesday, June 8, 2010

Henny Youngman, Central Banker

"The principle of central-bank independence, a mainstay of economic orthodoxy for two decades, has taken a battering over the past week. Investors should be on their guard. ... Allowing central banks freedom to set interest rates without political interference is the best way to anchor inflation expectations, reducing borrowing costs and deliver faster growth. ... But independence also allows central banks huge power with limited accountabilty. ... The ECB's decision to start buying goverment debt is even more troubling. it says it is responding to dysfunctional' bond markets. How does it know high goverment borrowing costs reflect liquidity problems rather than legitimate solvency fears that will expose the central bank to losses? ... Might its decision to buy bonds increase moral hazard, removing the incentive for governments to tackle their deficits?," my emphasis, Simon Nixon at the WSJ, 14 May 2010, link:

Of course that's the intent: to enable deficit spending! What principle? Independent of who? I have another way to "anchor inflation expectations": gold. My more basic question: "high borrowing costs", as Henny Youngman would ask, "compared to who"?

Uncle Sam and SFAS 106

"Texas doctors are opting out of Medicare at alarming rates, frustrated by reimbursement cuts they say make participation in government-funded care of seniors unaffordable. ... 'This new data shows the Medicare system is beginning to implode,' said Dr. Susan Bailey, president of the Texas Medical Association. 'If Congress doesn't fix Medicare soon, there'll be more and more doctors dropping out and Congress' promise to provide medical care to seniors will be broken.' ... The largest number of doctors opting out comes from primary care, a field already short of practitioners nationally and especially in Texas. ... The opt-outs follow years of declining Medicare reimbursement that culminated in a looming 21 percent cut in 2010. Congress has voted three times to postpone the cut, which was originally to take effect Jan. 1. It is now set to take effect June 1. ... Guy Culpepper, a Dallas-area family practitioner [said] 'The only way to provide cost-effective care is outside the Medicare system, a system without constant paperwork and headaches and inadequate reimbursement.' ... The issue caused the Texas Medical Association to break with the American Medical Association and oppose health care reform efforts throughout 2009. ... US Sen. John Cornyn, R-Texas, said he isn't surprised by the new opt-out numbers, allowing that Congress' inability to reform Medicare is leaving 'seniors without access and breaking the promise we made to them'," Todd Ackerman at the Houston Chronicle, 18 May 2010, link:

"One of the many fashionable notions that have caught on among some of the intelligentsia is that old people have 'a duty to die,' rather than become a burden to others. ... Already the government-run medical system in Britain is restricting what medications or treatments it will authorize for the elderly. Moreover, it seems almost certain that similar attempts to contain runaway costs will lead to similar policies when American medical care is taken over by the government. ... If a government-run medical system is going to save any serious amount of money, it is almost certain to do so by sacrificing the elderly", my emphasis, Thomas Sowell at Townhall, 11 May 2010:

Let's repeal the 13th Amendment with respect to doctors. Problem solved. Didn't we get an Obamacare cost estimate for the next ten years? Aren't you comfortable with it? Didn't the CBO say it would be $849 billion? Various goverments will break many promises over the next ten years. Got bonds? Sell! As I've written before, "Kill the old white women"! That's how Medicare costs will will be reduced. I wonder if a Big 87654 firm would opine on the CBO's estimate?

I agree with Sowell. Kill the old white women!