SEC Wins One

"The [SEC] recommended against suspending fair-value accounting rules, instead suggesting improvements to deal with illiquid markets and reducing the number of models used to measure impaired assets. ... The banking lobby has argued that financial institutuons have been forced to write off still-valuable assets because the market for them has dried up creating a spiral of write-downs and asset sales. The report said that staff found no evidence to suggest that the accounting rules has played a significant role in the collapse of U.S. financial institutions", Michael Crittenden at the WSJ, 31 December 2008.

Even the SEC gets one right once in a while.

Following Bill Gross

"William H. Gross has buying power few can match. The founder of money manager Pimco in Newport Beach, Calif. oversees $790 billion, most of it invested in fixed income. But now there's a new bully on the block: Uncle Sam. ... In the past year, the 64-year-old King of Bonds has bought $100 billion of preferred shares and senior debt of financial companies receiving taxpayer loans. His bet is that the government will throw good money after bad rather than let them fail. ... With stocks down 40% this year, he predicts Americans will shift from risk to thrift for at least a generation. ... Gross' theory is that the government will arrange to get itself paid back and that his investors can safely travel on the government's coattails. ... There is no chance, Gross says, that the U.S. will let AIG walk away without paying [$200 billion] back. ... 'No government coming to the rescue [like this] would allow us to go back to the prior stasis.' Expect, he says, a 'lower standard of living, a threat to the dollar as a reserve currency and a decline in U.S. hegemony'," my emphasis, Bernard Condon at Forbes, 12 January 2009.

With "good money [thrown] after bad", AIG paying Uncle Sam and an end "to the dollar as a reserve currency", why own bonds? How will AIG pay Unc? Unc will print the paper, and AIG will give the printed paper back.

China's Melamine Trial

"Chinese prosecutors on Friday argued cases against six people accused of involvement in spiking milk with a toxic chemical, in the first trials stemming from a widespread adulteration of dairy products that killed six children and sickened nearly 300,000 others. ... And the government's legal battle against those responsible appears to be gearing up, as authorities seek to reassure consumers that regulators will protect them. Aggressive prosecutions would send a strong message that the government is serious about product safety. ... The two men are charged with endangering public security. If convicted they could each face prison terms or the death penalty", Gordon Fairclough at the WSJ, 27 December 2008.

"The former head of the dairy company at the center of China's milk-adulteration scandal is set to appear for a hearing Wednesday--the highest-profile defendant is a case that has sparked enormous public outrage. ... Ms. Tian's colleagues and friends say they fear she will end up being a scapegoat for a widespread breakdown in food safety and face a sentence of life in prison. ... To assuage public anger, government prosecutors also bring criminal charges against company executives and others allegedly involved in misdeeds, sometimes with heavy sentences that appear to make powerful statements. In 2007, when the head of China's State Food and Drug Adminstration was found guilty of accepting money from pharmaceutical companies to approve drugs, he was sentenced to death and swiftly excecuted", my emphasis, Loretta Chao at the WSJ, 31 December 2008.

"Families of children sickened or killed in China's tainted-milk scandal reacted angrily to state media reports that a former top dairy-company executive admitted in court she knew of the problem months before alerting authorities", Loretta Chao at the WSJ, 2 January 2009.

Do any of these Chinese prosecutors want to become an American and our new SDNY US attorney, or SEC Chairman? In the US, companies ask the Supremes for protection from product liability suits. In China, executives who worked for companies accused of product liability may visit China's answer to GSG's CNC guillotine. I like the idea of sentencing FDA personnel to death. How about all of those involved in the Medtronic case?

"End of up being a scapegoat"? Are they getting talking points from MJW, my 22 November 2008 post? Death, executed, wow! Hear that Chris Cox, Mike Garcia, et. al.?

Would she have admitted anything if MJW represented her?

USA, RIP?

"For a decade, Russian academic Igor Panarin has been predicting the U.S. will fall apart in 2010. For most of that time, he admits, few took his argument--that an economic and moral collapse will trigger a civil war and an eventual breakup of the U.S.--very seriously. Now he's found an eager audience: Russian state media. ... Panarin, 50 years old, is not a fringe figure. A former KGB analyst, he is dean of the Russian Foreign Ministry's academy for future diplomats. He is invited to Kremlin receptions, lectures students, publishes books, and appears in the media as an expert on U.S.-Russia relations. ... Panarin's views also fit neatly with the Kremlin's narrative that Russia is returning to its rightful place on the world stage after the weakness of the 1990s, when many feared that the country would go economically and politically bankrupt and break into seperate territories. ... 'There's a 55-45% chance right now that disintegration will occur,' he says. 'One could rejoice in that process,' he adds, poker-faced. 'But if we're talking reasonably, it's not the best scenario--for Russia.' ... Panarin posits, in brief, that mass immigration, economic decline, and moral degradation will trigger a civil war next fall and the collapse of the dollar. Around the end of June 2010, or early July, he says, the U.S. will break into six pieces--with Alaska reverting back to Russian control. ... Vladimir Pozner, a prominent TV journalist in Russia ... and other Russian commentators and experts on the U.S. dismiss Mr. Panarin's predictions. 'Crazy ideas are not usually discussed by serious people,' says Sergei Rogov, director of the government-run Institute for U.S. and Canadian Studies, who thinks Mr. Panarin's theories don't hold water. ... [Panarin] predicts that economic, financial and demographic trends will provoke a political and social crisis in the U.S. When the going gets tough, he says, wealthier states will withhold funds from the federal government and effectively secede from the union. Social unrest up to and including a civil war will follow. The U.S. will then split along ethnic lines, and foreign powers will move in. ... Interest in his forecast revived this fall when he published an article in Izvestia, one of Russia's biggest national dailies. In it, he reiterated his theory, called U.S. foreign debt 'a pyramid scheme,' and predicted China and Russia would usurp Washington's role as a global financial regulator", my emphasis, Andrew Osborn at the WSJ, 29 Decmeber 2008.

Laugh if you want. I take Panarin seriously. I can't see the US breaking into six pieces. Texas will not revert to Mexico. We're too well armed for that. But California might. I think Panarin decades early for a civil war, see my 6 September 2008 post: http://skepticaltexascpa.blogspot.com/2008/09/coming-civil-war.html. He uses the term "pyramid scheme". So have I. I see the same demographic disaster Panarin does. No, a weakened US is not in Russia's interest with China next door. A dollar collapse is possible. Rogov's comments are interesting. Did Rogov say the USSR would break up in say, 1989? See also my 2 November 2007 post: http://skepticaltexascpa.blogspot.com/2007/11/oil-and-bing-crosby.html. In 1776 how many people thought the Colonists would defeat England?

Mad Dog, Genius?

"About two years ago, a little delegation from a major investment bank arrived at my home in Beverly Hills. ... They told me if I invested a certain sum with them, they would make sure that a large chunk of it was managed by a money manager of stupendous acumen. This genius, so they said, never lost money. ... I protested that a perfect hedge would not allow making any money, because money made on the one side would be lost on the other. They assured me that this genius had found a way to spot market inefficiencies and, indeed, to make money off a perfect hedge. I thanked them for their time and promptly looked up Bernard Madoff online. Nothing I saw was even a bit convincing that he had made a breakthrough in financial theory. Besides, this large financial firm was going to charge me roughly 2 percent to put my money with Mr. Madoff's firm. ... I checked with my investment gurus, Phil DeMuth, Raymond J. Lucia and Kevin Hanley. None of us could see how Mr. Madoff could do what his friends said he could do. ... I have never heard of an entity that could make money in all kinds of markets consistently, year in and year out. ... One great advantage of being 64 is that I can remember the early hedge funds of the 1960s. They, too, were supposed to turn water into wine", Ben Stein, 28 December 2008 at http://www.nytimes.com/.

If Stein figured this out, where was the SEC? How much do the investment bankers who peddled this garbage know?

UN Whistle-blowers

"An American-backed drive to curb misconduct at the United Nations is faltering, blighted by bureaucracy and accusations of retaliation against whistle-blowers. ... The U.S. pledged this [2005 reform] would ensure the 'highest standards of integrity.' ... 'The U.N. isn't serious about cleaning up its act', says James Wasserstrom, a former U.N. official in Kosovo, who, after becoming a whistle-blower himself last year, was placed under investigation by the U.N. A 25-year veteran of the U.N., Mr. Wasserstrom, an American was eventually cleared of any wrongdoing and recently filed a retaliation complaint with a U.N. appeal panel. The U.N., says Mr. Wasserstrom, 'uses the whistle-blowing program to get its most ethical staff to stick their heads above ground in order to chop them off.' The U.N. denies this and says it doesn't tolerate retaliation against staff members who report misdeeds. ... The U.N. declined to discuss individual cases of whistle-blowers who have alleged retaliation. ... The U.N. says it has no immediate plans to consolidate the various ethics bureaus, but it is finalizing one set of ethical standards to be followed by all its agencies. ... The U.N. also set by [Robert] Benson's [ethics] office to foster 'a culture of ethics, transparency and accountability.' ... At the same time that OIOS was looking into Mr. Wasserstrom's allegations, the U.N.'s personnel department in Kosovo announced what it said was a long-scheduled decision: Mr. Wasserstrom's job was to be eliminated. ... Detained at the Kosovo border by U.N. police in June last year, Mr. Wasserstrom says he had his American passport seized and car searched. ... In a letter to Mr. Wasserstrom in April, Mr. Benson said that while some of the measures taken against him 'appeared to be excessive' and 'involved investigative failures,' a detailed study of his treatment by U.N. investigators 'did not find any evidence that these activities were retaliatory'," my emphasis, Andrew Higgins and Steve Stecklow at the WSJ, 26 December 2008.

Connie Baby should have told the U.N. police they had 24 hours to return Wasserstrom's passport. Having not returned it, she would recommend the U.S. declare war on the UN. The article notes a "New York district court dismissed [a whistle-blower's] suit, saying it agreed with the U.N.'s defense that the court couldn't delve into a matter because of the international organization's immunity". I agree. The UN is a sovereign. Therefore the US can declare war on it. Barring that, the US should declare the UN and all of its non-US personnel personna non grata. Now. Now we know what Goldman is doing with its CNC guillotine, renting it to the UN to use on whistle-blowers. In reading this article, I almost laughed. Why? That anyone over 12 could think a whistle-blowing program would be used for any purpose other than chopping off whistle-blowers' heads is amazing. Many people live on the other side of the looking glasss. What does Benson think is evidence? Mere proximity in time is enough. "Ethical standards", "culture of ethics", don't make me sick. The UN might consider subjecting itself to SARBOX. That will fix everything. See also my 6 and 24 March 2008 posts:

http://skepticaltexascpa.blogspot.com/2008/03/whistle-blowing-in-wind.html.

http://skepticaltexascpa.blogspot.com/2008/03/on-eliot-spitzer-and-john-ashcroft.html.

Mish on Krugman

Mike Shedlock blasts Paul Krugman for maintaining his "hangover theory", 29 December 2008. CV Myers and Henry Hazlitt demolished Keynesianism over 30 years ago. Mish also has a link to a Fred Thomson video worth seeing. Link: http://www.globaleconomicanalysis.blogspot.com/2008/12/krugman-still-wrong-after-all-these.html.

Zedillo for TreasSec

"Latin America has just experienced six years of the highest GDP growth it's had in more than 40 years. Because this minibonanza was continuing a year after the subprime meltdown began, some people believed that for the most part the Latin American nations' economic performance had become decoupled from the developed countries' economic ills. ... These governments had better come to terms with this reality right away and stop creating expectations among their people that they can effectively compensate for the recessionary effects of lower export volumes, much reduced commodity prices, diminshed remittances from their citizens working abroad and acute scarcity of credit and investment in international markets. ... Most Latin American countries responded to the oil shocks of 1973 and 1979--which were followed by economic contraction and mugh higher inflation in the OECD countries--with massive expansions in government expenditure, price controls, subsidies to inefficient sectors and firms, the creation of numerous state-owned enterprises, unrealisitic exchange-rate policies and unbridled trade and investment protectionism. The international contractions, far from eliciting prudent austerity, triggered an unprecedented populist explosion throughout the region", my emphasis, Ernesto Zedillo (EZ) at Forbes, 12 January 2009.

EZ was president of Mexico. Is the US following Latin America of the 1970s?

Peter Schiff on the Fed

"As recession fears cause the nation to embrace greater state control of the economy and unimaginable federal deficits, one searches in vain for debate worthy of the moment. Where there should be an historic clash of ideas, there is only blind resignation and an amorphous queasiness that we are simply sweeping the slouching beast under the rug. ... The few who maintain free-market views have been marginalized. ... Individuals, companies or cities with heavy debt and shrinking revenues instinctively know that they must reduce their spending, tighten their belts, pay down debt and live within their means. But it is axiomatic in Keynesianism that national governments can create and sustain economic activity by injecting printed money into the financial system. In their view, absent the stimuli of the New Deal and World War II, the Depression would never have ended. ... There is a vague sense of smoke and mirrors, of something being magically created out of nothing. But economics, we are told is complicated. ... I believe these ideas hold sway because they promise happy, pain-free solutions. They are the economic equivalent of miracle weight-loss programs that require no dieting or exercise. The theories permit economists to claim mystic wisdom, governments to pretend that they have the power to dispel hardship with the whir of a printing press, and voters to believe that they can have recovery without sacrifice. As a follower of the Austrian School of economics, I believe that market forces apply equally to people and nations. ... Governments cannot create but merely redirect. When the government spends, the money has to come from somewhere. ... Something cannot be effortlessly created from nothing. ... By borrowing more than it can ever pay back, the government will guarantee higher inflation for years to come. ... We will be left with 1970s-style stagflation, only with a much sharper contraction and significantly higher inflation. The good news is that economics is not at all that complicated. The bad news is that our economy is broken and there is nothing the government can do to fix it", Peter Schiff at the WSJ, 27 December 2008.

I agree with Schiff.

Mish on Munis

Michael Shedlock warns investors of coming possible muni defaults, 28 December 2008. Buy munis at your own risk, link: http://globaleconomicanalysis.blogspot.com/2008/12/massive-surge-in-municipal-bankruptcies.html.