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:

http://www.financialsense.com/stormwatch/geo/pastanalysis/2010/0604.html.

"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:

http://online.wsj.com/article/SB10001424052748704875604575280462094012870.html.

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:

http://www.ft.com/cms/s/0/a121ced2-4c6e-11df-8fe1-00144feab49a.html.

Just-in-time inventory is a disaster waiting to happen. See my 26 February 2010 post: http://skepticaltexascpa.blogspot.com/2010/02/lean-manufacturings-dangers.html.

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: http://online.wsj.com/article/SB10001424052748704904604575262942729708122.html.

"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: http://online.wsj.com/article/SB10001424052748703513604575311350142446886.html.

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:

http://www.chron.com/disp/story.mpl/headline/biz/7053295.html.

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?

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:

http://online.wsj.com/article/SB10001424052748704198004575310703342951666.html.

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:

http://accountingonion.typepad.com/theaccountingonion/2010/06/asu-2010-19-when-a-dollar-of-cash-is-more-than-a-dollar-on-the-balance-sheet.html. 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.

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:

http://online.wsj.com/article/SB10001424052748703280004575309061471494980.html.

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:

http://www.thecaq.org/publicpolicy/pdfs/CAQCIICFAInstitutelettertoConfereesRESOX404b61510.pdf. Don't laugh too hard in reading this.

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: http://jessescrossroadscafe.blogspot.com/2010/06/us-dollar-last-bubble.html.

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:

http://www.chron.com/disp/story.mpl/metropolitan/7041445.html.

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