US, a Financo-State

"Evidence that the US is a failed state is piling up faster than I can record. ... Income inequality in the US is now the most extreme of all countries. ... The stark increase in US income inequality in the 21st century coincides with the offshoring of US jobs, which enriched executives with 'performance bonuses' while impoverishing the middle class, and with the rapid rise of unregulated OTC derivatives, which enriched Wall Street and the financial sector at the expense of everyone else. ... When Goldman Sachs [GSG] recently announced that it was paying massive six- and seven-figure bonuses to every employee, public outrage erupted. In defense of banksters, saved with the public's money, paying themselves bonuses in excess of most people's life-time earnings, Lord Griffiths, Vice Chairman of [GSG] International, said that the public must learn to 'tolerate the inequality as a way to achieve greater prosperity for all.' ... In other words, 'Let them eat cake.' ... A narco-state is bad enough. The US surpasses this horror with its financo-state", original emphasis, Paul Roberts at Vdare, 26 October 2009, link: http://www.vdare.com/roberts/091025_next_crisis.htm.

I don't call Him (capitalized intentionally) Lloyd Antoinette Blankfein for nothing.

Free the Bear Stearns Two

"Two weeks into the first major Wall Street prosecution after the financial crisis, the government's case appears headed for an anticlimax. ... Even the judge, Frederic Block, of Federal District Court in Brooklyn, has indicated he is fed up. On at least two occasions during the second week of trial, Judge Block admonished Ms. [Ilene] Jaroslaw to settle down. Regarding the ever-growing mountain of evidence, he commented: 'We have a lot of papers here. ... I doubt jurors are going to read all 530 of these documents. But this is how the government chooses to present its case. Continue.' ... For instance, when the prosecution tried to exclude from evidence an e-mail message from [Ralph] Cioffi that spoke of having a plan 'to save' his limited partners in the fund, Judge Block said: 'What's wrong with having a plan that saves his LPs? It shows his state of mind, that he is still trying to actively salvage the day'," Dan Slater at the NYT, 23 October 2009, link: http://dealbook.blogs.nytimes.com/2009/10/23/in-bear-trial-prosecution-seems-to-falter/?ref=business.

This case stinks. It's good to see the jury was not fooled by the DOJ's nonsense and acquitted Cioffi and Tanen.

What Gold Frenzy?

"'It could be your grandmother's gold or the gift of an ex-boyfriend,' said Erhard Oberli, the chief executive of Argor-Heraeus, a major refiner here that processes roughly 400 tons of gold a year. 'Gold doesn't disappear.' ... Long considered the ultimate refuge for nervous investors, gold has climbed as the dollar has steadily weakened, budget deficits have expanded in the [US] and Europe, and central banks have continued to pump trillions of dollars into weak economies, creating fears of another asset bubble that will ultimately pop. ... At a conference in New York on Wednesday, Mr. [Nouriel] Roubini described Mr. Roger's forecasts as 'utter nonsense,' saying that there aren't any inflationary or economic pressures that would drive the price of gold to $2,000 an ounce. Even the most bullish of gold lovers were surprised last week when the Reserve Bank of India stepped in and bought 220 tons of gold from the [IMF] for $6.7 billion, a sign that other central banks might move away from dollar-denominated assets like Treasury bonds in favor of the precious metal. ... 'We have money to buy gold,' said Pranab Mukherjee, India's Finance Minister. 'We have enough foreign exchange reserves.' ... 'Gold has been around as an investment for 6,000 years,' Mr. Oberli said. 'When there is no alternative, it's there'," my emphasis, Nelson Schwartz (NS) at the NYT, 8 November 2009, link: http://www.nytimes.com/2009/11/08/business/global/08gold.html.

Yes, NS, gold is "there", and has been for 6,000 years. When will the world remonitze gold? "When there is no alternative". Roubini, you are lost. Gold could easily go to multiples of $2,000 by 2017, perhaps 5-10X. Really. NS, don't speak for me. What's $6.7 billion on the world stage? Peanuts. Zimbabwe Ben can create that many dollars in five minutes!

Christie's Potential Andrew Jackson Moment

"But what New Jersey [NJ] needs is a governor willing to confront the state's Supreme Court over who is in charge of school funding. And Mr. Christie has shown no stomach for that fight. ... But in a succession of school-funding cases over the years, the state Supreme Court has taken control of the $11 billion Property Tax Relief Fund. ... The court sends more than half of the state aid to 31 largely urban 'special needs' school districts, the special needs of which were for the most part created by decades of Democratic mismanagment. The remaining 554 largely suburban towns fight over the rest. ... The public schools produce dismal test scores. Yet thanks to the court they are subsidized at almost incomprehensible levels. The city [Asbury Park] gets $29,895 per-pupil annually in education aid from the state. The total per-pupil cost exceeds $35,000 annually--enough to ship the kids off the prep schools where they would get top-notch schooling and room and board. The average per-pupil cost across the state is about $18,000. ... 'Will one of those tough choices be to wrest control of school funding back from the courts?' I asked. Mr. Christie spent the spring ducking questions about the issue, so I figured I might have better luck with Ms. [Kim] Guadagno [Christie's running mate]. ... If you're looking for a reason for the Republican's inability to pull away from the unpopular Corzine in the polls, look no further than this. New Jersey residents are struggling under some of the highest property tax bills in the nation. ... Surburban property taxes are high because the state Supreme Court has turned the property-tax system into a massive scheme to transfer wealth from the suburbs to the cities", my emphasis, Paul Mulshine at the WSJ, 31 October 2009, link: http://online.wsj.com/article/SB10001424052748703574604574499722466073690.html.

Gov. Christie, you have an opportunity to follow Andrew Jackson's comment to John Marshall, my 26 January 2008 post: http://skepticaltexascpa.blogspot.com/2008/01/supreme-injustice.html. Tell your Supremes, "I will ignore your rulings with regard to using the property tax as a "progressive income tax". Dare it to arrest you. Remind NJ's Supremes "I control the state police, not you". With some luck you can head the 2012 Republican ticket. Look at the obscure Illinois politician we recently elected POTUS. The idea of courts setting tax policy is absurd. I remember in 1958 New York City's (NYC) public schools averaged about $550 per pupil per year, say $7,400 today. Does NJ's public schools spending over twice per student as much in real terms as NYC's did in 1958, make them better? Stop the euphemisms. Are "special needs" synonymous with majority NAM? Do largely non-NAM school districts produce "better results" for less money? Asbury Park is 16% white and 67% black. Hmm. Has this something to do with its schools' abysmal results?

The SDNY Circus Continues

"Armed with informants, wiretaps, and sophisticated software tools, the [SEC]--still smarting after missing Bernard Madoff's Ponzi scheme--is determined to raise its game. 'It would be wise for investment advisers and corporate executives to look closely at [the Galleon] case and consider what lessons can be learned and applied to their own operations,' SEC enforcement chief Robert Khuzami said in a press conference. ... Notes Wayne Black, a private financial-crime investigator and former drug cop: 'The fact that they used the stuff you see for mobsters, drugs, and terrorism shows their very serious'," Roben Farzad & Theo Francis at Businessweek, 2 November 2009.

"Federal authorities widened their crackdown on insider trading, uncovering an alleged network of conspirators with elements of a James Bond movie, including packages of money, throwaway cellphones, a ring-master named 'Octopussy' and an associate called 'the Geek.' In a 24-page criminal complaint filed in New York federal court, prosecutors alleged that 14 individuals were part of an insider-trading group that generated $20 million in illegal profits. The group allegedly included several hedge-fund traders, two lawyers, a former junior analyst at a credit-rating firm and a technology-company executive. ... 'The casual betrayal of corporate secrets by insiders ... makes a mockery of our system,' said Preet Bharara, the Manhattan US attorney, at a news conference announcing the charges. A related civil case was filed by the [SEC]", my emphasis, Robert Guth & Amir Efrati at the WSJ, 6 November 2009, link: http://online.wsj.com/article/SB125742913148830787.html.

"The government's fast-moving insider-trading case is being built on information from five co-operating witnesses, some of whom received information from investors and companies that haven't been charged in the probe, potentially broadening the case, people familar with the matter said. ... The cooperators have pleaded guilty to charges including conspiracy and insider trading and are cooperating in the hope of getting lighter penalties, investigators say. ... The complaint alleges that Messrs. [Choo-Beng] Lee and [Ali] Far paid some of their sources $2,000 per quarter in exchange for information", Susan Pulliam at the WSJ, 6 November 2009, link: http://online.wsj.com/article/SB125746971902632491.html.

Black, I disagree. It appears the DOJ and SEC are acting to convince Joe Schmoe the Feds are serious about white collar crime. What should a prospective white collar criminal do to ward off the Feds? Have some Vampire Squid (VS) higher-ups take part in your scheme such that it you can't be prosecuted without bringing VS down too. Who says VS is good for nothing? Well Preet Bharara (PB), will you indict me for aiding and abetting say wire fraud, 18 USC 2, 1343? Doesn't the US Attorney's Manual state no VS senior executive should be prosecuted? Or is that in the Manual's "confidential" section?

Aparently PB has nothing important to do that he can waste time on this case. By going after some "high profile" types like the Galleon people, he diverts Joe Schmoe's attention from VS. PB, you are making a mockery of our system.

$2,000 per quarter. Wow. Lloyd Antoinette Blankfein's monthly cigar bill must be 100 times larger. This case shows one problem with DOJ prosecutors. They can't make a case without "co-operating witnesses". Well, PB, which VS can you get to co-operate?

LA Times on California

WC Varones (WCV) has a 2 November 2009 post which refers to a 1 November 2009 Los Angeles Times opinion piece. Here's a link to WCV's post: http://wcvarones.blogspot.com/2009/11/la-times-california-sucks.html. I was surprised "LA" Times printed it too. Even LA Times apparently recognizes that California's current tax and spending policies are unsustainable without federal help, "California's public sector has pinned its hopes for avoiding fundamental reform on increased federal aid to replace dollars the state's fed-up taxpayers refuse to surrender. In other words, residents in the other 49 states--the new 49ers?--would enjoy the privilege of paying California's taxes". Why not? Californians pay Mexico's taxes? Steve Sailer (SS) at Vdare sees this article on 6 November 2009, much the way I do, link: http://blog.vdare.com/archieves/2009/11/06/california-v-texas-again/. SS notes, "The concept that Latinos don't earn enough to pay for an expensive government is pretty obvious, but it's just off the radar screen. The liberal media just see more NAMs as more justification for more government spending and more votes for government spending". Yes SS.

Jesse's Calculator Abuse

Jesse at Jesse's Cafe Americain has a 6 November 2009 post about job loss statistics. Enjoy. Here's a link: http://jessescrossroadscafe.blogspot.com/2009/11/reader-asks-how-did-558000-people-lose.html.

Vampire Squid Obfuscation

"But most Americans know all too well that only the intervention of billions of dollars in taxpayer bailout money saved Goldman [GSG] from the dire fate of its less well-connected competitors. The growing ranks of under-and-unemployed Americans, meanwhile, are waiting with increasing desperation for a recovery of their own. Goldman is this century's octopus--almost literally so. The most-quoted sentence is financial journalism this year, by Matt Taibbi of Rolling Stone, describes the company as a 'great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.' ... And there is one other significant way that our 21st-century vampire squid differs from Rockefeller's 20th-century octopus. Americans knew what oil was, and they understood how Standard Oil's manipulations directly affected their pocketbooks. Even now many Americans don't know what Goldman's products are or how it makes its money. The less we know, the easier it is for reckless gambling to return to capitalism's casinos, and for Washington to look the other way as a new financial bubble inflates. ... At least health care, like oil, is palpable, so we will be able to keep score of how reform fares--win, lose or draw. But the business of Wall Street, while also at center stage in a Congressional committee last week, is so esoteric that the public is understandably clueless as to what, if anything, the lawmakers were up to, if anyone even noticed at all. ... As the Reuters columnist Rolfe Winkler wrote last week, 'Main Street still owns much of the risk while Wall Street gets all of the profit'," my emphasis, Frank Rich (FR) at the NYT, 18 October 2009, link: http://www.nytimes.com/2009/10/18/opinion/18rich.html.

Vampire Squid's continued existence requires Joe Schmoe not understand what its real business is. FR is to be commended for making this clear. See my 25 October 2009 post: http://skepticaltexascpa.blogspot.com/2009/10/goldman-sachs-kgb.html.

Madoff on the SEC

"Bernard Madoff was dismissive of a compliance examiner involved in a [SEC] inspection into his firm, calling the man a 'blowhard' who talked tough, but didn't look at anything. ... [David Kotz's] report found that the SEC received six substantive tips over 16 years, but still failed to detect the fraud because of inexperienced staff, delays and a lack of communcation. ... 'It's very easy to do a third-party check. It's an absolute must,' Mr. Madoff said of how one investigates a Ponzi scheme. 'It's accounting 101.' ... Mr. Madoff said he thought he might get caught during another enforcement investigation when officials asked for his DTC number. He credited them with 'asking all the right questions' and was later shocked to learn the investigation would be closed", Sarah Lynch at the WSJ, 31 October 2009, link: http://online.wsj.com/article/SB125694046635819511.html.

Blame the SEC staff, not SEC management. Why? Bernie, it's auditing 301, not accounting 101. But it's pretty basic. Who is the compliance examiner? He might make an excellent Big 87654 partner. Bernie, write him a reference letter.

Economists Don't Learn

"The pain of the financial crisis has economists striving to understand precisely why it happened and how to prevent a repeat. For that task, John Geanakopolos of Yale University takes inspiration from Shakespeare's 'Merchant of Venice.' ... For years, his effort to understand this process didn't draw much interest. Now it does--yet another aftereffect of the brutal deflating of the credit bubble. ... Mr. Geanakopolos is among a small band of academics offering new thinking about those cycles. A varied group ranging from finance specialists to abstract theorists, they are moving to economic center stage after years on the margins. The goal: Fix the models that encapsulate economists' understanding of the world and serve as policy-making tools at the world's central banks. It is a task that could require a thorough overhaul of the way those models work. ... Mr. Geanakopolos is emblematic of the new thinking but now necessarily the one whose ideas will prevail. ... The past century saw two economic revolutions in the way economists view the world. Both required painful crises to set them in motion, but both arguably improved government's ability to manage the economy. The first came after the Depression, when economists built some of the first mathematical models that policy makers could use to try to manage the economy. The second came after the inflationary 1970s, when economists created new models that took into account how people's expectations, such as about prices or income, can influence the economy over time. ... As Robert Lucas of the University of Chicago, one of the intellectual fathers of the models, put it in 2003: The 'central problem of depression-prevention has been solved ... for many decades'," my emphasis, Mark Whitehouse at the WSJ, 3 November 2009, link: http://online.wsj.com/article/SB125720159912223873.html.

"Professor [Steve] Hanke argues that the chief enabler of both the Great Depression and our latest economic downturn is the [Fed], who sees itself as America's systemic risk regulator. This is the world upside down, Hanke explains: The [Fed] is the systemic risk. ... The bottom line is that the idea that government bureaucrats have enough knowledge to manage an economy well is the height of conceit--what Nobel Laureate Fredrich Hayek called the 'fatal conceit'," Walter Williams (WW), 5 November 2009, link: http://frontpagemag.com/2009/11/05/economic-myths-and-irrelevancy-by-walter-williams/

Does anyone remember JFK's adminstration and the Phillips Curve? We conquered the business cycle then! The economists here are still looking for the philosopher's stone. They are wasting their time. If they studied the Austrian Theory of the Business Cycle, they might learn something. This is pitiful. Where is George Stigler when we need him? That Lucas, a Chicago professor, should sprout this nonsense is inexcusable. Did he study the History of Economic Thought? It appears Geanakopolos has no concept of capitalization. He doesn't understand the efffects of central bank monetary base expansion on bank lending practices. This search for the "new paradigm" is an intellectual joke, see my 23 August 2007 post: http://skepticaltexascpa.blogspot.com/2007/08/alchemists-at-work.html. To end business cycles, kill the Fed. New thinking? That's laughable. Go back to gold!

I agree with WW, an economics professor at George Mason University.