Monday, July 30, 2007

Henry Kissinger

Max Boot criticizes Henry Kissinger for his role in settling the Vietnam War, Houston Chronicle, 29 July. Boot asks, "How seriously should we take [Kissinger]? ... Only in Kissinger's own telling was his Vietnam diplomacy a great triumph. ... Kissinger informed Chou that the communists could have Saigon as long as they didn't humiliate the Americans on the way out. ... There is a lesson for the present day: Skilled diplomacy can consolidate the results of military sucess but can seldom make up for its lack".

Wow! Did Boot read Clausewitz, On War, written about 200 years ago? Clausewitz wrote, "war is diplomacy by other means", or something like that. I disagree with Boot, the model for Iraq is not Korea. Boot is too America-centric. Boot should look to the French experience in Algeria for a model for Iraq. Sharia is coming to Iraq and al-Maliki is Ahmed Ben Bella. I'm sure Bush and Rice would ask "Ahmed who? Algeria what"?

Saudi Arabia, Iran and Woodrow Wilson's Ghost

"During a high-level meeting in Riyadh in January, Saudi officials confronted a top American envoy with documents that seemed to suggest Iraq's prime minister could not be trusted. ... Now, Bush Adminstration officials are voicing increasing anger at what they say has been Saudi Arabia's counterproductive role in the Iraq war. They say that beyond regarding al-Maliki as an Iranian agent, the Saudis have offered financial support to Sunni groups in Iraq", Houston Chronicle, 29 July.

Are Bush and Rice this stupid? The avaliable evidence indicates al-Maliki is an Iranian agent. These are the end times. The lion will lie down with the lamb. I agree with the Saudis. What should the Saudis do when faced with an Iranian takeover of Iraq if not support the Sunni terrorist groups which might prevent it? The Saudis are fighting our fight for us in opposing Iran and our geniuses at State and in the White House can't see it. The ghost of Woodrow Wilson haunts Bush.

Saturday, July 28, 2007

Corporate Attorneys and Regulators

"The recent conviction of Conrad Black's in-house attorney at Hollinger Inc. on fraud charges sends a chilling message to corporate lawyers about their responsibility to monitor their bosses' behavior", WSJ, 28 July. Big deal. Nothing will happen until lawyers and CPAs get full aider and abetter liability for fraud.

"Politicians and some corporate exceutives in the U.S. often praise Britain's approach to regulation as a model for an effective but not onerous system to oversee banks, brokers and investment funds, and one that could improve the competitive position of U.S. financial markets globally. ... In some corners of the City of London ... the FSA is often looked on as a toothless tiger with little appetite for the harsh enforcement tactics often employed by U.S. regulators, WSJ, 23 July. What else would Wall Street want but a toothless tiger which "has, as part of its mission, an objective to promote London as a place to do business"? Isn't that the job of the Commerce Department?

Friday, July 27, 2007

Death Bonds

BusinessWeek, writes about "death bonds", 30 July. They are created by pooling life insurance policies and selling shares in them, like CMOs on mortgages. Like CMOs, the Wall Street purveyors of this junk seek ratings from Moody's and S&P to show that they are relatively riskless yet will yield 8%.

We've seen this story before with CMOs and other securitized cash flow streams. Janet Tavakoli, a Chicago financial consultant, said "the same kinds of missteps [like with CMOs] are bound to happen with death bonds". Amen! Who would buy this garbage? Will Moody's & S&P refuse to rate death bonds until they have a 10-year track record? Will pigs fly?

"In an attempt to put even more distance between Wall Street and the old viatical crowd, six investment houses, inlcuding, Bear Stearns, Credfit Suisse, Goldman Sachs, and UBS, in March formed a trade group called the Institutional Life Markets Assn., to lobby for 'best practices' and 'appropriate regulation'." "Round up the usual suspects" said Claude Rains as Captain Renault in Casablanca (1942). This smells like the AICPA, which for 30+ years has not done anything to make the Big 87654 accounting firms do better audits, just harass smaller CPA firms.

What is "appropriate regulation"? Whatever limits Wall Street houses liability selling death bonds. What are "best practices"? Whatever the large Wall Street houses do by definition.

For extra credit: read C. Walton Hamilton's Politics of Industry (1957) about how regulation really works.

Wednesday, July 25, 2007

Stopping the Subprime Crisis

Joshua Rosner, a financial analyst writes in the NYT, 25 July, "But it is not too late for regulators and legislators to take steps to restore investor confidence and to ensure the future of these [CDO] markets. ... The willingness of Fitch, Moody's and S&P to rate as investment grade many assets that are apparently not has made structured securities ratings their fastest-growing line of business. Are we to believe that these securities are as safe as those of our most honored corporations?"

Rosner has no answer as to how to reduce the likelihood of the rating agencies poorly rating securities again. Increasing investor confidence is just continuing a con game. Rosner does not suggest repealing the 1995 Litigation Reform Act and letting these agencies get sued for malpractice. What has the SEC done to improve CPA audits for the last 31 years? Nothing. Similarly, the SEC will do nothing effective to clean up the "National" rating agencies.

Monday, July 23, 2007

Just In Time Inventory

"For want of a piston ring costing $1.50, nearly 70% of Japan's auto production has been temporarily paralyzed this week. Blame it on kanban, the just-in-time philosophy of keeping as little inventory on hand as possible", WSJ, 20 July.

Just-in-time (JIT) inventory has always amazed me. I wondered who thought it up. An MBA who's never seen a factory, an earthquake, a snowstorm, a hurricane, etc.? I have always seen JIT as an invention of management consultants who have no exposure to the real world. If Japan ever got involved in a war, its industries would be crippled by this. JIT is and always has been a disaster in the making.

Friday, July 20, 2007

Arlen Specter

Diana West questioned Arlen Specter about our actions in Iraq. She notes Specter's concern about Iraqi casualties,, 20 July, not America's interest. "So now I ask: Was that Diyala, or Pennsylvania you represent"?

Excellent. It's an open question who our Congressmen and Senators represent. I believe they represent: Mexico, Saudi Arabia and who knows where else and not the USA. Asking American soldiers and Marines to die to avoid Iraqi civilian casualties is crazy. 6.9 million Germans died in World War II, 3.6 million of whom were civilians. So? That's war.

Miami Real Estate

"Miami condo sales fell to 599 in MAy, a drop of 46 percent from a year earlier",, 20 July. "'The market is as close to a depression as Miami has seen in 30 years,' Eichner [a Miami developer] said".

Don't buy Florida real estate until at least 2009. It's got a long way to fall.

Judge Kaplan and KPMG

Judge Lewis Kaplan "dismissed indictments against 13 of 16 former KPMG executives charged" with tax evasion, among other crimes, WSJ, 17 July.

I think Kaplan made a mistake. He should have let the case go to trial and admitted into evidence all of the US Attoney's actions as wrongdoing. Making a conviction impossible after impanelling a jury would have made the acquittals unappealeable because of double jeaporady. As things stand, the indictment dismissals will be appealed to the Second Circuit in New York.

Private Equity

George Anders writes about private equity firms like KKR and Blackstone in the WSJ, 18 July. He notes they are now going public. "So what changed? ... Cynics suggest that it's mostly about market timing, exploiting the current bull market to fetch hefty valuations".

Count me a cynic. I wouldn't touch any of these offerings. Let the Communist Chinese buy them. What was private equity about? Capital market inefficiencies. The lenders did not charge sufficiently high interest rates to compensate them for the risks assumed to finance the companies purchased by private equity firms. I remember Booz Allen's going public in 1970 and going private in 1976 for 32% of its 1970 IPO price. In 1970 I was a believer, not now.

Thursday, July 12, 2007


Paul Krugman, Princeton Economics professor, and NYT columnist, hit the nail on the head today, in criticizing the rating agencies for the impending Collateralized Debt Obligation (CDO) disaster. He writes, "the bond-rating agencies, have gone along with the premise, telling investors that the synthetic assets created by CDOs are equivalent to high-quality corporate bonds".

The rating agencies, like the Big 4 CPA firms are part of the problem. As long as they are immune from malpractice lawsuits, they will say anything without fear of retribution. Congress should repeal the 1995 Litigation Reform Act and let the chips fall where they may.

By the way, former Treasury Secretary John Snow is trying to raise money for a Chrysler leveraged buyout. It's nice to see our former "public servants" doing so well.

Wednesday, July 4, 2007


This is my first post. From time-to-time I will post comments about: the war on terrorism, as it is, money, investments, religion and other bloggers.