Tuesday, March 31, 2009

The DOJ Nails Another One

"A former BDO Seidman LLP manager pleaded guilty to criminal charges Tuesday in connection with an allegedly fraudulent tax-shelter scheme that allowed wealthy clients to avoid paying more than $200 million in taxes. At a hearing Tuesday, Adrian Dicker, a onetime BDO Seidman vice chairman and former manager of the firm's defunct Tax Solutions Group, pleaded guilty to conspiracy and tax evasion before US Magistrate Judge Theodore H. Katz. ... Prosecutors alleged Mr. Dicker, who retired from the company in 2000, and served on its board until 2003, worked with others in designing and marketing two fraudulent tax shelters--one known as the 'Short sale' transaction and another known as short options strategy, or SOS. The shelters were designed, marketed and implemented by BDO Seidman and the now-defunct law firm Jenkins & Gilchrist PC, with the assistance of an unnamed foreign bank, the government said. The tax-shelter transactions created more than $1 billion in fraudulent tax losses, prosecutors said", Chad Bray at the WSJ, 18 March 2009.

Why wasn't the bank named? Why is it being protected?

Public Sector Pensions

"Many state and city governments reeling from financial woes are about to get wacked again, this time by an unforseen increase in their pension bill thanks to market declines. In an effort to stave off tax increases, New Jersey lawmakers on Monday will consider a bill that would allow municipalities to defer payment of half of their annual pension bill, due April 1, for one year. Those towns, counties and schools, that opt to defer would face a higher pension bill in years to come. ... The Detroit police and fire pension plan might have to double employer contribution rates to 50% of payroll by 2011, according to the fund's outside actuary. ... 'It's going to be huge showdown' between taxpayers and public employees, said Susan Mangiero, president of Pension Governance Inc., a consulting firm in Trumbull, Conn. 'The anger is more acute today when people are feeling economic hardship.' ... "In most states, retirement benefits for public employees are guaranteed by law, so governments have little choice but to pay them in full. ... But soaring pension costs are emboldening critics of public plans. They said local governments cannot afford to pay what are often perceived as generous benefits to government employees when the 401(k) plans held by others have shrunk, and as taxpayers already are looking at higher taxes and fewer services", my emphasis, Craig Karmin at the WSJ, 16 March 2009.

Who cares about the law? If there is no more money, there is no more money. Consider the implications for muni bonds. Will muni bond interest be paid before public employee pensions? How many divisions have the muni bond holders?

Monday, March 30, 2009

Bond Bailout

"You're ticked off about the bank bailouts. You think somebody--other than you and your fellow taxpayers--needs to pay. Let's try to work out who that somebody ought to be. ... Which leaves ... the folks who loaned the banks money. The banks' creditors have been the clearest beneficiaries of the bailouts--leaving them with the wherewithal to contribute. ... But banks also borrow on wholesale markets, mainly by issuing bonds. About $2.6 trillion of bank funding in the US, 20% of the total, comes from such debt securities, according to the FDIC. ... It may be too much to ask small depositors to monitor the risks at the banks where they out their money and pay for getting it wrong. But these bond buyers are pros. ... If Citi's $486 billion in wholesale debt were converted into common shares--admittedly a pretty extreme situation--the company's balance-sheet woes would evaporate", my emphasis, Justin Fox at Time, 23 March 2009.

Until bondholders have the right to inspect banks' books, there is no meaningful way they can monitor the banks activities. However, I agree bondholders should have taken a haircut on their bonds as opposed to taxpayers bailing out the banks. Why would converting Citigroup's $486 billion in debt into common stock be "a pretty extreme situation"? That's what happens in bankruptcy courts every day.

Bank Looting

David Leonhardt (DL) has an article about bankers looting the public in the NYT, 11 March 2009. Here's a link: http://www.nytimes.com/2009/03/11/business/economy/11leonhardt.html. DL cites George Akerlof about this. I saw it firsthand in Texas in 1982-86. I agree with Akerlof. Yves Smith mentions Akerlof's paper on 6 March 2009, here: http://www.nakedcapitalism.com/2009/03/bank-rescue-programs-setting-stage-for.html.

She's Incredible

"A seasoned career regulator, the 53-year-old Schapiro was tapped by President Barack Obama to succed Christopher Cox as chairman of the SEC, and people are hoping she can restore investor confidence in the beleaguered agency. ... Some critics have reservations about her past performance, however. ... Still Schapiro has 'great credibility,' says Stephen Crimmins, a partner at Washington, DC, law firm, Mayer Brown and deputy chief litigation counsel of the SEC's enforcement division from 1993 to 2001, and 'she has the respect of the entire regulatory community'," my emphasis, Edward Teach at CFO, February, 2009.

The revolving door revolves once more. Has Schapiro a friend at Mayer Brown (MB)? We know them, see my 5 January 2009 post: http://skepticaltexascpa.blogspot.com/2009/01/feds-in-motion-2.html. Crimmins leaves the SEC for MB, Casey leaves the DOJ for MB. I guess MB "owes" the SEC or DOJ at least one senior attorney. Crimmins, are you going back? It's good to see Schapiro has credibility with someone. At least CFO didn't quote Mary Jo White, the "ping pong ball Fed".

Sunday, March 29, 2009

AIG, Again?-3

"Troubled insurer [AIG], now 80% owned by US taxpayers, spent the weekend deflecting mounting criticism of how government funds have been funneled to various banks and used to pay employee bonuses at the business unit that almost sank the company. After calls for more transparency, AIG disclosed Sunday that roughly two-thirds of the federal aid it received had been paid out to trading partners such as banks and municipalities in the US and abroad. ... The disclosures highlighted the increasingly close but uncomfortable relationship between AIG and the US government, which six months ago was a restless creditor and now has little choice but to be a patient ally. 'Something is terribly wrong with this picture, and the reckless behavior at AIG must stop immediately,' said Rep. Elijah Cummings (D., Md), in a statement Sunday. ... The list of AIG's trading partners reads like a who's who of global finance. It includes big US banks such as Goldman Sachs [GSG], which received nearly $13 billion. Large European firms such as Societe General and Deutsche Bank also appear, each having received nearly $12 billion. Much, but not all, of the money was linked to contracts AIG sold the firms to insure against losses on securities--notably those related to US mortgages. ... There are political risks to the disclosures, notably the fact that taxpayer dollars are essentially passing through AIG to make whole private businesses and foreign banks", my emphasis, Liam Pleven, Serena Ng and Sudeep Reddy at the WSJ, 16 March 2009.

Is anyone surprised? AIG just changed its name to "troubled insurer AIG". GSG, Goldman Sacks US taxpayers. Indict GSG. End the bloodless coup. All "former" GSGers out of the government. Wasn't GSG hedged against AIG exposure? Well PWC, what did you find in your GSG "audit"? Anything? What will the SEC do about this? Or Lev Dassin SDNY US attorney?

With a Little Help From My Friends-3

"An eternal Washington truth is that the more a federal agency gets beat up for regulatory failures, the more of the world it attempts to regulate. Witness the [SEC], which has responded to recent criticism with a dubious power grab over another industry. This particular overreach is aimed at fixed indexed annuities, a niche in the wider annuity market. ... Whatever their merits, these annuities have always been treated as insurance products, subject to myriad state rules that govern their marketing and sale, and the capital requirements of insurers. While the 1933 securities act gave the SEC the power to regulate securities, it exempted annuities. ... In the age of Bernie Madoff, the SEC is thus putting itself on high alert to protect people whose only risk is making more money than they expect. ... The suits note that a federal court has specifically ruled that these products are annuities, not securities. ... This kind of regulatory wanderlust is all too typical of the modern SEC, which was once known as a cautious regulator but now looks for ever more financial land to grab", Editorial at the WSJ, 7 March 2009.

"As Chairman of the National Association of Independent Life Insurance Agencies, I share the views expressed in 'The SEC's Annuity Grab' ... [7 March] on the SEC's misguided power grab into the fixed annuity market. By seeking jurisdiction over indexed annuities, the SEC argues that if an annuitant is more likely than not to receive payments in excess of that guaranteed in an FIA, then the majority of the investment risk is borne by the annuitant. ... The FIA is clearly not a security. The SEC's line of thinking flies in the face of judicial precedents on what constitutes an annuity exempt from the securities laws", Gary Dworkin letter to the WSJ, 12 March 2009.

I last commented on this on 2 January 2009: http://skepticaltexascpa.blogspot.com/2009/01/with-little-help-from-my-friends-2.html. The SEC should clean its own house and leave FIAs to the states.

I agree with Dworkin.

Saturday, March 28, 2009

Michael Obama Jordan

"President Obama joined yesterday in the clamor of outrage at AIG for paying some $165 million in contractually obligated employee bonuses. He and the rest of the political class thus neatly diverted attention from the larger outrage, which is the five-month Beltway cover-up over who benefitted most from the AIG bailout. ... This federal takeover, never approved by AIG shareholders, uses the firm as a conduit to bail out other institutions. After months of government stonewalling, on Sunday night AIG officially acknowledged where most of the taxpayer funds have been going. Since September 16, AIG has sent $120 billion in cash, collateral and other payouts to banks, municipal governments and other derivative counterparties around the world. ... This comes after months of claims by Goldman that all of its AIG bets were adequately hedged and that it needed no 'bailout.' Why take the $13 billion then? ... Given that the government has bever defined 'systemic risk,' we're also starting to wonder exactly which system American taxpayers are paying to protect. It's not capitalism, in which risk-takers suffer the consequences of bad decisions. And in some cases it's not even Americans. ... The politicians also prefer to talk about AIG's latest bonus payments because they deflect attention from Washington's failure to supervise AIG. ... AIG's Financial Products unit has been overseen for years by an SEC-approved monitor. ... The Washington crowd wants to focus on bonuses because it aims public anger on private actors, not the political class", my emphasis, Editorial at the WSJ, 17 March 2009.

I think the bonuses can be clawed back as payments in "bankruptcy", the $165 million in question is .001 of AIG's $173 billion bailout. Why look at it? Because the public has been on the wrong side of the best head fake I've seen since Air Jordan hung up his shoes! Who at Goldman Sachs (GSG) will be indicted over the deceptive publicity releases? Where's the SEC? Where's the DOJ? Does GSG own everyone?

Clawbacks for Joe Sixpack, Billions for Goldman

"Investors who lost money with financier Bernard Madoff are girding for potential 'clawback' suits that might be brought by the trustee in charge of liquidating Mr. Madoff's firm. ... The alleged Madoff fraud is now being viewed as a classic Ponzi scheme. ... Under the bankruptcy code those who will be most susceptible to a clawback are investors who withdrew any money in the 90 days before Mr. Madoff's arrest in Dec. 11, attorneys say. ... New York state law allows [Irving] Picard to seek funds transferred from Mr. Madoff's firn in the past six years. Investors may be asked to give back profits and some of their initial investments to help offset losses by other investors. ... Attorneys say it is likely that some Madoff investors are pursuing a variety of strategies to protect their assets from the trustee. Few are likely to trumpet them, since such moves could be viewed as a fraudulent conveyance, the illegal transfer of property with the intent to commit fraud", Jane Kim at the WSJ, 12 March 2009.

Compare the Madoff investors' fate to that of AIG's counterparties. What a country. See my 21 November 2008 post: http://skepticaltexascpa.blogspot.com/2008/11/bust-outs-and-paulson-mob.html. Uncle Sam robs peasants to feed Goldman Sachs and other Wall Street hogs. Innocent investors who took some of their funds back from Madoff may be subject to "clawback". This is why Zimbabwe Ben can't let AIG go bankrupt. Lots of things could become public the "usual suspects" want to conceal. Ready that CNC guillotine. It has a lot of work to do. See also my 18 December 2008 post: http://skepticaltexascpa.blogspot.com/2008/12/deprizio-doctrine-and-aig.html.

Friday, March 27, 2009

Jim Rogers' Interview

"In 1970 a young Wall Street named Jim Rogers hooked up with George Soros to start the legendary Quantum Fund. ... He has harsh words for former Fed chairman Alan Greenspan, suggests President Barack Obama and his economic team are not up to the task, and think tough love is the answer for America. ... It's pretty embarrassing for President Obama, who doesn't seem to have a clue what's going on--which would make sense for his background. And he has hired people who are part of the problem. ... These are the people who think the only solution is to save their friends on Wall Street rather than to save 300 million Americans. ... What would I like to see happen? I'd like to see them let these people go bankrupt, let the bankrupt go bankrupt, stop bailing them out. ... They all took huge, huge profits. Who was the head of Citigroup? Chuck Prince? I mean, how many hundreds of millions of dollars did other Citibank executives take out of the company? ... Look at the guy at Fannie Mae, Franklin Raines. He did worse accounting than Enron. Fannie Mae and Freddie Mac alone did nothing but pure fraudulent accounting year after year, and yet that guy's walking around with millions of dollars. What the hell kind of system is this? ... But I really think agriculture is going to be the best place to be. Agriculture's been a horrible business for 30 years. The people who produce real things [will now be on top]", Maria Baritromo interview of Jim Rogers at Businessweek, 9 March 2009.

I don't know if agriculture will the "best place to be", but it will be a lot better place than Wall Street.

Do Unto Others?

"The effete corps of impudent snobs that crafts US foreign policy is desperate, as always, to be loved by the wretched of the earth, especially those in Muslim countries. Because they hate us, we must soothe them. Because they think our president is a Muslim, now is the time for carpe diem. We can't afford to waste a moment! ... But what is these two goals are interdependent? What if it is impossible to end terrorism without dominating or diminshing Islam? ... The rule of law is an alien concept to them, and they do not easily accept civil society or a plurality of cultural insittutions. They are used to being ruled by emirs and sultans who administer massively corrupt and brutal governments. Liberty in the Western sense is all but incomprehensible to them. ... The notion that doing good deeds for Muslims will gain their gratitude and change their emnity towards us is venerable, irrational, and persists in the face of all the evidence to the contrary. In general, Muslims are not grateful when you treat them generously. They expect payments from non-Muslims as a matter of course; it's the jizyah tax, as mandated by the Koran. The fact that the West--without even being conquered--is offering such generous subsidies to the Islamic world is to them a sure sign that the final victory is at hand. ... America, on the other hand, has imported relatively few Muslims. But our government, our media, and our academic institutions have been bought and paid for by Saudi petrodollars. The elites in this country are now falling into line, and Islamization here is proceeding from the top down", my emphasis, Baron Bodissey, 8 March 2009 at http://gatesofvienna.blogspot.com/2009/03/stealing-john-kerrys-thunder.html.

Amen. I had a Moslem client from Egypt demand what amounted to jiyza from me who was shocked when I said, "We don't pay no jiyza here. We don't have no dhimmi here. If you don't like it go back to Egypt". I said that to a client who didn't want to pay my bill. This Egyptian was stunned with my response, immediately took out her checkbook, paid me in full and left. She must have assumed she was dealing with a Copt in Cairo.

Thursday, March 26, 2009

The Keating Five Return

"If mark-to-market [MTM] is to blame for the current financial crisis, then the National Weather Service is to blame for Hurricane Katrina; if it hadn't told us the hurricane hit New Orleans, the city would never have been flooded. ... Edward L. Yingling, the president of the American Bankers Association, says the proposal addresses 'systemic risks that accounting standards can have on the economy'. ... '[MTM] accounting is the principal reason why our financial system is in a meltdown,' [Steve Forbes] wrote in a Wall Street Journal op-ed piece. They say the problem, in short, is not that the banks acted irresponsibly in creating financial instruments that blew up, or in making loans that could never be repaid. It is that someone is forcing them to fess up. ... The panel's chairman, Representative Paul E. Kanjorski of Pennsylvania, said the accounting rule 'does provide transparency for investors,' but that 'strict application' of the rule had 'exacerbated the ongoing economic crisis.' ... I call it 'Alice in Wonderland' accounting, after Humpty Dumpty's claim in that book that 'When I use a word, it means just what I choose it to mean, neither more nor less.' After Alice protests, he replies, 'The question is, which is to be master--that's all.' ... Conrad Hewittt, who was chief accountant at the [SEC] when it conducted a Congressionally mandated review of the issue late last year, said at a recent Pace University accounting forum that he asked all the complainers if they had a better way to determine market value than the one prescribed by Statement 157. None did. ... In other words, accept that market values are low and report the facts to investors. But give the banks a break by not acting as if that will last forever. Of course, many doubt that the regulators will really get tough when things improve. ... The bankers assert that those assets are now trading for less than they will be worth at maturity. In fact that is unknowable, which is one reason we have markets. ... 'Cheap volatile assets with a huge upside are precisely the kinds of optionlike investments that clever zombie managers are energetically looking for,' [Edward Kane, Boston College Finance Professor] said. If they soar, the banks' stock may be worth something. If not, the taxpayers will take the loss. ... Will [a banker] offer you a mortgage loan based on what you think your home should be worth, which you can repay only if you make a lot more money than anyone will pay you? If so, then perhaps the bank should be able to use 'Alice in Wonderland' accounting on its own books", Floyd Norris (FN) at the NYT, 13 March 2009, link: http://www.nytimes.com/2009/03/13/business/economy/13norris.html.

Accounting standards endanger the economy? Is Yingling nuts? I read Forbes' piece. He's written similar stuff before. I conclude Forbes is an intellectually challenged Princeton legacy. If the Big 87654 did their jobs properly, financial industry conditions would never have reached the point they have. The Big 87654 would have told institutions like Citigroup, "You ain't got a clue what any of that stuff is worth no matter how much 'file stuffer' you have. We're disclaiming an opinion". I doubt KPMG has done a decent Citigroup audit in three decades! I have an idea for Kanjorski, an intellectual descendent of the "Keating Five", repeal the laws against wire, mail and securities fraud. I remember the "zombie thrifts" of the 1979-86 S&L crisis. We're seeing the same behavior today from zombie banks. I made FN's argument about bank accounting. Congressmen running interference for "their" banks is one reason I have little faith in bank regulation. Repeal the Federal Reserve Act. Make banks which hold federally insured deposits general partnerships only!

Higgs on Vulgar Keynesianism

Robert Higgs (RH) dynamites what little remains of Keynesianism at Intellectual Conservative, 15 March 2009. In my first undergraduate class in economics, I concluded there was something wrong with "multipliers". RH rocks, link: http://www.intellectualconservative.com/2009/03/15/recession-and-recovery-six-fundamental-errors-of-the-current-orthodoxy/

Barron's Mistake

"Adding a does of humility to his assessment, Mr. Bernanke conceded, 'My forcasting record on this recession is about the same as the win-loss record of the Washington Nationals.' The Major League Baseball team had 59 wins and 102 losses last year, the worst in baseball", Jon Hilsenrath at the WSJ, 11 March 2009.

Barron's was wrong, see my 25 January 2008 post: http://skepticaltexascpa.blogspot.com/2008/01/forward-guidance.html. . Zimbabwe Ben (ZB) tell us he's correct 36.6% of the time. Let's assume he's correct. Who needs him to do anything? ZB, go the showers!

Wednesday, March 25, 2009

Afghani Justice

"This is what our soldiers fought and died for in Afghanistan. ... 'Afghanistan's Supreme Court has upheld a 20-year jail term for blasphemy handed to Afghan journalist Sayed Parwez Kambakhsh, who claimed that men and women are equal. ... "If a Muslim man may have four wives, why shouldn't a wife have four husbands," he wrote. ... He was arrested on blasphemy charges in the northern town of Mazar-i-Sharif in 2007 and in October that year a local court condemned him to death. The death sentence was commuted to life imprisonment following pressure from institutional human rights organizations.'," Baron Bodissey (BB) at Gates of Vienna, 10 March 2009, link: http://gatesofvienna.blogspot.com/2009/03/20-years-in-jail-for-asserting-equality.html.

Why did Kambakhsh appeal? The trial court, using Shariah, correctly sentenced him to death. Under American jurisprudence a sentence is usually reviewed on appeal under the "clearly erroneous" standard. The trial court's ruling looks good to me. BB does not state if the trial judge specified the method of execution, but stoning is common in Afghanistan. If I was an Afghani "Supreme", at most I might have modified Kambakhsh's method of execution to stoning. What is Afghanistan coming to? To overturn 1,400 years of precedent to grant Kambakhsh a 20-year sentence. Shameful. See my 6 March 2009 post: http://skepticaltexascpa.blogspot.com/2009/03/wwmd-2.html

Yves Smith on Wen

Yves Smith has a 13 March 2009 post at her Naked Capitalism about China's concern over the safety of its US Treasury holdings, link: http://www.nakedcapitalism.com/2009/03/chinas-wen-worries-about-safety-of.html.

Wen is naive. He has no reason to believe anything any "round eye" says about money. I refer to my 13 February 2009 post which has a link to my 27 September 2007 post the UK's 1967 pound devaluation, link: http://skepticaltexascpa.blogspot.com/2009/02/putin-and-wen-on-finance.html. What Wen should do is keep his mouth shut and buy gold surreptitiously.

WC Varones for Economics Nobel

Robert Mundell (RM), an Economics Nobel Laureate backs one world currency. WC Varones on 13 March 2009 introduces RM to it, link: http://wcvarones.blogspot.com/2009/03/we-have-one-its-called-gold.html. I couldn't have said it better than WCV did.

Tuesday, March 24, 2009

31 More Years-5?

"Auditors will lobby the UK government for a statutory requirement that limits their liability after the current operational system has been effectively blocked by US regulators. ... But the US [SEC] has now indicated to the UK government that it will not accept any limited liability agreements by British companies who are also registered with it, a list which includes many of the biggest UK companies. ... 'This is the door being slammed shut in reality,' said Peter Wyman, global director for public policy at PWC, who added that he did not consider it would be a 'huge shift' to make UK policy statutory. ... SEC opposition has focused on the negotiation required between auditors and company directors to agree to limits. Officials fear this compromises independence, which would not be the case if the agreements were mandatory. ... Officials fear market chaos should one of the Big Four collapse as suddenly as Arthur Andersen did, leaving companies scrambling to find a new auditor", Jennifer Hughes at the FT, 11 March 2009.

More Big 87654 snake oil. CPA liability limits are what the capital markets don't need. If Big 87654 work is bad now, consider how much worse it will get with liability limits. I have long advocated repealing 1995's Litigation Reform Act to increase CPA liability for bad audits. If the officials are concerned about a Big 87654 firm collapsing, I say bust 'em up into the not so big 40. We now have CPA firms which are TBTF just like banks! Wonderful. We see how vigorously the TBTF banks are regulated.

Is This the (New) Age of Jackson?

"'Three supermarkets were destroyed and a fourth damaged as a wave of arson attacks hit Sodertalje in central Sweeden in the early hours of Thursday morning. ... Global Intifada, according to a Sveriges Radio report, has been responsible for dealing out leaflets in Sodertalje encouraging the public to make Molotov Cocktails and use them on shops selling American products. ... Three supermarkets set on fire by the "Golbal Intifada" in Sodertalje. The motivation for this is that they are selling American products. We have seen a lot in Sweeden, but this is a huge increase of the stakes of anti-Americanism. ... At some point the American left and center will realize that, Obama or not, they are still equally hated and despised by the European Left. How will they react when they realize this? Will they grovel even more at the altar of Cultural Marxism in hope of receiving love?' [Conservative Sweede] is right, but I must point out that the Americans he refers to form only one facet of the American character. Our Europhiles are the runny-brie-and-dry-chablis crowd, the metrosexuals, the sandal-wearing lentil-gobblers, the tree-hugging Volvo-driving denim-and-granola one-worders. ... However, there's another type of American who holds Europe in lower esteem--assuming that he pays attention to it all: the Jacksonian. He views the Europeans as limp-wristed pansies--much the same way he views the elites of the East Coast liberal establishment--and takes no interest in Europe's opinion of America. ... But when trouble comes to America the Jacksonians emerge--well-armed--and start asserting themselves in public affairs. The elite Euro-lovers who run the federal government would do well to remember that the Jacksonians considerably outnumber them", Baron Bodissey at Gates of Vienna, 28 February 2009, link: http://gatesofvienna.blogspot.com/2009/02/groveling-at-altar-of-cultural-marxism.html.

See my 11 September 2008 post: http://skepticaltexascpa.blogspot.com/2008/09/foreign-policy-and-other-realists.html. . I have been a Jacksonian for 50 years.

Monday, March 23, 2009

Bank Regulation?

"Ground zero of the economic depression is the banking system--worldwide. The system is collapsed, exploded, demolished, gone ruined, kaput. The global banking system was a house of cards, and it has fallen. Governments and central banks everywhere do not yet realize this. They are attempting to rebuild the house from the pieces and scraps scattered far and wide. ... Government after government, and this includes the federal government of the US, has shown itself incapable of controlling bank lending, while simultaneously mandating a single national currency and insuring bank deposits. Banks are always one or more steps ahead of regulators, or else obtain concessions that allow them to take on inordinate risks. Central banks and governments are always all too ready to count on central banks to encourage banks to make marginal and risk loans. ... Banks are all too ready to take inordinate risks using insured bank deposits. ... Regulators are all too slow to identify and control banking behavior. ... The failed government banking system rests on a basic false assumption. The idea that government regulators should control money and banking because the market cannot. That idea is entirely false. ... In a market system, individual banks that provide loans and create deposits and that issue their own bank notes, cannot long survive without prudent policies. ... In the existing government and central banking system, this discipline is absent. Banks that are in a central bank system do not issue their own notes, so there is no pricing of their currencies. ... In a market system, if a bank over-issues, or makes bad loans, or makes loans that endanger its ability to meet deposit withdrawals, its notes depreciate in the market place. This induces people to present the notes for redemption. If the bank is not to experience a bank run, it must heed the market price of its notes", Mike Rozeff, 5 March 2009 at http://www.lewrockwell.com/rozeff/rozeff278.html.

Bank runs are good! They discipline banks! The regulators can't or won't.

Drug Liability

"The Supreme Court said drug makers can be sued in state court over alleged defects, even if the Food and Drug Administration has approved a medication's use. The 6-3 ruling undercuts years of business efforts to block state suits over the safety of products from motorcylce brakes to railway cars. ... Companies have long sought to establish federal rules as a single standard trumping state law, and enjoyed a push under the Bush administration to shield industries from negligence suits. ... Writing for the court, Justice John Paul Stevens concluded that Congress saw state liability laws as bolstering, not undercutting the FDA's mission of ensuring drug safety", Jess Bravin at the WSJ, 5 March 2009.

I agree with this ruling, but believe it should have been a 9-0 shutout. As expected, Roberts and Alito paid off for their big business buddies like broken slot machines.

Bye (Muni) Bonds!

"'No one knew'--that happens to be a lot of b.s.. Lots of people knew. It was obvious,' [Bill] Fleckenstein said. "If someone had no understanding of the financial crisis and they completely missed it, then why should you listen to what they say now?' ... As for her own money [Suzy Orman] said she has about $25 million, almost all of which is invested in municipal bonds; she has $885,000 in the stock market (it was closer to $1.3 million before the recent plunge)", Sheelah Kolhatkar at Time, 16 March 2009.

Muni bonds? Hahahahaha. Imagine, Suzy Orman (SO) dispenses financial advice. One person pleased by SO's holding muni bonds is the Mikado's Lord High Executioner! Yes, here the "punishment [will] fit the crime".

Sunday, March 22, 2009

American Intelligence

"The irony of course, is that, if anything, President Bush badly failed at depoliticizing a CIA that was often hostile to his agenda. Witness the repeated leaks of classified information that undercut his policies. ... The news Web site Politico.com yesterday reported that it could confirm rumors that a former Ambassador to Saudi Arabia, Charles 'Chas' Freeman Jr., has been appointed chairman. ... The MEPC purports to be a nonpartisan, public-affairs group that 'strives to ensure that a full range of US interests and views are considered by policy makers' dealing with the Middle East. In fact, its original name until 1991 was the American-Arab Affairs Council, and it is an influential Washington mouthpiece for Saudi Arabia. ... Asked in the same interview about his organization's current mission, Mr. Freeman responded, in a revealing non sequitur, that he was 'delighted that the Kingdom of Saudi Arabia has, after a long delay begun to make serious public relations efforts.' Among MEPC's recent activities in the public relations realm, it has published an 'unabridged' version of 'The Israel Lobby and US Foreign Policy' by professors John J. Mearsheimer and Stephen M. Walt. ... Unsurprisingly, Mr. Freeman has views about Middle East policy that differ sharply from those held by supporters of the state of Israel. More surprisingly, they also differ rather sharply from the views--or at least the views stated during the campaign--of the president who has invited him to serve. ... The primary reason America confronts a terrorism problem today, he continued, is 'the brutal opperssion of the Palestinians by an Israeli occupation that is about to mark its fortieth anniversary and shows no sign of ending.' ... He has pronounced on a wide variety of other subjects, including China, where he has attempted to explain away the scale and scope of the starkly intensive buildup of the People's Liberation Army. ... Freeman has been a participant in ChinaSec, a confidential Internet discussion group of China specialists", Gabriel Schoenfeld at the WSJ, 25 February 2009.

"So, if you have a spymaster who unwittingly relies on double agents feeding the CIA enemy disinformation rather that accurate intelligence, conclusions drawn from such data will be erroneous, possibly dangerously so. Similarly, if the chairman of the National Intelligence Council (NIC)--the organization responsible for producing the National Intelligence Estimates (NIEs) that are supposed to reflect the best insights of the intelligence community as a whole and that usually guide US government security decision-making--has a well-estiblished and anti-American policy agenda, he will likely try to discount or exclude insights from NIEs that conflict with his biases. Such a politicization of intelligence would have far-reaching implications for American interests and security. ... In December [2007], the [NIC]--then under the leadership of another product of the State Department, Thomas Fingar--produced an NIE that declared 'with high confidence' that the Iranian mullahs had halted their nuclear weapons program in 2003. An unclassified summary of that estimate was made public with much fanfare, and with a transparent political purpose: To deny President Bush grounds for attacking Iran so as to prevent the regime there from getting the bomb. ... Worse, yet, through his organization, the [MEPC], [Freeman] has been a paid shill for Saudi Arabia]. ... The evidence suggests that he is what he appears to be: an aggressive partisan in the service of many of America's most dangerous actual or potential enemies", Frank Gaffney (FG), 3 March 2009 at: http://www.washingtontimes.com/news/2009/mar/03/garbage-in-garbage-out/.

"I was just leafing through my new hijab catalogue, trying to decide which color to order for wearing under The New Order when the good news arrived: Charles Freeman is not going to be the head of O'Bama's [NIC]", Dymphna at Gates of Vienna, 10 March 2009, link: http://gatesofvienna.blogspot.com/2009/03/charles-freeman-fails-to-show-up-at.html.

There are no "former" ambassadors to Saudi Arabia (SA) or "former" Goldman Sachs partners. To become an ambassador to SA, the Saudis vet you to be SA's ambassador to the US. The SA slot is another revolving door to big consulting fees. As for Islamic terrorism, its been part of Islam since 622 AD. Ask about the 70-80 million Hindus killed since 712 AD. Freeman's appointment is a disgrace. He's a Saudi stooge. Kill the Jews and solve all the world's problems. That's the ticket.

Indeed, FG's got it.

Great news, we win one. I presume Freeman's Saudi handlers told him not to attend the Senate Committee hearing for fear his "connections" might be exposed. Dymphna's post cites the WSJ and Washington Times articles I cited above.

Solving the CPA Crisis

"There has been a great deal of justified criticism of the credit-rating agencies that gave triple-A and double-A ratings to billions of dollars of debt securities that did not deserve these high ratings. Everyone agrees that something needs to be done to prevent inflated ratings. But what? ... Similarly, [SEC] head Mary Schapiro recently called for an examination of 'how the rating agencies are compensated, how they manage conflicts of interest, and what role they should play in our markets.' The insurance industry and its regulators can lead the way by implementing the only effective proposal: self-funded, independent buy-side ratings. Ratings, that is, that are paid for by the investors who use them. ... Those who issue securities also pay for their ratings. This structure has created powerful incentives to keep debt securities' sellers satisfied and the ratings fees flowing", Eric Dinallo at the WSJ, 3 March 2009.

ED is NY State's insurance commissioner. In September he let AIG's insurance subsidiaries upstream $20 billion to the parent, my 5 October 2008 post: http://skepticaltexascpa.blogspot.com/2008/10/aig-and-first-amendment.html. ED should apply his proposal to the CPA profession. For 33 years now the way to fix the CPA profession has been obvious. Why wasn't it implemented? I have no more faith in Mary Schapiro's fixing the rating agencies than the CPA business, see for example my 19 December 2008 post: http://skepticaltexascpa.blogspot.com/2008/12/31-more-years-4.html.

Saturday, March 21, 2009

McKinsey Strikes Again

"As I was reporting my brother's story, I discovered something about Pat's former insurance company: last May, insurance regulators in Connecticut imposed a record $2.1 million in penalties on two Assurant subsidiaries for allegedly engaging in a practice called post-claims underwriting--combing through short-term policyholders' medical records to find pretexts to deny their claims or rescind their polcies. ... Assurant agreed to pay the fine but admitted no wrongdoing. ... It took Pat and me less than 10 minutes to fill out the complaint form over the internet. ... On Feb. 9, we had an answer: Assurant maintained that it had done nothing wrong and that Pat should never have relied on short-term coverage over a long period. ... Those extraordinary circumstances included the fact that the state insurance department was sniffing around", Karen Tumulty/San Antonio at Time, 16 March 2009.

Why do I put McKinsey, the "very prestigious" consulting firm, in this post's title? Because in about 1995 McKinsey did a study for Allstate, the "good hands" people, telling it how to avoid paying insurance claims. Supposedly, Allstate saved $700 million over a few years by following McKinsey's suggestions. What's the problem? An insurance company has a fiduciary duty to its' insureds! No one got indicted for this. Look at the possibilities: insurance fraud, a state crime, or wire and mail fraud, federal crimes. These studies will end when it does not pay to do them. Which will be? When an insurance claimant with cancer and six months to live goes to Allstate's president's office 357 magnum in hand and empties all six chambers into the guy. Or the McKinsey partner. Will McKinsey take another "Allstate" study then? Who would staff it thinking claimants with nothing to lose will come gunning for them? Literally! The Chairman, Mao Zedong, said, "Political power grows out of the barrel of a gun". Never forget it. Like Big 87654 firms, there is little if anything a large law, CPA or consulting firm won't say for a fee. Sad, but true.

Obama and Iran

"When Iran successfully orbited its Omid satellite earlier this month, many in the US responded with indifference. David Albright, a noted analyst of nuclear proliferation, downplayed the Iranian space launch as 'not that sophisticated' and the satellite as 'Sputnik technology, a little metal ball that goes "beep, beep, beep"'. Unnamed US officials concurred, stating that 'There are no alarm bells ringing because of this launch,' calling the event 'largely symbolic.' But such equanimity is entirely unwarranted. ... At 60 pounds it is minute compared to modern military and civilian satellites. Yet as a first satellite for a novice space-faring nation, it compares well with the rudimentary Sputnik and even more so with the tiny Explorer 1, America's first venture into space. Those modest machines ushered in today's giant military and commerical satellites girdling the earth. ... But it is the Safir lauch vehicle that calls for even closer scrutiny. The strong synergy between ballistic missilies and space launchers has existed since the early days of the space age when the Soviet Union's first intercontinental ballistic missile (ICBM), the R7, was used to orbit Sputnik 1. The US's first intermediate-range ballistic missile, the Redstone, was used to orbit the Explorer 1. Iran has followed the same route, as is evident from the Safir first stage, which is almost indistinguishable for the Shahab 3 ballistic missiles. True, its propulsion system hails back the the Scud missiles of the 1950s. But in the missile business old is not necessarily obsolete. ... The real sophistication of the Safir lies in its second stage, with its elegant configuration and design. ... The US used this technology in the past and so do some of Russia's contemporary ICBMs and submarine-launched missiles. A cleverly designed clamshell nose fairing (a protective cover), evidently made of composite materials, shields the Omid satellite duyring the Safir's liftoff. Such fairings are key elements not only in space launchers but also in multiple-warhead missiles. ... To argue that the Safir is too puny to be used as an ICBM is to miss the big picture. It is the technology and talent behind the Safir that is the cause for trepidation", my emphasis, Uzi Rubin (UR) at the WSJ, 21 February 2009.

"Tehran welcomes direct negotiations with Washington. Why not, given the enormous benefits its nuclear programs have accrued during five and a half years of negotiation with Europe? Why, not with America at the table. buy even more time to marry its impending nuclear weapons with its satellite-launching ballistic missile capability? ... First, diplomacy has not an will not reduce Iran's nuclear program. ... Imagine their dismay that President Obama is now 'opening' to Iran, thus eviscerating their tentative efforts to 'close' the diplomatic cover under which Iran has almost achieved the worst-case outcome, deliverable nuclear weapons. The West's collective failure to stop Iran's nuclear ambitions has pursuaded Iran that it faces minimal risks in greater adventurism on other fronts as well. ... Second' dealing with Hamas, Hebbollah and Syria as though they are unrelated to Iran's broader threat is exactly backwards. Mr Obama is again following Europe's mistaken view that ending the Arab-Israeli conflict will help to resolve other regional problems. ... We should deal instead with disease, not symptoms. ... Hordes of US officials with vague and overlapping mandates--special envoys, ambassadors, cabinet officials, and, of course, the vice president--are racing to be in the first photo-op with Iran. But what shoud focus our attention is the substantive risk tghat Tehran will use its opportunity to employ diplomacy to undermine US interests", my emphasis, John Bolton at the WSJ, 2 March 2009.

"Among other disclosures, the IAEA found that Iran has produced more than 1,000 kilograms of low enriched uranium (LEU), enough for a single bomb's worht of uranium after further enrichment. ... Iran now possess 5,600 centrifuges in which it can enrich uranium--a 34-fold increase from 2006--and plans to add 45,000 more over five years. ... That's not all. The IAWA says its inspectors have been denied access to a heavy water reactor in Arak, and that Iran has put a roof over the site 'rendering impossible the continued use of satellite imagery to monitor further construction inside the reactor building.' Nobody--Mr. Obama least of all-can doubt what Mr. Barak means by 'options.' Nor should the Administration doubt that an Israeli strike, however necessary and justified, could put the US in the middle of a broader Middle East war", Editorial at the WSJ, 4 March 2009.

UR, an Israeli, headed Israel's Missile Defense Organization from 1991 to 1999. The time is long past that anyone should listen to supposed US "experts" with respect to ICBMs. Full disclosure: I started first grade on 9 September 1957. The first major news story I followed was Russia's 4 October 1957 184-pound Sputnik launch. As a kid I read Aviation Week and Space Technology at the library and tried my best to understand it. See my 4 October 2008 post: http://skepticaltexascpa.blogspot.com/2008/10/happy-sputnik-day.html. Albright is feeding us nonsense. That a missile is technologically obsolete is irrelevant. The laws of physics haven't changed since 1957, such missiles are not functionally obsolete. I understood this in 1963, see my 6 September 2008 post: http://skepticaltexascpa.blogspot.com/2008/09/coming-civil-war.html. Albright, you should be ashamed of yourself. What do you think orbits satellites if not usually the same missiles used for ICBMs? "Noted analyst" indeed. There is no such thing as a "noted analyst of nuclear nonproliferation" just ahistorical fools whose lack of thinking borders on treason. I remember the Explorer 1 launch, 31 January 1958. I'm that old. I also remember the Navy's failed 6 December 1957 Vanguard launch.

I agree with JB. Our Iran "diplomacy" is backwards. If Hamas, Hezbollah and the like saw we unilaterally, or better with Russia's aid, destroyed Iran's nuclear facilites, Hamas, et. al., would collapse in a heap seeing the sherriffs came to town with sixguns blazing! Feeding Israel to the Arabs will whet their appetite for fresh meat. Get over it, supposed MidEast "experts". There is no reason for us to ask Europe anything. What can it do? How many divisions has it? Since we have no way to influence Iran, to seem to do "something", we squeeze Israel. Crazy! Photo-op diplomacy? Didn't we see this in September 1938, when Neville Chamberlain returned from Munich?

We should have destroyed Iran's nuclear facilities years ago. This would give us a wonderful opportunity to "settle" the Arab-Isareli dispute. In return for protecting the Sunni Arab staes from Iran, they pull the rug out from under the Palestinians and resettle them.

Friday, March 20, 2009

Price Watergate-4

"The auditor PricewaterhouseCoopers [PWC] is overhauling its operations in India two months after starting an investigation into fraud at one of its Indian clients. The auditor, which has nine offices in India, said Thursday that it would make sweeping changes to 're-emphasize quality.' They include addind a five-member advisory board in India, appointing a new head of risk managment from outside India to oversee work done in the country and a new auditing team in India, and changing the managment in its office in Hyderabad. ... [PWC] has said that there was no evidence that the two auditors were complicit in the suspected fraud. Still the changes announced Thursday may raise questions about whether quality problems are more widespread in India. ... [PWC's] new advisory board will comprise four executives from outside the company and one [PWC] executive from outside India. A new head of quality assurance and risk management, who will review the company's work in India, will also come from [PWC] operations outside India. The global firm fully supports the new steps taken in India, Samuel A. DiPiazza Jr., chief executive of [PWC] International, said in a statement. 'It is essential that the quality, expertise and behavior and partners in PWC firms all over the world are, and are clearly seen to be,of the highest standards,' he said", Heather Timmons at the NYT, 6 March 2009, link: http://www.nytimes.com/2009/03/06/business/worldbusiness/06audit.html.

More PWC smoke and mirrors. Will PWC agree to be sued for its Indian "affiliate's" actions? If not, PWC doesn't exist. PWC can apparently force changes on its Indian affiliate, yet claims to be a legal separate entity. Well PCAOB, where are you? End this nonsense. Now. Did PWC fail to emphasize "quality" before? What does audit "quality" mean anyway? A new advisory board, bah humbug. More corporate governance nonsense. See also my 12 February 2009 post: http://skepticaltexascpa.blogspot.com/2009/02/price-watergate-3.html.

Yves Smith Dissects Alan Blinder

Yves Smith's (YS) 8 March 2009 post at her Naked Capitalism decimates a piece by Alan Blinder (AB), Princeton economics professor and Fed bigwig in a prior life. I have nothing to add to YS's comments. You go girl! AB should be ashamed of himself for putting out this junk, link: http://www.nakedcapitalism.com/2009/03/amazingly-disingenuous-piece-by-alan.html.

Let Them Eat Cake

Michael Panzner has a 6 March 2009 post at his Financial Armageddon everyone should read. Here's a link: http://www.financialarmageddon.com/2009/03/unfiltered-and-unspun.html. This is what America is coming to: 1780s France. Hundreds of billions for the bankers and nothing for the peasants. Ready that CNC guillotine and set it to work in Manhattan and Washington, DC. In 1790 France seized church lands. Instead of divesting Wall Street of its ill-gotten gains, we despoil savers to Wall Street's benefit. Paraphrasing SDS chants of the late 1960s, "All power to the formerly working class, up the ass of the banker class". Today's world is so topsy-turvy, that Obama, nominally a liberal is protecting the banker, rentier class. Czar Putin redbaited Obama, see my 13 February 2009 post: http://skepticaltexascpa.blogspot.com/2009/02/putin-and-wen-on-finance.html. We are living on the other side of the looking glass!

Thursday, March 19, 2009

The DOJ Got One!

"A former senior tax partner at the accounting firm BDO Seidman pleaded guilty on Friday to criminal charges stemming from a bogus tax shelter plan that allowed wealthy investors to evade more than $200 million in taxes. The plea by the former partner, Michael Kerkes, who worked at BDO's office in Los Angeles and was employed by the firm until last year, is a victory for federal prosecutors in their broad investigation into the banks, accounting firms and law firms suspected of making and selling illegal tax shelters. ... Prosecutors said Friday in court papers that Mr. Kerkes worked with others in BDO Seidman's Tax Solutions Group, which later had different names, from 1998 to 2003, to design, market and carry out two types of fraudulent tax shelters. One shelter was known as the 'short sale' transaction, and the other as the short options strategy, or SOS. The latter was at the center of a related inquiry into a former KPMG partner, David Greenberg, who was acquitted in December of charges related to his work with SOS shelters", Lynnley Browning at the NYT, 14 February 2009, link: http://www.nytimes.com/2009/02/14/business/14tax.html.

I am familiar with the SOS strategy having seen in Los Angeles in 1999. I was amazed any CPA could peddle it since I saw it as lacking economic susbstance.

AIG, Again?-2

"Americans awoke to the news on Monday that federal officials had spent yet another feverish weekend concocting yet another bailout. This time, the Obama Treasury Department--sounding a lot like the Bush Treasury Department--promised another $30 billion to the American International Group, the giant insurer. ... In a joint statement with the [Fed] on Monday, the Treasury justified the move, saying that 'the potential cost to the economy and the taxpayer of government inaction would be extremely high.' That's a textbook rationale for any bailout. What no one is saying--the Bush folks wouldn't, and the Obama team seems to have taken the same vow of Wall Street omerta--is which firms would be most threatened by an AIG collapse. ... That means that by enabling AIG to avert bankruptcy proceedings, the taxpayer is also bailout out--whom exactly? ... At this stage of a deepening crisis, no one is arguing that the government should let AIG collapse into a disorderly bankruptcy. It is too interconnected. ... The AIG bailouts fail the basic test of trasnparency: Who ends up with the money? Major financial institutions are not innocent victims of AIG's demise. They are sophisticated investors, and they should have known the risks being taken--and who profited mightity from the relationship before it all came crashing down. Whomever the recipients are, they should be investigated for their roles in the crash and, to the extent possible, be made to pay for the bailouts. The serial bailouts are especially problematic for their connection to the Wall Street bank Goldman Sachs [GSG]", my emphasis, Editorial at the NYT, 3 March 2009, link: http://www.nytimes.com/2009/03/03/opinion/03tue1.html?_r=1&ref=opinion.

"A top [Fed] official, under fire for the government's rescue of [AIG], acknowledged Thursday that the aid contributed to 'moral hazard' risks by allowing some of the big insurer's trading partners to fully recoup billions of dollars tied to the firm. ... The government's help for AIG's trading partners illustrated the policially volatile decisions officials have made in the name of financial stability, pouring tens of billions of dollars into troubled firms to prevent a borader financial meltdown. ... Facing lawmaker objections, Mr. [Donald] Kohn defended the Fed's move as necessary to avoid broader threats to confidence. 'We're not so much worried about those particular counterparties,' he said. 'I'm worried about the knock-on effects in the financial markets. Would other people be willing to do business with other US financial insitutitons ... if they thought, in a crisis like this, they might have to take some losses?' ... 'It's not clear who we're rescuing--whether it is whatever remains of AIG or its trading partners,' said Senate Banking Chairman Christopher Dodd, a Connecticut Democrat. 'It's reasonable to ask why holders who would have received only pennies on the dolar for their credit-default swaps absent any government intervention would expect or deserve payments for what is essentially a bankrupt company'," Sudeep Reddy and Michael Crittenden at the WSJ, 6 March 2009.

"Lawmakers blasted state and federal regulators for dodging blame and keeping secrets after the failure of giant [AIG], which now has access to more than $170 billion in taxpayer money. ... In turns apolofetic and defensive, the regulators explained why their agencies weren't set up to oversee a company like AIG, or why the company's problems were outside of their jurisdictions. ... 'I share your concern. I share your anger,' Bernanke told the Senate Budget Committee Tuesday. ... Banking Committee Chairman Sen. Chris. Dodd, D-Conn., demanded to know Thursday which other banks had benefitted from the billions of dollars AIG has spent winding down its credit-default swap business and other relationships. ... [David] Kohn refused to say who had been made whole after deals with AIG went bad, arguing that the information would undermine what little confidence remains in the financial markets", my emphasis Daniel Wagner at the Houston Chronicle, 6 March 2009, link: http://www.chron.com/disp/story.mpl/headline/biz/6296671.html.

"The beneficiaries of the government's bailout of [AIG] include at least two dozen US and foreign financial institutions that have been paid at least $50 billion since the [Fed] first extended aid to the insurance giant. Among those institutions are Goldman Sachs Group Inc. and Germany's Deutsche Bank Ag, each of which received roughly $6 billion in payments since September and December 2008, according to a confidential document and people familiar with the matter", Serena Ng and Carrick Mollenkamp at the WSJ, 7 March 2009.

I say bring the system down. People laughed at Ben Stein's comments about GSG, my 4 December 2007 post: http://skepticaltexascpa.blogspot.com/2007/12/bloodless-coup-continues-4.html. I didn't. All the more reason to indict GSG and its employees. If they now claim they did not understand AIG's business and make a public profession of incompetence consider the implication: GSG doesn't understand finance! Incomptence is GSG's defense to fraud charges. Indict 'em all, let a petit jury sort it out! Who? Balogna. As I read about 19 years ago in a law review article on White Collar Crime, fraud is not a "who dunnit", but a "what was done". We know who. Now it's what. Well DOJ. What are you doing about this? Chasing down nickel and dime (ugh) crack dealers?

AIG, bankrupt indeed. Let's reclaim every dime AIG's counterparties got since September 2009 for AIG's bankruptcy estate. Where are the Big 87654? Shouldn't each counterparty have disclosed what it got from AIG since September? These look like material transactions to me. GSG particularly should disclose this. Aren't the Fed and Treasury GSG "related parties", see SFAS 57, paragraph 24a and b, "Afiliate. A party that, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with an enterprise. Control. The possession, direct or indirect, of the power to direct or cause the direction of the management and policies of an enterprise through ownership, by contract, or otherwise". Well PWC, "auditor" of AIG and GSG, how about it? You're on both sides of these transactions! Well SEC and PCAOB, what will you do about this? Are the Fed, Treasury and GSG related parties? Read SFAS 57 and you decide.

Kohn admits the financial markets are a confidence game. The SEC generally seeks more disclosure. It seems to me that the receipt of these funds from AIG while insolvent is a fraudulent conveyance. Why isn't the receipt of these funds reportable on Form 8-K? Well Mary Schapiro? What are you going to do about this?

If GSG only got $6 billion from AIG, why did it bother? I can't believe GSG got only $6 billion. Apparently it got $13 billion.

Wednesday, March 18, 2009

Real Estate Bottoming?

"Falling home prices are spurring an increase in all-cash home sales in markets that have been hardest hit by the foreclosure crisis, an indication that bargain hunters have descended on the markets looking for deals. ... Cash sales are up even more in many Florida markets. In Miami, cash offers accounted for 30% of sales last month, according to a report by Thomas Lawler, a housing economist based in Leesburg, Va.", Nick Timiraos at the WSJ, 25 February 2009.

When cash buyers come out, it's a good sign there is value present.

China and Gold

Jesse at Jesse's Cafe Americain has a 5 March 2009 post you should read: http://jessescrossroadscafe.blogspot.com/2009/03/leading-chinese-economists-favor-gold.html. The "money quote" as Yves Smith would say, "According to a China Business News survey of 70 Chinese economists ... the exact figure is 71.4% anti-bonds and pro-gold". My signature line: Got gold, get more. Got bonds, you fool!

Eventually China will give up on the dollar and drive the price of gold up. Jesse writes, "Time for another announcement of an IMF gold sale? Sounds as though China would like to know when they will be able to take delivery". See my 2 October 2007 and 15 November 2008 posts: http://skepticaltexascpa.blogspot.com/2007/10/those-who-do-not-know-history.html. http://skepticaltexascpa.blogspot.com/2008/11/forbes-capitalist-fool.html.

What Does PWC Know?

"After funneling billions in investor money to Bernard Madoff over nearly two decades, Fairfield Greenwich Group is offering up its explanation to investors: It scrutinized Mr. Madoff's trading, but the documentation he provided was false. ... [Due diligence] included examining what Fairfield described as reviewing 'independent' trading records. ... In an account of its dealings with Mr. Madoff provided to the [WSJ] concerning Fairfield's main Madoff fund, Fairfield Sentry, Fairfield says Mr. Madoff fooled them and others, including the Sentry fund's auditor, PricewaterhouseCoopers. Fairfield says the Madoff firm supplied falsified trading documents, including what Fairfield says now appear to have been fake electronic records from Depository Trust & Clearing Corp., an independent firm that inventories much of Wall Street's stock and bond holdings. ... In a visit to Mr. Madoff's offices around the time, Jeffrey Tucker, Fairfield's co-founder, discussed the articles with Mr. Madoff, according to a spokesman for the firm. Mr. Madoff gave Mr. Tucker a chance to so his own spot check, letting him randomly select two dates and two and from those days, select two stocks that had been traded in Fairfield's accounts, the spokesman says. ... Fairfield also says that auditors from [PWC], Sentry's auditor starting in 1993, accompanied by a Fairfield employee, went to Mr, Madoff's offices in 2002 and scrutinized a number of Sentry's trades and didn't raise any concerns to Fairfield", my emphasis, Tom Lauricella at the WSJ, 2 March 2009.

Will Fairfield sue PWC for negligence? Did PWC know what it was looking at?

Tuesday, March 17, 2009

The School Reform Fraud

"To borrow from the old quip on giving up smoking: Fixing public schools is easy--we've done it hundreds of times. ... For the past 25 years, K-12 education has been at or near the top of most politicians' domestic agendas. ... There is no shortage of strategies for education reform, either. ... Conservatives generally advocate breaking up teacher unions and privatization, while liberals call for more money, less testing and greater teacher autonomy. But nothing has succeeded. In 2006, experts at the Harvard-based Public Education Leadership Project concluded that all these efforts, including NCLB, 'have failed to produce a single high-performing urban school system.' ... Sure, teaching can be an art. But educators should also approach their profession as a science when empirical evidence proves certain methods to be more effective than others. ... But really, why should a passing math score vary from one district to another? Because of NCLB's loopholes, many states have dumbed down their tests to make their schools look better than they are. ... US education officials need to use federal funding to reward districts that raise standards and help put American schools on a par with their international competitiors", my emphasis, Kalman Hettleman at the Houston Chronicle, 1 March 2009, link: http://www.chron.com/disp/story.mpl/editorial/outlook/6285974.html.

More educationalist nonsense. See my 1 and 18 September 2008 posts: http://skepticaltexascpa.blogspot.com/2008/09/dead-elephant-in-living-room.html.

Argentina's Bonds

"Argentina reportedly intends to file for [SEC] approval to re-enter the US capital markets. The SEC should instead insist that Argentine securities bear a warning like cigarette packages: 'This issuer has a record of misrepresentation, debt defaults, and debt repudiation, and therefore may be dangerous to your financial health. Do not consume this issuer's bonds unless you have a platoon of lawyers and a Navy to back them up, and you're prepared to use both.' ... In 2001, Argentina defaulted on $81 billion in soverign bonds. ... Since Argentina had earlier agreed to waive soverign immunity and accept the jurisdiction and judgments of New York courts, more than 160 lawsuits were filed. But the governments of Nestor Kirchner and of his wife and successor, Christina Fernandez, have ignored numerous court judgments. Judge Thomas Griesa has repeateldy condemned their conduct, noting in 2005 that 'I have not heard one single word from the [Argentine] Republic except ways to avoid paying those judgments.' ... If the offering documents Argentina has submitted to the SEC in the past are any indication, its forthcoming filings will be replete with misleading or meaningless representations. ... And they will almost certaainly lack candid disclosure about that country's true financial condition--its $35 billion in outstanding but repudiated debt to foreign creditors, its cozy financial dealings with the Chavez regime in Venezuela, its grossly understated inflation rate, or its recent binge of expropriating assets within its reach to meet its mounting financial obligations", Robert Shapiro and Nancy Soderberg at the WSJ, 27 February 2009.

What the problem? Replace Saudi Arabia and China for Venezuela and what distinguishes US debt from Argentina's? Will the SEC say the Treasury should prepare disclosure documents showing its sorry history of defaults through inflation? Without your own military no judgments against a sovereign can be enforced. What did Theresa Ghiladucci recently propose with respect to assets held in 401(k) plans?

Monday, March 16, 2009

IndyMac, an OTS Failure?

"Federal regulators failed to catch warning signs that presaged the collapse of mega-thrift IndyMac Bank last July, a US government watchdog said Thursday. ... The Office of Thrift Supervision, IndyMac regulator, recognized the red flags, but did nothing to stop them, the Treasury inspector general said. ... The report suggests OTS examiners put faith in IndyMac's management because the firm was turning profits and growing. Auditors found that OTS examiners didn't always report all problems identified by its examiners, and 'did not ensure that the thrift took the necessary corrective actions' when it did bring problems to IndyMac's attention. ... The report also rejected much of the blame targeted at Sen. Charles Schumer (D., NY). Mr. Schumer came under fire last year for making public a letter he sent to regulators questioning IndyMac's ability to stay afloat as a business", Michael Crittenden at the WSJ, 27 February 2009.

The attacks on Schumer were absurd. Even Treasury figured out, "that 'the underlying cause of the failure was the unsafe and unsound manner in which the thrift was operated',". See my 26 July 2008 post: http://skepticaltexascpa.blogspot.com/2008/07/full-cover-up-mode.html. This is an object lesson for those who favor replacing the Big 87654 with federal auditors to improve financial reporting. I think the federal auditors will be under more pressure to conceal wrongdoing than the Big 87654. Really. At least you can sue the Big 87654. Go sue the SEC. Or the OCC, or OTS.

Peter Wallison, Advocate

"In fact, neither of these statements is likely to be true. Both taxpayers and banks could come out well-and so would our economy--if the government were to buy the assets at their 'net realizable value,' which is based on an assessment of their current cash flows, discounted by their expected credit losses over time. ... This is simply what the value of the cash flows would bring in a fully functioning market, including discounts for several factors like anticipated future losses. ... Thus, under mark-to-market rules, the banks must discount their assets' net realizable value. ... A hint of the true situation was contained in a remark by Vikram Pandit, the CEO of Citibank, in testimony before the House Financial Services Committee last week. He noted that Citi marks to market and that 'those marks are reflected in the losses we've taken, as well as in our income statements and balance sheets.' ... In other words, Citi has marked some assets below their net realizable value, and selling them at a price lower than that value would be unfair to its shareholders. ... The banks have already made an assessment of the assets' net realizable values, as Mr. Pandit suggests was done at Citi. The government can quickly verify the accuracy of these valuations, including the rates used for discounting, and can of course come up with its lower evaluation if it disagrees. ... But the key benefit is the boost in the banks' capital which comes from a sale now. This would eliminate doubts about banks' solvency and free up their ablity and willingness to lend again. If this is a win-win for the banks and the government, why is it that no one had thought about doing this before? ... This has run into opposition from the accounting industry and investors groups, who are afraid it will be a license for banks to manipulate their financial statements", my emphasis, Peter Wallison (PW) at the WSJ, 26 February 2009.

This is so bad. What does PW, AB, JD Harvard, think MLEC was if not an earlier attempt to have Uncle Sam overpay banks for junk assets? See my 18 October 2007 post: http://skepticaltexascpa.blogspot.com/2007/10/use-your-own-money.html. Yes, PW wants to give banks a license to produce phony financials. Why listen to PW? We've heard these arguments before. As for Citigroup, did you notice Citi has a $44 billion deferred tax asset on its 31 December 2008 balance sheet? KPMG did not insist it be written off. KPMG did not insert a "going concern" comment in its opinion. KPMG had no problems with Citi's internal controls. Didn't Citi add $49 billion in SIVs to its balance sheet 15 months ago, my 15 December 2007 post: http://skepticaltexascpa.blogspot.com/2007/12/citigroup-comes-clean.html.

What is "a fully functioning market" anyway? If Citi has any assets which Pandit thinks are undervalued, he should buy them for his own account. Or shut up. Why should anyone care about the banks assessment of anything? Would Citi be with us today sans $350 billion in federal money? The "government can quickly verify" what? Arithmetic, not value. Which by the way, is what much of Big 87654 auditing is, just checking arithmetic.

Sunday, March 15, 2009

Trader Mark on AIG

I read Trader Mark's (TM) 1 March 2009 post about Joseph Nocera's (JN) 28 February 2009 NYT article about AIG. TM covered the points I intended to raise. Here's a link: http://fundmymutualfund.com/2009/03/nyt-aig-aig-propping-up-house-of-cards.html. JN's article is here: http://www.nytimes.com/2009/02/28/business/28nocera.html?pagewanted=all.

Goldman Sachs rules! Pay up serfs! $250 billion if necessary. The AIG bailout isn't! One issue, Seamus McMahon, "a banking expert at Booz & Company['s]" comments. He claims "we could have a domino effect" if AIG fails. I agree. So? Let AIG and all its counterparties fail. When I hear the term "expert" I assume I will read a plea to support the "expert's" clients.

What should be done? The CPAs for AIG and its counterparties should all be indicted for securities fraud as should these various companies controllers and CFOs. That may be the only way to end this nonsense. Long prison terms for all responsible parties combined with no more bailouts.

Saving Citi

"Citigroup Inc. and the federal government agreed to a third rescue that will give U.S. taxpayers as much as 36% of the bank but expose their ownership stake to greater risk from the recession and housing crisis. ... But the deal will punish existing shareholders of Citigroup, who will see their stake diluted by 74%, and likely do little to change the awkward relationship between federal officials and managment of the New York company. ... According to Citigroup executives, the Treasury Department and other banking regulators didn't try to squeeze new concessions from the New York bank. ... This rescue also was more palatable because the government isn't pumping in additional taxpayer dollars. Instead, as much as $25 billion in preferred shares held by the U.S. government will be converted into common shares as Citigroup struggles to stabilize itself", my emphasis, David Enrich and Deborah Solomon at the WSJ, 28 February 2009.

"In a better world, Citi would have long ago been put into bankruptcy", Editorial at the WSJ, 28 February 2009.

How punish? This is a bailout. What did the US get for the preferred to common conversion? Nothing as far as I can see.

Kill this monster. Now!

Saturday, March 14, 2009

Yves Smith on CDOs

Yves Smith (YS) has a 27 February 2009 post at her Naked Capitalism about CDOs, referring to Gillian Tett's FT piece. Read it, link: http://www.nakedcapitalism.com/2009/02/more-on-simply-dreadful-performance-of.html. YS's got it!

Merrill's Controls

"Ineffective internal controls at Merrill Lynch caused the firm to understate its 2008 losses by more than $500m, the investment bank said yesterday in its annual report. ... Auditor Deloitte & Touche concluded that Merrill had 'not maintained effective control over financial reporting' as of the end of 2008", Greg Farrell at the FT, 25 February 2009.

What's new? Why didn't Deloitte, which got paid $57 million in 2007 find this before? What's really going on here?

AIG, Again?

"The federal government is overhauling its $150 billion bailout of [AIG] in a bid to bolster the battered insurer, but its plan will expose US taxpayers to more financial risk. The new deal, the government's fourth for AIG, represents a nearly complete reversal from the one first laid out in mid-September. Back then, federal officials acted as a demanding lender, forcing the insurer to pay a steep interest rate for what was expected to be a short-term loan. Now the government is relaxing loan terms by wiping out interest in hopes of preserving AIG's value over a longer period. ... AIG's revised deal effectively cuts the interest and dividend payments that the insurer must make to the government. That eases the financial burden on the company, which is expected to report a $60 billion quarterly loss on Monday. ... Government officials are expected to continue assisting AIG as needed in order to help the company shrink and dispose of some of its busineses, according to people familiar with the matter. ... The decision to approve a third revision of the AIG bailout amounts to a calculated bet by [SecTreas] Timothy Geithner and [Fed] Chairman Ben Bernanke--both architects of the original bailout--that there would be even greater risk to letting AIG fail. Fed officials feared that a bankruptcy filing by AIG could be disastrous for the economy, which is in worse shape than it was six months ago. .... Officials at the Fed believe the restructured rescue package gives the US government adequate collateral to protect taxpayers. ... The major credit-rating companies signed off on the latest package, according to people familiar with the matter, clearing the way for the deal to go forward", my emphasis, Liam Pleven, Matthew Karnitschig and Deborah Solomon at the WSJ, 2 March 2009.

This is a dribble. "Demanding lender", horsefeathers. That's a kabuki dance. "Expected to be a short-term loan"? Yves Smith at Naked Capitalism called AIG a "black hole". Indeed. Fed officials are afraid an AIG bankruptcy will expose what really happened there since September and who got the $170 billion. Goldman Sachs, anyone? "Adequate collateral"? How much did Zimbabwe Ben buy for his own account? See also my 21 November 2008 post: http://skepticaltexascpa.blogspot.com/2008/11/bust-outs-and-paulson-mob.html.

Friday, March 13, 2009

Whistleblowing, Why?

"Many whistleblowers--employees who alert their bosses to fraud or recklessness in how a business is being run--do not fare as well as the Fool. They are not only ignored, but are sacked for being persistent irritants and naysayers. Yet, many of those who disdain or sack whistleblowers regret it later. ... Sir James Crosby resigned this week as deputy chairman of the UK Financial Services Authority after a controversy over a whistleblower at HBOS, the banking group of which he was formerly chief executive. Paul Moore, the former head of regulatory risk at HBOS, accused Sir James of firing him for warning about the bank's rapid growth. ... Meanwhile, another whistleblower is discomfiting US regulators. Harry Markopolos, a former fund manager, gave the [SEC] a dossier of evidence that Bernard Madoff was running a Ponzi scheme. He was ignored until Mr. Madoff had drawn in $50 billion. ... There are two reasons why [whistleblowers are ignored]. One is that they can be annoying. ... Someone who is a fraudster or is knowingly taking reckless risks has, of course, a motive for suppressing a whistleblower. But in many cases, the managers to whom a whistleblower complains are not themselves at fault but but simply dismiss the complaint as wrong or overblown. ... But some things are more complicated. 'Some people become whistleblowers because they feel that they were denied a bonus or a promotion or were not treated property,' says Steven Skalak [SS], a partner of PWC who investigates corporate fraud. The second obstacle is that not all complaints are well founded. The details given by Mr. Markopolos may have been underestimated by SEC officials because he was a rival to Mr. Madoff and seemed to have an axe to grind", my emphasis, John Gapper (JG) at the FT, 14 February 2009.

"A whistleblower contacted US regulators more than five years ago with allegations that Sir Allen Stanford's businesses were involved in an 'illegal Ponzi scheme', the Financial Times has learnt, raising new questions about why authorities waited until last week to shut down the alleged $8bn fraud. ... Leyla Basagoitia, a former Stanford employee, raised a series of red flags about the tycoon's empire in a 2003 employment dispute with her company at a tribunal run by the US finance industry's self-regulatory body. Ms. Basagoitia also alerted the US [SEC] at about the same time, her lawyer said, echoing criticisms that the agency ignored early warnings about Mr. Madoff's alleged fraud. ... Basagoitia's allegations were denied by Stanford Group Company and dismissed by the dispute resolution panel. She was ordered to pay Stanford $107,782 in damages, in repayment of a loan advanced to her while an employee of the company", Robert Cookson, Michael Peel and Joanna Chung at the FT, 27 February 2009.

JG's is one of the stupidest articles I've seen in months. What difference does it make why one becomes a whistleblower? What matters is: was he right. PWC investigates corporate fraud, since when? PWC investigates low level employee fraud committed against corporations. Will SS go to India to find out what happened at Satyam and see how many hundreds of millions PWC should pay to settle lawsuits against it? SS discredits whistleblowers. That's what SS's corporate masters pay him to do. How many times in the last five years did SS testify in court that another Big 87654 firm screwed up an audit? My guess: none. Why listen to PWC? It's one more parasite. Didn't PWC audit AIG, recipient of $170 billion in federal bailouts? People who live in glass houses shouldn't throw stones. Who cares if Markopolos had an "axe to grind"? Was he right? See my 18 January 2009 post about Meaghan Moron, link: http://skepticaltexascpa.blogspot.com/2009/01/meaghan-moron.html and 3 March 2009 post: http://skepticaltexascpa.blogspot.com/2009/03/see-no-evil-speak.html.

Was the body FINRA, Mary Schapiro's old outfit? Will the "dispute resolution panel" be investigated? If so, by whom? Will anyone get indicted at: FINRA, the SEC or the law firm which represented Stanford? Don't hold your breath. Self-regulatory body? Whaat? Like the AICPA used to regulate CPAs auditing SEC registrants?

Wilders' Warning

"I come to America with a mission. All is not well in the whole world. There is tremendous danger looming, and it is very difficult to be optimistic. We might be in the final stages of the Islamization of Europe. This is not only a clear and present danger to the future of Europe itself, it is a threat to America and the sheer survial of the West. ... All throughout Europe a new reality is rising: entire Moslem neighborhoods where very few indigenous people reside or are even seen. And if they are, they might regret it. This goes for the police as well. It's a world of head scarves, where women walk around in figureless tents, with baby strollers and a group of children. ... The shops have signs you and I cannot read. You will be hard-pressed to find any economic activity. ... In many cities over 50% of the under-18 population is Moslem. ... In once-tolerant Amsterdam gays are beaten up almost exclusively by Moslems. ... The history of the Holocaust can in many cases no longer be taught because of Moslems sensitivity. ... A total of fifty-four million Moslems now live in Europe. ... They do not come to integrate into our societies, they come to integrate our society into their Dar-al-Islam. ... Islam has no other morality than the advancement of Islam. ... Now you know why Winston Churchill called Islam 'the most retrograde force in the world,' and why he compared Mein Kampf to the Koran: Mein Kampf he said, is 'the new Koran of faith and war. ' ... An Islamic Europe means a Europe without freedom or democracy, an economic wasteland, an intellectual nightmare, and a loss of military might for America--as its allies will turn into enemies, enemies with atomic bombs", my emphasis, Geert Wilders, 28 February 2009, at: http://www.faithfreedom.org/2009/02/28/the-islamization-of-europe/

Well said Wilders! The Churchill quote is from The River War, 1899.

Thursday, March 12, 2009

Modern Weapons and CPAs

"When Lt. Col. Lane Pilch climbs into his F-22 fighter jet, he is confident that he's about to fly the most advanced, fastest and stealthiest thing in the air. He boasts that to even compare his fighter to the workhorses of the Air Force, the battle-worn F-15s and F-16s, is unfair. 'People often forget the F-16 and F-15 are 30-plus-year-old aircraft,' he said, as several of the fighters in his 12-plane squadron buzzed overhead. 'You don't drive a 30-year-old car. You trade it in after six or seven years.' But you don't necessarily buy a Ferrari. ... In one of the new president's first major decisions on U.S. defense spending, future funding for the radar-evading stealth fighter will soon be on the block, affecting nearly 100,000 jobs spread across every state in the U.S. and impacting military planning for decades to come. Opponents say the more than $65 billion F-22 program is sucking money away from other, more immediate needs and might be better spent on a different plan altogether. ... Doubters in the [DOD], including [SecDef] Robert Gates, have been hesitant to build more than the 183 F-22s the U.S. is now committed to. That is a huge cut from the fleet of 750 planned in the late 1980s when the plane was developed as a counterbalance to fighters produced or planned by the Soviet Union. ... In tests against other fighters, it has shown itself to be unbeatable, with only 'kills' marked as a result of clear pilot error", Eric Talmadge at the Houston Chronicle, 22 February 2009, link: http://www.chron.com/disp/story.mpl/headline/world/6274757.html.

"The F-22 Raptor is 'the most capable multiple combat aircraft in production today,' according to the think tank Air Power Australia. Yet only 203 have been ordered out of the original Air Force request for almost four times that many, and within weeks President Obama must decide whether to order more or let the assembly line close. ... Its stealthiness will make trigger-happy combatants shoot at birds. It has the agility, air-to-air combat abilities and missile defense penetrability far beyond that of the F-15 Eagle which entered service 33 years ago. It cruises at Mach-plus speeds without using fuel-guzzling afterburners. During Exercise Northern Edge 2006, the F-22 'fought' as many as 40 'enemy aircraft' during simulated battles, including F-15s, F-16 Fighting Falcons, and F/A-18-F Super Hornets. It achieved an incredible 108-to-zero kill ratio. .... Originally the Air Force requested up to 762, but the Pentagon's 1990 Major Aircraft Review reduced that to 648. This was subsequently cut to 442, then 339, then to 277, before the current 203, of which 134 have been built. ... Technology development costs are fixed. Each time critics slashed the F-22 order, they then cited the 'stunning increase' in per-unit cost to slash away again. This game has been played out with one weapons system after another, helping to explain why an initial plan for acquiring 132 B-2 Spirit bombers ended with a pitiful puchase of 21 of those incredible aircraft. At the current tiny order size, F-22s are $339 million each. But with the R&D paid for the current cost for each additonal F-22 is only about $136 million, according to the Air Force. ... 'Only the F-22 can survive in airspace defended by increasingly capable surface-to-air missiles,' declared Air Force Association President Mike Dunn in December. ... Yes, Virgina, we really do have potential enemies with weapons other than AKs and IEDs. We deperately need far more F-22 Raptors--preferably to prevent wars, but if need to to win them", Michael Fumento, 26 February 2009, link: http://townhall.com/columnists/MichaelFumento/2009/02/26/raptor_program_must_keep_flying.

The article was titled, "Plane that never fought is in budget war". The title is an editorial in and of itself. The F-22 hasn't fought yet, so? The best plane may be one: THAT NEVER FIGHTS! Think about it. We buy fire insurance, yet do not want our houses to burn down. What idiocy, having 33-year old "top of the line fighters", see my 11 June and 12 and 26 December 2008 posts:

"More immediate needs", like what? Our Iraq and Afghanistan wars? We have trillions for banker bailouts but might not equip our fighter pilots with the best money can buy. Their blood is cheaper than that of: Lloyd Blankfein, Vikram Pandit, Henry Paulson, etc. Sometimes my fellow CPAs and I include Congressional Budget Office accountants, disgust me. What's the "opportunity cost" of losing our next major war? Opportunity cost, what's that? If SecDef Gates isn't a traitor, he's the functional equivalent. Why did POTUS Obama keep Gates anyway?
"Cost", means what? If we build 203 F-22s the total program cost will be $69 billion. Let's not stop here. The $69 billion consists of: $41 and $28 billion of development and production costs, respectively. Whaat, the F-22's "marginal" cost is $136 million each? Yes. Let's build 800 more. It's just $109 billion. Cheap at twice the price in my opinion. $350 billion for Citigroup but not one-third of that to replace 33-year old fighters. SecDef Gates, go to hell.

Does anyone remember what Pentagon "Brain Boys" did during Vietnam to our F-105 pilots? It killed many and got others captured during "Operation Rolling Thunder", 1965-68. Sometimes even when the next threat is anticipated, it is ignored, like Fleet Problem 14, my 10 November 2008 post: http://skepticaltexascpa.blogspot.com/2008/11/us-air-force-rip-2.html. Reader Printfaster asked in response to my 1 March 2009 post, if I remembered Francis Gary Powers (FGP) ill-fated trip. I specifically recollect FGP was shot down 1 May 1960 over the USSR. FGP flew our most advanced 1960 reconaissance aircraft, the U-2A, supposedly untouchable at its then 85,000 foot ceiling. Khruschev said when FGP was hit he was at 68,000 feet. Why not? FGP "knew" the Rooskies had no SAMs that could hit him at 68,000 feet. The Rooskies had just developed the SA-2 which our pilots became familiar with in Vietnam. Yes, I remember. Reading suggestion, Vannevar Bush (VB) (1890-1974), Modern Arms and Free Men, 1949. Even our smartest are wrong. In 1949 VB estimated the USSR could not set off an atomic bomb for ten years. It exploded its first A-bomb on 29 August 1949!

Big 87654, Bah Humbug

"Paul Moore's written evidence to the House of Common Treasury committee last week was a surgical strike. His recounting to the committee of his warnings to HBOS, the UK bank, that it was expanding too fast, swiftly led to the resignation of Sir James Crosby as deputy chairman of the Financial Services Authority. It was Sir James, then HBOS chief executive, who had forced Mr. Moore out of his job at the bank in 2005. Few whistleblowers enjoy such sweet revenge. ... A US study in 1989 found that 95 per cent of whistleblowers suffered reprisals. An Australian study out the figure at 94 per cent. ... Gagging orders against whistleblowers have no force under the UK's Public Interest Disclosure Act, even when they are part of out-of-court settlements. ... A previosuly unpublished review of [Moore's ] departure by KPMG accused him of 'being overly verbose and full of self-importance' and 'over-stating matters in an overly dramatic and theatrical way.' Mr. Moore's response was a laconic, 'Well, they would say that, wouldn't they'," Michael Skapinker at the FT, 17 February 2009.

Of course KPMG would say that. What was KPMG paid to say? PWC "audits" HBOS. Would KPMG say Moore found a problem PWC missed? Pigs will fly first. The Big 87654 in my experience say what they're paid to say. Doesn't KPMG "audit" Citigroup? KPMG's ad hominen attack on Moore ignored the substance of the issues he raised. My one experience working with a Big 87654 Litigation Support Department (LSD) made me conclude I was dealing with a bunch of cowardly, incompetent clerks who could not distinguish substance from form. One question to ask any Big 87654 firm LSD: how many times in the past five years did it testify against another Big 87654 firm in connection with an accounting malpractice case.

Wednesday, March 11, 2009

What's the Problem?

"For years, allegations have dogged R. Allen Stanford, the Texas businessman accused this week of an $8 billion fraud. But a lack of coordination among federal agencies--and the difficulty of obtaining information from his bank in Antigua, where financial oversight is relatively light--kept regulators from gaining a full picture of the situation, current and former officials said. ... According to the SEC's civil charges of fraud, filed in US District Court in Dallas, Antigua-based Stanford International Bank [SIB], attracted investors by offering above-market returns in CDs that weren't insured by the [FDIC]. ... The Treasury said in a statement [in April 1999] it had concerns that the financial companies being regulated by an Antiguan regulator were in fact controlling the regulator. That statement was a reference to [SIB], among others, former US officials said.The regulatory situtation was 'very strange,' said former State Department official Jonathan Winer in an interview Wednesday. 'It was an obvious conflict of interest and we objected to it'," my emphasis, Glenn Simpson, Dionne Searcey and Kara Scannell at the WSJ, 19 February 2009.

What's wrong with controlled regulators? Look at the: SEC, Fed, OCC, DOJ, etc. Was Winer's SIB problem that it had insufficient control of its regulators? Who is Winer anyway? He is now a senior vice president of APCO Wordwide, a public relations firm. "At the State Department , Mr. Winer was one of the architects of [US] international policies and strategies in financial services regulation and enforcement, as well as cross-border law enforcement issues. ... He previously served on the Council on Foreign Relations [CFR] Terrorist Finance Task Force and the [CFR] Andean Commission. In November 1999, Mr. Winer received a distinguished honor fron [SecState] Madeline Albright. ... The award stated that 'he created the capacity of the Department and the [US] government to deal with international crime and criminal justice as important foreign policy functions,' and that 'the scope and significance of his achievements are virtually unprecedented for any single official'," link: http://virtualvantagepoints.com/?page_id=238. I'm sure. CFR member and all. Tin foil hat brigade, what say you?