Wednesday, September 30, 2009
"Events are fast pushing Israel toward a pre-emptive military strike on Iran's nuclear facilities, probably by next spring. That strike could well fail. ... So why is the Obama administration doing everything it can to speed the war process along? ... All this only helps persuade Israel's skittish leadership that when President Obama calls a nuclear-armed Iran 'unacceptable,' he means it approximately in the same way a parent does when fecklessly repremanding his misbehaving teenager. ... It is certainly in America's supreme interest that Iran not acquire a genuine nuclear capability, whether of the actual or break-out variety", my emphasis, Bret Stephens at the WSJ, 15 September 2009, link: http://online.wsj.com/article/SB10001424052970203917304574410672271269390.html.
Like the UN, Obama's policy with respect to Iran is a joke. Either we destroy Iran's nuclear facilities or Iran will have atomic weapons. It's that simple. Instead of destroying them, we dance in Iraq and Afghanistan. Go figure.
Tuesday, September 29, 2009
Monday, September 28, 2009
Really Hertz? Will you name names? Will any controllers and CFOs of the largest banks in the US be indicted for securities fraud? What about their CPA firms? I bet all large banks are audited by Big 87654 firms. Will the PCAOB do anything to them? This is just more of the continuing Wall Street-Washington charade.
Sunday, September 27, 2009
"A US-German rift over a deadly airstrike in Afghanistan on Friday escalated, as US commanders accused the German military of undermining guidelines that seek to avoid civilian causalties. ... Afghan and Western officials have said betweeen 70 and 130 people died, including many civilians. ... Civilian deaths are undermining Western efforts to marshal Afghans' support for the fight against the Taliban and further threatening support for President Hamid Karzai. ... Public disquiet is growing in Germany about the country's role in Afghanistan, only three weeks before Germany's national elections. ... Public pressure is rising for the German government to clarify the purpose and duration of its Afghanistan mission. ... According to a written report by Germany's defense minstry to German lawmakers, Taliban militants hijacked the two fuel trucks and killed one of the drivers, before the trucks got stuck on a sandbank in the Kunduz River about four miles from a base housing German military and civil-reconstruction personnel. ... A senior US defense official said investigators are trying to determine whether Germany's stringent battlefield restrictions, known as caveats, contributed to the bloody airstrike by limiting German forces' scope for actions on the ground", my emphasis, Marcus Walker, Matthew Rosenberg and Yochi Dreazen at the WSJ, 8 September 2009, link: http://online.wsj.com/article/SB125229769546989199.html.
George Patton couldn't have said it better, my 9 August 2008 post: http://skepticaltexascpa.blogspot.com/2008/08/what-should-general-do-2.html. Stanley, please read this. Learn your trade.
Saturday, September 26, 2009
"The letter on Tuesday from David A. Markowitz, the chief of Mr. Cuomo's Investor Protection Bureau, said that 'attorney-client privilege is hindering this office's ability to make fair and fully informed decisions as to what charges, if any, to bring and whether individual [BofA] officers should be charged.' in its response, [BofA] disputed that assertion on several fronts, writing that 'because [BofA] did not violate the law, it has not offered reliance on legal advice as a defense'," Zachery Kouwe at the NYT, 10 September 2009, link: http://www.nytimes.com/2009/09/10/business/10bank.html.
"A federal judge threw out the [SEC's] proposed settlement with [BofA] over its disclosure of controversial bonuses paid to Merrill Lynch [ML] employees, in an unusual ruling that casts doubt about how the agency handles probes of major US companies. ... The Rakoff ruling undermines one of the most high-profile cases against alleged corporate wrongdoing conducted under SEC chief Mary Schapiro, who took the job in January. It puts new pressure on the agency to show it is fighting for investors in the wake of the controversy over its policing of the financial industry during the Wall Street boom and its failure to catch Bernard Madoff's massive fraud despite several red flags. ... In a rare scuttling of an SEC settlement, Judge Rakoff said the $33 million fine levied on [BofA] 'does not comport with the most elementary notions of justice and morality' because the company's shareholders--the victims of the alleged misconduct--are the same people being asked to pay the fine. He set a trial date for Feb. 1. ... Securities lawyers said they couldn't recall such a high-profile case being forced into a trial after the government and a company agreed to a settlement. In his ruling, Judge Rakoff often wrote that if bank executives in fact relied on legal counsel in crafting the proxy language, 'why are the penalties not then sought from the lawyers?' ... SEC spokesman John Nester said Monday the settlement, ... 'properly balanced all of the relevant considerations.' ... Wachtell, Lipton, Rosen & Katz, which represented [BofA], declined to comment. A lawyer for Shearman & Sterling, which represented [ML], declined to comment", my emphasis, Kara Scannell, Liz Rappaport & Jess Bravin at the WSJ, 15 September 2009, link: http://online.wsj.com/article/SB125294493976909051.html.
"'If the Bank is innocent of lying to its shareholders, why is it prepared to pay $33 million of its shareholders' money as a penalty for lying to them?' On this point, we think the judge is soft-pedaling the coercive nature of regulatory prosecution. ... Given all the dirty laundry already aired about this deal, including claims that [Fed] Chairman Ben Benrnake and former Treasury Secretary Hank Paulson forced a reluctant BofA to conclude its Merrill purhase, it's not surprising if the BofA was willing to pay for it to go away", Editorial at the WSJ, 15 September 2009, link: http://online.wsj.com/article/SB10001424052970203917304574413242609077958.html.
"With one rebuke from a federal judge, the [SEC's] tool for regulating financial markets and protecting investors faces daunting questions. Legal experts said Monday's rejection by US District Judge Jed. S. Rakoff of the agency's proposed $33 million settlement with [BofA] Corp. could bring tougher scrutiny of other settlements over alleged wrongdoing. For decades, the SEC has resolved more than 90% of its investigations through settlements, lawyers estimate. Defendants neither admit nor deny wrongdoing, and judges sign off on the deal with little scrutiny. In the process, government officials get to send a message of deterrence without blowing their enforcement budget, which could happen if too many cases went to trial. ... Other legal scholars noted that the judge undercut the derterrence message the SEC intended to deliver, suggesting that the proposed penalty was too light", my emphasis, Kara Scannell at the WSJ, 16 September 2009, link: http://online.wsj.com/article/SB125305845632913893.html.
"New York's attorney general, Andrew Cuomo, ramping up his investigation of Merrill Lynch's purchase by [BofA], issued subpoenas to the five directors on the bank's audit committee at the time fo the deal, according to people familiar with the situation. ... In a comment Wednesday, Mr. Cuomo said he wonders broadly where the boards were in this financial crisis, and whether BofA directors 'protected the rights of shareholders, were they misled, or were they little more than rubber stamps for management's decision-making?' ... 'Subpoenas by an attorney general of outside directors [are] quite unusual' for any reason, said Charles Elsdon, head of the Weinberg Center for Corporate Governance at the University of Delaware's business school", Liz Rappaport, Dan Fitzpatrick and Joann Lublin at the WSJ, 17 September 2009, link: http://online.wsj.com/article/SB125312111880316599.html.
Get tough enforcement? Against whom? The Feds encouraged the BofA to violate securities law? Never. The SEC's case stinks.Did the SEC violate New York Law?
"After decades of pursuing lock-'em-up policies, states are scrambling to reduce their prison populations in the face of tight budgets, making fundamental changes to their criminal justice systems as they try to save money. ... California, with the nation's second-largest prison system, is considering perhaps the most dramatic proposal--releasing 40,000 inmates to save money and comply with a court ruling that found the state's prisons overcrowded. ... Russ Marlan, a spokesman fior the Corrections Department in Michigan ... [said] 'When you're not having budget troubles, that's when we implemented many of these lengthy drug sentences and zero-tolerance policies [that] really didn't work.' ... State Atty. Gen. Jack Conway sued to overturn the thousands of early releases, arguing that a retroactive change to sentences is illegal and risky. The case was heard before the Kentucky Supreme Court in August. ... Still, Conway said that he too was concerned about the prison population, and that he wanted to bring it down by targeting nonviolent offenders for early release and expanding drug courts", my emphasis, Nicholas Riccardi at the LAT, 5 September 2009, link: http://www.latimes.com/news/nationworld/nation/la-na-prison-release5-2009sep05,0,5705309.story.
"The wheels of justice in Georgia are grinding more slowly each day. Cuts in spending for the state court system have led to fewer court dates available for hearings and trials, creating a growing backlog of cases. With serious criminal matters being heard first, delays are stretching to months for many civil, domestic and minor criminal cases. The state court system, which handles more than 150,000 cases a year, had to slash spending by almost 15% in the past fiscal year, and more cuts loom. The state's budget shortfall widened to $3.7 billion over the past 18 months. ... According to a July survey by the Washington-based National Center for State Courts, at least 28 state court systems have imposed hiring freezes, 23 have frozen salaries and seven have planned or imposed salary reductions. ... In April, a group of attorneys with the Atlanta-based Southern Center for Human rights filed suit against the public-defender system, law-enforcement officials and state revenue officials. The suit, filed in the Superior Court of Elbert County on behalf of five plaintiffs and 'all those similarly situated,' alleges that many poor defendants are 'left to languish in jail' and that 'some have been without counsel for over six months' ... Bert Brantley, spokesman for [Georgia Governor Sonny Perdue said], 'every piece of government believes its spending is the most important, but clearly when you're governor you have to look at the state's overall responsibilities'," Paulo Prada and Corey Dade at the WSJ, 8 September 2009, link: http://online.wsj.com/article/SB125236538620490881.html.
Michigan looks like inmate paradise compared to Texas. 12,000 of its 48,000 inmates are parole eligible, 25%. Texas has 91,000 of 156,000 imates parole or mandatory supervision eligible, 58%. Our inmates serve about 250% of their minimum time. The Texas Department of Criminal Justice (TDCJ) does not report the actual percentage but I estimated it from a TDCJ 2008 report. Michigan, with 10.0 million people has a .0048 incarceration rate: Texas with 24.3 million has a .0064 rate, 25% higher. We should follow Michigan's lead.
Friday, September 25, 2009
"China's government on Monday offered public encouragement to state-owned companies challenging foreign banks over huge losses from derivative contracts, a move that bankers say has raised the risks of dealing with some of China's largest enterprises. ... In a statement on its Web site, the State-owned Assets Supervision and Administration Commission said it supported moves by unnamed Chinese enterprises to seek recourse for their losses in structured financial derivative contracts tied to the price of oil and reserved the right to file lawsuits itself. ... With concern already rising in recent weeks that Beijing might challenge the fuel-derivative losses, bankers have been scurrying to protect themselves. One day last week, trading in certain contracts all but shut down in China, bankers say. Now, bankers are discussing how to impose stiffer collateral requirements for Chinese airlines and other companies that seek derivative contracts. ... In early August, China Eastern Airlines Corp., Air China Ltd. and China Ocean Shipping (Group) Co. sent letters to six international investment banks warning that certain transactions 'may be void, invalid or unenforcecable,' said a person familiar with the letters. Among the banks understood to have received such letters are Deutsche Bank AG, Goldman Sachs Group Inc. [GSG], JPMorgan Chase & Co., Citigroup Inc. and Morgan Stanley, according to three people familiar with the situation. ... Lawyers said Beijing's statement is startling. The government is 'actively encouraging Chinese state-owned companies to cut their losses by taking various actions, including legal actions,' said Alan Wang, a partner at Freshfields Bruckhaus Deringer LLP", my emphasis, James Areddy, Laura Santini and Shen Hong at the WSJ, 8 September 2009, link: http://online.wsj.com/article/SB125234556777390497.html.
Thursday, September 24, 2009
"Unseasoned investigators from the [SEC] were alternatively intimidated and enthralled by a name-dropping, yarn-spinning Bernard L. Madoff as he dodged questions about his financial house of cards, according to a scathing new report on the agency's repeated failures to uncover the huge investment fraud. 'Madoff carefully controlled to whom they spoke at the firm,' the SEC's independent watchdog said in the report on Wednesday. ... In fact, the string of lapses was capped by a staff lawyer receiving the highest performance rating from the agency, in part for her 'ability to understand and analyze the complex issues of the Madoff investigation.' Perversely, Mr. Madoff used the SEC's inquiries as a selling point to reassure investors that the government had looked over his operations and found no problems. ... It was the fact that, 'despite numerous credible and detailed complaints,' the SEC never took 'the necessary, but basic, steps to determine if Madoff was operating a Ponzi scheme.' ... 'A simple inquiry to one of several third parties could have immediately revealed the fact that Madoff was not trading in the volume he was claiming,' the report said. ... One investigator described Mr. Madoff as 'a wonderful storyteller' and 'a capitvating speaker' after the 2005 encounter in which Mr. Madoff, a former Nasdaq chairman, boasted of his ties to people high up in the SEC and he said he was on the short list to be the next agency chairman--the post which went to Mr. Cox. ... The failure to heed Mr. Markopolos was almost inexplicable, except that some agency officials did not like him personally, Mr. Kotz said", my emphasis, David Stout at the NYT, 3 September 2009, link: http://www.nytimes.com/2009/09/03/business/03madoff.html.
"Renaissance Technologies, the big hedge-fund run by James Simons, raised questions about Bernard Madoff at least as early as 2003, eventually triggering a regulatory investigation of Mr. Madoff and withdrawal of money according to a [SEC] watchdog report. Details revealing Renaissance executives' concerns about Mr. Madoff's strategy and the validity of his reported returns figure prominently in the SEC report, released Friday. ... Henry Laufer, Renaissance's chief scientist, questioned Mr. Madoff's ability to exit the market, selling its investments and holding primarily cash supposedly to avoid lossses that hit other investment firms. The timing of the moves, Mr. [Nathaniel] Laufer said, was almost statistically impossible. 'We would have loved to figure out how he did it so we could do it ourselves,' he testified this year to the SEC. 'And so that was very suspicious.' ... Nathaniel Simons told regulators the firm believed the SEC had closely examined Mr. Madoff's investments, and regulators should have been able to perform the same analysis of Mr. Madoff's trading strategy that Renaissance had. ... 'We did feel that despite the fact that we're kind of smart people, we were just looking at matters of public record,' he also said in his testimony", Jenny Strasburg and Scott Patterson at the WSJ, 8 September 2009, link: http://online.wsj.com/article/SB125211198200188027.html.
"Top officials at the [SEC] pledged at a Senate hearing on Thursday to fix the problems that led to the agency's failure to detect the multibillion-dollar fraud conducted for more than a decade by Bernard L. Madoff. ... 'We intend to learn every lesson we can,' [Robert Khuzami] said. 'There are no sacred cows.' ... Harry Markopolos, the fraud investigator who brought his allegations to the SEC about improprieties in Mr. Madoff's business starting in 2000, testified that the agency's staff 'was not capable of finding ice cream in a Dairy Queen.' The system of conducting inspections at the agency rewards attention to detail rather that investigative energy and mortivation to catch misconduct, he said. ... Khuzami disputed Mr. Markopolos assertion that large numbers of SEC staff should be fired, saying the failures in the Madoff case were not emblematic of the the entire enforcement division", my emphasis, NYT, 11 September 2009, link: http://www.nytimes.com/2009/09/11/business/11madoff.html.
Crap. Blame structure and SEC peons, not higher-ups for quashing the Madoff investigations. This looks like the John Mack fiasco, my 23 October 2008 post: http://skepticaltexascpa.blogspot.com/2008/10/who-is-stephen-cutler-2.html. Will any SEC higher-ups be named and indicted? This sounds like a Big 87654 audit. If there's a problem, blame the peons. "Discouraged from forcing the issue". By whom? Six warnings. Hmm. What can we do with this? Kotz: "It is true that all these instances, taken singly, do not prove beyond question that White knew the statements which he prepared were padded with false entries; but logically the sum is often greater than the aggregate of the parts, and the cumulation of instances, each explicable only by extreme credulity or professional inexpertness, may have a probative force immensely greater than any one of them alone. ... We do not say that his guilt was demonstrated, but enough was proved to subject him to the hazard of a verdict; faced with the choice of finding him a knave or a fool, we cannot say that the jury was bound to acquit him; fair men might have had no compunction in refusing to believe that he was so credulous or so ill acquainted with his calling as a finding of innocence demanded", US v. White, 124 F2d 181, 185 (2nd Cir., 1941) (Hand, J). Kotz, we're watching you; fool or knave?
Whose kidding whom? UT ended NMS participation for the same reason UCal did: the winners are NAMs. Why has the NMS Corporation Achievement Scholars and Hispanic Recognition? Currently Texas NMS PSAT cutoff score is 217, or say about 1450 on two SAT parts. My guess: any NAM with 1450 SATs and decent high school grades is in: Harvard, Stanford, Yale, Princeton, etc., on a "full ride" such that UT has no NAM NMSs. I doubt the "number of "students seeking financial aid' had anything to do with the decision. The Houston Chronicle got some letters critical of the decision saying just this. See my 7 July 2009 post: http://skepticaltexascpa.blogspot.com/2009/07/columbia-changes.html.
What nonsense. In 2008 141,733 Texans took the SAT. Using this as a proxy, I estimate we had 1,500 NMS finalists of whom 5-10 were NAMs. I doubt any of these NAMs went to UT-Austin.
Wednesday, September 23, 2009
What did A pay to buy B?
Tuesday, September 22, 2009
"High-school students' performance last year on the SAT college-entrance exam fell slightly, and the score gap generally widened between lower-performing minority groups and white and Asian-American students, raising questions about the effectiveness of national education reform efforts. ... The reading scores are the worst since 1994. Many observers Tuesday viewed the flat results of recent years as discouraging in light of a more than 25-year effort to improve US education. 'This is a nearly unrelenting tale of woe,' said Chester E. Finn Jr., president of the Thomas B. Fordham Institute., a Washington, DC think tank. ... The results come a week after the disclosure that only a quarter of 2009 high-school graduates who took the ACT, the other main college entrance exam, had the skills to suceed in college. ... A record 1.53 million students took the [SAT] in 2009. About 40% were minority students, up from 29% in 1999. Education analysts said scores would be expected to drop as more students take the test, so College Board officials interpreted the stability in scores as encouraging. ... Jack Jennings, president of the Center on Education Policy, a nonpartisan research organization in Washington [said] 'The bottom line is the country is changing dramatically. Unless minority kids are educated better, we are going to be in trouble because pretty soon they are going to be the majority'," my emphasis, John Hechinger at the WSJ, 26 August 2009, link: http://online.wsj.com/article/SB125121641858657345.html.
Gregory Mankiw (GM), Harvard professor has a 28 August 2009 post which mentions "omitted variable bias" in attacking a NYT piece, link: http://gregmankiw.blogspot.com/2009/08/least-surprising-correlation-of-all.html. Way to go GM!
GM notes his "previous blog post on SAT scores and income generated a surprising amount of blogosphere pushback", 29 August 2009, link: http://gregmankiw.blogspot.com/2009/08/and-i-thought-i-was-being-boring.html. GM, you're naive. Don't you remember the 2005 flap over Larry Summer's (LS) statements about women and mathematics ability? You and LS are in the same department. Talk to him.
What gives? Richwine has a Harvard PhD and Putnam is a Harvard Professor. I suggested auctioning immigration slots decades ago.
Suppose someone tried to teach me to play basketball. He would have had a "tale of woe" that could have lasted for decades too. So? Are our "education analysts" missing something? Why should average SAT scores fall as more students take the test? If you have a representative sample of high schoolers in your "standardization sample" all other things being equal, if your sample size increases, there is no reason average scores should drop. If you encourage more high schoolers with bad grades to take the SAT, the average score will drop as high school grades and SAT scores are positively correlated. Are these "analysts" afraid to identify this possible explanation: as the percentage of Non-Asian Minority (NAM) test takers increases, average SAT scores will drop and there is nothing anyone can do about it. It doesn't matter if "minority kids are educated better", if we even know what that means. As America's demographics change, we will come to resemble the native lands of our new immigrants. That is the bottom line.
Monday, September 21, 2009
Sunday, September 20, 2009
Saturday, September 19, 2009
Quoted without comment.
Friday, September 18, 2009
Thursday, September 17, 2009
Wednesday, September 16, 2009
"The [SEC's] internal watchdog criticized the SEC's handling of credit-rating firms, saying some won federal approval despite slipshod applications and, in one case, suspicious financial data. ... In a report released Friday, the SEC's inspector general, David Kotz, cited serious concerns about one firm, including 'suspicions regarding the accuracy of the financial information provided in its application and concerns about the authenticity of a number of certifications.' ... The big three credit-ratings firms have been blamed by some critics for exacerbating the financial crisis after giving overly positive ratings to certain kinds of debt, including some backed by subprime mortgages. However, the problems identified in Mr. Kotz's report appear to involve primarily smaller firms", Sarah Lynch at the WSJ, 29 August 2009, link: http://online.wsj.com/article/SB125147990818867325.html.
"When everyone else is blaming you for creating the credit crisis, it helps to have a friend at the [SEC]. Especially when the SEC has the power to prevent new competitors from entering your market. ... Yet David Kotz, the SEC's inspector general, has apparently concluded that the real problem is not this government-anointed oligopoly, but the upstarts that have lately been approved to compete with them. ... Kotz has also issued recommendations certain to make competing with the Big Three more difficult, time-consuming and expensive. ... Of course, the greatest reform of all would be to get the government out of the business of approving credit raters. The SEC should enact its 2008 proposal to remove all references to NRSROs from the agency's rules and let markets decide how to judge default risk. ... Among the most costly of Mr. Kotz's ill-advised recommendations is the suggestion that all rating agencies should be audited by a firm regulated by the [PCAOB], the bureaucratic monster created by Sarbanes-Oxley", Editorial at the WSJ, 1 September 2009, link: http://online.wsj.com/article/SB10001424052970204731804574384983262268864.html.
This is worthless. Kotz advocates the same "solutions" that did not improve Big 87654 audits for 33 years. He must be "Passover's fourth son", the one who cannot ask a question. Why is Kotz worried about the rating agencies "revolving door syndrome"? Kotz, first look at the SEC and DOJ. Did not the Master say, "Why do you look at the speck of sawdust in your brother's eye and pay not attention to the plank in your own eye? How can you say to your brother, 'Let me take the speck out of your eye,' when all the time there is a plank in your own eye? You hypocrite, first take the plank out of your own eye, and then you will see clearly to remove the speck from your brother's eye", Matthew 7:3-5 (NIV).
Kotz's report could have been written by the PCAOB. It's worthless. The problems appear to be clerical.
I knew Kotz would use his report to further a PCAOB power grab. Aren't the Big Three already audited by large CPA firms?
I anticipated Kotz's PCAOB idea, but meant it sarcastically. Kotz took me seriously. See my 27 September 2007 and 28 April 2008 posts: http://skepticaltexascpa.blogspot.com/2007/09/let-market-work.html http://skepticaltexascpa.blogspot.com/2008/04/sec-investors-friend-fiend-2.html.
Added links 7:40 PM: