Since his days growing up in Tampa, Fla., the lanky
kid with the slightly mischievous smile had wanted to be a soldier. By this
bright morning, April 4, 2003, Sgt. First Class Paul Ray Smith had more than
fulfilled his dream. He had served 15 of his 33 years in the U.S. Army,
including three tours of duty in harm's way--in the Persian Gulf, Bosnia and
Kosovo.
Now all his training, all his experience, all the
instincts that had made him a model soldier, were about to be put to the
test. With 16 men from his First Platoon, B Company, 11th Engineer
Battalion, Sgt. Smith was under attack by about 100 troops of the Iraqi
Republican Guard.
"We're in a world of hurt," he muttered.
That "world" was a dusty, triangular walled
compound about half the size of a football field, near the Saddam Hussein
International Airport, 11 miles from Baghdad. Sgt. Smith's engineers, or
"sappers," had broken through the 10-foot-high concrete-block southern wall
with a military bulldozer and begun turning the compound into a temporary
"pen" for Iraqi prisoners as U.S. forces pressed their attack on the
airport.
. . .
Sgt. Smith could have withdrawn as well, back south
through the compound. But beyond it was a lightly defended aid station
crowded with 100 combat casualties and medical personnel. To protect it from
being overrun, Sgt. Smith chose to fight no matter what the odds. Under
intense fire, Sgt. Smith's men heroically extracted all three wounded
crewmen from the APC. Sgt. Smith then entered the vehicle, ordering Spc.
Michael Seaman to join him as driver and "keep me loaded" with ammo belts.
Sgt. Smith popped up out of the turret hatch and grabbed the grips of the
.50-caliber machine gun mounted on top.
The Iraqis were practically on top of him. Coolly
grasping the situation, Sgt. Smith ordered Spc. Seaman to back the APC south
into the compound to a position half way down the eastern wall. There he
could arc the big machine gun back and forth, from the gate entrance to the
north, all along the western wall of the triangle, to the Iraqi occupied
tower in the southwest corner to his left.
To fire the machine gun, Sgt. Smith had to stand in
the APC's main hatch, his body exposed from the waist up to a withering fire
coming at him from three directions. On the ground through the blur of
combat, Sgt. Matthew Keller saw Sgt. Smith grimly firing measured bursts
from atop the APC even as a hail of bullets hit around him.
Sgt. Keller yelled at him to get out. Sgt. Smith
looked back at him and with a slight shake of his head, made a cutting
motion across his throat with his right hand. Sgt. Keller would always
remember the look in his eyes. "There was no fear in him whatsoever."
As Spc. Seaman, crouching in the adjoining hatch,
fed him ammunition belts, Sgt. Smith directed an expert and murderous fire
with the long-barreled M2, hitting Iraqis who tried to enter the compound
through the gate or over the wall. He tried also to suppress renewed fire
coming from the Iraqis in the guard tower to his left.
Finally, one of his fellow sappers, First Sgt.
Timothy Campbell, led a small fire team which stole up to the tower and
killed all Iraqis inside. But by this time, Sgt. Smith's machine gun had
fallen silent. The attack had been broken. Nearly 50 Iraqi dead lay all over
the area. Others were in retreat. But Sgt. Smith was now slumped in the
turret hatch, blood soaking the front of his uniform.
Spc. Seaman jumped out of the vehicle in tears. "I
told him we should just leave," he said. Pvt. Gary Evans drove the APC out
of the compound at high speed to the nearby aid station.
But it was too late. When Medic Michelle Chavez
tried to remove Sgt. Smith's helmet, she realized that it was holding his
head together. A bullet--one of the last fired from the tower--had entered
through Sgt. Smith's neck and traveled up into his brain, shattering his
skull from the inside. There were 13 bullet holes peppered over his armored
vest--the impact from any one of them enough to knock a man down. The vest's
ceramic armor inserts, back and front, had been cracked in numerous places.
"Sapper Seven," the wiry, hollow-cheeked guy who had been so hard on his men
in training, so exacting, so insistent on "doing it right"; the guy who had
led them into battle on the first day of the war with a rock-'n'-roll tape
blaring from his Humvee; the guy who had personally got down on his knees in
front of their convoy to patiently, carefully extract the deadly mines when
they ran into a minefield near the Karbala Gap, was dead.
A chaplain and a sergeant in dress uniforms came to
Birgit Smith's home near Fort Stewart, Ga., late on the night of April 4 to
break the terrible news. Mrs. Smith, the German girl Paul had met and
married during his tour of duty in Western Europe in 1992, listened numbly
to her visitors. She fought the growing dread and pain by grasping at a
desperate hope:
"Our name is so common," she said, tears welling up
in her eyes. "Maybe it's a mistake."
There was no mistake. Paul Ray Smith had given his
life protecting his men and his position. He had almost single-handedly
blunted an overwhelming attack which might well have overrun the nearby aid
station.
"There are two ways to come home, stepping off the
plane and being carried off the plane," Sgt. Smith had written in an unsent
email to his parents. "It doesn't matter how I come home, because I am
prepared to give all that I am to insure that all my boys make it home." He
had been the only American killed in the courtyard fight.
On April 4, 2005, exactly two years after his
selfless action, his wife and their children David and Jessica stood in the
White House as President Bush presented them the nation's highest decoration
for bravery, the Medal of Honor. It was the first awarded in the Iraq War.
Paul Ray Smith had indelibly marked his "common name" on history's small
bright roll of those forever remembered for their uncommon valor.
Mr. Bennett writes the "American Heroes" series for the American
Security Council.
American Resolve Versus the Media Polls
The reason was that almost all realized that the 9/11 attacks have
changed the way most Americans see the world and their own place in it. Running
away from Saigon, the Iranian desert, Beirut, Safwan and Mogadishu was not hard
to sell to the average American, because he was sure that the story would end
there; the enemies left behind would not pursue their campaign within the U.S.
itself. The enemies that America is now facing in the jihadist archipelago,
however, are dedicated to the destruction of the U.S. as the world knows it
today. Those who have based their strategy on waiting Mr. Bush out may find to
their cost that they have, once again, misread not only American politics but
the realities of a world far more complex than it was even a decade ago. Mr.
Bush may be a uniquely decisive, some might say reckless, leader. But a visitor
to the U.S. soon finds out that he represents the American mood much more than
the polls suggest.
"'The Last Helicopter'," by Amir Taheri, The Wall Street Journal, March
29, 2006; Page A18 ---
Click Here
Question
What can you do to prevent being taken on eBay?
(Word of Caution: Never open an email message that pretends to be from
Pay-Pal)
To which "Kate" replied: "That's true, indeed. I
just scammed you, sorry for that, it's nothing personal. ... It's what I do, and
it pays well." How did Smith get into this mess? The way any confidence-game
victim does - by letting an overabundance of trust overwhelm ordinary caution.
Jeffe Gelles, "Psssst ... wanna buy a wedding dress?" The News-Sentinel,
http://www.fortwayne.com/mld/newssentinel/living/13980893.htm
Two brothers have published a book of "true tales of
treachery, lies and fraud" from eBay. "Dawn of the eBay Deadbeats" contains
stories written by eBay buyers and sellers. From stories of disappointing
purchases to out-and-out fraud, the book is a manual of what can go wrong when
buying and selling on auction sites. Brothers Stephen and Edward Klink co-wrote
the book, illustrated by Clay Butler. The idea for the book sprung from a
website Stephen Klink had created. A New Jersey police office, he founded
eBayersThatSuck.com - a site that aims to help people avoid auction scams -
after he himself was ripped off online.
Ina Steiner, "Dawn of the eBay Deadbeats: New Book Uncovers Online Auction
Treachery," AuctionBytes.com, December 28, 2005 ---
http://www.auctionbytes.com/cab/abn/y05/m12/i28/s01
Imagine buying vintage Spiderman
comics for $16,000 and receiving instead, a box of printer paper or
losing a whopping $27,000 in purchasing a big rig that didn't exist in
the first place. These are just many of the online auction fraud horror
stories that brothers Edward and Steve Klink compiled from their eBay
watchdog Web site eBayersThatSuck.com (E.T.S.).
In their book "Dawn of the eBay Deadbeats," some
70 strange-but-true stories were collected and retold with the help of
illustrator Clay Butler.
The December 2005 publishing of the book comes just in time as the
online auction giant has been criticized by consumer groups, most
recently by the U.K. magazine "Computing Which?" for its passive and
sometimes delayed approach in handling fraud reports.
At any given time, the site has 78 million listings, and 6 million new
listings are added each day.
And while, eBay maintains that less than .01 percent of all listings end
in a confirmed case of fraud, that could mean that of the 1.9 billion
listings reported by eBay in 2005, that 190,000 cases were confirmed
frauds in the last year.
Currently there are almost 900 horror stories from eBay fraud victims
are on the E.T.S. site whose motto is "Winning the war on deadbeats."
And already the brothers are working on the next volume of horror
stories, encouraging victims who want to get their tales to be told to
get into contact with them.
United Press International spoke with Edward Klink about the recent
book, their watchdog
Web site, and the current state of eBay.
"We had collected hundreds of stories
on the Web site
and figured it was time to take these stories to a wider audience and
let the victims have their say," Edward Klink said. "Plus with our
combined backgrounds, Steve is a police officer and I'm a
business writer,
we felt we were ideally suited to get the job done."
Fraud on eBay can take on many forms including items paid for that vary
from the description in the sale, unpaid items, and spoof eBay or
Pay-Pal e-mails.
And like the many victims on their site, the brothers too have
encountered the problem of auction fraud.
In 2003, Steve, a New Jersey police officer, won a set of "new"
speakers, only to find that it looked as if they were "gnawed on by a
wild animal."
"The seller said they weren't that way when mailed, and eBay said there
was nothing they could do," Klink said. "Annoyed that he was stuck with
the merchandise and given no recourse, Steve started
www.ebayersthatsuck.com and stories began pouring in from around the
world."
And the site has received a positive response since it's been up and
running.
"People love it," Klink said. "On eBay, their official boards are
closely monitored and talk about problems and scams and eBay's failings
are not generally tolerated. So E.T.S. gives them an outlet. When it
first came out Ebayersthatsuck.com was featured on Courttv.com and
newspapers as far away as South Africa."
According to Klink, while eBay has what could be considered --"the
ultimate
business model" -- of collecting fees and
delegating the marketing, selling, packaging, shipping, and
customer service
to eBay users, it's very easy for these same users to fall victim to
fraud.
"I think consumers let their guard down when they are sitting at home
and surfing the Web with their coffee," he said. "If a stranger offered
them a $1,400 antique vase on the street they'd most likely walk away,
but when that same vase is on
the Internet for some reason the reaction is
more, 'Say, now that looks interesting.'"
And have the brothers seen any improvements in eBay's handling of the
fraud issue?
"eBay says it is a tiny fraction of all auctions," Klink said, "but the
hundreds of people who told us their stories hate being in that tiny
group and never thought they would be. Lots of fraud is underreported,
too. EBay encourages users to settle it among themselves, and if they
can't, then they are directed to pay $20.00 to have SquareTrade, a third
party, mediate the dispute. But it's not often a scammer shows up for
mediation!"
. . .
"We want people on eBay to have a good buying and
selling experience - transparent, well-lit, and safe," the spokesperson
said. "Fraud on all levels is something we take seriously."
The company also has a team dedicated to working
with law enforcement rather it be educating them on fraudulent cases and
working proactively taking information on specific cases to them or
cooperating with investigations.
"We would invite anyone to visit the site and read
more," said the spokesperson, who also emphasized that the no. 1 issue for
online shoppers is to pay safely using Pay-Pal or a credit card than any
other form of payment.
In many cases, consumers are able to get their
money back, Pay-Pal offers up to $1,000 back with buyer protection and
credit card programs usually have a pay back program in cases of fraud. In
many cases, Pay-Pal offers a way for consumers to make purchases without
providing personal information and at the same time protecting money.
"Dawn of the eBay Deadbeats" ($12.95) is
available on Amazon, eBay, and in select bookstores.
"Like all learners, new online instructors need
hands-on experience, feedback, and ongoing support to become comfortable and
proficient in the virtual classroom. It is unrealistic to expect even the
most self-motivated, creatively pedagogical, and technically inclined
instructor to fly solo after just a few hours of training." In "Uniting
Technology and Pedagogy: The Evolution of an Online Teaching Certification
Course" (EDUCAUSE QUARTERLY, vol. 29, no. 1, 2006), Bonnie Riedinger and
Paul Rosenberg explain how and why a certification course for online
teaching was moved out of the classroom and into an online environment. The
authors note from this experience that the online environment presents an
"opportunity for instructors to examine their pedagogical habits." The
complete article is available online at
http://www.educause.edu/apps/eq/eqm06/eqm0616.asp?bhcp=1 .
EDUCAUSE Quarterly, The IT Practitioner's Journal
[ISSN 1528-5324] is published by EDUCAUSE, 4772 Walnut Street, Suite 206,
Boulder, CO 80301-2538 USA. Current and past issues are available online at
http://www.educause.edu/eq/ .
See also:
"The Myth about Online Course Development: 'A
Faculty Member Can Individually Develop and Deliver an Effective Online
Course'" by Diana G. Oblinger and Brian L. Hawkins EDUCAUSE REVIEW, vol. 41,
no. 1, January/February 2006
http://www.educause.edu/apps/er/erm06/erm0617.asp
For tips on how to make your students' laptop
computers part of their learning activities, see "14 Good Ideas from Liesel
Knaack for Using Laptops in the Classroom" (SIDEBARS, January 2006). Knaack
is a professor at the University of Ontario Institute of Technology where
every student gets an IBM Thinkpad on their first day of class to use
throughout their studies at the University. The article is online at
http://online.bcit.ca/sidebars/06january/on-the-side-1.htm .
SideBars [ISSN 1718-3685] is published by the
Learning Resources Unit of the British Columbia Institute of Technology [
http://www.lru.bcit.ca/
]. "Founded in December 2001, SideBars provides useful information and news
items for instructors, course developers, educational technologists, and
anyone else who has an interest in distributed learning in its various
manifestations." Current and back issues are available at
http://online.bcit.ca/sidebars/ . Email
subscriptions are available at no cost at
http://online.bcit.ca/sidebars/subcribe.html .
In January the University of Michigan Scholarly
Publishing Office launched a refereed online journal, PLAGIARY. The purpose
of the journal is "to bring together the various strands of scholarship
which already exist on the subject, and to create a forum for discussion
across disciplinary boundaries." Papers in the first issues include:
-- "The Google Library Project: Both Sides of the
Story"
-- "Copy This! A Historical Perspective On the Use
of the Photocopier in Art"
-- "A Million Little Pieces of Shame"
Plagiary: Cross-Disciplinary Studies in Plagiarism,
Fabrication, and Falsification [ISSN 1559-3096] is available free of charge
as an Open Access journal on the Internet at
http://www.plagiary.org/
. For more information contact: John P. Lesko, Editor,
Department of English, Saginaw Valley State University, University Center,
MI 48710 USA; tel: 989-964-2067; fax: 989-790-7638; email:
jplesko@svsu.edu
Since Infobits reaches subscribers all over the
world, we welcome information about resources in other languages besides
English. This month, we present these:
USE
http://munin.bui.haw-hamburg.de/amoll/use/
"USE: Usability Engineering fur E-Learning" is an online document produced
by the Hamburg University of Applied Sciences Department of Information. The
document, written in German, shows how to involve students when planning and
designing an e-learning website.
STICEF
http://sticef.univ-lemans.fr/ "STICEF:
Sciences and Technologies Information and Communication for Education and
Training" presents research "undertaken in the field of communication and
information technologies in the service of human training." Papers are in
French, but English abstracts are available. Recent papers include:
-- "Reusing Available (educational) Software
developed by CAL (Computer Assisted Learning) Researchers?"
-- "Effet d'un feedback informatif sur la prise de
notes dans un environnement d'apprentissage informatise'"
Editor's note: Machine translation certainly has
its limitations; however, in order to decide if the text is relevant to your
needs, sometimes you need a "quick and dirty" translation of a web page into
your preferred language. In these cases, try Google's translation tools at
http://www.google.com/language_tools . A 2005
evaluation of machine translation systems conducted by the US National
Institute of Standards and Technology (NIST) rated Google's tool best
overall. The NIST report is online at
http://www.nist.gov/speech/tests/mt/mt05eval_official_results_release_20050801_v3.html
.
I discovered Dan Madigan in the February 2006 issue
of Accounting Education News ---
http://aaahq.org/ic/browse.htm
In that issue of AEN, a summary of provided of his Idea Paper #43 on "New
Technologies that are Shaping Education and Learning." Excerpts from that
summary are provided below.
Idea Paper #43 by Dan Madigan
New Technologies that are Shaping Teaching
and Learning
Blogs
You can create your own blog for free by going to
http://www.blogger.com/home . Blog technology allows blogs
to be syndicated and aggregators allow users to automatically
search for favorite blogs on the web and have them delivered to
personal accounts (
http://www.bloglines.com/ ) [using tools like RSS feed
readers-Really Simple Syndication or Rich Site Summary].
Many universities buy a proprietary LMS, but increasingly
universities are building their own LMS based on open source
software like Moodle (
http://www.moodle.org/ ). Moodle's no-cost (excluding costs
associated with hardware and support), flexibility to adapt to
small or large institutions, departments, programs and
individuals, and world-wide support are attractive features.
Presentation Software
Although PowerPoint®
may be the most common example of this program, there are many
other programs including Keynote, Adobe Acrobat, and the popular
and free Open Office Suite package that includes IMPRESS as its
presentation program (
http://www.openoffice.org/index.html ). Simple
presentations can also be created using the Simple
Standards-Based Slide Show System (S5). This open source system
(
http://www.meyerweb.com/eric/tools/s5/ ) requires only basic
knowledge of web skills and can be learned quickly.
Tutorials/Self-tutorials
A basic tutorial can be created with any text editor and
delivered to students through a variety of digital technologies
such as email, Portable Document Files (PDF) that can preserve
the format and colors of a document, web pages, and CDs.
Tutorials that appeal to visual learners can be created with
scanning software or basic screen capture software found on any
operating system. Video tutorials, like those for software
applications, can be created with screen capturing software that
captures the movement of a mouse as it is used to open windows
and select options in a program. A microphone, used
simultaneously with the screen-capturing tool to narrate the
actions and video-editing software, completes the process. More
advanced tutorials include functions that, for example, mimic
teacher/student interactions and exchanges, and include an
assessment of those interactions. These interactive tutorials
can be created through advanced programs such as Adobe FLASH and
java scripting.
Concept Mapping Software
Description: Concept mapping (a method of
brainstorming) is a technique for visualizing the relationships
between concepts and creating a visual image to represent the
relationship. Concept mapping software serves several purposes
in the educational environment. One is to capture the
conceptual thinking of one or more persons in a way that is
visually represented. Another is to represent the structure of
knowledge gleaned from written documents so that such knowledge
can be visually represented. In essence, a concept map is a
diagram showing relationships, often between complex ideas.
With new mapping software such as the open source Cmap (
http://www.cmap.ihmc.us/download/ ), concepts are easily
represented with images (bubbles or pictures) called concept
nodes, and are connected with lines that show the relationship
between and among the concepts. In addition, the software
allows users to attach documents, diagrams, images other concept
maps, hypertextual links and even media files to the concept
nodes. Concept maps can be saved as a PDF or image file and
distributed electronically in a variety of ways including the
Internet and storage devices.
Webcast
These live sessions are highly interactive and allow users to
share applications, such as whiteboards, concept maps and word
documents, and to communicate live through audio and chat.
Elluminate (
http://www.elluminate.com/educator_solutions.jsp ) is one of
many server-based software programs that is enjoying popularity
in educational settings. Webcasts provide educational
institutions with the ability to support conferencing and to
deliver training and presentations to personnel anytime and
anywhere. Recorded and archived webcasts, because they are
economical to develop and store, are increasingly becoming the
preferred way for universities to deliver lectures, events and
presentations to faculty and students through the web, CDs, DVDs
and even TV broadcasts.
Podcasts
Some popular free podcatcher websites are iTunes and iPodder.
The browser Firefox also has podcatching features. Users can
create their own podcast for free by going to websites such as (
http://www.twocanoes.com/vodcaster/ ). For a nominal fee, a
more powerful and cross-platform podcast creator tool can be
found at (
http://www.potionfactory.com/ ).
ePortfolios
Although many standard software programs can be used to
create basic ePortfolios, the most dynamic programs, such as
Open Source Portfolio (
http://www.osportfolio.org ) are designed specifically for
developing portfolios that serve a variety of reflective and
representational functions within a password protected system.
Personal Response Systems (Clickers)
Individuals are equipped with their own remote control
keypads that have letters or numbers that correspond to choices
given by a presenter. The results of the responses are captured
on a computer either through infrared or radio signals and
compiled in ways that show such breakdowns as class distribution
and individual responses. Typically, the results are instantly
made available to the participants via some type of graphic that
is displayed with a projector. Presenters can set automatic
controls within the system that limit the time a responder has
to answer a question. Each remote "clicker" has a serial number
so that all users and their responses can be individually
identified and recorded.
Supporting Digital Technology for Teaching
and Learning
As faculty are carefully assessing their use of technology
for purposes of teaching and learning, universities need to
assess whether their technology support is adequate and
responsive to the needs of those instructors. During the early
phases of the digital revolution on campuses, this meant
building an infrastructure, providing equipment and offering
basic skills-oriented workshops to faculty and students. Over
the years, however, we have learned that basic technology
support has not always been enough to ensure that digital
technologies are being used effectively as ways to enhance
student learning. Some universities have heeded the challenge
and are creatively building upon existing programs to develop a
technology of support that is responsive to the professional
lives of today's faculty. What follows are five examples that
serve to represent ways that universities are developing
creative solutions for supporting a learning environment that is
increasingly being influenced by a digital revolution that show
no signs of abating anytime soon.
Faculty Involvement
Faculty need to have a critical voice in university decisions
about technology improvement and deployment on
campus--especially when the technology relates to teaching and
learning issues...Forward thinking universities find new and
inclusive ways to tap into the collective voice so that student
learning and new technologies can be effectively aligned.
Blended Workshops
Forward thinking universities go beyond skills-based
technology workshops. They have found creative ways to blend
pedagogical instruction with technology instruction...Also,
universities have begun to offer blended workshops that have a
distinct pedagogical focus yet blend in thinking about
resources, including technology resources, which can support a
strong pedagogical focus...
Threaded Workshops
Universities are using the threaded workshop model as a
framework for teaching and learning workshops that include
learning about new technologies. Each workshop in the series is
"threaded" in such a way as to relate to one another and play
off of one another. Thus, a series on integrated course design
might have individual workshops on different topics like
assessment, learning activities, motivation, and learning
outcomes that are aligned in a way that gives participants a
more comprehensive view of how to build a dynamic course. All
discussions about technology in these threaded workshops are
contextualized within the larger pedagogical discussion, and are
focused on how the technology serves to support the pedagogy.
Because instructors attend the series over a period of several
weeks, they bring back to each workshop their applied knowledge
and share it with one another as real world and relevant
experiences...
Just-In-Time Resources
Universities are increasingly realizing that busy instructors
do not need to be experts in all areas of digital technology in
order to use technology effectively in the classroom.
Universities support this notion by making technology learning
easy, accessible, and just-in-time. Today's digital technology
allows just-in-time resources to flourish on campus. For
example, Internet available tutorials that are home grown or
licensed (
http://www.atomiclearning.com ) make it easy for instructors
to learn new software/hardware in bits and pieces and when
needed. Why learn everything there is to know about PowerPoint
or your computer operating system when you can learn only what
you need by going to a two-minute video that is available
anywhere and anytime. In addition, just-in-time resources
extend the learning environments of students. Why spend
valuable class time teaching students how to use a certain
technology application for a project or activity when
just-in-time resources can be made available to students at
their level and at a time outside of class time?
Universities are home to a rich diversity of student learners
whose cultures have been tremendously impacted by the digital
revolution of the last fifteen years. These students grew up
communicating, creating knowledge, and sharing resources through
the Internet and all its applications. As university students,
they are poised to take advantage of the digital world for
learning. But are we as teachers? We should not jump
headfirst into this potential digital cauldron without taking
stock of an important detail--as with all technologies and
instructional practices, we must not only understand their
potential to impact deeper learning in students, we must also
understand their limitations as a means to achieve a deeper
learning. It is not the lecture, cooperative learning or the
problem-based method itself that enhances student learning any
more than it is the Internet, podcast, or blog. It is far more
important to know how to use instructional methods and
technology to support learning outcomes that are integrally
linked to the student learner as a critical thinker. Students
may know how to navigate the Internet and use other forms of
digital technology for purposes of their own learning, but do
they know how to take full advantage of those technologies for
learning at the university level? This is where progressive
universities enter the equation and lead.
In today's educational climate of decreasing state support
and public scrutiny of educational spending, universities can
ill afford to squander important dollars on technology resources
that have not been critically assessed in terms of supporting
student learning. But, universities cannot stop there. Faculty
and administrators must combine efforts to celebrate openly the
important symbiosis between technology and learning. Nothing
less will suffice or we will suffer from our own negligence.
The above quotes are only isolated quotes from a much longer
document.
March 30, 2006 reply from David Albrecht [albrecht@PROFALBRECHT.COM]
Dan is an exceptional person and has had much influence how I go
about my teaching assignments. He, for instance, taught me about the
learning centered classroom. This took place when he was directing
our CTLT (Center for Teaching & Learning using Technology). He did
such a great job that he got promoted.
Big Tax Return Preparer is Watching You: Yet another
incentive to do your own tax returns
The person who prepares your tax return may sell your private
information (Repeated from March 31 edition of New Bookmarks)
This link
was forwarded by Scott Bonacker
[cpa@BONACKERS.COM]
"IRS plans to allow preparers to sell data: Critics said the
proposed regulation could lead to a loss of privacy for clients," by
Jeff Gelles, Philadelphia Inquirer, March 21, 2006 ---
Click Here
The IRS is quietly moving to loosen the
once-inviolable privacy of federal income-tax returns. If it
succeeds, accountants and other tax-return preparers will be able to
sell information from individual returns - or even entire returns -
to marketers and data brokers.
The change is raising alarm among consumer
and privacy-rights advocates. It was included in a set of proposed
rules that the Treasury Department and the IRS published in the Dec.
8 Federal Register, where the official notice labeled them "not a
significant regulatory action."
IRS officials portray the changes as
housecleaning to update outmoded regulations adopted before it began
accepting returns electronically. The proposed rules, which would
become effective 30 days after a final version is published, would
require a tax preparer to obtain written consent before selling tax
information.
Critics call the changes a dangerous breach
in personal and financial privacy. They say the requirement for
signed consent would prove meaningless for many taxpayers,
especially those hurriedly reviewing stacks of documents before a
filing deadline.
"The normal interaction is that the
taxpayer just signs what the tax preparer puts in front of them,"
said Jean Ann Fox of the Consumer Federation of America, one of
several groups fighting the changes. "They think, 'This person is a
tax professional, and I'm going to rely on them.' "
Criticism also came from U.S. Sen. Barack
Obama (D., Ill.). In a letter last Tuesday to IRS Commissioner Mark
Everson, Obama warned that once in the hands of third parties, tax
information could be resold and handled under even looser rules than
the IRS sets, increasing consumers' vulnerability to identity theft
and other risks.
"There is no more sensitive information
than a taxpayer's return, and the IRS's proposal to allow these
returns to be sold to third-party marketers and database brokers is
deeply troubling," Obama wrote.
The IRS first announced the proposal in a
news release the day before the official notice was published,
headlined: "IRS Issues Proposed Regulations to Safeguard Taxpayer
Information."
The announcement did not mention potential
sales of tax information. It said the proposed rules were guided by
the principle "that tax return preparers may not disclose or use tax
return information for purposes other than tax return preparation
without the knowing, informed and voluntary consent of the
taxpayer."
IRS spokesman William M. Cressman defended
the proposal in similar terms.
"The heart of this proposed regulation is
about the right of taxpayers to control their tax return
information. The idea is to emphasize taxpayer consent and set clear
boundaries on how tax return preparers can use or disclose tax
return information," Cressman said in an e-mail response to
questions.
Cressman said he was unable to explain "why
this issue has come up at this time other than our effort to update
regulations that date back to the 1970s and predate the electronic
era."
Not all the changes have drawn opposition.
Beth A. McConnell, director of the
Pennsylvania Public Interest Research Group (PennPIRG), said she
welcomed a requirement that a taxpayer would need to consent to
overseas processing of any portion of a tax return.
"That's a positive development, but I don't
think it's worth giving up our tax returns' privacy for," said
McConnell, who plans to testify on behalf of the U.S. Public
Interest Research Group at an April 4 IRS hearing in Washington on
the rule changes.
McConnell accused the IRS of using the new
limit on overseas processing to dress up changes that would chiefly
benefit tax preparers, marketers and data brokers.
"That's a disturbing trend among Washington
officials lately," McConnell said. "They'll offer a modest consumer
protection in one area in exchange for dramatic weakening of
consumer protections in another area, and then try to convince the
public that it's all in our interests."
Critics of the proposal said it could do
more than open up sales of tax information to data brokers and
marketers, because it could undermine taxpayer confidence in the
entire tax system.
"Privacy protections for tax information
are especially critical given the largely voluntary nature of the
U.S. tax system," said Chi Chi Wu, a tax-law specialist at Boston's
National Consumer Law Center.
Wu and other critics said they were
uncertain who or what was behind the proposed changes in IRS privacy
rules, which currently prohibit tax preparers from selling returns
to third parties for marketing purposes, and require written consent
if they want to use it for marketing by companies under their own
corporate umbrella.
Officials at H&R Block and Jackson-Hewitt,
two of the nation's largest tax-preparation firms, did not respond
to requests for comment. Cressman said the IRS had so far received
only about a dozen comments on the proposal.
"I think this just flew under the radar
screen for so many people," McConnell said.
The IRS is quietly moving to loosen the once-inviolable privacy of
federal income-tax returns. If it succeeds, accountants and other tax-return
preparers will be able to sell information from individual returns - or even
entire returns - to marketers and data brokers.
The change is raising alarm among consumer and privacy-rights advocates.
It was included in a set of proposed rules that the Treasury Department and
the IRS published in the Dec. 8 Federal Register, where the official notice
labeled them "not a significant regulatory action."
IRS officials portray the changes as housecleaning to update outmoded
regulations adopted before it began accepting returns electronically. The
proposed rules, which would become effective 30 days after a final version
is published, would require a tax preparer to obtain written consent before
selling tax information.
Critics call the changes a dangerous breach in personal and financial
privacy. They say the requirement for signed consent would prove meaningless
for many taxpayers, especially those hurriedly reviewing stacks of documents
before a filing deadline.
"The normal interaction is that the taxpayer just signs what the tax
preparer puts in front of them," said Jean Ann Fox of the Consumer
Federation of America, one of several groups fighting the changes. "They
think, 'This person is a tax professional, and I'm going to rely on them.' "
Criticism also came from U.S. Sen. Barack Obama (D., Ill.). In a letter
last Tuesday to IRS Commissioner Mark Everson, Obama warned that once in the
hands of third parties, tax information could be resold and handled under
even looser rules than the IRS sets, increasing consumers' vulnerability to
identity theft and other risks.
"There is no more sensitive information than a taxpayer's return, and the
IRS's proposal to allow these returns to be sold to third-party marketers
and database brokers is deeply troubling," Obama wrote.
The IRS first announced the proposal in a news release the day before the
official notice was published, headlined: "IRS Issues Proposed Regulations
to Safeguard Taxpayer Information."
The announcement did not mention potential sales of tax information. It
said the proposed rules were guided by the principle "that tax return
preparers may not disclose or use tax return information for purposes other
than tax return preparation without the knowing, informed and voluntary
consent of the taxpayer."
Conduct a simple
search. Some basic tips are included here along
with recently added search features. These tips refer to the search
box on Google's homepage.
Quotations.
Put quotation marks around the phrase:
"SEC study". Don't worry about
capitalization: "sec sTuDy" will
return the same results as "SEC study"
Tracking.
Need to track your shipment from a major shipping
company like UPS or USPS? Simply type in the tracking number in
the search box. Do the same for tracking a flight: enter the
airline followed by the flight number.
Dictionary.
Find the definition of a word by typing
define: ethics
Calculator.
That's right. Type in a math problem and Google will
spit out the answer. Try this: (256-96)/96
Directions/Maps. Many Web sites offer maps and driving
directions. Now Google does too. Type in an address in the box
and the results will return a street map and a
satellite image. From here, type in from/to driving directions.
Explore "more."
From the Google homepage, click on "More" and you're in
Google heaven.
Toolbar.
If you use Google often, download the Google toolbar to
your Web browser. Not only do you have instant Google access,
you can block pop-ups and auto fill your personal information
into Web forms.
News.
With Google News, access news stories from a myriad of sources,
from The New York Times to Christian Science
Monitor to PC World. When you search in Google
News, you get results of how that word or phrase appeared in
periodicals within the last 30 days. This feature saves you from
having to visit several different news sites for the same story
or topic. Give it a test run by typing in
FASB.
Local.
Find local businesses and services with a map pointing
to the exact physical position. Traveling to Seattle for a
conference and need to find the nearest Westin hotel? Type in Seattle
Westin.
Special
Searches. When looking for a specific government
document, search .gov Web sites only. Other special search
options include Public Service Search, University Search, and
Microsoft Search.
Alerts.
Are you following a particular company in the news? Customize an
Alert and you'll be notified via email when Google finds that
topic. A practical application would be to monitor your company,
industry, or competitors.
This is just a small
helping of what Google has to offer. In addition to cool search
capabilities, Google has email, a photo editor, satellite imaging, a
Web blog tool, a language translator, instant messaging, and a
mobile-device tool (all free). To further your Google knowledge,
don't miss the Help page, which provides tips for basic and advanced
searching.
Happy googling!
NIQUETTE KELCHER is the Web
Managing Editor for SmartPros Ltd.
Political Bias in Undergraduate Education
In this month's Carnegie Perspectives, Tom Ehrlich
and Anne Colby revisit the highly politicized Academic Bill of Rights
legislation. Tom and Anne lead the Foundation's work on the importance of civic
and political engagement among undergraduate students. In this piece, they argue
for the necessity for college faculty members to become much more self-conscious
of the variety of ways in which they communicate their political and social
views to students. They provide recommendations and precautions for campus
leaders who seek to create opportunities for teaching and inquiry that will
encourage student learning around difficult issues.
Lee S. Shulman, President The Carnegie Foundation for the Advancement of
Teaching, March 29, 2006 ---
http://www.carnegiefoundation.org/conversations/sub.asp?key=244&subkey=1565
Question
What may be some of the direct and indirect commodification implications for you
and your college under various new legislation and pending legislation in
Washington DC? Hint: Under the bill, colleges can no longer be able to turn down credits
solely based on a school's source of accreditation.
"Higher-Education Bill
Aims to Stir Up Academia," by John Hechinger, The Wall Street Journal,
March 30, 2006; Page A8 ---
Click Here
Republicans are "opening up a tremendous number of
provisions for the for-profits," says Ms. Flanagan. "Those are the ones with
a seat at the table. The rest of us have been left out."
Congress recently handed for-profit schools a big
win when it eliminated a rule requiring all colleges to offer at least half
of their instruction in brick-and-mortar classrooms to be eligible for
federal financial aid. The restriction, intended to prevent fraud, had
hindered online education programs that are especially popular offerings
among education companies.
A provision in the latest bill would weaken another
requirement -- that schools receive no more than 90% of their revenue from
federal financial aid. The rule was intended to prevent a repeat of
widespread fraud in the 1980s and early 1990s, when some trade schools
signed up unqualified low-income students in order to collect federal aid.
For-profit schools are most likely to bump up against the 90% limit because
they lack other funding sources and often cater to low-income students.
Schools would now have more time to get back in line with the rule if they
fall short.
Yet another measure would put for-profits more on
equal academic footing with established schools. Traditional schools have
long tended to reject degrees and course credits from students at for-profit
schools, which often lack the imprimatur of long-established regional
accrediting agencies. Under the bill, they would no longer be able to turn
down credits solely based on a school's source of accreditation.
Jensen Comment
This legislation can have far-reaching impacts on faculty. It will open
employment opportunities in for-profit colleges. But it will also increase
competition, especially in graduate professional programs in business, law,
pharmacy, nursing, etc. I think it will also greatly increase the danger of
fraud.
What is the meaning of “commodification” in education today? When asked to list the top 10 problems facing
the academy today, I bet most professors would include the
“commodification” of education. By that they mean a sort of creeping
penetration of market-forces into the academy such that earning a B.A.
is becoming increasingly indistinguishable from, say, buying a Camaro.
As an adjunct I am not privy to the way this trend has altered the wider
institutional structure of higher education, beyond noticing that that
very little of the tuition my students pay finds its way back to me.
However, as someone who regularly teaches service courses I have
extensive experience with bread and butter teaching, and I am familiar
with what “commodification” is supposed to mean in this context: the
idea that professors are expected to produce “customer satisfaction” in
their students, and students are supposed to actually “enjoy” the
classes they take.
Alex Golub, "The Professor as Personal Trainer," Inside Higher Ed,
October 24, 2005 ---
http://www.insidehighered.com/views/2005/10/24/golub
March 30, 2005 reply from David Fordham, James Madison University
[fordhadr@JMU.EDU]
In a very rare turn of events, I find myself in
total 100% agreement with Bob's speculation on this one. In reply to Glen's
response, I'm not sure the federal employees had as much to do with this
bill as lobbyists. Congress is generally more attuned to the needs of
lobbyists than it is to federal employees.
And as Bob points out, this smacks not only of
lobbyists, but good old fashioned planking politics, knee-jerk politics.
Okay, (yawn), so what else is new?
But what I'm really wondering is: Why we accounting
professors -- of all people -- haven't been able to see the connection
between the "calls for transparency in corporate reporting", and the "calls
for accountability in higher education"?
Why don't we have transparency when it comes to
judging the quality of a transcript? Why do we pay so much attention to
accurate, transparent, and fair financial reporting of corporations, but so
little attention to such qualities when it comes to transcript reporting?
Isn't education more important than mere money?
(Okay, okay, I know the real answer, but we're *supposed* to be ACADEMICS,
aren't we??)
What's good for the goose should be good for the
gander, right? Take a close look at this concept.
We require companies to go to astoundingly complex,
costly, gyrating, unimaginable effort to publicly report on the results of
their operations. Why? So the public can openly compare quality between
organizations, and thereby make good decisions. To support this public
reporting, we have established an unbelievably-complex set of rules -- and
then mandated adherence to them -- about how to create those annual reports.
And then we require periodic audits to ensure "uniform" application across
organizations to promote public confidence in the comparisons. We require
certification of those who do the checking, too.
Why not apply the same principle to higher
education? Isn't hiring an employee tantamount to making an investment?
Shouldn't there be some way of comparing the quality of various individuals'
transcripts, just as there is a way to compare stocks and bonds? Why don't
we care about the quality of a transcript the way we do a stock certificate?
Why don't we propose a set of "generally accepted
academic reporting principles" for the issuing organization (e.g.,
universities, colleges, diploma mills, etc.) and mandate adherence to these
uniform reporting standards.
Oh, come on, sure, you can claim that education is
more complex and multi-dimensional than simple cash flows and net income
calculations. But hey, get serious -- have you looked at derivative or SPE
or pension accounting lately? I rest my case.
And we already have the audit mechanism in place --
kinda -- (given our dean's worshipful obeisance to the AACSB). (footnote:
can you imagine having the AACSB spend four weeks at your institution EVERY
YEAR after the May commencement? Wow, what a thought! I wonder which junior
is going to get stuck spending his weekend proofing the assessment figures!)
And talk about malfeasance and negligence! If the
accrediting agencies were held to the same standards as financial auditors,
just think of the job opportunities this would create for all those poor
law-school students who might otherwise face an oversupply of lawyers in our
economy in the coming years.
While I believe Congress is acting politically and
irrationally (both as always), they are at least responding to a problem
about bias in decision making relating to the quality of transcripts. They
are responding to a changing market environment in transcripts. I'm not
confident in the winners of popularity contests to come up with solutions to
difficult problems. Can we as academics do any better?
My experience has been that just because a
bricks-and-mortar school is accredited says very little about the quality of
its education (inputs maybe, outputs no). And while there are many
fraudulent on-line educational programs, my brother- in-law's experience
teaching at such an institution (named after its home town in Arizona) would
seem to indicate that with proper management, proper administration, proper
mission definition, proper faculty hiring decisions, and proper execution
(!), the concept can possibly result in as good an education as
bricks-and-mortar.
But after all my devils-advocating at the
fundamental level, I repeat, I agree with Bob. I see such a law as this
creating far more problems than it solves.
And of course, my whole post here assumes the WSJ
article got things right in the first place. My experience with WSJ
reporting's quality leaves this assumption in grave doubt... We need
transparency and accuracy of reporting in the media FAR FAR more than we
need it in financial reporting or education or anything else, for that
matter.
David Fordham
Actually David, I think the WSJ article got it right this time although
without the details about the political fight described below by Doug Lederman.
The rest of the rhetoric as lawmakers
began work on the key piece of higher education legislation
probably left many of those who watched it longing for a
different era, or perhaps a different political system
entirely. Republican and Democratic lawmakers mostly talked
past each other, with Democrats accusing Republicans of
shortchanging students in the bill and squelching debate by
restricting the number of amendments to the measure, and
Republicans charging Democrats with distorting the goals of
the legislation and devolving into unnecessary partisanship.
In terms of actual legislating, very
little got done Wednesday, in part because the House Rules
Committee, which sets the terms of debates and voting for
each piece of legislation,
approved only 14, mostly minor amendments
that could be offered on the House
floor Wednesday.
Although Democrats complained that
Republican leaders were purposely trying to limit their
ability to try to alter the Higher Ed Act legislation —
“shutting down this process,” Rep. Doris Matsui (D-Calif.)
said – the Rules Committee, in a highly unusual move, met
late into the night Wednesday to
craft a second rule that cleared the way
for 8 of the other 100 or so proposed
amendments to be debated and voted on today.
The only amendment of real
substance that was considered Wednesday was offered by Rep.
Dan Burton (R-Ind.), and vigorously opposed by higher
education groups. It sought to require colleges that receive
funds through the Higher Education Act’s international
education programs to report in a public database any
donations they received from foreign sources.
While Burton and other supporters
of the measure portrayed it as an anti-terrorism effort – a
news release from Burton quoted David Horowitz as saying the
amendment would prevent “the undue influence of foreign
monies” – Burton also did not hide the fact that he was
primarily
targeting campus Middle East studies programs,
some of which conservatives have
accused of being hotbeds of Muslim radicalism.
“The underlying goal of the
amendment is to draw attention to the anti-American,
anti-Semitic, and anti-democratic rhetoric being preached at
some college’s ‘Middle East Studies’ centers,” said the
Burton news release, which featured a line at the top
boasting that the “American Jewish Congress strongly
supports disclosure.”
College groups lobbied hard against
the Burton measure, and it was defeated soundly, by a vote
of 306 to 120.
The oil exporters of the Persian Gulf are flush
with cash. Some of that money is going towards acquiring P&O, the British
shipping concern, thus sparking off the heated controversy over foreign
control of U.S. ports. This has led people to worry that Arab petrodollars
might be scared away from the U.S. In fact, unlike during the last oil boom
of the late 1970s, relatively little of the current Arab oil surplus has
been directly invested in U.S. assets or even deposited in the international
banking system. This time much of the oil money has remained at home where a
classic speculative mania is now being played out.
Lawrence of Arabia took the title of his celebrated
book from a passage in the Book of Proverbs: "Wisdom hath builded her house,
she hath hewn out her seven pillars." In homage to Lawrence, we identify the
seven pillars of folly upon which the Great Arab Boom has been weakly
constructed.
• The first pillar is liquidity:
OPEC members have earned around $1.3 trillion in petrodollars since 1998,
according to the Bank for International Settlements. The extra liquidity
injected into the Gulf economies by the oil price hike since 2002 is
estimated at around $300 billion by HSBC. Some of this money has been spent
on building up foreign currency reserves and on the acquisition of foreign
companies, such as P&O. Arab takeovers of European and U.S. firms totaled
$30 billion last year. Some money has even been invested in hedge funds and
gold. However, a great deal has stayed in the Gulf region.
This has contributed to an extraordinary explosion
of bank credit in Saudi Arabia and its neighbors. Since the member countries
of the Gulf Cooperation Council link their currencies to the U.S. dollar,
they have also enjoyed the Federal Reserve's easy money policy. The Saudi
government has recently repaid around $100 billion of outstanding debt,
further contributing to domestic liquidity.
The deposit base of Gulf commercial banks has
increased by over 60% since 2000, according to a recent report from Credit
Suisse. Bank loans have financed business investment, personal consumption,
property development and stock margin loans, thereby boosting both the
economy and asset prices.
• The second pillar is the new economy:
The Gulf economies are growing rapidly, along with corporate profits.
Returns on equity in the region are approaching 20%, calculates Credit
Suisse. Saudi Arabia has recently joined the World Trade Organization.
Kuwait is selling off some state-owned businesses. A new era of permanently
high oil prices and perpetual prosperity has been hailed.
The Gulf rulers are seeking to reduce their
economies' dependence on oil. This is spurring a massive investment boom.
Dubai is attempting to transform itself into a leading financial center and
tourist resort. Saudi Arabia intends to become a world leader in fertilizer
production. A bridge costing $3 billion is proposed to span the Red Sea. A
new economy is coming into being. The current oil boom, unlike former ones,
won't be followed by a bust, say the believers. This time it's different.
• The third pillar is the stock market:
The recent performance of Arab stock markets makes the Nasdaq of the late
1990s look like a slouch. Since January 2002, the Egyptian, Dubai and Saudi
stock markets are up respectively by over 1,100%, 630% and 600%. Only four
years ago, Gulf companies were priced at around twice book value. Today they
trade on an average of 44 times historic earnings and at over eight times
book value. Gulf banks are valued at over nine times book value, according
to Credit Suisse.
Sabic, a Saudi conglomerate, is currently ranked
among the world's 10 largest companies by market capitalization. The Saudi
stock exchange has a market cap of around $750 billion. That's roughly three
times the country's GDP. By comparison, the U.S. stock market reached a peak
of 183% of GDP in March 2000. In fact, the relative overvaluation of the
Saudi stock market is even greater than these figures suggest. Nomura
analyst Tarek Fadlallah points out that as the oil industry remains in state
hands, a far smaller fraction of Saudi economic activity is captured by the
stock market than in the U.S.
• The fourth pillar is an IPO boom:
In the late 1980s, the Japanese authorities kindled a speculative mania by
floating telecom giant NTT. In unconscious imitation, the Gulf states have
stimulated their mania with privatizations and IPOs at bargain prices. It is
not unknown for stocks to climb 500% on the first day's trading.
Applications for new issues have been oversubscribed by up to 800 times. One
IPO in the United Arab Emirates attracted aggregate subscriptions greater
than $100 billion, a larger sum than the UAE's GDP.
• The fifth pillar is a property boom:
Dubai is the fastest-growing city in the world. Hundreds of new buildings
are under construction, including what is planned to be the tallest building
ever, the Burj Tower. Cynics point out that the capping of the world's
highest property, from the Empire State Building to the Petronas Towers in
Malaysia, has occasionally in the past coincided with economic crises.
Reports suggest that the majority of new Dubai properties are being acquired
for speculative purposes, with only small deposits put down. They are being
flipped in the contemporary Miami manner.
• The sixth pillar is market inefficiency:
Financial information in the Gulf is totally inadequate. The Saudi megacap
conglomerate Sabic attracts no domestic financial analysis, says Nomura's
Mr. Fadlallah. Companies report their results in a rudimentary fashion. It
is against the law to sell short overpriced stocks in the Saudi market. And
foreigners' financial sophistication is absent since only Gulf nationals can
purchase Saudi stocks. Instead, speculators operate in an information vacuum
in markets reportedly dominated by insider trading and practiced
manipulation.
• The seventh pillar is the madness of crowds:
Newspapers gleefully report stories of police called to protect banks from
overeager IPO subscribers. A Saudi woman is said to have been divorced by
her husband for no reason other than that he'd had lost money in the stock
market. Up to two million of the 16 million Saudi population are said to be
playing the market. Interest-free loans are commonly available. Saudi bank
foyers are lined with LCD screens showing stock movements. A local TV
station has started to provide stock market reports. The education minister
has warned teachers to stop day-trading at schools. People are quitting
their jobs to trade.
This is a familiar tale of folly, similar in
certain aspects to the global technology bubble of the late 1990s. And like
the tech bubble it is set to burst. The current Gulf prosperity is a mirage
created by a haze of liquidity. The Federal Reserve, which inadvertently
caused the Arab bubble when it slashed interest rates in 2002, is currently
mopping up that liquidity. The Gulf Arabs are likely to be rudely awoken
from their speculative dreams. In fact, the Arab markets are beginning to
crack: Dubai has fallen 40% from its November peak, and the Saudi market is
down by around 12% in the past few days.
There are several implications of the coming Arab
crash. Speculative booms lead to capital being misallocated. Many of today's
investments in the Gulf region may appear, in retrospect, as extravagant as
U.S. fiber-optic expenditures in the late 1990s. As for Dubai's desire to
become an international financial center, it is spookily reminiscent of
Tokyo's ambition to rival New York and London in the 1980s. Japan's ambition
was shattered by the collapse of its bubble economy.
The political consequences could be more serious.
Arab rulers have deliberately encouraged the boom in the hope that rising
asset prices and a strong economy would distract their youthful populations
from religious fundamentalism. This strategy could backfire. History teaches
that when speculative bubbles burst and the public loses large sums, there
is normally a political backlash. This was true of the U.S. in the 1930s,
and to a lesser extent in the early 2000s, and of Japan in the 1990s. It's
not hard to imagine Islamists capitalizing on a future bust with
denunciations of stock-market gambling. Some of today's young Arab
day-traders could well turn into tomorrow's al Qaeda recruits.
Mr. Chancellor is deputy U.S. editor for Breakingviews.com.
Gore and Blood
We see a lot of snide remarks and jokes about Al Gore the conservative media,
and he (like his counterpart George W. Bush) has made some rather dumb remarks
in highly boring speeches. But when teamed up with the former head of Goldman
Sachs Asset Management, Gore and Blood (not the best of last name combinations)
produced a rather good, albeit short, article about some severe accounting
limitations.
I commend The Wall Street Journal for carrying this
piece which I would normally expect to appear in a more liberal media outlet.
Capitalism and sustainability are deeply and
increasingly interrelated. After all, our economic activity is based on the
use of natural and human resources. Not until we more broadly "price in" the
external costs of investment decisions across all sectors will we have a
sustainable economy and society.
The industrial revolution brought enormous
prosperity, but it also introduced unsustainable business practices. Our
current system for accounting was principally established in the 1930s by
Lord Keynes and the creation of "national accounts" (the backbone of today's
gross domestic product). While this system was precise in its ability to
account for capital goods, it was imprecise in its ability to account for
natural and human resources because it assumed them to be limitless. This,
in part, explains why our current model of economic development is
hard-wired to externalize as many costs as possible.
Externalities are costs created by industry but
paid for by society. For example, pollution is an externality which is
sometimes taxed by government in order to make the entity responsible
"internalize" the full costs of production. Over the past century, companies
have been rewarded financially for maximizing externalities in order to
minimize costs.
Today, the global context for business is clearly
changing. "Capitalism is at a crossroads," says Stuart Hart, professor of
management at Cornell University. We agree, and we think the financial
markets have a significant opportunity to chart the way forward. In fact, we
believe that sustainable development will be the primary driver of
industrial and economic change over the next 50 years. The interests of
shareholders, over time, will be best served by companies that maximize
their financial performance by strategically managing their economic,
social, environmental and ethical performance. This is increasingly true as
we confront the limits of our ecological system to hold up under current
patterns of use. "License to operate" can no longer be taken for granted by
business as challenges such as climate change, HIV/AIDS, water scarcity and
poverty have reached a point where civil society is demanding a response
from business and government. The "polluter pays" principle is just one
example of how companies can be held accountable for the full costs of doing
business. Now, more than ever, factors beyond the scope of Keynes's national
accounts are directly affecting a company's ability to generate revenues,
manage risks, and sustain competitive advantage. There are many examples of
the growing acceptance of this view.
In the corporate sector, companies like General
Electric are designing products to enable their clients to compete in a
carbon-constrained world. Novo Nordisk is taking a holistic view of
combating diabetes not only through treatment but also through prevention.
And Whole Foods and others are addressing the demand for quality food by
sourcing local and organic produce. Importantly, the business response is
about making money for shareholders, not altruism.
In the nongovernmental sector, organizations such
as World Resources Institute, Transparency International, the Coalition for
Environmentally Responsible Economies (Ceres) and AccountAbility are helping
companies explore how best to align corporate responsibility with business
strategy.
Over the past five years we have seen markets begin
to incorporate the external cost of carbon dioxide emissions. This is
happening through pricing mechanisms (price per ton of carbon dioxide) and
government-supported trading platforms such as the European Union Emissions
Trading Scheme in Europe. Even without a regulatory framework in the U.S.,
voluntary markets are emerging, such as the Chicago Climate Exchange and
state-level initiatives such as the Regional Greenhouse Gas Initiative.
These market mechanisms increasingly enable companies to calculate project
returns and capital expenditures decisions with the price of carbon dioxide
fully integrated.
The investment community has also started to
respond. For example, the Enhanced Analytics Initiative, an international
collaboration between asset owners and managers, encourages investment
research that considers the impact of extrafinancial issues on long-term
company performance. The Equator Principles, designed to help financial
institutions manage environmental and social risk in project financing, have
now been adopted by 40 banks, which arrange over 75% of the world's project
loans. In addition, the rise in shareholder activism and the growing debate
on fiduciary responsibility, governance legislation and reporting
requirements (such as the Global Reporting Initiative and the EU Business
Review) indicate the mainstream incorporation of sustainability concerns.
While we are seeing evidence of leading public companies adopting
sustainable business practices in developed markets, there is still a long
way to go to make sustainability fully integrated and therefore truly
mainstream. A short-term focus still pervades both corporate and investment
communities, which hinders long-term value creation.
As some have said, "We are operating the Earth like
it's a business in liquidation." More mechanisms to incorporate
environmental and social externalities will be needed to enable capital
markets to achieve their intended purpose--to consistently allocate capital
to its highest and best use for the good of the people and the planet.
Mr. Gore, a former vice president of the United States, is chairman of
Generation Investment Management. Mr. Blood, formerly head of Goldman Sachs
Asset Management, is managing partner of Generation Investment Management,
which he co-founded with Mr. Gore.
The Committee for Economic
Development (CED), a business-led public policy group, on Tuesday released a
policy statement examining the state of corporate governance in the U.S. and
offering practical recommendations for restoring public trust in business.
“The high-profile corporate scandals of the past
few years, coupled with numerous problems regarding financial statements,
have shaken shareholders’ trust in many businesses leaders and their
companies,” Roderick M. Hills, co-chair of CED and chair of the CED
Subcommittee on Corporate Governance, said in a prepared statement. “It is
imperative that we take concrete steps to restore the practices and
processes that are the foundation of good business ethics. Specifically, I
believe that the auditing process must reflect responsibility by company
leaders, not just a rigid adherence to accounting rules. The auditing
process needs to be guided by an over-arching set of principles that
guarantee that the CEO, Board of Directors, and other top company officials
know that they are fully committed to providing a truly fair and clear
presentation of the firm.” Hill is currently a partner at Hills, Stern and
Morley.
CED’s recommendations include:
Making Audit Committees Autonomous and
Vigorous
In order to accurately present a company’s position, the board of
directors must have access to all pertinent data. This will only occur
if a board’s auditing committee is competent, independent and
establishes effective control over both internal and independent
external auditors. The relationship between the audit committee and the
internal and external auditors is crucial. The audit committee should
exercise the same tone of control over the internal auditor as it does
over the external auditor, extending to decisions of hiring, firing and
compensation.
Ensuring that Users Understand that
financial Information is Based on Judgments
Financial statement would be more useful if they were governed by fewer
rules and displayed more judgment that lies behind estimated numbers.
Stock analysts, the investing public, and regulators, must recognize the
inherently judgmental character of accounting statements and financial
information. Ranges of values, rather than precise numbers, should be
explained and understood as such. In addition, financial statements
should be supplemented with non-financial indicators of value.
Giving Sarbanes-Oxley a Chance to Work
CED sees room to tailor the requirements imposed by Section 404 of
Sarbanes-Oxley within the existing statute, and endorses the Public
Company Accounting Oversight Board (PCAOB) and Securities and Exchange
Commission (SEC) implementation guidance, based on their evaluation of
the first-year experience. The guidance, issued simultaneously by the
two agencies in May 2005, should lower the costs and increase the value
of Section 404 compliance. Moreover, CED does not recommend a broad
exemption from Sarbanes-Oxley requirements for small capitalization
companies, but nevertheless, supports the objective of mitigating the
costs to smaller companies.
Taming Excessive Executive Compensation
In CED’s view, the disparity of income between top corporate executives
and average employees is a cause for serious concern. The differentials
that exist today too often reflect neither market conditions nor
individual performance. The procedure for determining executive
compensation has been broken at far too many of our larger corporations,
and CED believes that the solution to excessive compensation must be
regarded as a matter of process and disclosure, including compensation
committees must adopt measurable, specific, and genuinely challenging
goals for the performance of their businesses, and judge management by
them; the compensation process must be run by compensation committees
composed of independent directors; the compensation committee should
have direct authority over all terms of any management contract,
including all forms of compensation; management should have a
substantial equity interest in their company; and management should make
a full, timely, and transparent disclosure to shareholders of its
compensation.
Using Independent Nominating Committees to
Select and Appraise Directors
A paradox of corporate stewardship is that, despite the principle that
directors represent shareholders in the selection and retention of
management, historically, most directors have been selected by
management. In the CED’s view, the best approach to building
high-quality boards is to assign to truly independent nominating
committees the responsibility for recommending new board candidates and
for evaluating the performance of existing board members. The nominating
committee should also have the responsibility of recommending committee
assignments. ,/li> “We acknowledge at the outset that no laws or
policies will ever be sufficient to end all corporate misbehavior – or,
for that matter, misbehavior in any segment of public life,” Hills
continues. “We are confident, however, that truly independent and
inquisitive boards of directors will provide the best safeguard against
corporate wrongdoing.”
Stanford University is setting up a
research center to focus on the emerging academic discipline of
corporate governance, funded with $10 million from legendary Silicon
Valley venture capitalist Arthur Rock and his wife.
The new institution at Stanford Law School
will be led by law professors Robert Daines and Joseph Grundfest and
will study issues such as executive pay, shareholder rights and the
state of the auditing industry, the university said. Organizers hope
the center will also be more hands-on, interacting with regulators
and judges and creating teaching materials for business-school
students.
"We don't want to be just an academic
center," Mr. Grundfest said in an interview. "We also want to help
improve the quality of corporate governance in the real world." He
added that Stanford's law school has been active in the area since
1993, when it launched a program called Directors College to help
educate corporate-board members.
Mr. Grundfest served as a commissioner with
the Securities and Exchange Commission from 1985 to 1990. He will
direct the center with Mr. Daines, a corporate-law scholar who once
worked at investment bank Goldman Sachs Group Inc
The Influence of Audit Committee Financial
Expertise on Earnings Quality: US Evidence by Bo Qin
SSRN-The Influence of Audit Committee Financial
Expertise on Earnings Quality: US Evidence by Bo Qin
More evidence that board make-up matters. In this
peice, Qin finds that, having an
..accounting-literate professional as SEC
initially proposed serving on the audit committee are more likely to
have high quality of reported earnings than others without such an
expert.
Interestingly the final definition of financial
expert that was adopted by the SEC yielded a MUCH weaker finding so it
appears that not only board make-up matters, but also definitions!
Cite: Qin, Bo, "The Influence of Audit Committee
Financial Expertise on Earnings Quality: US Evidence" (March 2006).
Available at SSRN:
http://ssrn.com/abstract=799645
A look at derivative trading before Black and
Scholes.
In a forthcoming Journal of Finance piece, Moore
and Juh examine how options were priced 60 years BEFORE the Black-Scholes
formula. They find that when markets were competitive, the pricing errors
were about the same that we find today!
Summary: Previous research on the efficiency of
option pricing is mixed. This may be because of poor data (example monthly
data) or actual mispricing.
In this paper, Moore and Juh use option data from
South African markets (the article contains an interesting history of these
gold-dominated markets as well!), and find that while investors sort of "got
it" they did misprice some and that this mispricing seems tied to the degree
of competition in the market.
Specifically it appears that investors
overestimated volatilty somewhat. For instance from the section on option
pricing:
"Of the 112 stocks in our data set, 84 had more
than half of the options quoted on them overpriced relative to Black-Scholes
model prices (including 18 stocks forwhich all options written were
overpriced)...."
As a percentage, this mispricing seems to be tied
to market competitivenes:
"Our results suggest that findings of option
mispricing that rely on a broker’s quotes are quite sensitive to the
competitiveness of the market in which the broker operated. It is possible
that differing levels of competition in the option writing market can
explain the divergent findings of Boness (1964), Kruizenga (1964), Black and
Scholes (1972), and Kairys and Valerio (1997)." Of course in today's market
we do not always get things correctly either and the authors compare the
pricing errors of today with those of the earlier period. The finding? The
errors are quite comparable. In the words of Moore and Juh:
"Comparing these warrants to derivatives trading
between 2001 and 2003 on the same exchange and using the same methods to
compute volatility, we find that early twentieth century investors mispriced
in a comparable way using a historical measure of volatility and
outperformed modern JSE investors using a perfect-foresight measure of
volatility. Development of the modern theory does not appear to have
improved the performance of South African investors." and equally important
(maybe more so) after showing that the mispricing was a function of the
degree of competitiveness in the market:
"...these results suggest that a competitive
market, whether through trading of derivatives on an exchange or competition
among rival brokers, has been more important in driving derivativeprices to
fair values than the development of a formal derivative pricing model...."
Cool paper!
Cite:
Derivative Pricing 60 Years before Black-Scholes:
Evidence from the Johannesburg Stock Exchange by LYNDON MOORE and STEVE JUH.
This review was based on a Northwestern University working paper.
Accelerated share repurchase (ASR) Manipulation of
Earnings-Per-Share (EPS)
Games Corporations Play
What's special about ASRs is that the business firm simulates a normal
repurchase program but enjoys an immediate EPS jump. The accounting rules seem
to allow the entity instantly to reduce the number of shares outstanding.
Managers are smart enough to know
that earnings per share (EPS) is the most important statistic found within a
financial report. Since they are evaluated on the basis of financial
performance and performance is gauged by EPS, business executives do a
number on EPS. If you can't earn it legitimately and if you don't want to
out-and-out make it up, do the next best thing. Just stretch the truth as
far as you can and hope nobody finds out. Wash, rinse, and spin: that's
their motto!
Accelerated share repurchase (ASR) programs are the
new game in town. They involve derivative contracts on the business
enterprise's own stock in an attempt to inflate EPS. Managers seek ways to
reduce the denominator in EPS, and, for a fee, Wall Street is happy to
oblige.
Not that derivatives on one's own stock are new. In
the heyday of the late 1990s and early 2000s, firms would write put options
or go long on forward contracts on their common stock. Neither instrument
hedged anything; they were merely contracts that bet that their stock prices
would climb over the life of the derivative. If they did, the company would
gain the premium in the case of the written put options, for the buyers of
these instruments would let the options lapse. In the case of the forward
purchase contract, the corporation would buy back its own shares at old,
cheaper prices. Alternatively, the participants in the forward contract
could cash-settle the gain/loss on the forward.
These cute derivatives paid handsomely as long as
the stock market cooperated by generating higher prices. As soon as the
market turned south, the shareholders in these business enterprises
discovered huge losses. Recall the saga of EDS, which engaged in both
activities, writing put options and having forward purchase contracts. The
stock price of EDS took a nosedive in 2001 and 2002, and the firm lost $225
million on their gamble.
Today those games have been replaced with the ASR
racket. SFAS No. 150 has virtually eliminated the incentive for writing put
options or engaging in forward purchase contracts on one's stock because it
requires the firm to mark the instruments to market, placing gains and
losses into the income statement. Until and unless the FASB amends SFAS No.
150 to do the same with ASRs, business entities can employ ASRs without
marking them to market. Any gains or losses bypass the income statement and
go into equity.
ASRs work like this. The counterparty, usually a
financial institution, borrows the company's shares from investors and sells
the stock short. The company purchases shares from the counterparty and
simultaneously enters into a forward sale contract with the counterparty.
Later the counterparty purchases shares in the open market to cover its
short position. At maturity the forward contract is settled by selling the
shares at the exercise price or by the net cash amount.
What's special about ASRs is that the business firm
simulates a normal repurchase program but enjoys an immediate EPS jump. The
accounting rules seem to allow the entity instantly to reduce the number of
shares outstanding.
Managers in a variety of corporations have
participated in ASRs, and they have accounted for them in the manner
described. They include Cardinal Healthcare, Cendant, Duke Energy,
Hewlett-Packard, and Waste Management. (Gee, haven't we seen these firms in
recent news stories?)
The problem with ASRs is that it is all nonsense.
The forward should be marked to market rather than bypassing the income
statement. Moreover, while the firm has repurchased the common shares, it
also has promised to sell them (or cash-settle) in the forward contract. In
my mind the forward negates the repurchase aspect and so the denominator
ought to stay the same. Instead of treating the two transactions separately,
the corporation should account for them as joint set of transactions.
Why do these managers persist in exaggerating
financial statements to improve their performance evaluation? Why don't they
try to tell it like it was instead of telling it like they wanted it to be?
Don't these managers care to tell investors and creditors the truth?
And why are investment bankers playing the
huckster? They are playing with fire when they peddle these tricks to
managers. Didn't they learn anything from the financial meltdown in
2001-2002? Weren't they humiliated by criminal investigations by the Justice
Department? Didn't they lose enough money in the lawsuits they settled out
of court, and aren't they bothered by the remaining lawsuits still in play?
How many more criminal investigations and how many more civil suits do they
wish to face? These games have to end -- if they endure, more financial
implosions are in the forecast, hurting managers and investments bankers as
well as investors and creditors.
A House of Representatives subcommittee is going to
have a public hearing on Wednesday that has the objective of discussing
"ways to promote more transparent financial reporting, including current
initiatives by regulators and industry."
Baker Subcommittee to Advocate Transparency in
Financial Reporting
The Financial Services Subcommittee on Capital
Markets, Insurance and Government Sponsored Enterprises, chaired by Rep.
Richard H. Baker (LA), will convene for a hearing entitled Fostering
Accuracy and Transparency in Financial Reporting. The hearing will take
place on Wednesday, March 29 at 10 a.m. in room 2128 of the Rayburn
building.
Members of the Subcommittee are expected to discuss
ways to promote more transparent financial reporting, including current
initiatives by regulators and industry.
For the capital markets to operate most
efficiently, information about public companies must be understandable,
accessible, and accurate. Corporate statements are mathematical summaries
meant to convey a company’s condition. The four basic documents which must
be filed with the U.S. Securities and Exchange Commission (SEC) are at the
heart of investor disclosure: the income statement, the cash flow statement,
the balance sheet, and the statement of changes in equity.
Among the current initiatives to improve the
clarity and usefulness of public company information is a trend away from
quarterly earnings forecasting, the use of technology to decrease
complexity, and a review of the various accounting standards and how they
interact.
Subcommittee Chairman Baker said, "If U.S. markets
are to remain on top in an increasingly competitive global marketplace, we
need to move away from the complex and cumbersome and explore technological
and other methods of enhancing the clarity, accuracy, and efficiency of our
accounting system. At the same time, we need to look at whether earnings
forecasting and the beat-the-street mentality, which appears to have
contributed to some of the executive malfeasance of the past several years,
truly serves the best interest of investors or the goal of long-term
economic growth."
The corporate scandals several years ago revealed
weaknesses in the financial reporting system. While many companies were
violating financial reporting requirements, regulatory complexity also may
have contributed to some lapses in compliance.
Fraud, general manipulation of statements, and
regulatory complexity all contribute to a reduction in the usefulness of
financial statements and all may obfuscate the picture of companies’
financial health. A number of recent studies have argued against the
practice of predicting future quarterly earnings, concluding that the drive
to “make the numbers” can lead to poor business decisions and the
manipulation of earnings.
Congress, regulators, and the industry subsequently
have assessed financial reporting failures and have reacted with efforts
aimed at strengthening the system, including many provisions of The
Sarbanes-Oxley Act of 2002.
More recent initiatives by regulators to streamline
financial reporting standards and accounting include:
A Financial Accounting Standards Board (FASB)
review of complex and outdated accounting standards;
The use of principles-based, rather than
rules-based, accounting;
FASB’s continued cooperation with the
International Accounting Standards Board on the convergence of
accounting standards; and
The use of eXtensible Business Reporting
Language, or XBRL, a computer code which tags data in financial
statements. The use of XBRL allows investors to quickly download
financial data onto spreadsheets for analysis.
Public Companies have been filing financial
statements with the SEC since the passage of the Securities Exchange Act of
1934.
March 28, 2006 reply from Bob Jensen
Hi Denny,
I know that we disagree on the principles based
standards initiative. My negative position on this is outlined somewhat at
http://snipurl.com/JensenPBS
I just don't think the principles based Ten
Commandments are sufficient to discard all statutes on felony law. I don't
think we can discard all FDA rules on drug testing and replace them with
principles based guidelines for pharmaceutical companies to follow. The same
can be said for environmental protection regulations, child protective
services, and whatever. Sometimes we need detailed rules so we have better
guidance as to what is right and what is wrong in specific and complex
circumstances.
You and I go back to the old days (and we passed the
CPA exam). GAAP was much less complex and could virtually be memorized. We
go back to the days when much was left to "auditor judgment."
But we also go back to the days when CEOs were not
fanatics about hitting analyst forecasts. We go back to days when top-tier
management compensation did not swing heavily an eps number. We go back to
the days when debt was debt and equity was equity. More importantly we go
back to the days when an auditor could actually understand contracts being
written.
In the past CEOs respected auditor decisions and did
not threaten auditors like in so many companies are doing today. Too many
times in recent years we've seen where virtually all big auditing firms have
caved in to pressures from large clients such as the way KPMG caved in on
Fannie Mae and Andersen caved in on various big clients ---
http://www.trinity.edu/rjensen/fraud001.htm#others
I think that less complex principles based standards
will only increase conflicts between clients and auditors. Neither will know
that rules (albeit complex rules as in the case of derivatives, leases, VIEs,
and pensions) are being broken if there are no detailed rules to be broken.
I think the absence of detailed rules greatly
increase inconsistencies in "auditor judgment." I think absence of detailed
rules takes away auditor bargaining chips when dealing with clients.
I guess my bottom line conclusion is that the global
world of contracting, risk management, and mezzanine debt is totally unlike
the simpler world back in the old days when we were auditor whippersnappers.
Bob Jensen
Scientific Method in Accounting Has Not Been a Method
for Generating New Theories
The following is a quote from the 1993 President’s Message
of Gary Sundem,
President’s Message. Accounting Education News 21 (3). 3.
Although empirical scientific method has made many positive
contributions to accounting research, it is not the method that is likely to
generate new theories, though it will be useful in testing them. For
example, Einstein’s theories were not developed empirically, but they relied
on understanding the empirical evidence and they were tested empirically.
Both the development and testing of theories should be recognized as
acceptable accounting research.
But Scientific Method Can Be Used to Test Theories (at least indirectly)
With the aid of a researcher from the University of Iowa, the WSJ
uncovers evidence of backdating of employee stock options
The Wall Street Journal asked Erik Lie, an
associate professor of finance at the University of Iowa who has studied
backdating, to generate a list of companies that made stock-option grants
that were followed by large gains in the stock price.
The Journal examined a number of the companies,
looking at all of their option grants to their top executive from roughly
1995 through mid-2002. Securities-law changes in 2002 curtailed the
potential for backdating a grant. Executives typically receive option grants
annually.
Mr. Lie and other academics say a pattern of sharp
stock appreciation after grant dates is an indication of backdating; by
chance alone, grants ought to be followed by a mixed bag of stock
performance -- some rises, some declines.
To quantify how unusual a particular pattern of
grants is, the Journal calculated how much each company's stock rose in the
20 trading days following each grant date. The analysis then ranked that
appreciation against the stock performance in the 20 days following all
other trading days of the year. It ranked all 252 or so trading days in a
given year according to how much the stock rose or fell following them.
For instance, Affiliated Computer Services Inc.
reported an option grant to its then-president, Jeffrey Rich, dated Oct. 8,
1998. In the succeeding 20 trading days -- equal to roughly a month -- ACS
stock rose 60.2%. That huge gain was the best 20-trading-day performance all
year for ACS. So the Journal ranked Oct. 8 No. 1 for ACS for 1998.
It is very unlikely that several grants spread over
a number of years would all fall on high-ranked days.
But all six of Mr. Rich's did. Another of his
option grants also fell on the No. 1-ranked day of a year, March 9, 1995.
Two grants fell on the second-ranked day, those in 1996 and 1997. In 20 02,
his options grant was on the third-ranked day of the year, and in 2000, his
grant came on the fourth-ranked day.
If a year has 252 trading days, the probability of
a single options grant coming on the top-ranked day of that year would be
one in 252. The chance of it coming on a day ranked No. 8 or better would be
eight in 252.
The analysis then used the probability of each
grant to figure how likely it is that an executive's overall multiyear grant
pattern, or one more extreme than the actual pattern, occurred merely by
chance. The more high-ranked days in the pattern, the longer the odds and
the more likely it is that some factor other than chance influenced those
dates. Two companies said they did use something other than chance -- they
made grants on days when they thought the stock was temporarily low. This
could explain results that differ somewhat from chance, but it wouldn't
account for the extreme patterns of consistent post-grant rises.
John Emerson, an assistant professor of statistics
at Yale, reviewed the methodology and developed a computer program to
calculate the probabilities for all of the executives' grants except those
to UnitedHealth CEO William McGuire. Because the number of his grants and
complexity of his pattern made a computational method infeasible, the
Journal used an estimate for his probability that Mr. Emerson said is
conservative. Mr. Emerson said the figures for all six executives surpass a
standard threshold statisticians use to assess the significance of a result.
For Mr. Rich's grants, the Journal's methodology
puts the overall odds of a chance occurrence at about one in 300 billion --
less likely than flipping a coin 38 times and having it come up "heads"
every time.
Exceedingly long odds also turned up in the
Journal's analysis of grant-date patterns at several other companies. "It's
very, very, very unlikely that they could have produced such patterns just
by choosing random dates," said Mr. Lie.
David Yermack, an associate professor of finance at
New York University, reviewed the Journal's methodology and said it was a
reasonable way to identify suspicious patterns of grants. But Mr. Yermack
also said the odds shouldn't be thought of as precise figures, largely
because they depend on assumptions in the method used to determine which
grant dates are more favorable than others.
Because nobody actually authorizing the grant on a
given day could have known how the stock would do in the future, the
Journal's analysis used post-grant price surges as an indication of possible
backdating. Academics theorize that the most effective way to consistently
capture low-price days for option grants is to wait until after a stock has
risen, then backdate a grant to a day prior to that rise.
The decision to look at 20 trading days after each
grant was arbitrary. But Messrs. Yermack and Lie said it was a reasonable
yardstick to detect possible backdating. Using a longer period, such as a
year, wouldn't be a good way to spot backdating of a few days or weeks
because the longer-term trading would overwhelm any backdating effect.
The 20-day price rises don't present an immediate
opportunity to profit, since options can't usually be exercised until held a
year or more. But when the options do become exercisable, they'll be more
valuable if they were priced when the stock was low.
From The Wall Street Journal Accounting Weekly Review on March 24,
2006
TITLE: At Knight Ridder, Margins Shine
REPORTER: Steven D. Jones
DATE: Mar 16, 2006
PAGE: C3
LINK:
http://online.wsj.com/article/SB114247685757399736.html
TOPICS: Accounting, Financial Accounting, Financial Analysis, Financial
Statement Analysis, Income from Continuing Operations
SUMMARY: In this article, the author compares several income statement based
financial ratios, such as profit margin and operating earnings ratios, among
companies in different industries. He then further analyzes reasons behind
positive and negative perceptions of ratios that are numerically comparable.
There are concerns about definitions provided in the article and some questions
highlight those issues.
QUESTIONS:
1.) List all financial ratios cited in the article. Provide a definition of each
from an accounting textbook glossary and include a description of how to
calculate the ratio.
2.) The author writes that "net profit margin is the broadest measure of a
company's ability to efficiently run itself." Do you agree with that statement?
Support your answer with reference to the definition of the ratio given in
answer to number 1 above and by making specific reference to efficiency ratios.
3.) How does the author compare several companies' net profit ratios? What
other income statement items does the author consider to support arguments that
ConocoPhillips is faring well, but Knight Ridder is not doing as well, while
both show approximately the same profit margin of 8.3% and 8.4%, respectively?
4.) In what ways does the author consider trends over time in order to assess
the nature of profit margins at any particular point in time?
5.) How does the author add industry information to the time series analysis
of financial ratios?
Reviewed By: Judy Beckman, University of Rhode Island
--- RELATED ARTICLES ---
TITLE: McClatchy Agrees to Acquire Knight Ridder for $4.5 Billion
REPORTERS: On-line Journal Editors with Joseph T. Hallinan and Dennis K. Berman
ISSUE: Mar 13, 2006
LINK:
http://online.wsj.com/article/SB114224828072596508.html
"At Knight Ridder, Margins Shine: Publisher Stacks Up Well By Some
Profit Measures Though Revenue Is Weak." by Steven D. Jones, The Wall Street
Journal, March 16, 2006; Page C3 ---
http://online.wsj.com/article/SB114247685757399736.html
What does an oil company that was recently brought
before Congress to explain its record profits have in common with a
newspaper publisher that agreed to be sold this week? They generate nearly
identical net profit margins.
ConocoPhillips, which had a net profit margin of
8.3% last year, had been accused by some lawmakers of making a windfall
profit on the rally in crude oil -- a charge the company and other oil
giants strongly deny. Knight Ridder Inc., which had a net profit margin of
8.4% in 2005, is trying to convince people the newspaper business is still
relevant, and the company just agreed to sell itself to smaller competitor
McClatchy Co. in a deal that is now valued at about $66 a share, or $4.5
billion.
Net profit margin is the broadest measure of a
company's ability to efficiently run itself. It is calculated by dividing
net profit by net revenue.
The comparison of the two companies illustrates
that operating prowess alone doesn't equal market success, and there are
plenty of other examples. The upshot: On measures of profitability often
watched by investors, weakened companies often look as good as Wall Street
darlings.
Wall Street and some of Knight Ridder's own
shareholders came to doubt the company's worth because of its falling
revenue growth: Knight Ridder's top line rose less than 1% last year,
according to Thomson Financial, a data and research firm. ConocoPhillips's
revenue rose 29% in the same period.
Knight Ridder's margins were even better a few
years ago, points out John Janedis, media analyst for Banc of America
Securities, which does investment-banking work for the publisher. And they
still stack up or even best margins seen in other industries, particularly
the net operating margins, which are a measure of the company's skills at
running its core businesses.
For instance, operating-profit margins at Knight
Ridder were over 16% in the fourth quarter, compared with 15% at the Wall
Street giant Merrill Lynch & Co. Operating margins take into account all
wage and production costs and are calculated by dividing a company's
operating profit before taxes and interest payments due by its net revenue.
Over a five-year period, Knight Ridder's operating margins have averaged
19.5% compared with 14% at the venerable brokerage house.
The booming steel industry, whose stocks have risen
30% so far this year, enjoyed operating margins of 14% in the most recent
quarter. Over the past five years, operating margins in the steel business
have averaged a little better than 6%.
Looking again at net profit margin, Knight Ridder
is managing better than half the companies in the Standard & Poor's
500-stock index. Knight Ridder's 8.4% return over the past 12 months puts it
at No. 216 among companies in the S&P 500, according to Thomson Financial.
That also puts Knight Ridder ahead of other major publishers and even ahead
of coffee merchant Starbucks Corp.
Knight Ridder even stacks up well against some
companies in another hot stock sector: technology. For example, Knight
Ridder's standing on three key profit measures -- pretax, operating and net
-- were comparable to electronic-equipment maker Tektronix Inc. of
Beaverton, Ore., according to the Thomson analysis. And Tektronix shares
have been flirting with a new 52-week high of more than $32 a share.
California utility PG&E Corp. also delivers similar
profit ratios as Knight Ridder. And that utility was able to shed a lot of
costs when it went through bankruptcy reorganization early this decade.
Barbara gave me permission to post the following message on March 15, 2006
My reply follows her message.
Professor Jensen:
I need your help in working with regulators who are
uncomfortable with online education.
I am currently on the faculty at the University of
Dallas in Irving, Texas and I abruptly learned yesterday that the Texas
State Board of Public Accountancy distinguishes online and on campus
offering of ethics courses that it approves as counting for students to meet
CPA candidacy requirements. Since my school offers its ethics course in both
modes, I am suddenly faced with making a case to the TSBPA in one week's
time to avoid rejection of the online version of the University of Dallas
course.
I have included in this email the "story" as I
understand it that explains my situation. It isn't a story about accounting
or ethics, it is a story about online education.
I would like to talk to you tomorrow because of
your expertise in distance education and involvement in the profession. In
addition, I am building a portfolio of materials this week for the Board
meeting in Austin March 22-23 to make a case for their approval (or at least
not rejection) of the online version of the ethics course that the Board
already accepts in its on campus version. I want to include compelling
research-based material demonstrating the value of online learning, and I
don't have time to begin that literature survey myself. In addition, I want
to be able to present preliminary results from reviewers of the University
of Dallas course about the course's merit in presentation of the content in
an online delivery.
Thank you for any assistance that you can give me.
Barbara W. Scofield
Associate Professor of Accounting
University of Dallas
1845 E Northgate Irving, TX 75062
972-721-5034 scofield@gsm.udallas.edu
A statement of the University of Dallas and Texas
State Board of Public Accountancy and Online Learning
The TSBPA approved the University of Dallas ethics
program in 2004. The course that was approved was a long-standing course,
required in several different graduate programs, called Business Ethics. The
course was regularly taught on campus (since 1995) and online (since 2001).
The application for approval of the ethics course
did not ask for information about whether the class was on campus or online
and the syllabus that was submitted happened to be the syllabus of an on
campus section. The TSBPA's position (via Donna Hiller) is that the Board
intended to approve only the on campus version of the course, and that the
Board inferred it was an on campus course because the sample syllabus that
was submitted was an on campus course.
Therefore the TSBPA (via Donna Hiller) is requiring
that University of Dallas students who took the online version of the ethics
course retake the exact same course in its on campus format. While the TSBPA
(via Donna Hiller) has indicated that the online course cannot at this time
be approved and its scheduled offering in the summer will not provide
students with an approved course, Donna Hiller, at my request, has indicated
that she will take this issue to the Board for their decision next week at
the Executive Board Meeting on March 22 and the Board Meeting on March 23.
There are two issues:
1. Treatment of students who were relying on
communication from the Board at the time they took the class that could
reasonably have been interpreted to confer approval of both the online and
on campus sections of the ethics course.
2. Status of the upcoming summer online ethics
class.
My priority is establishing the status of the
upcoming summer online ethics class. The Board has indicated through its
pilot program with the University of Texas at Dallas that there is a place
for online ethics classes in the preparation of CPA candidates. The
University of Dallas is interested in providing the TSBPA with any
information or assessment necessary to meet the needs of the Board to
understand the online ethics class at the University of Dallas. Although not
currently privy to the Board specific concerns about online courses, the
University of Dallas believes that it can demonstrate sufficient credibility
for the course because of the following factors:
A. The content of the online course is the same as
the on campus course. Content comparison can be provided. B. The
instructional methods of the online course involve intense
student-to-student, instructor-to-student, and student-to-content
interaction at a level equivalent to an on campus course. Empirical
information about interaction in the course can be provided.
C. The instructor for the course is superbly
qualified and a long-standing ethics instructor and distance learning
instructor. The vita of the instructor can be provided.
D. There are processes for course assessment in
place that regularly prompt the review of this course and these assessments
can be provided to the board along with comparisons with the on campus
assessments.
E. The University of Dallas will seek to coordinate
with the work done by the University of Texas at Dallas to provide
information at least equivalent to that provided by the University of Texas
at Dallas and to meet at a minimum the tentative criteria for online
learning that UT Dallas has been empowered to recommend to the TSBPA.
Contact with the University of Texas at Dallas has been initiated.
When the online ethics course is granted a path to
approval by the Board, I am also interested in addressing the issue of TSBPA
approval of students who took the class between the original ethics course
approval date and March 13, 2006, the date that the University of Dallas
became aware of the TSBPA intent (through Donna Hiller) that the TSBPA
distinguished online and on campus ethics classes.
The University of Dallas believes that the online
class in fact provided these students with a course that completely
fulfilled the general intent of the Board for education in ethics, since it
is the same course as the approved on campus course (see above). The
decision on the extent of commitment of the Board to students who relied on
the Board's approval letter may be a legal issue of some sort that is
outside of the current decision-making of the Board, but I want the Board
take the opportunity to consider that the reasonableness of the students'
position and the students' actual preparation in ethics suggest that there
should also be a path created to approval of online ethics courses taken at
the University of Dallas during this prior time period. The currently
proposed remedy of a requirement for students to retake the very same course
on campus that students have already taken online appears excessively costly
to Texans and the profession of accounting by delaying the entry of
otherwise qualified individuals into public accountancy. High cost is
justified when the concomitant benefits are also high. However, the benefit
to Texans and the accounting profession from students who retake the ethics
course seems to exist only in meeting the requirements of regulations that
all parties diligently sought to meet in the first place and not in
producing any actual additional learning experiences.
A reply to her from Bob Jensen
Hi
Barbara,
May I
share your questions and my responses in the next edition of New
Bookmarks? This might be helpful to your efforts when others become
informed. I will be in my office every day except for March 17. My phone
number is 210-999-7347. However, I can probably be more helpful via
email.
As
discouraging as it may seem, if students know what is expected of them
and must demonstrate what they have learned, pedagogy does not seem to
matter. It can be online or onsite. It can be lecture or cases. It can
be no teaching at all if there are talented and motivated students who
are given great learning materials. This is called the well-known “No
Significant Difference” phenomenon ---
http://www.nosignificantdifference.org/
I think
you should stress that insisting upon onsite courses is discriminatory
against potential students whose life circumstances make it difficult or
impossible to attend regular classes on campus.
I think
you should make the case that online education is just like onsite
education in the sense that learning depends on the quality and
motivations of the students, faculty, and university that sets the
employment and curriculum standards for quality. The issue is not onsite
versus online. The issue is quality of effort.
The most
prestigious schools like Harvard and Stanford and Notre Dame have a
large number of credit and non-credit courses online. Entire accounting
undergraduate and graduate degree programs are available online from
such quality schools as the University of Wisconsin and the University
of Maryland. See my guide to online training and education programs is
at
http://www.trinity.edu/rjensen/crossborder.htm
Anticipate and deal with the main arguments against online education.
The typical argument is that onsite students have more learning
interactions with themselves and with the instructor. This is absolutely
false if the distance education course is designed to promote online
interactions that do a better job of getting into each others’ heads.
Online courses become superior to onsite courses.
Amy
Dunbar teaches intensely interactive online courses with Instant
Messaging. See Dunbar, A. 2004. “Genesis of an Online Course.” Issues in
Accounting Education (2004),19 (3):321-343.
ABSTRACT:
This paper presents a descriptive and evaluative analysis of the
transformation of a face-to-face graduate tax accounting course to an
online course. One hundred fifteen students completed the compressed
six-week class in 2001 and 2002 using WebCT, classroom environment
software that facilitates the creation of web-based educational
environments. The paper provides a description of the required
technology tools and the class conduct. The students used a combination
of asynchronous and synchronous learning methods that allowed them to
complete the coursework on a self-determined schedule, subject to
semi-weekly quiz constraints. The course material was presented in
content pages with links to Excel® problems, Flash examples, audio and
video files, and self-tests. Students worked the quizzes and then met in
their groups in a chat room to resolve differences in answers. Student
surveys indicated satisfaction with the learning methods.
I might
add that Amy is a veteran world class instructor both onsite and online.
She’s achieved all-university awards for onsite teaching in at least
three major universities. This gives her the credentials to judge how
well her online courses compare with her outstanding onsite courses.
The
argument that students cannot be properly assessed for learning online
is more problematic. Clearly it is easier to prevent cheating with
onsite examinations. But there are ways of dealing with this problem.
My best example of an online graduate program that is extremely
difficult is the Chartered Accountant School of Business (CASB) masters
program for all of Western Canada. Students are required to take some
onsite testing even though this is an online degree program. And CASB
does a great job with ethics online. I was engaged to formally assess
this program and came away extremely impressed. My main contact there is
Don Carter
carter@casb.com . If you are really serious about this, I would
invite Don to come down and make a presentation to the Board. Don will
convince them of the superiority of online education.
I think a
lot of the argument against distance education comes from faculty
fearful of one day having to teach online. First there is the fear of
change. Second there is the genuine fear that is entirely justified ---
if online teaching is done well it is more work and strain than onsite
teaching. The strain comes from increased hours of communication with
each and every student.
Probably
the most general argument in favor of onsite education is that students
living on campus have the social interactions and maturity development
outside of class. This is most certainly a valid argument. However, when
it comes to issues of learning of course content, online education can
be as good as or generally better than onsite classes. Students in
online programs are often older and more mature such that the on-campus
advantages decline in their situations. Online students generally have
more life, love, and work experiences already under their belts. And
besides, you’re only talking about ethics courses rather than an entire
undergraduate or graduate education.
I think
if you deal with the learning interaction and assessment issues that you
can make a strong case for distance education. There are some “dark
side” arguments that you should probably avoid. But if you care to read
about them, go to
http://www.trinity.edu/rjensen/000aaa/theworry.htm
Bob, as a director and teacher in a graduate
accounting program that is exclusively online, I want to thank you for your
support and eloquent defense of online education. Unfortunately, Texas's
predisposition against online teaching also shows up in its education
requirements for sitting for the CPA exam. Of the 30 required upper division
accounting credits, at least 15 must "result from physical attendance at
classes meeting regularly on the campus" (quote from the Texas State Board
of Public Accountancy website at www.tsbpa.state.tx.us/eq1.htm)
Cynically speaking, it seems the state of Texas
wants to be sure its classrooms are occupied.
Barbara, best of luck with your testimony.
Bruce Lubich
Program Director,
Accounting Graduate School of Management and Technology
University of Maryland University College
At my school, Bowling Green, student credits for
on-line accounting majors classes are never approved by the department
chair. He says that you can't trust the schools that are offering these.
When told that some very reputable schools are offering the courses, he
still says no because when the testing process is done on-line or not in the
physical presence of the professor the grades simply can't be trusted.
David Albrecht
March 16, 2006 reply from Bob Jensen
Hi David,
One tack against a luddites like that is to propose a compromise that
virtually accepts all transfer credits from AACSB-accredited universities.
It's difficult to argue that standards vary between online and onsite
courses in a given program accredited by the AACSB. I seriously doubt that
the faculty in that program would allow a double academic standard.
In fact, on transcripts it is often impossible to distinguish online from
onsite credits from a respected universities, especially when the same
course is offered online and onsite (i.e., merely in different sections).
You might explain to your department chair that he's probably been
accepting online transfer credits for some time. The University of North
Texas and other major universities now offer online courses to full-time
resident students who live on campus. Some students and instructors find
this to be a better approach to learning.
And you ask him why Bowling Green's assessment rigor is not widely known
to be vastly superior to online courses from nearly all major universities
that now offer distance education courses and even total degree programs,
including schools like the Fuqua Graduate School at Duke, Stanford
University (especially computer science and engineering online courses that
bring in over $100 million per year), the University of Maryland, the
University of Wisconsin, the University of Texas, Texas Tech, and even,
gasp, The Ohio State University.
You might tell your department chair that by not offering some online
alternatives, Bowling Green is not getting the most out of its students. The
University of Illinois conducted a major study that found that students
performed better in online versus onsite courses when matched pair sections
took the same examinations.
And then you might top it off by asking your department chair how he
justifies denying credit for Bowling Green's own distance education courses
---
http://adultlearnerservices.bgsu.edu/index.php?x=opportunities
The following is a quotation from the above Bowling Green site:
*****************************
The advancement of computer technology has
provided a wealth of new opportunities for learning. Distance education
is one example of technology’s ability to expand our horizons and gain
from new experiences. BGSU offers many distance education courses and
two baccalaureate degree completion programs online.
The Advanced Technological Education Degree
Program is designed for individuals who have completed a two-year
applied associate’s degree. The Bachelor of Liberal Studies Degree
Program is ideal for students with previous college credit who would
like flexibility in course selection while completing a liberal
education program.
Count me in the camp that just isn't that concerned
about online cheating. Perhaps that is because my students are graduate
students and my online exams are open-book, timed exams, and a different
version is presented to each student (much like a driver's license exam). In
my end-of-semester survey, I ask whether students are concerned about
cheating, and on occasion, I get one who is. But generally the response is
no.
The UConn accounting department was just reviewed
by the AACSB, and they were impressed by our MSA online program. They
commented that they now believed that an online MSA program was possible. I
am convinced that the people who are opposed to online education are
unwilling to invest the time to see how online education is implemented.
Sure there will be bad examples, but there are bad examples of face to face
(FTF) teaching. How many profs do you know who simply read powerpoint slides
to a sleeping class?! Last semester, I received the School of Business
graduate teaching award even though I teach only online classes. I believe
that the factor that really matters is that the students know you care about
whether they are learning. A prof who cares interacts with students. You can
do that online as well as FTF.
Do I miss FTF teaching -- you bet I do. But once I
focused on what the student really needs to learn, I realized, much to my
dismay, interacting FTF with Dunbar was not a necessary condition.
Amy Dunbar
March 20, 2006 reply from Linda Kidwell, University of
Wyoming [lkidwell@UWYO.EDU]
For what it's worth, my research in academic
dishonesty has led me to believe that cheating in distance education is not
a big problem, relative to face-to-face education. I'm working on a paper
where students at a university with a massive distance program,
approximately 60% of their student credit hours, and so-called internal
students took self-reporting cheating surveys, similar to the methodology
used by Don McCabe, the preeminent expert in this area. The reported
cheating levels were significantly less for the distance students, in large
part because they lacked the opportunity to interact with students who might
be willing accomplices. Although they have streaming chat, there is
tremendous risk in contacting someone they don't know to instigate a
cheating network. Exams are proctored however.
To resolve this issue and make me
more comfortable with the grade a student earns, I have all my online exams
proctored. I schedule weekends (placing them in the schedule of classes) and
it is mandatory that they take the exams during this weekend period
(Fir/Sat) at our computing center. It is my policy that if they can't take
the paced exams during those periods, then the class is not one that they
can participate in. This is no different from having different times that
courses are offered. They have to make a choice in that situation, also, as
to which time will best serve their needs.
March 16, 2006 reply from David Fordham, James Madison
University
[fordhadr@JMU.EDU]
Our model is similar to Carol Flowers. Our on-line
MBA program requires an in-person meeting for four hours at the beginning of
every semester, to let the students and professor get to know each other
personally, followed by the distance-ed portion, concluding with another
four-hour in- person session for the final examination or other assessment.
The students all congregate at the Sheraton at Dulles airport, have dinner
together Friday night, spend Saturday morning taking the final for their
previous class, and spend Saturday afternoon being introduced to their next
class. They do this between every semester. So far, the on- line group has
outperformed (very slightly, and not statistically significant due to small
sample sizes) the face-to-face counterparts being used as our control
groups. We believe the outperformance might have an inherent self- selection
bias since the distance-learners are usually professionals, whereas many of
our face-to-face students are full-time students and generally a bit younger
and more immature.
My personal on-line course consists of exactly the
same readings as my F2F class, and exactly the same lectures (recorded using
Tegrity) provided on CD and watched asynchronously, followed by on-line
synchronous discussion sessions (2-3 hours per week) where I call on random
students asking questions about the readings, lectures, etc., and engaging
in lively discussion. I prepare some interesting cases and application
dilemmas (mostly adapted from real world scenarios) and introduce dilemmas,
gray areas, controversy (you expected maybe peace and quiet from David
Fordham?!), and other thought-provoking issues for discussion. I have almost
perfect attendance in the on-line synchronous because the students really
find the discussions engaging. Surprisingly, I have no problem with
freeloaders who don't read or watch the recorded lectures. My major student
assessment vehicle is an individual policy manual, supplemented by the
in-person exam. Since each student's manual organization, layout, approach,
and perspective is so very different from the others, cheating is almost out
of the question. And the in-person exam is conducted almost like the CISP or
old CPA exams... total quiet, no talking, no leaving the room, nothing but a
pencil, etc.
And finally, no, you can't tell the difference on
our student's transcript as to whether they took the on-line or in-person
MBA. They look identical on the transcript.
We've not yet had any problem with anyone
"rejecting" our credential that I'm aware of.
Regarding our own acceptance of transfer credit, we
make the student provide evidence of the quality of each course (not the
degree) before we exempt or accept credit. We do not distinguish between
on-line or F2F -- nor do we automatically accept a course based on
institution reputation. We have on many occasions rejected AACSB- accredited
institution courses (on a course-by-course basis) because our investigation
showed that the course coverage or rigor was not up to the standard we
required. (The only "blanket" exception that we make is for certain familiar
Virginia community college courses in the liberal studies where history has
shown that the college and coursework reliably meets the standards -- every
other course has to be accepted on a course-by-course basis.)
Just our $0.02 worth.
David Fordham
James Madison University
"Say Cheerio to Jeeves," by Arik Hesseldahl, Business Week,
February 27, 2006 ---
Click Here
AskJeeves' signature butler, borrowed from
novelist P.G. Wodehouse, is being dropped, as the search site switches names
to Ask.com and revamps its format
After nearly a decade as the search engine with a
human face, AskJeeves.com is dumping the cheerful visage of the butler that
has graced its pages. Starting on Feb. 27, the site will become known
simply as Ask.com.
The character had been used under an agreement
reached in 2000 with the estate of the late British novelist, P.G.
Wodehouse, who penned a series of novels involving the adventures of the
butler Jeeves and his master Bertie Wooster. When initially launched,
AskJeeves.com allowed users to phrase their search terms as questions, such
as "What is the capital of Ohio?" or "How many cups are in a gallon?"
Those days are over, says Daniel Read,
vice-president for consumer products at the new Ask.Com, which for nearly a
year has been part of IAC Search & Media, a unit of IAC/Interactive (IACI),
Barry Diller's $5.7 billion (2005 sales) Internet concern: "The old name
hearkened back to what we were five to seven years ago and not what we are
now. And while we found there were some customers who were loyal to the
AskJeeves name, most of our users were ambivalent about it." IAC paid $1.85
billion for the site, which first launched in 1996.
PHASED OUT. The question approach worked
for a few years, and initially the company found a business building
customer-support Web sites that would allow customers to ask questions on
the Web. The business model changed when in 2001, AskJeeves acquired
Teoma.com itself once dubbed a "Google-killer," and built the Teoma search
technology into the AskJeeves site. Starting on Feb. 27, Teoma.com will
redirect users to Ask.com.
Jeeve's "retirement" hasn't been much of a secret.
Diller has been quoted several times over the last year as saying that the
character would be phased out.
"Lycos Europe's Survival Instincts," by Jack Ewing, Business Week,
February 24, 2006 ---
Click Here
The Web outfit is relying on a new, more
focused, search engine and cost cuts to deliver growth. Does it stand a
chance against Google?
By most conventional financial measures, Lycos
Europe should probably not exist. The Internet portal, search engine, and
Web services provider, part owned by German media giant Bertelsmann and
Spanish telco Telefónica (TEF), has had
only two profitable quarters in its six-year history. It's competing in a
business dominated by Google (GOOG) and Yahoo! (YHOO). And it must cope
with the European market, where economies of scale are undercut by the need
to offer content tailored to national tastes and languages.
Yet on Feb. 22, Lycos Europe Chief Executive
Christoph Mohn stood bravely before a handful of reporters and analysts and
explained why he believes the company will finally be profitable in 2006.
"In a couple of years people will see that we're one of the few global
players," said Mohn, while standing before a laptop at a Frankfurt hotel
conference room and paging through a PowerPoint presentation on the
company's 2005 results. Lycos' loss narrowed to $24 million on sales of
$149 million last year, vs. a loss of $54 million in 2004.
Somebody believes Mohn. Shares of Lycos Europe,
which is a separate company from US.-based Lycos, rose more than 60% last
year. True, the recent price of 1.07 euros ($1.27) was still a long way
from the 2000 Internet bubble price of more than 23 euros. And the shares
fell sharply after the 2005 results were announced. But long after most
highfliers from those days have been forgotten, Lycos still employs almost
700 people, primarily in Gütersloh,
Germany, and offers services in eight European countries, plus the former
Soviet republic of Armenia. It's also the largest chat service in Europe,
with 5 million users.
WORLD AT YOUR FINGERTIPS. Mohn is clearly
true believer No. 1. With an enthusiasm that recalls the Internet euphoria
of a few years ago, he describes the new technologies that he argues will
someday allow Lycos to earn a decent return. The newest service, just
introduced in Germany and currently being rolled out across Europe, is a
search engine called Lycos iQ that's supposed to give more focused results
than Google does.
Users can type in a question, which other users
answer. Users rank answers the same way that eBay (EBAY) users rate sellers
of goods. The idea is to build a database of questions and answers, with
the best answers rising to the top of the list. (It works: This writer
asked for advice on the best places to cross-country ski around Frankfurt,
and within a few minutes received an e-mail with a link to a Web site
devoted to the topic.) "Lycos allows you to tap into the knowledge of the
whole population," Mohn said in an interview.
Will that be enough to compete against the huge
resources of Google? "I don't think [Lycos Europe has] a chance, to be
honest," says Hellen K. Omwando, an analyst at Forrester Research in
Amsterdam. "Look at Yahoo and MSN--even they can't manage to siphon away
Google users."
"ONE OF THE SURVIVORS." Omwando praises
Lycos' cost-cutting measures, which included eliminating more than 200 jobs
last year. She also has kudos for some of Lycos' business-to-business
services, such as software that allows small businesses to easily set up
online shops. But Omwando says the individual assets don't add up to
long-term growth. "Lycos is one of those players waiting to be sold," she
says.
Video on the Web is all the
rage now, the subject of an endless stream of articles and speculation that
it's the next big thing. And there's some evidence to back that up. Apple
Computer Inc. sold 12 million video clips at $1.99 each from its popular
iTunes Music Store in just a few months. Google has made a splash with a
similar video download store. According to AccuStream iMedia Research, about
18 billion video streams were online in 2005 and that number is expected to
grow by more than 30% in 2006.
But how do you find the
video clips you'd like to see, or download? Normal search engines like
Google's can sometimes point you to video clips, but they aren't optimized
for that task.
So, this week, we dived into
the world of online videos, looking for the best ways to find clips. We were
impressed by how much material is out there -- much of it free. We used
about 10 different video searching/hosting sites to find videos related to
TV shows, including "Grey's Anatomy," Hollywood actors, like Matthew
McConaughey, and musicians, like Brad Paisley. We also searched for news
videos, ads and amateur videos. We even looked for a famous "Saturday Night
Live" mock music video, and its imitators.
Our
results: AOL Video Search, Yahoo Video Search, and Blinkx TV earned our
appreciation because each searches the entire Internet for material, and
does a decent job.
Google Video and iTunes also perform video searches, but they search only
among the material they host on their own servers, and which they offer for
sale, or for free downloading. They don't search across the entire Web.
Sites like YouTube.com and GoFish.com have sprung up as central download
sites for all sorts of video clips, some by amateurs and some by pros. But
they, too, search only the material they offer themselves.
The
technology for searching the actual spoken words in a video exists, but is
in its infancy. So, most video searches are done by looking for words in a
video's title text, or in descriptions or other information embedded in a
video file in the form of "metadata" or "tags" -- kind of like the embedded
title, artist and album information in a music file. Some TV shows stored on
the Web also contain closed captioning data, and that can be searched in
some cases.
AOL Video Search (www.aol.com/video)
uses the search engines of two smaller, yet powerful,
companies that it owns:
Truveo.com and
Singingfish.com. As you use AOL Video Search, your
past search topics are saved in a left-hand column and videos can be saved
into a special AOL playlist. An adult content filter is used on AOL's
server, meaning users can't turn the filter on or off.
Using
AOL, we found and watched the "Saturday Night Live" mock music video called
"Lazy Sunday," set in New York, and its West Coast response, "Lazy Monday,"
set in Los Angeles.
Yahoo Video Search (http://video.search.yahoo.com)
can display results in a visually attractive grid of
images from each video clip. Unlike AOL, which displays advertisements on
its search start and results page, Yahoo doesn't show ads on either page --
though ads will display if they're linked to videos from outside sources. A
SafeSearch filter can be used for blocking adult material as you search
videos.
Using
Yahoo's video search, we turned up clips of a forgettable 1998 appearance
Walt made in an East Coast vs. West Coast computer trivia contest held in
Boston. Not only was his East Coast team crushed, but they wore puffy
colonial shirts while being crushed.
Blinkx TV (www.Blinkx.tv)
uses a simple interface and makes searching easy -- an
empty box placed on the left of the screen with a collage of 100 tiny clip
images playing on the right. After results are returned, you can adjust a
horizontal slider between "date" or "relevance," depending on your
preference. Our results weren't always as accurate with Blinkx as they were
with other video-search sites -- one search returned spreadsheets rather
than videos -- but we liked how the results page played animated clips of
each video in the same window. Blinkx offers a prominent filtering button to
hide adult results.
Google Video (http://video.google.com),
which is still in its beta (or prerelease) version,
also offers video searching through free videos -- but allows you to search
only through material that Google hosts, or streams from its servers. This
site eliminates ads -- including Google's word-only ads -- entirely, which
is refreshing.
Click Fraud Gets Smarter
Internet ad-traffic scams could be ripping off as much as $1 billion annually.
Are Web companies like Google doing enough to foil them?
"Click Fraud Gets Smarter," by Burt Helm, Business Week, February 27,
2006 ---
Click Here
Internet ad-traffic scams could be ripping off
as much as $1 billion annually. Are Web companies like Google doing enough
to foil them?
Web consultant Greg Boser has an ingenious method
for sending loads of traffic to clients' Internet sites. Last month he
began using a software program known as a clickbot to create the impression
that users from around the world were visiting sites by way of ads
strategically placed alongside Google search results. The trouble is, all
the clicks are fake. And because Google charges advertisers on a per-click
basis, the extra traffic could mean sky-high bills for Boser's clients.
But Boser's no fraudster. He cleared the procedure
with clients beforehand and plans to reimburse any resulting charges.
What's he up to? Boser wants to get to the bottom of a blight that's
creating growing concern for online advertisers and threatens to wreak havoc
across the Internet: click fraud.
BILLION-DOLLAR QUESTION. The practice can
wildly skew statistics on the popularity of an ad, drain marketing budgets,
and enrich the scam artists behind it. While click fraud isn't new, the
methods for carrying it out--take Boser's clickbot software--are getting
increasingly sophisticated. And some advertisers, analysts and consultants
question whether Web companies such as Google (GOOG) and Yahoo (YHOO) are
doing enough to nip click fraud in the bud. "No one has any idea how much
of this is actually going on," says Boser. "So we're going to see how well
[the search engines] actually try to protect advertisers."
One of Boser's biggest challenges is putting a
finger on exactly how widespread the practice is. Some search consultants
say click fraud accounts for upwards of 20% of all traffic, and may generate
more than $1 billion in dubious sales a year. Others say those stats vastly
overstate the problem.
Now, one of the biggest players in fraud detection
aims to end the guessing. Fair Isaac (FIC), which analyzes 85% of U.S.
credit card transactions, in partnership with Web search consultancy
Alchemist Media, will unveil plans at this week's Search Engine Strategies
Conference for what it says is the most rigorous study ever of click fraud.
Fair Issac will invite companies to submit traffic data that can be mined
for aberrations that may signify fraud. "We've seen indications that the
overall losses due to click fraud could equal more than $1 billion [a
year]--larger than the total magnitude of credit card fraud in the U.S.,"
says Kandathil Jacob, Fair Issac's director of product marketing. "It's
certainly worth our effort to look at it."
MORE CLICKS, MORE DOLLARS. A rising number
of companies would agree. The percentage of advertisers listing click fraud
as a "serious" problem tripled in 2005, to 16%, according to a survey by the
Search Engine Marketing Professional Organization. Advertisers have filed
at least two class-action suits saying Google, Yahoo, and other search
engines ought to be more up-front about methods for combating the practice.
Google says the suits are meritless. Yahoo declines to comment.
And in January, Standard & Poor's equity analyst
Scott Kessler downgraded Google stock in part because he considers click
fraud a "notable risk" (see BW Online, 1/17/06, "S&P Downgrades Google to
Sell"). Among his concerns: the prospect of false clicks may sour companies
from placing ads on Google. He too says Google needs to be more forthcoming
on the issue. "No one has any idea as to what Google assesses [as] its own
percentage of clicks that are generated by fraud, no idea what that process
consists of, and all the things that are being done to battle it," he says.
Question
If you lost your hotel room's magnetic strip card that opens the door, I'll
just be you thought your were free of all worries when you simply got a
replacement card with a changed code that unlocks the hotel room door. Could
anybody who found or stole your original card still take advantage of you?
"Street-Level Credit Card Fraud,"
by Brian Krebs, The Washington Post, March 6, 2006 ---
Click Here
Until recently, Las Vegas police
officers couldn't figure out why some of the prostitutes and drug addicts
they arrested were found carrying multiple hotel room keys and slot machine
player's club cards. When confronted, the suspects said they kept them as
souvenirs or found them on the sidewalk. The cops initially assumed that the
cards were stolen, or -- in the case of the prostitutes -- perhaps belonged
to some of their more frequent clients.
"It was getting fairly regular that in post-arrest
inventory, we would find eight to 10 room key cards ... all from different
hotels," said
Dennis Cobb, deputy chief of the
Las Vegas Metropolitan Police Department's Technical Services
Division.
The mystery began to unravel when a LVMPD officer
slid one of the keys through a machine that reads the data stored on the
card's magnetic stripe. Each swipe revealed a 16-digit credit number, a
date, a person's name and the name of a bank. That's right, the keys
functioned exactly like credit cards, allowing the carrier to pay for
merchandise at any store or market where customers do their own swiping.
"The people who had these cards on them were using
them in transactions with local businesses," Cobb said.
The revelation is hardly a surprising one for a
city that had
the nation's second highest rate of identity-theft complaints
to the Federal Trade Commission last year. Cobb said the
stolen card data comes from a variety of sources, but he said it is not
unusual for service-industry workers who owe money to a drug dealer or a
bookie to be handed a handheld magnetic stripe "skimmer"
and ordered to periodically collect up to 100 accounts as a means of erasing
their debt.
The discovery led Cobb's division to team up with
researchers from the Identity Theft and
Financial Fraud Research and Operations Center
(IFFROC) at the University of Nevada, Las Vegas to
devise technologies that police could deploy in the field to detect various
types of fraud.
Hal
Berghel, the center's director, said the
people who are usually caught with key cards use them primarily at
convenience stores, gas stations and other places where purchases are less
than $20, which is below the scrutiny threshold for most fraud-detection
technologies.
"By the time the bottom feeders get the cards, the
data on them has already been shared with the organized criminals, who will
bang on a credit card though mail-order and Internet purchases," Berghel
said. At that point the cards are "throwaways that can only be used a couple
of times before they're canceled."
Last year, Berghel filed a patent application on
behalf of IFFROC for a technology called "Cardsleuth," software he demoed
for me when we met up last week in Washington. He hopes that one day a
pen-sized device will be used to read magnetic stripes and alert the user
when unexpected data is found. Berghel and his team are working on a
prototype, which he said could be updated periodically via a USB-based
docking station.
Berghel said the technology could be especially
useful in the case of a 9/11-type emergency by helping authorities
distinguish first responders from those individuals -- be they terrorists or
merely looters -- who might take advantage of a chaotic environment.
"There is still a need for on-the-spot validation
of credentials where you have a convergence of emergency workers, many of
whom have never seen each other before," he said.
Update, 11:45 a.m. ET: Apparently,
I didn't make it clear enough what is really going on here. This post is not
suggesting that hotel room keys are being encoded with credit card
information by the hotels, which has always been something of an urban
legend/e-mail hoax (see
Snopes and
previous discussions on Slashdot.) The folks I
interviewed for this piece said the encoding was being done by the criminals
(or more specifically, fraud rings who sold them to street hustlers who
would wring every last dollar out of the cards before they were cancelled).
From the crooks' perspective, the idea behind this is to be able to
anonymously use someone else's credit card at a physical location; someone
who got arrested holding someone else's actual credit card would have a lot
of explaining to do, but hotel room keys are likely to be overlooked or set
aside for what they appear to be.
March 6, 2006 reply from David Fordham, James Madison University
[fordhadr@JMU.EDU]
Bob, at first I was going to congratulate you on
being hoaxed, but then I saw the addendum and explanation. But hey, you
don't need a hotel key card to do that -- you can re-encode any magnetic
stripe (even a subway pass for example) to serve the same purpose can't you?
Any mag stripe can serve as the medium at the gas pump, can't it? But
wait...
This is beginning to sound fishy. I question the
accuracy of the quotes, or the critical thinking skills of the sources
quoted. In fact, I'm thinking this whole article might be a hoax... or
perhaps a "joax"? Let's take a closer look...
First, the data on practically all credit cards
these days is super-encrypted, using layers of encryption, pads, padding,
and "check-digits on steroids".
I do not place a lot of faith in the accuracy of
the claim, "The mystery began to unravel when a LVMPD officer slid one of
the keys through a machine that reads the data stored on the card's magnetic
stripe. Each swipe revealed a 16-digit credit number, a date, a person's
name and the name of a bank. That's right..."
Nope, that's wrong. Baloney. Maybe back when I was
a kid, but not today. Credit card companies aren't that stupid.
I have used a card reader to demonstrate to my
students that commercial cards, even low-level ones like the pizza cards,
hotel keys, and even the subway cards, DO NOT put unencrypted data on the
cards, let alone sensitive stuff like account numbers on legitimate credit
cards like Visa and Mastercard. The data on their magnetic stripes is utter
gibberish unless you know how to decrypt it. A simple card reader does not
"reveal" account numbers, bank names, etc. Joke number one.
What's more, card READERS do NOT have the (highly
proprietary) algorithms to decode the data! The encrypted data stream is
sent to the headquarters (card center) computer still encrypted,
(double-encrypted, since the card readers encrypt the encrypted data again
before transmitting it over the datalink to the card center!) where the card
center computer then decodes the data! The card center then sends the
cardholders name, last four digits of the account, etc. back to the
merchant's computer to print the receipt. So I doubt that "each swipe
revealed..."
Even if you knew the algorithm, you'd still need
the encryption KEY! Credit card companies don't even let police departments
know their decryption keys. Joke number two. This inaccuracy makes me
question the legitimacy of the rest of the article.
Think about what the rest of the article is saying.
Since the data on a legitimate card is encrypted nine ways to Sunday, it is
highly unlikely anyone can "create" the encoded data string from scratch.
What is easier to do (and indeed CAN be done) is to COPY a valid string off
a valid card, and write the copied string onto a new card. Of course, with
"smart cards", this is pretty-nigh impossible because the card itself may
have an RFID chip (some European cards even have imbedded chips with gold
electrical contacts for reading) which contains a "serial number" -- which
number is incorporated as part of the key (encryption pad) to encode the
data on the magnetic stripe! Double layer protection. The chip's serial
number is built into it at time of manufacture and can't be changed, or
duplicated unless you have access to a chip-manufacturing plant.
But even if you weren't duplicating a smart card,
duplicatng the encrypted data string from a plain old credit card stripe
still means you must first physically be in possession of the original card,
right? Follow my logic here.
So, if you are in possession of the original card
to start with, why make a copy?
The only reason I can think of is this: you steal a
card without someone detecting it, copy it, and replace the card before the
victim knows it's gone. (Under any other scenario, the victim is sure to
cancel the card the instant he notices the theft.) So you have to take the
stolen original card and read it, then replace it, then make a duplicate --
hmmmm.
So here's where joke number three comes in: look at
the sentence in the article: "but he said it is not unusual for
service-industry workers who owe money to a drug dealer or a bookie to be
handed a handheld magnetic stripe "skimmer" and ordered to periodically
collect up to 100 accounts ..."
Not unusual? Come on, gimme a break! Even
professional pickpockets have to use care to steal a card without detection,
let alone REPLACE IT without detection! And this reporter expects me to
believe that any Tom, Dick or Harry "service-industry worker" off the
"street" is being told to do that 100 times? Yeah, right. Joke number three
is the funny one.
I don't doubt that such a theft-replacement can
happen, I won't even doubt it DOES happen, and I don't even doubt that
professionals aren't using this on a daily basis. I just don't believe for a
second that this is the major sensation the article makes it sound and that
service-industry workers are being recruited to do this on a "not unusual"
basis!
And someone is going to all this trouble to
perpetuate "bottom feeder" fraud like gas pumps and convenience stores?
(Joke number four)
Okay, so you're thinking: what's to stop a
professional criminal from getting the card, reading it, replacing it,
duplicating it, and then posing as a legitimate business to obtain the real
name of the holder, and the last four digits of his card number (as well as
an approval code) and then using that data or selling it to organized crime?
Nothing, except the card company's standard controls on vendors. I don't
doubt that someone somewhere might be doing this. But why go to this much
trouble? If it's so easy to corrupt service-industry people, why not get a
couple of the girls at Pizza Hut or Red Lobster or any other
"service-industry" employees with legitimate access to credit cards to do
this? Why isn't the article warning us to not give our credit cards to
ANYONE, even the waitress or parts clerk at AutoZone? And what's to stop the
Wal-mart programmers from capturing our data from their computer? Why does
the article think that hotel key cards in the possession of Las Vegas street
criminals are such a big deal? Joke number five perhaps?
And as the icing on the cake, the article sounds
like a publicity stunt for the "experts" who are trying to sell the "pen
like device" that ... seems to me ... to be attempting to do what biometrics
is better at doing already: "There is still a need for on-the-spot
validation of credentials where you have a convergence of emergency workers,
many of whom have never seen each other before," he said.
Perhaps the "Joax on me"?
A few musings from a perpetual media skeptic...
(who nevertheless finds the media very entertaining -- funny jokes abound if
you look for them)
David Fordham
Another message from David Fordham
Bob, I was going over to our tech department on
another errand, and for fun, I stopped by and asked them to scan my Visa
card through a reader. (Our university ID is a 'smart card' and students can
use it like a debit card, etc., ergo there are card readers all over campus!
The tech support department services them and has readers lying around the
office. We connected one up and read my card.
As I expected, the data on my Visa card came out
complete gibberish. A long string of numbers, none of which I could
recognize as being anything real: card number, bank number, expiration date,
zip code, anything. The tech told me what I already knew: the data is
encrypted, padded, reversed, check-digits added out the wazoo, interspersed,
interlaced, etc.
When I told him why I was interested in this, the
technician came up with another reason why he, like me, believes the article
is something of a "joax":
The technician referred to something called the
"physical resolution" of the magnetic stripes. My credit card holds at least
2048 characters of information (that's how many the reader picked up,
anyway). Hotel key cards have to hold far less information. Hotel cards are
generally much cheaper cards, and the quality of manufacture is much lower.
It is his opinion that you probably would have a hard time encoding a hotel
card with the character density required by a legitimate credit card. (The
bpi, or bits per inch, which determines resolution is something like the
magnetic equivalent of a pixel-count for a digital photo.) He said that
encoding a hotel key card with the data from a credit card would be like
trying to reproduce DaVinci's Last Supper using the 16-color 240x120 screen
resolution of a cell-phone display.
He also pointed out that the magnetic stripes are
not a universally-agreed-upon-standard. The physical location of the hotel
stripe may be in a different location on a key card than it is on a credit
card. Add in the multi-layer magnetic effects (analagous to different tracks
on an 8- track tape cartridge of days gone by), etc., and you end up with a
set of complicating factors that makes him as skeptical as I am about the
magnitude of the problem. "People have been trying this for years ... gluing
the old magnetic tape to credit cards, and stuff like that. These reporters
must think the credit card company security people are real dummies. In
addition to the stuff you can think of on your own, the credit card
companies are full of surprises and stuff you don't think of!" I'm
paraphrasing him here. "Forgery is an old problem, and the credit card has
evolved a long way. Every time your card expires and they send you a new
one, there are new security features in place, embedded in the card in
places you'd never think to look. Copying data from one card stripe to
another is a gimmick that hasn't been workable for years."
He said that the 'service industry personnel'
referred to in the article are probably waitresses and others with
legitimate access to cards, but like me, he believes any problem is
overblown and not worth worrying about... he, like me, agrees that putting
the 'read' information to use requires a lot more sophistication than the
'street criminals' are able to muster. Yet.
I ended our conversation by reminding him that
newspapers are in business to sell papers, not educate the public.
When I asked the tech if I could paraphrase his
comments, he said yes, but he'd appreciate not having his name used. I'm not
a fan of anonymity, but I respect his wishes.
"The Secret To Google's Success: Its innovative auction system has ad
revenues soaring," Business Week, March 6, 2006 ---
Click Here
Everybody knows that Google Inc.'s
innovations in search technology made it the No. 1 search engine. But Google
didn't make money until it started auctioning ads that appear alongside the
search results. Advertising today accounts for 99% of the revenue of a
company whose market capitalization now tops $100 billion.
Now, research is showing that Google's auction
methodology, invented internally and so important for its success, is far
more innovative than auction experts once believed. While superficially
similar to earlier types of auctions, it is a "novel mechanism" that
"emerged in the wild," write the authors of The High Price of Internet
Keyword Auctions, a new study by Benjamin Edelman of Harvard University,
Michael Ostrovsky of Stanford University, and Michael Schwarz of the
University of California at Berkeley. Google's AdWords became so successful
after its debut four years ago that some of its key features were quickly
adopted by Yahoo! Inc. (YHOO ), then the search-ad leader.
MATHEMATICAL RIGOR Close-mouthed Google has opened
up about AdWords since the three economists cracked its code last November.
It freed Hal R. Varian, a Berkeley economist who consults for Google, to
publish some of his findings about the auction methodology. And on Feb. 22,
Google gave an interview to BusinessWeek in which for the first time it
named the technical leader of the project: Eric Veach, a veteran of Pixar
Animation Studios whose Stanford doctorate was in computer graphics, not
economics. "Without his mathematical rigor we wouldn't have been able to do
it," said vice-president of product management Salar Kamangar, himself a
biology major, who was Employee No. 9 at Google and led the nontechnical
side of the project.
Some of Google's innovations are only now being
matched. For instance, Yahoo gives the top spot on its search results page
to the advertiser who pays the most per click. But Google maximizes the
revenue it gets from that precious real estate by giving its best position
to the advertiser who is likely to pay Google the most in total, based on
the price per click multiplied by Google's estimate of the likelihood that
someone will actually click on the ad. Anil Kamath, chief technology officer
of Efficient Frontier Inc., a search-engine marketing firm in Mountain View,
Calif., estimates that Google earns about 30% more revenue per ad impression
than Yahoo does. Kamath says Yahoo is likely to follow Google's lead soon.
Asked about that, a Yahoo spokesperson says the company is "currently
evaluating" making more use of the "click-through rate" in placing ads. Last
fall, Microsoft Corp.'s MSN embraced Google's approach, tweaking it to
increase ads' relevance, when it began auctioning search ad space.
What makes Google's auction so different? Auctions
come in two main flavors. In a typical first-price auction, participants put
in sealed bids, then the winner pays his or her bid. But the danger is the
high-bidder ends up regretting having won, an effect known as the winner's
curse. A second-price auction lessens winner's curse because the highest
bidder gets the prize but pays only the minimum necessary to win, namely the
second-highest bid, plus perhaps a penny.
Kamangar, Veach, and colleagues chose a
second-price auction. But not knowing theory, they designed one that
differed in a key respect from the one economists had studied. In the
economists' version, bidders always have the incentive to tell the truth. In
Google's auction they don't, say Edelman, Ostrovsky, and Schwarz, since in
some cases, by understating the top price they're willing to pay,
advertisers could get a slightly lower position on the search page for a lot
less money. They conclude that naive advertisers who told the truth could
overbid. Google's system has pluses for advertisers, too, says Varian. It's
easier to understand than the academic version. And it's proven to work on a
large scale.
AdWords Select, as it was called at its February,
2002, debut, was actually Google's third crack at an ad auction. The first
two were flawed, but Google founders Larry Page and Sergey Brin kept
pushing. Even the current system isn't perfect. Advertisers complain that
it's too much of a "black box." Still, if the best measure of innovation is
commercial success, Google's AdWords was a grand slam. Says Kamangar: "Third
time's a charm."
1. "Bobos
in Paradise" by David Brooks (Simon & Schuster, 2000).
Good books about popular culture can make
us feel as if we are looking in a mirror from a different angle--as
David Brooks proved with his brilliant dissection of "bourgeois
bohemians" in "Bobos in Paradise." Many of us who grew up in the
1960s fully enjoyed the freedoms of that era; even though we might
have scoffed at respectability back then, our later transition to it
seems to have happened quite naturally. We excuse our indulgences in
Starbucks by telling ourselves that, after all, it was a soy latte.
Old hippies can vote Republican, drive SUVs, live in McMansions and
still love "The Rocky Horror Picture Show." These inconsistencies
have never been better captured than they are in "Bobos."
2. "Cheap" by David Bosshart (Kogan
Page, 2006).
In the 1920s, Gottlieb Duttweiler founded
the Swiss grocery-store chain Migros--and was known from then on as
the man who invented über-discounting. He died in 1961, but
Duttweiler's legacy endures in the form of the Gottlieb Duttweiler
Institute, or GDI, located outside Zurich. A think tank dedicated to
merchant education and research into retail best practices, GDI runs
two annual high-powered gatherings, one on retail matters, the other
on food service. The events' focus, increasingly, is on the
explosive growth of shopping and retail across Russia and Central
and Eastern Europe. GDI's executive director is David Bosshart, a
distinguished political scientist. His book, "Cheap," points out
that the fastest-growing merchants in the First World are
mega-discount chains such as Aldi in Germany (owners of Trader
Joe's) and Dollar Store in the U.S. David's main themes: Consumers'
pursuit of bargains is a victory over the system, and nowadays cheap
is chic. A number of books lately have looked at the impact of
cutting costs in the supply chain, but it takes a Swiss German to
say it elegantly and globally.
3. "Not Buying It" by Judith Levine
(Free Press, 2006).
Most of us could live the rest of our lives
on fruits, vegetables, pasta, wine, olive oil and yearly doses of
socks and underwear. In truth we need little. Judith Levine, in "Not
Buying It," tries with her significant other to spend a year off the
shopping grid as they move between their homes in Brooklyn and
Vermont. The story swings from asking how crucial Q-tips really are
to exploring the fine line between shopping as therapy and shopping
as sickness. This is a charming book about trying to live small, and
it is a fair-minded look at the "simply living" movement.
4. "FutureShop" by Daniel Nissanoff
(Penguin, 2006).
I was not prepared to like "Futureshop" by
Daniel Nissanoff. Books about e-commerce tend to be like uninspired
sex: a convenient shortcut to a nap. But this one is like the jolt
of a double espresso. Who knew that secondary markets could be so
interesting? In Daniel's view, eBay is creating an "auction culture"
that is transforming the way we shop on- and offline. After all,
when a used car is transformed into a "preowned" Lexus, secondhand
status has lost all its stigma. Lee Scott, the CEO of Wal-Mart, is
quoted as having no concerns about the threat of Target, but eBay
keeps him up at night.
5. "Design for Effective Selling Space"
by Joseph Weishar (McGraw-Hill, 1992).
Magic in the retailing realm is not what
you sell but how you sell it. From shop windows to catalog photo
shoots to the design of an e-commerce site, we live in a world where
our visual language is evolving faster than the spoken or written
word. Our eyes may be tired, but their connection to our brains has
never been better. In retail, making good stuff look great is called
Visual Merchandising, or VM, and the master historian of VM is
Joseph Weishar. Joe's gift is an ability to connect fine art and
commerce. His slide lectures--this Tiffany window, that assemblage
box by Joseph Cornell--are legendary (having a voice like Vic Damone
helps). Joe has a new book called "The Aesthetics of Merchandise
Presentation," but "Design for Effective Selling Space" is his
classic. My copy, bought used, came complete with coffee stains and
Post-it notes--the ultimate testimony to a book's worth.
Mr. Underhill is CEO of Envirosell Inc. and the author of "Why
We Buy" and "Call of the Mall."
Formal Comparison of Accounting Software Packages
March 1, 2006 message from David Fordham, James Madison University
[fordhadr@JMU.EDU]
Ruth Bender asked: "...more broadly, how should she
start looking for the right package?"
One of the best tools I've ever come across for
evaluating commercial accounting software packages is called "The Accounting
Library", by a company out of Richmond Virginia called "Solutions, Inc."
The Accounting Library software covers well over
150 different commercial accounting packages. It includes ALL levels of
software, from Quickbooks (at the very bottom of the product line), all the
way up through SAP (the top). While 150 doesn't sound like a large number,
believe me, it has everything you've ever heard of, and more.
What you do is, you answer a set of
questionnaire-like questions dealing with the nature of your business and
what you want your accounting package to do for you. The questionnaire can
be quick-and-dirty, or extremely complex, depending on whether you are
evaluating on behalf of Mom-And- Pop's Hotdog Stand, or Boeing Aircraft
Corporation. You can spend weeks answering the full questionnaire if you
want to. yes, it covers currency conversions (about 90 ways to Sunday as
they say), analysis of just about everything (sales, costs, by product, by
client, by sales rep, by the kitchen sink, etc.), and just about anything
else you can think of.
After telling The Accounting Library about your
business nature and what you expect the accounting package to do for you,
TAL will then rank those products which meet or come close to your specs.
You can then "drill down" into the ranking to find out WHY one package was
rated higher than another, to find out which features you need that are or
are marginally met in each package, etc. You also have the opportunity to
reconsider your initial answers -- for example, during the drill-down
exercise, you may decide that perhaps keeping track of subassemblies by
date-manufactured isn't quite as important as you originally ranked it, or
that maybe you need to generate an "aged inventory by serial number" report
after all. You can then alter your original input, and re-run the
evaluation.
I used TAL back when I was teaching the systems
analysis classes, because it walks the students through a good "user needs
analysis"... albeit in checklist form (I had to add a lot of meat to explain
rationales, etc. and thus I used TAL as a support tool rather than a
concepts tool.)
What's more, the product has a fantastic
"introduction to accounting software", gives product descriptions and
summaries of capabilities, etc. -- in general it's just a fantastic learning
tool for comparing the many commercial- grade accounting packages out there.
The latest editions are also aimed at consultants
who help companies procure and install software.
If you decide the product is useful, telephone
(U.S.: 1-804- 330-0000) and ask for Charles Chewning, and tell him that
David Fordham of James Madison University told you about the product. No, I
don't get a finders fee or commission, but he is a supporter of JMU (and the
AIS educator's association too!) and might give you a discount on the
product if he knows you found it through us. (It's a steal at full price,
but hey, every few dollars helps!)
In New Zealand we have a very versatile package
called "MYOB" - or: Mind Your Own Business. We use it here for tuition, and
a number of us with clients also use it. I know from practice that it meets
all the criteria you mention with the EXCEPTION of forex (not too sure about
this). I can conceive how it might be handled fairly easily with a link from
Excel, as I have linked depreciation schedules (in Excel) directly into MYOB.
There are a number of web pages to check it out: just google "MYOB". Let me
know how you get on?
Regards, Roger Knights
Senior Lecturer
Auckland University of Technology (00649) 921-9999 ext 7055
People looking for accounting and management software often forget about
the wonderful Webledger alternatives where a heavy duty IT system is
maintained in a central location by the software system vendor such that
users can access the system on the Web and do not need their own hardware,
software, and expensive maintenance technicians. Webledger systems have
excellent backup computer and power systems such that the chances of going
down are almost zero except in nuclear war.
My favorite Webledger alterntive is NetSuite at
http://www.netsuite.com/portal/home.shtml
NetSuite commenced under the name NetLedger with financing from the CEO of
Oracle. For all practical purposes it is an Oracle company.
Bob Jensen's Threads on Webledgers for
Distributed Network Computing of Accounting Systems and Business Services
http://www.trinity.edu/rjensen/webledger.htm
The above site is not one that I actively update. Hence, some of the links
may be broken and there may have been some buyouts and mergers that I've not
tracked in the past year or two.
Bob Jensen
March 2,, 2006 reply from Bob Jensen
At 6:43 a.m. this morning I sang the praises of NetSuite in the message
below. As chance would have it, at 2:30 p.m. this afternoon I ran across the
following tidbit from the Accounting Web:
NetSuite, Inc.
leads the rankings of on-demand business
management software for small and mid-sized businesses (SMBs) according
to a new study of SMB business suites from Yankee Group. NetSuite
received, or tied for the
highest
ranking in all categories ranked by the study
including breadth of solution, market share, geographic coverage and
ease of customization.
“SMBs require an easy-to-use, integrated
business application suite," Sanjeev Aggarwal, Small and Medium Business
Strategies Senior Analyst and leader of the Yankee Group survey states.
“Such solutions can help improve personalization and the customer,
supplier, partner and employee experience.”
Study results indicate that small and mid-sized
enterprises are currently experiencing the same business application
transition, from cobbled together, stand-alone software solutions to and
integrated suite to manage core business operations, recently completed
by Fortune 1000 companies. The top three technology challenges facing
SMBs all involved the difficulty in integrating and managing multiple
stand-alone products for finance, ERP, CRM and E-commerce, according to
2005 SMB Business Applications and Web Survey conducted by Yankee Group
in November 2005.
“The same ‘point application vs. integrated
suite of applications’ battle that was fought in the enterprise is now
happening in the mid-market, and it is pretty clear that an integrated
suite of applications will win the SMB market as well,” Said Zach
Nelson, CEO of NetSuite. “The combination of an integrated suite of
business applications delivered as a service via the Internet is the
‘killer app’ for SMBs.”
The study also identifies the growing need for
on-demand solutions in the SMB market. As small and mid-sized businesses
don’t have the financial or human resources to manage complex on-premise
applications, they are seeking on-demand offerings to reduce costs and
increase productivity. Of the vendors studied, only NetSuite offers an
integrated suite of web-based applications. The offerings from both SAP
and Sage are designed as on-premise solutions. NetSuite enables
companies to manage all key business operations, including CRM; customer
support; accounting and payroll; warehousing and product assembly; web
store and web presence; and employee productivity, in a single,
integrated system that is delivered as an online service.
March 2, 2006 reply from David Fordham, James Madison University
[fordhadr@JMU.EDU]
The Achilles heel (or the weakest link, for the
modern generation) of Web-Based Information Systems is the internet
infrastructure.
Most small and medium businesses of my acquaintance
(those most likely to outsource their information system to a web- based
vendor) are not served by hardened, robust, redundant ISP lines, but rather
are reliant on a single (and very vulnerable) delicate link for their
Internet service.
I have no doubt at all that NetSuite and the other
major web- based applications providers have well-designed, safe, secure,
backed-up, redundant, robust, multi-layered internet service lines coming
in. But I think you'd be hard-pressed to say the same about the "last mile"
of the infrastructure to the small and medium businesses.
A backhoe cuts the underground cable. A traffic
accident knocks down the pole holding the cable company's coax. A heavy
thunderstorm floods a DSL digipeater box. Lightning takes out the ISDN
tombstone. The yahoo six blocks down cuts through the lines while installing
his invisible dog fence. The contractor installing the new sewer line to the
new condo complex cuts through the fiber-optic backbone to the shopping
center. The phone company upgrades their equipment and suddenly everyone
served by the C.O. is offline for the rest of the day.
Been there. Done that. All of it. And more.
For most of us, these are inconveniences. I can
wait till tomorrow to make my Marriott reservation or check my bank balance
or purchase that TNC on e-bay.
For a business, however, even a little of this and
-- poof. A Monday-afternoon-till-Wednesday-morning Internet outage has more
effect than waiting five minutes for a reboot of your local information
system after the blue-screen-of-death from a Windows-based Accounting System
failure. My mother- in-law even continues serving the customers in her store
when the power is out, thanks to a UPS on the computerized cash register.
Of course, all companies should have a backup
information system for mission-critical apps anyway, even with local
systems. However, I'd bet most don't. I know most don't. So based on how
frequently internet service goes down to us non-redundant-line ISP
customers, I hope that NetSuite and its competitors are being honest with
customers and making sure they have contingency plans in place for Internet
outages before they agree to take over their InfoSys functions.
Another tuppence worth of tripe from...
David Fordham, CPTC
(certified pro-tech curmudgeon)
March 2, 2006 reply from Bob Jensen
Hi David,
Actually the proof is in the business success of the
NetSuite Business Model. NetSuite would not have endured for so many years
and not have won so many prizes worldwide if something was not working well.
I think you are being a bit unfair in terms of the odds of breakdowns. I
think the main selling point of NetSuite is the added security.
For a medium to small size firm the odds of a system failure in your own
accounting IT system are relatively high unless an enormous amount is spent
on backup systems and a highly qualified IT staff to keep the system running
and recovering in case of failure. Such a system of hardware, software, and
expertise is very expensive if you want to keep the odds of disaster low.
There is also a reasonably high probability of error and fraud in your
own IT system because in a small system a great deal relies upon one or a
very small number of technicians running the system. Even if there is no
fraud, the loss of a key IT employee may throw the entire system into a
dither.
For an online system like NetSuite the odds of a
failure on NetSuite's end are minimal because of the massive investment in
backup systems and very highly trained database experts. NetSuite even
managed not to have one outage when there were a string of California power
outages during the Enron rip off of California in the 1990s (years when even
PG&E was on the brink of bankruptcy). Remember the rolling blackouts across
all of California. NetSuite had its own power generators to cover such
contingencies.
It is true that there is a possibility of a cable breakage in the last
mile to your home or business. However, these are usually restored fairly
quickly and there is virtually zero risk of losing any data that has already
been shipped to NetSuite.
Actually the proof is in the business success of the NetSuite Business
Model. NetSuite would not have endured for so many years and not have won so
many prizes worldwide if something was not working well.
SUMMARY: The author describes issues on both sides of patent disputes, based
on his experience as general counsel for Intel Corp., and relates them to the
patent infringement suit settlement by RIM.
QUESTIONS:
1.) What have been the events leading up to RIM (the company behind BlackBerry
hand held devices) paying $615 million to NTP? On what basis has that amount
increased over time? You may refer to the related articles to get a sense of
that issue.
2.) What are the accounting issues related to intellectual property? List all
that you can think of. How are these issues related to patent rights and
disputes as described in the article?
3.) How has RIM been accounting for the cost of defending against the patent
infringement suit by NTP? Determine the answer to this question based on
information in the second related article.
4.) What are the author' s proposals for reforming patent infringement law?
Reviewed By: Judy Beckman, University of Rhode Island
RIM, the company that brings BlackBerry service to
four million subscribers, finally caved in to the threat of losing its
business. It paid NTP, a small patent holding company reputedly comprised of
just one inventor and one patent lawyer, $615 million to settle a four-year
patent dispute. For NTP it was like winning the lottery, but for the rest of
us, and for business in particular, it stinks. NTP used the patent system,
and the threat of shutting down BlackBerry service, to play chicken with RIM
and millions of BlackBerry users around the world. Unless the courts or
Congress do something to stop this kind of gamesmanship, we're only going to
see more cases like this.
NTP doesn't have a competitive product. It isn't
even in the business of making products. It's one of a large number of
companies known as patent trolls. Trolls acquire and use patents just to sue
companies that actually make products and generate revenue. A patent without
a product isn't worth much, whereas a patent tied to a revenue stream,
particularly someone else's, is a whole different matter. RIM was the best
thing that ever happened to NTP, because by last Friday the only question
left was how much of RIM's pie NTP could get.
The distressing part of this picture is that RIM's
contribution of complementary technologies, business acumen, product R&D and
marketing is what "enabled" the NTP invention to achieve commercial
relevance. The right question is: What would be a fair royalty for NTP,
given its contribution of the patent and RIM's contribution of everything
else? Unfortunately, that isn't where this case ended up. Because NTP had
the presumptive right to obtain an injunction against RIM and stop it dead
in its tracks, the issue on the table wasn't the value of NTP's patent in
the context of RIM's business; instead, it was the total value of RIM's
business. "Pay me a lot or lose everything" hardly leads to rational
settlements. Is this really what we want from our patent system?
At Intel, I see this problem every day and from
both sides of the fence. Intel owns a considerable portfolio of patents and
we believe strongly that inventors are entitled to fair compensation for
their efforts. But Intel is also a target for patent trolls because we run a
successful business. The fact that success creates leverage for trolls to
extract value above and beyond the true contribution of the patented
invention just doesn't seem quite . . . American.
Things got so lopsided in the world of patent
litigation not on account of the patent statute itself but from case law,
which has become increasingly protective of patent owners and tolerant of
excessive damages arguments by plaintiffs' lawyers. Our patent laws are
supposed to be about proliferation of technology. If there is actual
competition between patent owner and infringer, an injunction may be
appropriate -- it protects the patent owner's right to exclusivity and does
not deprive society of the benefits of the technology. On the other hand, if
the patent owner has not commercialized the invention, blocking others from
using it is a loss for all of us. The right to an injunction also needs to
be tempered by a commonsense look at how much real value the patented
technology adds to the whole commercial product. A fundamental invention
deserves greater value than a relatively minor tweak to work that went
before it. A broad application of the injunction remedy makes all patents
"crucial," whether they are or not.
What I'm suggesting here is not all that radical.
These concepts are already embedded in our patent laws; but unfortunately
they have been buried beneath the wrongheaded notion that all patents should
be treated equally.
There is a glimmer of hope. The Supreme Court will
hear eBay v. MercExchange, in which eBay faces the threat of an injunction
from MercExchange, a patent-holding company without a competitive product in
the online auction space. The eBay case is an opportunity for the highest
court to take the judiciary back to the language of the patent statute and
remind judges that they don't have to grant injunctions in every patent
case. Judges have the right to balance the interests of patent plaintiffs
with those of the defendant, and society at large. It may be with just a
touch of irony that we'll read about the eBay case on our now more costly
BlackBerries.
From The Wall Street Journal Accounting Weekly Review on March 10,
2006
TITLE: Beyond AT&T, Larger Issue Is How to Play Convergence
REPORTER: James B. Stewart
DATE: Mar 08, 2006
PAGE: D4
LINK:
http://online.wsj.com/article/SB114177331767191861.html
TOPICS: Accounting, Advanced Financial Accounting, Mergers and Acquisitions
SUMMARY: The article covers issues related to the AT&T acquisition of
BellSouth that can be used in classes covering accounting for mergers and
acqusitions, particularly to focus on investor perspectives towards M&A
transactions. The related articles are the front page announcements of the
transaction.
QUESTIONS:
1.) What is the purpose of the AT&T acquisition of BellSouth? How is the
transaction structured? How is the $67billion acquistion price determined?
2.) What factors lead the author to say that "the deal has unfolded in
textbook fashion"? Why did AT&T shares drop about 3.5% upon announcement of the
transaction? Why did BellSouth's shares jump 10%?
3.) The author states that he likes the all stock structure of the
acquisition. So why is AT&T announcing plans to buy back shares of stock at the
same time that it is announcing a plan to issue shares of stock to undertake the
acquisition? What is the ultimate effect of the is combination of transactions
on the balance sheet? Why not just purchase the BellSouth shares for cash
instead?
4.) How does this plan allay fears of "earnings dilution"? In your answer,
define the term "earnings dilution."
5.) What are the concerns of regulators regarding this transaction? How are
circumstances in the telecommunications competitive environment different than
they were when AT&T was broken up in 1984?
Reviewed By: Judy Beckman, University of Rhode Island
I wonder if you could help me. I received a request
from a PhD student who is looking at corporate hedging choices, earnings
management, etc. We were discussing the issues with accounting that Fair
Value causes, now that European companies have to follow IFRS. But he had
one very specific question:
Finally, I wanted to find out whether you could
kindly assist on a technical hedge accounting question. For my research I am
trying to determine whether I can get/ measure the extent to which firms (in
the US for this matter as IAS 39 is newly enacted), adopt hedge accounting.
Is there a way that one could observe or proxy the extent of hedge
accounting?
Do you know whether/how this information would be
available?
Many thanks Ruth
Dr Ruth Bender
Senior Lecturer in Finance
Cranfield School of Management Cranfield
Usually firms try to get hedge accounting relief (on eps) whenever they can
qualify for hedge accounting when adjusting derivative financial instruments
to fair value. It is not a matter of a firm electing to use hedge accounting
or not use hedge accounting. It is a matter of electing to use hedge
accounting for each derivative contract used as a hedge. In the U.S.,
portfolios seldom qualify for hedge accounting such that a firm is often
individually analyzing thousands of hedging contracts.
Certain types of derivatives have a hard time qualifying for hedge
accounting. Options in particular often fail to meet requisite hedge
effectiveness tests and can only qualify for hedge accounting to the extent
of changes in intrinsic value but not time value. Interest rate swaps often
do not match up properly (with hedged items) for hedge accounting.
Since qualifying for hedge accounting is such a fluid event (into and out of
qualifying over time), I doubt that any highly aggregated statistics on what
proportion of hedging derivatives qualify for hedge accounting would have
much meaning.
And
there is the problem of error. Many U.S. firms that took hedge accounting
are now in the process of revising financial statements because they
discovered ex post that they did not qualify for hedge accounting.
And
there is a serious problem that some firms have elected to use FAS 133 as an
earnings management tool because it is so easy to fool the auditors.
Some comments the
Public Company Accounting Oversight Board, which regulates auditors, has
made in its recent inspection reports of big audit firms. In a few
instances, the PCAOB has indicated that firms haven't been as diligent as
they should have been on hedge accounting in individual audits that the
board has reviewed. In an inspection report on KPMG LLP issued in September,
for instance, the PCAOB cited an audit of an unidentified client in which
KPMG "failed to appropriately address" improper derivatives accounting. A
report on Grant Thornton LLP last week said the firm "failed to perform
sufficient audit procedures" over one client's interest-rate derivatives and
didn't evaluate another's hedge accounting over foreign-currency futures.
"Hedge Accounting Gets On Regulators' Radar: Some Firms Using the
Tool Have to Restate Earnings; The New Lease Accounting?" by Michael
Rapoport, The Wall Street Journal, January 27, 2006; Page C3
And
lastly there is the enormous problem that firms are taking hedge accounting
when they really do not qualify for hedge accounting. FAS 133 is so complex
that many firms are running inappropriate tests for effectiveness without
realizing that the tests being used are inappropriate. For example, they
might be running the test on cash flow effectiveness of hedges when FAS 133
is adamant that the tests have to be run on changes in value such that even
perfect cash flow hedges often fail the value tests for effectiveness
(particularly with options contracts).
Earnings Restatements Due to FAS 133 on Hedge Accounting
"Hedge Accounting Gets On Regulators' Radar: Some Firms Using the Tool Have
to Restate Earnings; The New Lease Accounting?" by Michael Rapoport, The Wall
Street Journal, January 27, 2006; Page C3
A year ago, companies were rushing to restate their
earnings because of problems with how they accounted for lease obligations
on their stores and plants. Something similar may be happening with the
bookkeeping for financial instruments that some firms use to guard against
risk.
In 2005, at least 40 companies, from small banks to
conglomerates like General Electric Co., restated past earnings because of
problems with "hedge accounting," according to a new report from research
and proxy advisory firm Glass Lewis & Co.
And more such revisions could be on the way. "I
don't think it's really over," says Jason Williams, a Glass Lewis analyst
who noted in the report that these restatements may show "a pattern similar
to the recent lease-accounting restatements."
So far, the hedging moves are only a fraction of
the hundreds of lease-accounting restatements. And there has been no
high-profile warning from the Securities and Exchange Commission about the
need to shape up on hedge accounting, as was the case with lease accounting.
But a number of smaller indications -- a recent
comment in an audit firm's inspection report, a speech by an SEC staffer --
suggest that regulators may indeed be pushing companies and their auditors
to clean up hedge accounting.
Hedge accounting is complex, but the goal is easy
to understand: When a company uses derivatives to hedge exposure to risks
like changes in interest rates and fluctuations in foreign currencies, it
wants those derivatives to qualify for hedge-accounting treatment under
accounting rules because any changes in the derivatives' value can be
excluded from current earnings. The value changes are "smoothed" into
earnings over time. Without that special accounting status, the derivatives'
ups and downs would make earnings unpredictable, which companies and
shareholders dislike.
To qualify for hedge accounting, however, companies
have to meet a strict set of criteria. And dozens have discovered lately
that either they haven't fully complied or have cut corners they shouldn't
have. Some have found their hedges don't do the job they're supposed to in
offsetting the changes caused by the risk they're hedging. Others don't have
sufficient documentation for their hedges.
In such cases, a company typically is disqualified
from using hedge accounting, and it has to restate earnings to add back in
the changes in the derivatives' values -- often boosting earnings in some
periods but lowering them in others.
Last fall, for instance, brokerage TD Ameritrade
Holding Corp. restated earnings lower for fiscal 2003 and higher for fiscal
2004 and 2005 over documentation issues. In December, finance company CIT
Group Inc. restated first-half 2005 earnings higher and third-quarter
earnings lower because it used the shortcut when it shouldn't have.
Representatives for both companies couldn't be reached to comment.
Many companies have said they decided to restate on
their own or in consultation with auditors. Yet regulators have been voicing
concern about the matter as far back as 2004, when the SEC said it had seen
instances of "aggressive interpretation" of hedge-accounting rules, and
cases in which companies "have not been diligent" in satisfying the
requirements.
And at least a couple of the restating companies
say they've had contact with regulators over hedge accounting. TD Ameritrade
said it held discussions with the SEC before making its restatement in
November. And the SEC is investigating GE over its hedge accounting. But
Russell Wilkerson, a GE spokesman, says the company was already in the
process of finding its hedge problems through an internal audit before it
heard from the SEC.
One small sign that regulators are concerned over
hedge accounting: Some comments the Public Company Accounting Oversight
Board, which regulates auditors, has made in its recent inspection reports
of big audit firms.
In a few instances, the PCAOB has indicated that
firms haven't been as diligent as they should have been on hedge accounting
in individual audits that the board has reviewed. In an inspection report on
KPMG LLP issued in September, for instance, the PCAOB cited an audit of an
unidentified client in which KPMG "failed to appropriately address" improper
derivatives accounting. A report on Grant Thornton LLP last week said the
firm "failed to perform sufficient audit procedures" over one client's
interest-rate derivatives and didn't evaluate another's hedge accounting
over foreign-currency futures.
A KPMG spokesman says the firm works with both
regulators and clients to make sure clients apply accounting principles as
regulators want "in an area where accounting practices continue to evolve."
Grant Thornton couldn't be reached.
And in a speech last month, Mark Northan, an SEC
professional accounting fellow, said some companies have used the "shortcut"
to hedge accounting when they haven't met all the conditions for doing so.
Dirty Pooling in Accounting
March 29, 2006 message received by Bob Jensen
Hi Bob Jensen
Hope you don't mind another question.
I worked on Wall Street during the other tech mania
(late 60's) which included the conglomerate craze. I know
pooling-of-interest accounting was kind of tarred and feathered in the
ensuing meltdown, but I was never too clear why that was so. I am still
wondering why bogus goodwill is preferable to retaining the financial track
record of the combined companies. Are you aware of what the actual
objections to p-o-i are?
March 29, 2006 reply from Bob Jensen
Some investors are impressed by high ROI or ROE numbers. Keeping the
denominator low with old historical cost numbers and the numerator high with
future earnings numbers "inflated" ROI and ROE and made the mergers appear
more successful than was actually the case.
There are other problems with "dirty pooling."
One of the best-known articles (from Barrons) was written by Professor
Abe Briloff about "Dirty Pooling at McDonalds." McDonald's shares plummeted
significantly the day that article was published ---
http://www.jstor.org/view/00014826/ap010167/01a00060/0
Actually, one of the arguments in favor of purchase
accounting rather than pooling of interests is that in an arm's length
transaction goodwill can actually be measured, unlike the pie-in-the sky
valuations in a hypothetical world.
The standard itself discusses a lot of both theory
and abuses. In general, academics fought against pooling. About the only
parties in favor of pooling were the corporations themselves.
Bob Jensen
Changes in Derivatives Accounting Are in the Wind
We might call this the Fannie Relief Ruling if it comes to “pass.”
If this happens it may be time to retire after having spent so much time
learning the complex rules of the current FAS 133. Actually I have been arguing
for this change in the accounting rules for some time. There will, however, be
greater inconsistencies between accounting for hedges of financial instruments
versus hedging of commodities such as fuel inventories.
From The Wall Street Journal Accounting Weekly Review on March 3, 2006
TOPICS: Advanced Financial Accounting, Derivatives, Fair Value Accounting,
Financial Accounting Standards Board, Hedging, Historical Cost Accounting,
International Accounting Standards Board
SUMMARY: The article reports on implications for derivative accounting from
the FASB's proposal to implement a fair value option for financial assets and
liabilities that was announced in January 2005. From the FASB's web site
describing this proposed statement, one can learn that it would create a fair
value option so that entities may irrevocably elect to report certain financial
assets and financial liabilities at fair value and recognize changes in fair
value in earnings. The election of the fair value option would be made on a
contract-by-contract basis and would require separate line item reporting of the
instruments accounted for at fair value. This change could simplify hedge
accounting because the problems that currently arise in this area often stem
from situations in which entities cannot comply with hedge accounting treatment
criteria in FAS 133. Such non-compliance results in derivative instruments being
accounted for at fair value with changes in value flowing through earnings while
the hedged item continues to be accounted for under the historical cost model.
As the FASB states in the Exposure Draft, "creation of the fair value option
would permit an entity to mitigate that volatility by enabling entities to
achieve an offset accounting effect for the changes in the fair values of
related assets and liabilities without having to apply complex hedge accounting
provisions." The option also would allow greater convergence with international
accounting standards.
QUESTIONS:
1.) The author states in the article that "hedge accounting aims to ensure that
changes in the value of a derivative used to offset risks don't immediately flow
through to earnings." Is that an accurate portrayal of the purpose of hedge
accounting? If you believe so, support your answer. If not, provide what you
believe is an accurate description of the purpose of hedge accounting. In either
case, provide references to appropriate authoritative literature.
2.) Define the terms cash flow hedge, fair value hedge, and hedge
effectiveness.
3.) In what case would a derivative instrument's change in fair value not
flow through earnings each period? How would the instrument's change in value be
accounted for?
4.) In what case, even after complying with current hedging treatment
requirements, does a derivative's change in fair value flow directly through to
earnings? What additional earnings impact also flows through at the same time?
5.) How does the FASB's proposal for a fair value option "obviate the need to
use hedge accounting" as stated by Stephen Ryan, an NYU accounting professor,
and quoted in the article? Does the proposal preclude the need for all hedge
accounting treatments currently allowed under FAS 133? Explain. For further
information on the FASB proposal beyond that offered in the article, you may
access the FASB web site at www.fasb.org to search for "fair value option" or
access the proposal directly at http://www.fasb.org/draft/ed_fair_value_option.pdf
6.) What issues led to Fannie Mae's and GE's earnings restatements that are
described in the article? For information about the issues associated with
Fannie Mae, you may refer to the related article. Why do even positive earnings
restatements cause concern in the marketplace regarding the reliability of
financial reporting?
Reviewed By: Judy Beckman, University of Rhode Island
Although I had a tidbit about this in a previous edition of New Bookmarks,
I will repeat it here for convenience.
"Simply Put: Accounting-Rule Makers May Change How to Book Derivatives," by
James R. Hagerity and David Reilly, The Wall Street Journal, February 23, 2006;
Page C1 ---
http://online.wsj.com/article/SB114066273194380924.html
Fannie Mae and Freddie Mac for years complained
that accounting rules distorted their earnings, needlessly confusing
investors.
Now, U.S. accounting-rule makers are proposing a
way to help those mortgage giants and other companies to simplify the way
they account for complex derivatives that are often used to protect
companies against swings in interest rates and other risks.
That change, if enacted, won't bail out top
officers at Fannie and Freddie who lost their jobs in the past few years
after trying to circumvent existing accounting rules. Indeed, Fannie is
today expected to release the results of an internal investigation into its
bookkeeping improprieties led by former New Hampshire Sen. Warren Rudman.
But with its proposal announced in late January,
the Financial Accounting Standards Board is tossing a bone to companies that
have struggled to cope with a complex rule known as Financial Accounting
Standard 133. That rule sets out how companies book gains and losses on
derivatives, such as interest-rate and currency swaps.
The Norwalk, Conn., accounting-rule maker isn't
proposing to change FAS 133 itself; rather, the proposed rule provides a
simpler way for companies to account for derivatives and the securities and
other instruments they often hedge on a company's balance sheet. The rule
would let companies use current market prices, also known as "fair values,"
for a wider variety of instruments than is now allowed, much as rules from
the International Accounting Standards Board do.
Currently, companies must value some instruments at
their market price and others at their historical cost, resulting in a
balance-sheet mishmash. "We believe this will create an enormous opportunity
for companies to simplify their accounting," said Edward Trott, a member of
the FASB.
The change could also provide relief to companies
forced to restate results because of problems with so-called hedge
accounting they applied to derivatives, a FAS 133-induced headache that has
afflicted a number of companies.
Sometimes these restatements actually improve past
results, but that can still cause confusion for investors. Bank of America
Corp. yesterday, for instance, said it will restate several years of
earnings because the Charlotte, N.C., bank improperly applied a form of
hedge accounting to transactions related to interest rates and foreign
currencies. The restatement, along with changes to results for periods
before 2002, will result in a gain to earnings of $345 million, the bank
said.
Hedge accounting aims to ensure that changes in the
value of a derivative used to offset risks don't immediately flow through to
earnings. However, the criteria that allow derivatives to qualify for hedge
accounting are complex, requiring extensive documentation and regular
testing to guarantee that the hedge is actually doing its job. And the
accounting itself is a hassle.
In 2005, at least 40 companies restated results
because of problems with hedge accounting, according to a study by Glass
Lewis & Co., a San Francisco research firm. Among them: General Electric
Co., which last year issued a restatement that could increase earnings by
$538 million, according to Glass Lewis.
Currently, if a company doesn't use hedge
accounting and wants to protect itself against a swing in the value of a
mortgage loan, it would have to carry the original cost -- accountants refer
to it as the historical cost -- of the mortgage on its books while using the
market value of the derivative instrument that hedges the mortgage.
The apples-to-oranges comparison resulting from
this practice led to swings in earnings if a company couldn't use hedge
accounting. At a company like Fannie, for instance, a move in interest rates
could cut the value of a derivative, while at the same time increasing the
market value of a mortgage. In that event, the company would take a hit on
the derivative without being able to record the offsetting gain on the
mortgage, which is accounted for at its historical cost.
Giving companies the option of using market values
would obviate the need to use hedge accounting, said Stephen Ryan, an
accounting professor and derivatives specialist at New York University.
Firms could record both a derivative and the instrument it is hedging at
their market values.
Changes in derivative-accounting standards are
particularly important for Fannie and Freddie, government-sponsored
companies that provide funding for home-mortgage loans. Both have long been
heavy users of derivatives to guard against differences between the income
the companies get from millions of monthly mortgage payments and the price
they pay for borrowing in the bond markets.
In 2004, regulators found that Fannie had failed to
take the steps needed to qualify for hedge accounting, among other
accounting misdeeds. Those findings led to the ouster of the company's chief
executive officer, Franklin D. Raines, and some top aides. Fannie Mae is now
working on a restatement of past earnings.
Both Fannie and Freddie declined to comment on the
FASB proposal.
Fannie Mae Unearths More Accounting Problems The new problems include improper accounting for
certain investment securities and for some of the fees and obligations that
arise from Fannie's guarantees of payments on mortgages bundled into securities
and sold to investors world-wide. The newly disclosed problems also relate to
accounting for the costs of dealing with houses acquired through foreclosures,
for debt restructurings and for interest on delinquent loans, among other
things.
James R. Hagerty, "Fannie Mae Unearths More Accounting Problems: Company
Expects to Meet Its Capital Requirements; Market Share Drops Again," The Wall
Street Journal, March 14, 2006; Page A3 ---
http://online.wsj.com/article/SB114225528071896544.html?mod=todays_us_page_one
March 29, 2006 message from Ira Kawaller
The latest posting is an article that was
co-authored with Professor Timothy Koch (University of South Carolina),
published in "Bank Asset/Liability Management," March 2006. It deals with
the problem of managing interest rate risk when the assets or liabilities
that are the source of the exposure are subject to early-redemption (i.e.,
prepayment risk).
Click on the link to the right to find the article
on the Kawaller.com home page.
Please feel free to contact me if you have any
questions or comments that you might like to discusss.
A federal judge on Wednesday agreed that former
KPMG accounting executive David Greenberg can be freed on $25 million bail
in his tax fraud case - but he attacked Greenberg's character and vowed to
ruin his family financially should he decide to flee.
Greenberg is not expected to meet strict bail
conditions for at least several days in what prosecutors call the largest
criminal tax case in U.S. history, a fraud that helped rich people evade
$2.5 billion in taxes.
Even as he set bail, U.S. District Judge Lewis A.
Kaplan described Greenberg as "an extremely skilled individual who spent his
whole life trying to figure out how to hide the pea."
He was referring to a version of a deceitful street
game known as three-card monte, in which a pea is moved among three cups and
viewers are asked to guess where the pea ended up.
The judge said Greenberg's finances were in such
disarray that it was impossible to figure out where his assets were and how
much he was worth.
"I have no idea how much went in, came out and
remains," he said.
The judge warned Greenberg's family members that if
he flees, the court would make sure they "will be financially ruined and
stripped of everything they have."
He added, "If they're willing to take that risk,
I'm willing to take that risk of non-appearance."
He also required Greenberg to live in Manhattan and
submit to electronic monitoring.
The judge said Greenberg spent his professional
career "scheming how to protect other people's assets from the United States
government."
Greenberg is charged in an indictment accusing 17
former KPMG partners and managers with devising and marketing fraudulent tax
shelters that cost the U.S. Treasury $2.5 billion.
The indictment says the ex-KPMG executives teamed
with a former partner at a prominent law firm and another defendant to
defraud the Internal Revenue Service by filing false income tax returns and
by concealing the tax shelters from the IRS.
The judge said he was particularly disturbed that
Greenberg apparently forged the signatures of his ex-wife and his father on
papers establishing a limited liability company holding assets worth up to
$13 million. He noted that the government has alleged Greenberg boasted that
he could flee with money he controlled in the names of others.
Greenberg has denied the allegations. His lawyers
declined to comment after Wednesday's hearing.
KPMG is a worldwide network of professional firms
providing audit, tax and advisory services, according to its Web site. It
operates in 144 countries and has more than 6,700 partners.
One Case in Which KPMG is Not in Favor of Transparency
"KPMG Aims to Cloak Details of Client's Case: Auditor's Settlement
Offer Would Muzzle Targus Group Regarding Sanctions Order," by David Reilly,
The Wall Street Journal, March 20, 2006; Page C3 ---
Click Here
In trying to settle a lawsuit brought against it by
a former client, KPMG LLP has proposed terms aimed at preventing other
clients from learning the auditor was sanctioned by a judge in the matter.
KPMG has offered to settle for $22.5 million a suit
filed against it by Targus Group International Inc., a California
computer-case maker, according to a draft settlement proposal reviewed by
The Wall Street Journal. Targus claimed the accounting giant was negligent
in failing to detect alleged embezzlement by a former executive at the
company. KPMG has disputed that claim.
The proposed settlement payout is small compared
with the $465 million KPMG agreed to pay last year as part of a
deferred-prosecution agreement reached with the Justice Department. That
agreement, which helped the firm avoid a potentially catastrophic criminal
indictment, related to KPMG's sale of questionable tax shelters.
But the nonmonetary settlement terms being proposed
by KPMG to Targus underscore how big accounting firms are pursuing every
means at their disposal to limit their litigation liability and curtail the
ability of clients to bring cases against them. Other measures taken include
terms that some auditors are writing into their engagement contracts that
would limit the clients' ability to pursue legal action against them.
In the proposed settlement with Targus, KPMG wants
details of the case sealed and wants Targus to ask the state judge who
sanctioned KPMG to vacate, or overturn, that order, according to the
settlement document. The order, filed last July, sanctioned KPMG for
obstruction during pretrial proceedings, known as discovery, and fined it
$30,000. The judge also instructed any jury hearing the case against KPMG to
take into account the firm's failure to produce "requested documents in a
full and timely manner." At the time, KPMG said that it complied with the
judge's discovery orders and appealed the ruling. That appeal is pending in
the California Court of Appeal.
KPMG LLP agreed to pay a former audit client $22.5
million as part of a legal settlement that also calls for a California judge
to set aside a sanctions order imposed on the accounting giant last July,
according to a person familiar with the matter and documents related to the
case.
The settlement terms will allow KPMG to clear the
legal record of a disciplinary action that could potentially be used against
it by other parties who might sue the firm in the future. Orange County
Superior Court Judge Geoffrey T. Glass sanctioned KPMG last summer for
obstruction during pretrial proceedings.
The order emanated from proceedings related to a
lawsuit brought against KPMG by former client Targus Group International
Inc. The California-based computer-case maker sued the firm for malpractice,
alleging KPMG's audit failed to spot alleged embezzlement by a former
executive that cost the company as much as $50 million.
In settling the case, KPMG had proposed that Targus
agree not to oppose a request for Judge Glass to vacate the sanctions order,
according to a draft settlement proposal reviewed by The Wall Street
Journal. The accounting firm also wanted records related to the case, as
well as the sanctions order and its own appeal of that order, sealed, while
precluding executives at Targus, or their attorneys, from speaking about or
referring to the matter, according to the draft settlement proposal.
In a statement released yesterday, KPMG said: "The
parties have reached a settlement. We cannot discuss the terms, which are
confidential. We have settled the case to avoid more costly litigation." An
attorney for Targus didn't return a call seeking comment. The company's
general counsel, Michael Ward, was traveling outside the country and was
unavailable for comment.
From the Bets-L discussion list on designing an
ethics course, recommendation of topics to cover:
"Reputation Risk is regarded worldwide as the
highest order risk that faces organisations. Reputation risk is the current
and prospective impact on earnings and capital arising from negative public
opinion. This affects an institution's ability to establish new
relationships or services or continue servicing existing relationships. This
risk may expose the institution to litigation, financial loss, or a decline
in its customer base.
Reputation risk exposure is present throughout the
organization and includes the responsibility to exercise an abundance of
caution in dealing with its customers and the community and other
stakeholders. The process of dealing with Reputation Risk needs to include
prevention, protection, response and recovery strategies."
Philip F. Anschutz is a modest billionaire with an
estimated wealth of only $6.4 billion. He is rated 89th in the current list
in Forbes’ The World’s Billionaires. Before starting Qwest Communications in
1996, his father owned a contract drilling company and he bought his dad out
in 1961, according to the Washington Post. After striking it rich in Wyoming
and Utah’s oil fields, Anschutz moved into stocks and real estate.
He came to own most of the railroads in the West
and laid fiber-optical cable along his rail lines, connecting them at
central hubs in strategic locations in order to provide high-speed data and
T1 services for businesses, according to Wikipedia. Qwest incorporated in
1996, then acquired LCI in 1997 and added residential and business long
distance to their pallet of services.
And with all his success, he became the
non-executive chairman of Qwest Communications International, Inc. after he
stepped down as CEO in 2002. In 2002, the company he built also announced it
had incorrectly accounted for optical-capacity revenue, between the years
1999 to 2001, to the amount of $3.8 billion, according to ComputerWire. This
accounting scandal has not tainted his reputation.
George Soros is ranked 71st in Forbes’ The World’s
Billionaires. In September 1986, George Soros was a very large investor in
Harken Energy when it purchased Spectrum 7 that was our standing President
George W. Bush’s ailing oil venture. Spectrum 7 specialized in selling
limited partnerships, according to Wikipedia. In 1986, tax laws changed the
tax status of these financial instruments that had generated liberal tax
write-offs before the change.
George W. Bush was given an active membership on
the Harken board and initially given an $80,000 yearly consulting contract
that increased to $120,000 in 1989. Bush was given $500,000 in Harken stock
and options valued at $131,250. According to Wikipedia, Bush acquired
another $600,000 in Harken stock under the company’s Non-qualified Incentive
Plan. Bush also received two loans, at below-market 5% interest, totaling
$180,375. in 1986 and 1988. Harken stock was purchased with these loans and
his Harken stock holdings were converted to stock options which Bush says
were never exercised.
It was generally thought that Harken Energy was
buying political influence by having George H.W. Bush’s son on their board,
but this was confirmed by David Corn’s interview with George Soros. To
Corn’s question, “…What was the deal with Harken buying up Spectrum 7,”
Soros responded, “…We were buying political influence. That was it. He was
not much of a businessman,” according to Wikipedia.
Carl Icahn is no.53 in Forbes’ The World’s
Billionaires. He has earned his reputation as a corporate raider. He has
been buying weak telecommunications companies and merging them into publicly
held company XO Communications, of which he owns 61 percent, according to
CorpWatch. In an odd transaction, XO Communications auctioned off their
wireline businesses for $700 million to Carl Icahn, himself. Of the proceeds
of the auction, $400 million will be used to retire the company’s long-term
debt.
Some investors say that Icahn rigged the auction to
start with and surprised everyone but himself when he emerged as the winning
bidder. CorpWatch reports others are saying that Icahn may have lead the
company into trouble in order to sweeten the deal for himself.
Andrew Bogen, an attorney for the minority XO
shareholder R2 Investments, told CorpWatch, “It is inescapable that he used
his dual position as debt holder and the guy who runs the company in a way
that favors himself. We think Carl Icahn made all the important decisions
about who was permitted to bid – and that he had full information on other
bids when he made his.”
Tales from the Enron trial got you down? Like Andrew
Fastow's testimony of how he laundered $10,000 as a tax-free gift to his own
sons? So after work you stumble home, seeking refuge from the workaday sludge in
the stark competitive world of Sports Illustrated, which this week is awash in
the details of the doping case against Barry Bonds, an Icarus, legend has it,
who flew toward baseball heaven on wax wings made from human growth hormone. For
perspective on theBonds myth, I called Gary
Wadler, a physician who has seen it all as a member of the World Anti-Doping
Agency. "Bonds and Fastow were both into cooking," Dr. Wadler offered. "Bonds
cooked the record books and Fastow cooked the financial books."
Daniel Henninger, "Barry Bonds, Meet Andrew Fastow, The Wall Street Journal,
March 17, 2006 ---
http://www.opinionjournal.com/columnists/dhenninger/?id=110008100
Long-time subscribers to the AECM may remember my quips (years ago) about
Michael Kopper ---
These inspired AECMers to write their own quips about Enron and about accounting
in general.
You can read some of these AECM originals at
http://www.trinity.edu/rjensen/FraudEnron.htm#Humor
Although he lacks the star power of some who have
preceded him, Ben Glisan Jr. could become the most important witness in the
government's effort to convict former Enron Corp. executives Jeffrey
Skilling and Kenneth Lay of conspiracy and fraud.
Prosecutors hope the 40-year-old Mr. Glisan,
Enron's former treasurer, will provide jurors with convincing support for
allegations made by prior witnesses in the trial. Unlike some of those prior
witnesses, Mr. Glisan was high enough up the corporate ladder to have
regular contact with Messrs. Skilling and Lay, including
A trained accountant, Mr. Glisan helped design some
of the financial transactions that are a major part of the alleged fraud at
Enron -- and, thus, he should be able to discuss those transactions with an
authority that some previous witnesses lacked. Unlike other witnesses who
are cooperating with the government in hopes of reducing their sentences,
Mr. Glisan simply pled guilty to an Enron-related crime to settle a 26-count
indictment and is serving his five-year prison term -- potentially boosting
his credibility to jurors.
Mr. Glisan was a protégé of one of the alleged
fraud's central figures, former Enron Chief Financial Officer Andrew Fastow,
who recently completed four days of often-contentious testimony. While privy
to Mr. Fastow's thinking and actions at Enron, Mr. Glisan doesn't carry all
the negatives of his former boss, who was feared and disliked by many at
Enron and has admitted to stealing millions from the company.
By contrast, the affable Mr. Glisan was a generally
popular figure. Even Mr. Skilling, interviewed by Enron investigators
shortly after the company's December 2001 collapse into bankruptcy court,
was quoted as describing Mr. Glisan as having the reputation of a "boy
scout."
Defense attorneys won't be singing Mr. Glisan any
campfire tunes when they cross-examine him. They are expected to portray the
former treasurer as a liar who betrayed the trust of Messrs. Skilling and
Lay by sharing in the booty that Mr. Fastow stole. Mr. Glisan has
acknowledged reaping $1 million from a $5,000 investment with a Fastow
partnership -- with the profit coming from money that Mr. Fastow admitted
filching from Enron and some of his other partners. Defense attorneys hope
to bring out contradictions between what Mr. Glisan and Mr. Fastow have told
federal officials.
"Former Enron Treasurer Details His View of Internal Operations," by Gary
McWilliams and John R. Emswiller, The Wall Street Journal, March 22,
2006; Page C3 ---
Click Here
He testified the company's senior executives were
"manufacturing" earnings and misleading investors in 2001 to cover
shortfalls and prop up the energy firm's falling stock price.
As of mid-August 2001, Messrs. Lay and Skilling
knew that the company was struggling financially, yet falsely told investors
it was in excellent shape, he alleged. Mr. Glisan said that in the
succeeding months Enron's condition became "significantly worse," yet Mr.
Lay continued to assure investors to the contrary.
Among the problems he said were "billions of
dollars of embedded losses" in Enron's international assets. The prosecution
introduced an Enron chart that indicated Mr. Skilling estimated the
company's international businesses carried a value of $4.5 billion less than
the value shown on Enron's books. Mr. Glisan said the company didn't write
down the assets because it would have required "a larger loss than we could
have stomached" and have serious repercussions for Enron in financial
markets.
"We misled Lea (Fastow's wife),"
Mr. Fastow said. "She would not, in my opinion, have
signed a fraudulent tax return. She did it because [the subordinate] Michael
Kopper and I conspired. ... I led her to believe that."
But for most of the day, Mr. Fastow was cool and in
control as he described the alleged wrongdoing at Enron. His principal
target was Mr. Skilling, who helped bring him to Enron in 1990. In 1998,
after Mr. Skilling became Enron's president, he tapped Mr. Fastow, then in
his late-30s, as chief financial officer.
The prosecution's initial questioning focused on
dealings between Enron and the LJM partnerships, which drew their initials
from the first names of Mr. Fastow's wife and their two sons. Before its
2001 bankruptcy filing, Enron had routinely reported dealings with LJM and
Mr. Fastow in filings with the Securities and Exchange Commission, and Enron
contended that the LJM relationship was proper and that because of Mr.
Fastow's familiarity with the company, Enron could do deals, such as selling
assets, faster and at lower transaction costs.
But the government, in its indictment of Mr.
Skilling and Mr. Lay on multiple counts of conspiracy and fraud, contends
that LJM was a crucial part of the Enron fraud. Prosecutors allege that by
taking money-losing investments off Enron's books and by doing other deals
to produce bogus earnings, the LJM operation helped the company mask its
deepening financial problems.
Mr. Fastow testified that he came up with the idea
for the partnerships in 1999 as a way to help Enron manage its earnings and
to enrich himself. As the partnerships' general partner, he said, he was
guaranteed hundreds of thousands of dollars in annual fees from LJM1 and
millions in fees from LJM2 -- with potentially even larger sums from
partnership profits.
Mr. Fastow said Mr. Skilling and others were
concerned about how the obvious conflict of interest between his roles as
Enron's finance chief and the head of the partnerships would look to
investors. "We all agreed it was a rather unusual arrangement," he said.
But, he added, Mr. Skilling was enthusiastic about using LJM funds to help
manipulate Enron's earnings.
The Enron president said "give me all the juice you
can" from the LJMs, Mr. Fastow told the court. Mr. Fastow raised $15 million
in investment capital for LJM1 and nearly $400 million for LJM2 from outside
parties, many of them banks and investment banks that did business with
Enron.
Mr. Fastow said the partnerships were willing to do
deals that Enron "just couldn't do with others" because they were too risky
or simply didn't make economic sense.
One deal involved an Enron power-plant project in
Brazil. In 1999, Mr. Fastow said, Mr. Skilling asked him to have LJM buy an
interest in the plant so that Enron could book income and hit its earnings
target for the quarter. Mr. Fastow said he used an expletive to describe the
power plant. "I told him it was a piece of s-. No one would buy it," he told
jurors.
Possible
headlines on the Enron saga following the guilty plea of Michael
J. Kopper:
Kopper Wired to
the Top Brass (with reference to secret conspiracies with
Andy Fastow)
The Coppers Got
Kopper
Kopper Cops a Plea
Kopper’s Finish is
Tarnished
Kopper Caper
Kopper Flopper
Kopper in the
Kettle
A Kopper Whopper
These are Jensen
originals, although I probably shouldn’t admit it.
He said Tuesday he misled his wife when he told her
the kickbacks were gifts. Fastow stared at the floor as the checks of those
ill-gotten gains, written to his wife and sons as well as himself, were
displayed for jurors on a massive screen. ''I did this,'' he said, tearful and
fighting to compose himself. ''I led her to believe that.''
"Ex-C.F.O. of Enron Says Lay Was Aware of Financial Woes," The New York Times,
March 8, 2006 ---
Click Here
Former Enron CFO Andy Fastow, the prosecution's
star witness, testified at the Lay-Skilling trial that he ran financial
partnerships designed to help Enron meet earnings targets and mask huge
losses. Mr. Fastow, who hasn't spoken publicly since October 2001, is among
the most highly anticipated witnesses in this trial. Following are excerpts
from his testimony.
Wednesday, March 8 LAY KNEW: Fastow testified that
former chairman Ken Lay was at a meeting in August 2001 in which he heard
about a "hole in earnings" at Enron, just days before he gave a BusinessWeek
interview claiming Enron was in its "best shape" ever. Fastow said of the
Lay interview, "I think most of the statements in there are false."
* * * ON GREED: In a heated cross-examination by
Skilling lawyer Daniel Petrocelli, Fastow admitted, "I believe I was
extremely greedy, and that I lost my moral compass, and I've done terrible
things that I very much regret."
INSIDE-OUT: Steady growth and bright prospects "was
the outside view of Enron," Fastow testified. "The inside view of Enron was
very different."
* * * RECURRING DREAM: Lay opted to characterize a
loss on an investment in the third quarter of 2001 as "nonrecurring," even
though a gain on the same holding was earlier characterized as "recurring,"
Fastow testified, adding, "I thought that was an incorrect accounting
treatment."
* * * DEATH SPIRAL: By October 2001, Enron's
suppliers refused to trade with the company and Fastow testified that he
feared the company would collapse and that he and an aide went to Lay to
warn him. "I said I thought this was a death spiral, a serious risk of
bankruptcy. I said the majority of trades being done were to unwind
positions."
* * * MORE HEROICS: "Within the culture of
corruption Enron had, a culture that rewarded financial reporting rather
than rewarding economic value, I believed I was being a hero. I was not. It
was not a good thing. That's why I'm here today."
Tuesday, March 7 THE PROFIT PROBLEM: One of Enron's
off-balance-sheet partnerships, LJM1, was designed to help the company
"solve a problem," Fastow testified. "We were doing this to inflate our
earnings, and I don't think we wanted to show people what we were doing.''
* * * MORE DEALS: Fastow quoted Skilling as saying,
" 'Get me as much of that juice as you can,' '' after Fastow informed him
that more money would need to be raised to continue making deals like LJM1.
In such deals, these so-called outside entities would purchase
underperforming assets from Enron to get debt off its balance sheet and
boost earnings.
* * * RISKY BUSINESS: Fastow testified that
partnerships like the LJMs were willing to do deals that Enron "just
couldn't do with others" because they were too risky or didn't make economic
sense.
* * * SKILLING'S WORD: Fastow testified about
pressure from Skilling to have one of the LJMs buy a minority stake in a
Brazilian power plant owned by Enron because Enron's South American unit was
struggling to meet its earnings target. "I told him it was a piece of s--t,
and no one would buy it,'' Fastow said, adding that he relented, in part,
because Skilling assured him he wouldn't lose money on the deal. Fastow
testified that there were many more "bear-hug" guarantees like this from
Skilling in mid-2000.
* * * BREAKING THE LAW: Fastow testified that the
LJMs were legal and did many legal deals, but "certain things I did as
general partner of LJM were illegal."
* * * BELIEVE IT OR NOT: In his first day of
testimony, Fastow repeatedly said that he thought he was "a hero for Enron,"
for coming up with these unique business deals to help the company meet Wall
Street targets even when it was financially in trouble. "I thought the
foundation was crumbling and we were doing everything we could to prop it up
as long as we could … We were in pretty bad shape."
* * * WORRIES ABOUT PUBLICITY: Skilling was
concerned, Fastow testified, that off-balance-sheet deals like the LJMs
would "attract attention, and if dissected, people would see what the
purpose of the partnership was, which was to mask potentially hundreds of
millions of dollars of losses."
* * * FALSE TAX RETURN: Fastow tearfully admitted
that he "misled" his wife about some of the money the couple earned from
Enron-related deals. "She would not, in my opinion, have signed a fraudulent
tax return," Fastow said. Lea Fastow served one year in federal prison for
filing a false tax return.
* * * A FAMILY AFFAIR: Fastow also admitted that he
had one of his top aides send $10,000 checks to each of his sons. The checks
were portrayed as gifts to the boys, but really they were proceeds from a
business deal. "I shouldn't have. It was the wrong thing to do."
Jensen Comment It comes as some relief to accountants that Fastow has not yet mentioned
collusion with the Andersen Auditors led by David Duncan. CFO Fastow worked in
secrecy ripping off Enron itself. CAO Rick Causey worked more closely with
Duncan to issue false financial statements. Rick Causey's fine for filing false
Enron financial statements was $1,250,000.
Andrew S. Fastow, Enron's former chief financial
officer, ended his testimony on Monday, still insisting that Jeffrey K. Skilling
and Kenneth L. Lay joined him in telling investors that Enron was profitable and
healthy when all of them knew otherwise . . . Mr. Fastow struggled to further
corroborate his testimony about the so-called Global Galactic list of illicit
side deals he said he made with one of the former chiefs, Mr. Skilling, to
guarantee profits. Mr. Fastow also tried to buttress his claims that he warned
Mr. Lay, Enron's founder, in a private meeting that Enron was in desperate need
of a "massive restructuring."
Alexei Barrionuevo, "Fastow Leaves Stand Insisting Lay and Skilling Knew,"
The New York Times, March 14, 2006 ---
http://www.nytimes.com/2006/03/14/business/businessspecial3/14enron.html
What is "The Wall Street Journal" Risk? Under questioning from the prosecutor, John Hueston,
Mr. Fastow said Enron's board and top two executives discussed the questionable
nature of the partnerships, but ultimately approved them because they would help
the company hide hundreds of millions dollars in losses. At one board meeting, a
director wondered out loud about the "scrutiny and great problems" Enron could
face if information about the partnerships became public, describing it as "The
Wall Street Journal risk," testified Mr. Fastow, 44, who reached a plea bargain
with prosecutors on charges against him.
Alexy Barrionuevo and Vikas, Bajaj, "Fastow Says Enron Executives Approved Deals
to Hide Losses," The New York Times, March 7, 2006 ---
Click Here
Under questioning from the prosecutor, John Hueston,
Mr. Fastow said Enron's board and top two executives discussed the
questionable nature of the partnerships, but ultimately approved them
because they would help the company hide hundreds of millions dollars in
losses.
At one board meeting, a director wondered out loud
about the "scrutiny and great problems" Enron could face if information
about the partnerships became public, describing it as "The Wall Street
Journal risk," testified Mr. Fastow, 44, who reached a plea bargain with
prosecutors on charges against him.
At the same meeting, another director raised
questions about the propriety of Mr. Fastow's personally profiting from
LJM1; he was guaranteed $800,000 a year from the partnership regardless of
how it performed financially. But Mr. Fastow asserted that Mr. Skilling came
to his defense, saying, "Andy Fastow has put $1 million into the game. He
should get profits because he has skin in the game."
Nonetheless, the board approved LJM1, which also
had $15 million from outside investors, in early 1999. Later that year, Mr.
Fastow testified, Mr. Skilling encouraged him in his efforts to create LJM2,
for which he would eventually raise a total of $386 million. Mr. Fastow
earned $8 million in fees from the second partnership and was entitled to 20
percent of the entity's profits.
"Get me as much juice as you can," Mr. Fastow
recalled Mr. Skilling saying.
"We were using the equity to juice Enron's
earnings," Mr. Fastow added, "to report as much earnings as we wanted."
Mr. Fastow follows a parade of former Enron
executives who, under questioning from the prosecution, have presented
critical and damaging testimony against the two former top executives,
particularly Mr. Skilling. In its sixth week, the trial is the culmination
of a four-year federal investigation into the failure of and fraud at Enron
and is widely believed to be one of the most significant white-collar
criminal prosecution ever undertaken.
Mr. Fastow spoke in a strong, clear voice with his
trademark lisp, and he sipped coffee and water during his testimony. At one
point he asked Mr. Hueston for some water.
Mr. Skilling bobbed his head from side to side as
Mr. Fastow spoke; Mr. Lay seemed to be looking off to the side.
Before the testimony, Mr. Skilling appeared calm
and chatted with a reporter about trips to Argentina.
Some legal experts had recently suggested that
given the government's success thus far, they should have considered not
calling Mr. Fastow as a witness, because he was so closely involved in the
fraud at Enron and personally benefited from the off-balance-sheet
partnerships.
A central tenet of Mr. Lay's and Mr. Skilling's
defense is that Mr. Fastow masterminded most of the wrongdoing at Enron and
misled his bosses about his activities. Defense lawyers intend to vigorously
attack Mr. Fastow's credibility and the deal he reached with prosecutors, in
which he has pleaded guilty and agreed to a prison sentence that could total
10 years.
Continued in article
Enron Corp. dipped into reserve accounts to
illegally pad earnings in 2000 and improperly delayed reporting large losses
in a retail energy operation the following year, former accountants
testified yesterday. The testimony began the fifth week in the criminal
conspiracy-and-fraud trial of former Enron Chairman Kenneth Lay and former
President Jeffrey Skilling. The testimony provided new support for the
Justice Department's accusations that the two top executives manipulated
results at the company. Wesley Colwell, former accounting chief of Enron's
wholesale energy unit, alleged he shifted a total of $14 million in July
2000 to create a two-cents-a-share boost to the company's second-quarter
results. He testified that an Enron finance executive told him that month
that Mr. Skilling was looking to "beat the Street" estimate of its
second-quarter earnings. Mr. Colwell, who is testifying under a cooperation
agreement with the government, paid a $500,000 fine to settle allegations by
the Securities and Exchange Commission that he manipulated earnings. His
agreement with the Justice Department requires that he testify to avoid
criminal prosecution. Three previous government witnesses, all former Enron
executives, pleaded guilty to crimes related to the energy giant. Mr.
Colwell, who is testifying under a cooperation agreement with the
government, paid a $500,000 fine to settle allegations by the Securities and
Exchange Commission that he manipulated earnings. His agreement with the
Justice Department requires that he testify to avoid criminal prosecution.
Three previous government witnesses, all former Enron executives, pleaded
guilty to crimes related to the energy giant.
Gary McWilliams and John R. Emshwiller, "Accountant Says Enron Dipped Into
Reserves to Pad Earnings," The Wall Street Journal, February 28,
2006; Page C3 ---
http://online.wsj.com/article/SB114105814931084345.html?mod=todays_us_money_and_investing
The former head of Enron Corp.'s retail-energy unit
tied former President Jeffrey Skilling and former Chairman Kenneth Lay in
testimony to an alleged effort to improperly hide hundreds of millions of
dollars of losses in the division.
The testimony yesterday by David Delainey, who
headed Enron Energy Services, or EES, was some of the most specific yet
linking Messrs. Lay and Skilling to alleged wrongdoing. The former Enron
president and chairman are in the fifth week of their federal fraud and
conspiracy trial. Mr. Delainey has pleaded guilty to one count of insider
trading and agreed to pay nearly $8 million in penalties. Like four previous
witnesses, he is testifying for the government as part of a cooperation
agreement.
Mr. Delainey took over the retail unit in early
2001 after having headed the company's profitable wholesale-energy trading
operation. While Enron at the time was publicly portraying the retail unit
as profitable and growing, Mr. Delainey contended yesterday that he found a
problem-ridden unit burdened by hundreds of millions of dollars of losses.
He said another senior executive had told him the unit's financial problems
"could potentially bankrupt Enron."
At a March 29, 2001, meeting led by Mr. Skilling,
Mr. Delainey testified, a decision was made to hide some of the big EES
losses. Mr. Delainey said he argued the action, which involved moving some
retail operations to the profitable wholesale unit, "lacked integrity" and
shouldn't be done.
Continued in article
Forwarded by Bob Overn
Question:
Did Enron's chairman ever meet with the president?
Answer: Yes,
A. Enron's chairman did meet with the president and
the vice president in the Oval Office.
B. Enron gave $420,000 to the president's party
over three years.
C. It donated $100,000 to the president's
inauguration festivities.
D. The Enron chairman stayed at the White House 11
times.
E. The corporation had access to the administration
at its highest level and even enlisted the Commerce and State Departments to
grease deals for it.
F. The taxpayer-supported Export-Import Bank
subsidized Enron for more than $600 million in just one transaction.
Scandalous!!
G. BUT...the president under whom all this happened
WASN'T George W. Bush.
Ms. Watkins, 46, attracted national attention after
testifying before Congress in February 2002 about Enron's collapse two
months earlier. She was named one of Time magazine's people of the year in
2002 for raising red flags about the company's accounting while still
working there. She has since written a book with a Houston journalist about
Enron's fall, and formed a consulting practice that advises companies on
governance issues.
Defense lawyers, during combative
cross-examination, tried to paint Ms. Watkins as an opinionated fame-seeker
who had profited from the Enron scandal on the lecture circuit. The defense
lawyers also suggested that Ms. Watkins was never charged with insider
trading for selling Enron shares because she was wrong in believing that the
Raptors were fraudulent.
Prosecutors contend that the partnerships and
hedges Ms. Watkins testified about were part of a broad effort by Mr.
Skilling and Mr. Lay to manipulate earnings and hide debt. The former chief
executives are accused of overseeing a conspiracy to deceive investors about
Enron's finances so they could profit by selling Enron shares at inflated
prices.
Defense lawyers contend that prosecutors are
seeking to criminalize normal business practices and that the Enron
executives were the victims of thieving subordinates like Andrew S. Fastow,
the former chief financial officer.
Ms. Watkins's appearance on the stand came as the
government neared the end of its case. Judge Simeon T. Lake III said
Wednesday that he estimated that the case could be wrapped up by the end of
April.
Ben F. Glisan Jr., a former Enron treasurer, is
scheduled to take the stand next week. Mr. Glisan pleaded guilty to
conspiracy and is currently serving a five-year prison term.
In often-colorful testimony, Ms. Watkins recounted
how she became concerned around June 2001 that about a dozen Enron assets
were being hedged, or guaranteed against loss, by the Raptors vehicles,
which she soon learned contained only Enron stock. The Raptors were
intertwined with partnerships run by Mr. Fastow, who became Ms. Watkins's
boss that summer. The value of the assets, she said, "had tanked," dragged
down by Enron's plummeting share price.
After doing some investigation, she wrote an
anonymous letter about her concerns, then on Aug. 22, 2001, she met with Mr.
Lay to discuss them. The meeting came about a week after Mr. Lay had stepped
back into the role of chief executive after the resignation of Mr. Skilling.
At the meeting, they discussed a letter of hers in
which she had said that she was "incredibly nervous that Enron would implode
in a wave of accounting scandals." She also noted to Mr. Lay that employees
were talking about a "handshake deal" that Mr. Fastow had with Mr. Skilling
that ensured that Mr. Fastow would not lose money on transactions done with
the LJM partnership, which Mr. Fastow was running.
Mr. Lay seemed to take her seriously, Ms. Watkins
testified.
Days after the meeting, she learned that Vinson &
Elkins, the law firm that had originally approved the Raptors, was doing the
internal investigation into the partnerships. The firm, after consulting
with Arthur Andersen, Enron's auditor, issued a report saying that while the
"optics" or appearances were bad, the accounting was appropriate.
Ms. Watkins said she remained adamant that
Andersen, which had received several high-profile setbacks, should not be
trusted.
"I thought this was bogus," she said of the
investigation.
Concerned that Enron was manipulating its financial
statements, Ms. Watkins stepped up efforts to leave the company, which she
had begun shortly after she concluded the Raptors could be fraudulent. She
did not leave until after the bankruptcy.
Ultimately, Mr. Lay decided to unwind the Raptors
and take a write-off in a single quarter rather than restate the accounting
of Enron's financial statements. Ms. Watkins, under questioning from Chip B.
Lewis, a lawyer for Mr. Lay, conceded that while that was not her
preference, "continuing the fraud would have been worse."
Defense lawyers sparred with Ms. Watkins from the
outset. Mr. Lewis placed a copy of Ms. Watkins's book, "Power Failure," in
front of her, calling it a "housewarming present."
Ms. Watkins acknowledged that she could not explain
why prosecutors did not charge her with insider trading for selling Enron
shares.
Thomas Sowell's excuse for limiting interviews to
an hour is that it helps him "avoid stress." But one suspects the real
reason is that he has better uses for his time than to humor nettlesome
journalists. In any case, it's hard to question the time-management
preferences of a man who's published nearly 30 books, while also producing
academic articles, long-form magazine essays and a seldom-dull newspaper
column for more than two decades. Not bad for an orphan from Jim Crow North
Carolina who never finished high school and didn't earn a college degree
until he was 28.
Mr. Sowell's unorthodox views on racial matters
have made him our foremost "black conservative," but the modifier sells him
way short. He is one of the country's leading social commentators--without
qualification. And his scholarship is not only voluminous but wide-ranging,
covering everything from education and law to political philosophy,
migration and the history of ideas. His primary discipline, however, is
economics, specifically the history of economic thought, the subject in
which he earned his doctorate from the University of Chicago in 1968 under
Milton Friedman and George Stigler. It is the subject he taught at Cornell,
UCLA, Amherst, Brandeis and elsewhere during an academic career in the 1960s
and '70s. And it is the subject of his most recent book, "On Classical
Economics," which Yale has just published.
Mr. Sowell, who will turn 76 this year but looks 20
years younger, sat for an interview on a cool, drizzly morning at Stanford
University's Hoover Institution, his perch since 1980, and where he
is--appropriately--the Rose and Milton Friedman Senior Fellow. He describes
his latest tome as "partly an old book and partly a new book." It combines
four somewhat revised essays on microeconomics, macroeconomics, methodology
and social philosophy from his 1974 publication, "Classical Economics
Reconsidered," with four new essays, on Mill, Marx, Sismondi and economic
history. Asked why classical economics--and economists like Adam Smith,
David Ricardo, Mill and Marx--continues to deserve attention, Mr. Sowell
replies that "if classical economics is relevant, than Mill and Marx are
relevant. Why is classical economics relevant? I guess it's relevant because
there are people who study it, and if they're going to talk about it they
ought to know what they're talking about, which is a requirement sometimes
overlooked."
Free-market economics, a legacy of the classical
school, is thought of as an old conservative doctrine. But Mr. Sowell
explains that it was in fact one of the most revolutionary concepts to
emerge in the history of ideas. Moreover, "the thinking of the classical
economist was not only a radical break from landmark intellectual figures
like Plato and Machiavelli but also from mainstream thinking to this day."
The notion of a self-equilibrating system--the market economy--meant a
reduced role for intellectuals and politicians, he says. "And even today
many still haven't accepted that their superior wisdom might be superfluous,
if not damaging."
Mr. Sowell may be an unabashed free-market
adherent, but he's proud to say that Professor Sowell left his personal
views out of the classroom. In his 2000 memoir, "A Personal Odyssey," he
relates an episode in which some students approached him after taking his
graduate seminar on Marxian theory. They expressed appreciation for the
course but added, "We still don't know what your opinion is on Marxism." He
took it as an unintended compliment.
"My job was to teach them economics, not teach them
what I happen to believe," says Mr. Sowell, who adds that efforts by some
today to counterbalance the prevailing liberalism in academia with more
right-wing instructors is not only an exercise in futility but a disservice
to students. "Even if you succeed in propagandizing the students while
they're students, it doesn't tell you much [about how they'll turn out]. I
suspect that over half [of the conservatives at the Hoover Institution] were
on the left in their 20s. More important, though, let's assume for the sake
of argument that, whatever you're propagandizing them with on the left or
right, every conclusion you teach them is correct. It's only a matter of
time before all those conclusions are obsolete because entirely different
issues are going to arise over the lifetimes of these students. And so, if
you haven't taught them how to weigh one argument against another, you
haven't taught them anything."
This lifelong passion for economics has been much
on display in recent years--"On Classical Economics" was preceded by "Basic
Economics: A Citizen's Guide to the Economy" (2000) and "Applied Economics:
Thinking Beyond Stage One" (2003), both of which were written for the
general public. And it's worth noting the extent to which Mr. Sowell's
background in the dismal science also informs his better-known works on
ethnicity, race and culture. Other black conservative scholars have their
strengths, to be sure. Shelby Steele writes like a dream and favors an
existential approach to racial matters. John McWhorter's prose is as hip as
it is provocative.
But Mr. Sowell's forte has always been rigorous
analysis and adherence to facts, however stubborn and wherever they lead.
And the facts led him on a writing tear in the '70s and '80s. Some titles,
like "Race and Economics" (1975), "Markets and Minorities" (1981) and "The
Economics and Politics of Race" (1983), betray his technical background. But
Mr. Sowell's other influential books of this period--"Black Education: Myths
and Tragedies" (1972), "Ethnic America" (1981), "Civil Rights: Rhetoric or
Reality?" (1984)--are no less distinguished by the dispassionate empiricism
he brings to such emotionally charged topics. In these tomes and elsewhere,
Mr. Sowell's research questions the basic assumptions behind popular public
policies aimed at minorities.
And in the process, he's made mincemeat of the
sloppy methodology and flaccid arguments put forward by mainstream civil
right leaders and their liberal sympathizers. He has shown, empirically,
that affirmative action does not benefit poor blacks. He has shown,
empirically, that political clout is not a prerequisite for ethnic economic
advancement. And most importantly, he has exposed the harmful fallacy of
using racial and gender discrimination as an all-purpose explanation for
statistical group disparities.
Asked why many of these failed ideas, and the black
leaders who promote them, don't seem to lose credibility, Mr. Sowell
responds that the phenomenon is hardly limited to the realm of race. "You
could take it beyond the black leadership," he says. "Has [John Kenneth]
Galbraith lost any credibility? I remember 'The New Industrial State'"--the
1967 book in which Mr. Galbraith famously argued that large corporations
were immune to marketplace forces--"but since then, Eastern Airlines has
gone out of business. The Graflex Corporation has gone out of business.
Similarly with all kinds of big businesses. This hasn't made the slightest
dent in Galbraith's reputation. We have Paul Ehrlich, who has told us there
would be mass starvation in the world in the '80s, and now we find our two
biggest problems are obesity and how to get rid of agricultural surpluses."
Mr. Sowell's conclusion is a cynical one. "I have a book called 'The Vision
of the Anointed,' and there's a chapter in there called 'The Irrelevance of
Evidence.'"
The idea to apply economic concepts to racial
issues came, says Mr. Sowell, from the late Benjamin Rogge, who taught
economics at Wabash College in Indiana. "I was at Cornell, and Ben Rogge
came on campus to give a talk called 'The Welfare State Against the Negro.'
I happened to be out of town, so when I got back I wrote him a letter that
said I heard you gave this talk and that you're going to write a book on the
same theme. I said it's really amazing that no one's thought of this before
because there's so much material out there. At this point [in the late '60s]
I had no thought that I would ever touch it myself." The two became friends
over the years and "it occurred to Ben that he was never going to write that
book. And so Ben Rogge took his manuscript and simply handed it to me and
said do with it whatever you can. I was flabbergasted. I don't think I ever
used anything directly from his manuscript. But the fundamental idea the you
could apply economics to racial issues--that was the inspiration."
Similarly, Mr. Sowell says his interest in
"international perspectives"--most notably demonstrated in his lengthy
trilogy on cultural history published in the 1990s--initially came from
reading Nathan Glazer and Daniel Patrick Moynihan's 1963 classic study,
"Beyond the Melting Pot." "It was really the first book I read about
different ethnic groups. There were many different patterns. And more than
anything else, each group had its own pattern.
"The left likes to portray a group as sort of a
creature of surrounding society. But that's not true. For example, back
during the immigrant era, you had neighborhoods on the Lower East Side [of
Manhattan] where Jews and Italians arrived at virtually identical times.
Lived in the same neighborhoods. Kids sat side by side in the same schools.
But totally different outcomes. Now, if you look back at the history of the
Jews and the history of the Italians you can see why that would be. In the
early 19th century, Russian officials report that even the poorest Jews find
some way to get some books in their home, even though they're living in a
society where over 90% of the people are illiterate.
"Conversely, in southern Italy, which is where most
Italian-Americans originated, when they put in compulsory school-attendance
laws, there were riots. There were schoolhouses burning down. So now you
take these two kids and sit them side by side in a school. If you believe
that environment means the immediate surroundings, they're in the same
environment. But if you believe environment includes this cultural pattern
that goes back centuries before they were born, then no, they're not in the
same environment. They don't come into that school building with the same
mindset. And they don't get the same results."
It somehow seems an imposition to press Mr. Sowell
on his next project, though he graciously allows that a collection of
correspondence, as well as a book on intellectuals, is in the works. As the
interview clock winds down, however, he returns briefly to the topic of
race. He laments the fact that more public intellectuals aren't applying
economic analyses to racial policies, even while he understands the
hesitation.
"I think it would be great if someone would sit
down and take a sort of systematic textbook approach to it," says Mr.
Sowell. "[George Mason University economist] Walter Williams has written a
couple of very good books, but unfortunately they were not well promoted.
Guys like Gary Becker have other fish to fry, and they're writing for a
different audience. Besides Walter and me, I don't know who else out there
would write it. And heaven knows it's not the golden pathway to instant
popularity."
March 10, 2006 message from Dan Stone, Univ. of Kentucky
[dstone@UKY.EDU]
Ok, now you can answer that trivia question that
comes up over dinner at the next BAP banquet.
Specifically: "which CPA firm was the first to
podcast?"
Answer: Deloitte (based on 10 minutes of web
searching)
I am looking for freeware accounting system
packages implemented in MS Excel or MS Access. If you know of any, please
let me know how I can obtain. I will summarize respones for AECM. Thank you.
Joseph A. Brady
Accounting & MIS
Lerner College of Business & Economics
University of Delaware bradyj@lerner.udel.edu
March 28, 2006 reply from Bob Jensen
Hi Joe
For freeware and shareware, I recommend that you first enter "Excel
Accounting" in the search box at
http://www.tucows.com/
Then do the same thing for "Access Accounting"
In general, Tucows is a great site for finding free software.
It has been
around for decades and has a wonderful rating system.
Although the consulting services are not free, a extensive listing of MS
Access accounting system software appears at
http://www.granite.ab.ca/accsacct.htm
This site also has some MS Access tips.
You might find some interesting free accounting software based on Excel
at this rather difficult site to navigate ---
http://www.freedownloadscenter.com/
• Use to loosen rusty nuts and screws, clean garden tools.
• Cleans piano keys
• Keeps wicker chairs from squeaking
• Lubricates small rolling toys
• Keeps garden tools rust-free
• Cleans patio door glide strip
• Removes crayon from clothes dryer (make sure to unplug dryer first)
• Removes scuff marks from ceramic tile floor
• Keeps metal wind chimes rust-free
• Removes crayon from walls
• Helps join plastic shelving to make disassembly easier
• Removes water spots from mirrors
• Lubricates hinge on pruning shears
• Lubricates screws on lawn furniture
• Lubricates hydraulic rams on slideout of 5th wheel
• Cleans fiberglass bathtubs
• Cleans and prevents rust on oil tank exterior
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• Prevents rust on swamp cooler nuts
• Removes tea stains from countertops
• Removes crayon from wallpaper
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• Removes crayon from carpet
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• Shines leaves of artificial houseplants
• Keeps snow from sticking to shovel
• Removes coffee stains on floor tiles
• Keeps hose ends from corroding
• Lubricates moving parts on playground equipment
• Removes crayon from plastic
• Removes decals from bathtubs
• Removes old cellophane tape
• Removes crayon from shoes
• Cleans ashtrays
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• Cleans and protects underside of cast iron skillets
• Removes ink from carpet
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• Prevents mildew growth on fountain
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• Eliminates static on volume and tuning control knobs
• Cleans candle soot
• Removes ink from blue jeans
• Cleans residue on luggage handles
• Cleans old muffin tins
• Cleans and protects pruning shears
• Cleans gold-plated faucets
• Removes petroleum stains from clothing
• Keeps sewing needles from rusting
• Removes Kool-Aid stains from carpet and fabric
• Removes gunk from plastic dish-drainer
• Lubricates kitchen sink handheld spray nozzle
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• Helps prevent rust on hide-a-key containers
• Cleans vinyl garage doors
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• Removes gunk when replacing old faucets
• Cleans and protects medicine door latches
• Protects wrought iron from rust
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• Prevents rust from forming on washing machines
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• Preventative maintenance on cooking burner
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• Removes ink stains from leather
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• Shines shower doors
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• Cleans mildew from refrigerator gasket
• Helps clean rust from wire shelves
• Cleans newspaper ink from tables
• Removes rust stains from floor after mopping
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• Spray on rototiller blades to prevent rust during off-season
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Online Video
In the past I've provided links to various types of music and video
available free on the Web.
I created a page that summarizes those various links ---
http://www.trinity.edu/rjensen/music.htm
For those of you who missed this on February 26, the 60
Minutes television module on breakthroughs of stem cell research for spinal
cord injuries might listen to the audio module of 60 Minutes ---
Stem Cell Advances
The above link may not last very long on the Web. The module also discusses
advances in regenerating damaged heart tissue and the forthcoming clinical
trials (the first ever) on the fatal childhood Battens Disease These
advances are the closest things to miracle cures in history. Thus far only
embryos that were going to be otherwise destroyed are being used in the
research.
The main link to this and other video/audio modules on 60
Minutes is at:
Click Here
In the past I've provided links to various types of music
and video available free on the Web.
I created a page that summarizes those various links ---
http://www.trinity.edu/rjensen/music.htm
Momma Don't Let Your Babies Grow Into ...
Click Here
Photographs and Art
The "Oops" List
(includes photographs of crashed airplanes and other "Oops" happenings ---
http://www.micom.net/oops/
Many of the photographs and cartoons on the “Oops” list will be
familiar. You may not have seen some of these images, some of which are
hilarious.
The "Oops" List (some links are video links) ---
http://www.micom.net/oops/
From NPR
Photographs of the 2006 Winter Olympics ---
Click Here
Giant galaxies weren't
assembled in a day. Neither was this Hubble Space Telescope image of the
face-on spiral galaxy Messier 101 (the Pinwheel Galaxy). It is the
largest and most detailed photo of a spiral galaxy beyond the Milky Way
that has ever been publicly released. The galaxy's portrait is actually
composed from 51 individual Hubble exposures, in addition to elements
from images from ground-based photos. The final composite image measures
a whopping 16,000 by 12,000 pixels.
Online Books, Poems, References, and Other Literature
In the past I've provided links to various types electronic literature
available free on the Web.
I created a page that summarizes those various links ---
http://www.trinity.edu/rjensen/ElectronicLiterature.htm
Dual Covenant Theology: Thanks to the Cornerstone Church in San
Antonio Jews Can Now Get Into Heaven
An evangelical pastor and an Orthodox rabbi, both from Texas, have
apparently persuaded leading Baptist preacher Jerry Falwell that Jews
can get to heaven without being converted to Christianity. Televangelist
John Hagee and Rabbi Aryeh Scheinberg, whose Cornerstone Church and
Rodfei Sholom congregations are based in San Antonio, told The Jerusalem
Post that Falwell had adopted Hagee's innovative belief in what
Christians refer to as "dual covenant" theology. Ilan Chaim, Jerusalem Post, March 1, 2006 ---
Click Here
Jensen Comment: This must be a huge relief to Jewish faithfuls.
Really bad news for Jews now that
it's a scientific fact that heaven does exist
Reverend Falwell denies that he ever once believed that Jews can get
into heaven Evangelist Jerry Falwell has a beef with the
Jerusalem Post after the newspaper published an article suggesting he's
changed his beliefs about salvation, now thinking Jews can get to heaven
without becoming Christians first. "Televangelist John Hagee and Rabbi
Aryeh Scheinberg, whose Cornerstone Church and Rodfei Sholom
congregations are based in San Antonio, told the Jerusalem Post that
Falwell had adopted Hagee's innovative belief in what Christians refer
to as 'dual covenant' theology. This creed, which runs counter to
mainstream evangelism, maintains that the Jewish people have a special
relationship to God through the revelation at Sinai and therefore do not
need 'to go through Christ or the Cross' to get to heaven."
"Falwell: Jerusalem Post 'fabricated' story on me Newspaper claimed
Christian evangelist had new tune on how Jews get to heaven,"
WorldDailyNet, March 1, 2006 ---
http://www.worldnetdaily.com/news/article.asp?ARTICLE_ID=49063
Pastors John
Hagee and Jerry Falwell have both denied a report in The Jerusalem Post
earlier this week that they embrace the "dual covenant" theology, which
holds that Jews are saved through a special relationship with God and so
need not become Christians to get to heaven.
"Hagee, Falwell deny endorsing 'dual covenant'," Jerusalem Post,
March 2, 2006 ---
http://www.jpost.com/servlet/Satellite?cid=1139395523403&pagename=JPost%2FJPArticle%2FShowFull
Jensen Comment
Just goes to show you what might happen to
evangelism if just anybody can pass through the Pearly Gates.
Authorities are moving quickly to Plains, Georgia to have Jimmy Carter
settle this matter once and for all ---
---
Click Here
March 2, 2006 reply from a Jewish friend
who is also an accounting professor
This little
tempest isn't sitting so great with the JPost readers. One
writes (in talkback to the article for which you provide the
url:
2. Explain 24
gates and 24 elders
David - Israel
03/02/2006 16:02
Falwell should
read his N. Testament. Revelations where John sees 24 elders
before the throne representing 12 tribes of Israel and 12
Apostles. Hmmmm, no replacement theology there. And the new
J-town has 24 gates; twelve for the tribes and 12 Apostles.
Hmmmmm. Sounds like God can dual anything He wants. And who said
you can't meet Jesus and receive your faith in Jesus after your
dead? N. Test verses make case for that. And every knee shall
bow and every tongue confess. I don't know how you force someone
to do that? Sorry Christians God is up to something far greater
than just saving you. Far greater.
So
Bob, I guess my day is still OK? Eric
Driver carries no cash. He's married.
Bumper Sticker
All I ask is the chance to prove that money
can't make me happy.
Bumper Sticker
Vote Democrat — it's easier than working! Bumper Sticker
Vote Republican — it's easier than thinking! Bumper Sticker
George W. Bush is about to fritter away his
party's last advantage. What Republicans have had going for them is that
they aren't Democrats.
Wesley Pruden, "Taking a chance on love for sale," The Washington
Times, February 24, 2006 ---
http://www.washtimes.com/national/pruden.htm
We hang the petty thieves and appoint the
great ones to public office. Aesop
Around me, if a woman don't wear mink, she
don't wear nothin'.
Big Boy Caprice in the 1001 movie Dick Tracie Directed by
Warren Beatty, screenplay by Jim Cash and Jack Epps Jr
There are three kinds of death in this
world. There's heart death, there's brain death, and there's being off
the network. Guy Almes
117 documents match your query. Search
Amazon.com for top-selling titles about +dwarf +"pubic hair". AltaVista
The number one problem in our country is
apathy ... But who cares? Darrel Anderson
Advice not heeded by Bob Jensen Ignorance of your profession is best concealed
by solemnity and silence, which pass for profound knowledge upon the
generality of mankind. "Advice to Officers of the British Army", 1783
I have learned from an early age to abjure
the use of meat, and the time will come when men such as I will look
upon the murder of animals as they now look upon the murder of men. Leonardo da Vinci (1452-1519)
The was (possibly still is) a billboard outside of Saskatoon showing
a feeding moose. The sign read as follows:
There's plenty of room for all God's
creatures,
Right beside the mashed potatoes.
A teacher who castrated a live pig in front
of her high school class is the target of protests by animal rights
activists throughout the country. The protests began after People for
the Ethical Treatment of Animals posted information about the incident
at Rosamond High School on its Web site last month. The posting does not
say when the castration occurred. "We're concerned not only because
animals suffer during these routine castrations but also because of the
message it sends to students who are still forming opinions about
treatment of animals in our society," said Stephanie Bell, a PETA
cruelty case worker.
"Castration of live pig at Central Calif. school ignites
protests," Modbee, February 22, 2006 ---
http://www.modbee.com/state_wire/story/11834713p-12549652c.html
Japan Warns U.N. of Funding Cut If
widespread fraud and waste at the United Nations is not stopped, Japan
says it may cut its funding for the scandal-ridden international
organization. NewsMax, February 24, 2006 ---
http://www.newsmax.com/archives/ic/2006/2/24/223452.shtml
Remember This One? (turn your speakers up)
Do Your Own Damn Taxes Video (music from Frank Sinatra) ---
http://www.doyourdamntaxes.com/
University of Michigan may extend time to tenure to 10 years In part to try to make the academy family
friendly, the University of Michigan is currently mulling over changes
to the process it uses to promote professors, which would include
extending the maximum time to receive tenure from 8 to 10 years. Higher
education experts have increasingly been saying that, as baby boomers
age and require more attention, and as more women flood academe, a bit
of flexibility is in order.
David Epstein, "Slowing Down Tenure Time," Inside Higher Ed, February
28, 2006 ---
http://www.insidehighered.com/news/2006/02/28/michigan
Atheists and Agnostics Need Not Apply for Work at the
University of Charleston Edwin H. Welch, president of
the University of Charleston, is investigating the legal
ramifications of an advertisement that states that
applicants must believe in God — an apparent violation
of federal anti-bias laws. . . . The ad says that
prospective candidates must have earned a doctorate and
expertise in ethics, have had faculty development
experience and “must embrace a belief in God and present
moral and ethical values from a God-centered
perspective.” The unusual job requirement was noted on
Brian Leiter’s
blog.
Rob Capriccioso, "Divinely Inspired Bias?" Inside
Higher Ed, March 1, 2006 ---
http://www.insidehighered.com/news/2006/03/01/charleston
In an
attempt to avoid violating civil rights
laws, the University of Charleston has
made changes to a
co.
oversial job requirement
the stated that
applicants for the Herchiel and
Elizabeth Sims “In God We Trust” Chair
in Ethics must believe in God.
Rob Capriccioso, "Charleston Ends
Illegal Job Requirement," Inside
Higher Ed, March 2, 2006 ---
http://www.insidehighered.com/news/2006/03/02/charleston
Question
What's really behind epidemic of teacher-student sex? The seemingly endless stream of
reports of female school teachers having sex with their underage male
students– a storyline titillating to some
but profoundly disturbing to most – is one of today's most sensational
news stories. In fact, a recent, federally funded study concludes the
problem of school teachers molesting students dwarfs in magnitude the
clergy sex-abuse scandal that rocked the Catholic Church. Now, in a
groundbreaking investigation, the newest edition of WND's elite monthly
Whistleblower magazine – titled
"PREDATORS: What's really behind today's epidemic of teacher-student
sex?" – unveils what's really behind this
troubling new phase in the "sexual revolution."
"PREDATORS: What's really behind today's epidemic of teacher-student
sex?" Whistleblower Magazine, March 1, 2006 ---
http://www.worldnetdaily.com/news/article.asp?ARTICLE_ID=49049
Question
On average, what is the increase in technology spending expected for
higher education?
Technology spending by colleges and
universities is expected to increase by 35 percent, to $6.9 billion, in
2006, according to a report by Market Data Retrieval. The report found
increases in all sectors of higher education. Hardware purchases
represent about half of all spending. Inside Higher Ed, February 28, 2006 ---
http://www.insidehighered.com/news/2006/02/28/qt
Listening to Student Voices on Technology
March 1, 2006 message from Bob Blystone
You might find the referred to 21 page
report concerning student use of computers very interesting. It
concerns high school students primarily.
The "Oops" List (includes photographs of crashed airplanes and
other "Oops" happenings ---
http://www.micom.net/oops/
Many of the photographs and cartoons on the “Oops” list will be
familiar. You may not have seen some of these images, some of which are
hilarious.
The "Oops" List (some links are video links) ---
http://www.micom.net/oops/
The "Oops" impact of labor unions of California politics: Some
Cities and Counties Will Declare Bankruptcy
From 1999 through 2002, I was the Vice
Chair of the Senate Public Employment and Retirement Committee.
During that time, a number of bills presented to the committee
increased pension and retirement benefits for state and local
government employees. Every single one of these bills were passed
and signed by Governor Davis.
At the hearing on each of these bills, the
lobbyists for the government employee unions showed up and begged
the committee members to vote for the bill. In addition, the
representative for the California Public Employee Retirement System
(CalPERS) told the committee that the retirement system could afford
the increases because it had a $60 billion surplus. The surplus was
so big that the state did not have to pay any money to the CalPERS
fund, and CalPERS told us we would never have to pay into the
retirement system ever again, even with the benefit increases. Of
course, the government employee unions control the CalPERS board.
The state was experiencing record budget surpluses, so everyone
thought that the good times would last forever.
I kept trying to explain to my legislative
colleagues that we were being foolish. No one can increase benefits
without some cost. At some point, I said, these pension chickens
were going to come home to roost in our budget. My colleagues called
me Chicken Little telling me “the sky is not falling.” They said the
pension was sound and the budget could absorb the cost.
Oops.
The chickens have come home to roost. The
City of San Diego is going bankrupt from generous pension benefits.
Orange County is talking seriously about filing bankruptcy again to
get out from underneath their pension requirements. The state’s
contribution to CalPERS is estimated to be $3.5 billion this year,
and even higher next year. This is from nothing in 1999.
And this week, the Legislative Analyst’s
Office released a report that the cost of retiree health benefits
will be “in the range of $40 billion to $70 billion, and perhaps
more.” The report identifies two reasons for this increased cost;
(a) increased health care costs; and (b) legislatively mandated
increased health benefits.
Health care costs have increased
significantly in the last six years for one reason: legislatively
mandated minimum requirements for health care. From 1999 to 2000,
the Legislature passed over 30 different mandates on health
insurers, and as a result, costs increased over 40%.
Defining the term "child" sounds simple --
except at tax time.
There are at least five different tax
breaks tied to children and until recently, the tax code had a
separate test for each. Recognizing the absurdity and inefficiency
of that, Congress enacted legislation in late 2004 streamlining the
definition of a child. The new system took effect for 2005 tax
returns, which people are preparing now.
But the new law has ended up creating
loopholes allowing some high-income families to get tax benefits
that weren't intended for them -- such as the earned-income tax
credit, which is intended for low-income workers. At the same time,
some low-income families are finding themselves unable to claim
benefits that they should be getting.
Francis
Degen, president of the National Association of Enrolled Agents,
which represents about 40,000 private-sector tax specialists,
offered this example: A couple with two children living at home
-- a 14-year-old daughter and a 22-year-old son -- file a joint
return with adjusted gross income of $400,000. At that level of
income, the parents don't get any tax benefit from claiming the
daughter as a dependent. On the other hand, the son, who has
$15,000 in wages and isn't a full-time student, can claim his
sister, enabling him to receive the child-tax credit and
earned-income tax credit. Assuming he had no tax withheld, this
turns what would have been a balance due of $683 on his return
to a federal income-tax refund of $3,158.
I don't see how the son can
claim his sister as a dependent when he must fail "test to be a
qualifying relative part 4 - you must provide more than half of
the person's total support for the year." I have a 16 year old
son, who in no way would give his hard earned bucks (he pumps
gas) to his sister! See IRS Pub 17 page 25 chapter 3.
What am missing something
here?
Question
How much more is the cost of a U-Haul trailer to move from Los Angeles
to Boise versus the vice versa?
It takes hard work to drive anyone away from
California's sunshine and scenic vistas, but politicians in Sacramento
have been up to the task. The latest Census Bureau data indicate that,
in 2005, 239,416 more native-born Americans left the state than moved
in. California is also on pace to lose domestic population (not counting
immigrants) this year. The outmigration is such that the cost to rent a
U-Haul trailer to move from Los Angeles to Boise, Idaho, is $2,090--or
some eight times more than the cost of moving in the opposite direction.
What's gone wrong? A big part of the story is a tax and regulatory
culture that treats the most productive businesses and workers as if
they were ATMs. The cost to businesses of complying with California's
rules, regulations and paperwork is more than twice as high as in other
Western states. But the worst growth killer may well be California's tax
system. The business tax rate of 8.8% is the highest in the West, and
its steeply "progressive" personal income tax has an effective top
marginal rate of 10.3%, or second highest in the nation. CalTax, the
state's taxpayer advocacy group, reports that the richest 10% of earners
pay almost 75% of the entire income-tax revenue in the state, and most
of these are small0business owners, i.e., the people who create jobs.
"Meathead Economics: Hollywood liberals drive productive Californians
to leave the state," The Wall Street Journal, February 28, 2006
---
http://www.opinionjournal.com/editorial/feature.html?id=110008026
Question
What is the impact of low fat diets on older women? Hint: It "won't cut their risk of cancer or heart disease." (with
calorie intake held constant)
Older women who reduce the amount of total
fat in their diets won't cut their risk of cancer or heart disease, but
some women might benefit from lowered fat intake. So says a School of
Medicine researcher who helped direct the much-publicized Women's Health
Initiative, which followed test subjects for 15 years . . . But a School
of Medicine researcher who helped direct the WHI work said the study
showed a modest reduction in breast cancer among the women who started
with the highest fat intake before cutting back. And the findings also
suggested a health benefit for women who reduced their consumption of
saturated and trans fats. "Just switching to low-fat foods is not likely
to yield much health benefit in most women," said Marcia Stefanick, PhD,
professor of medicine at the Stanford Prevention Research Center and
chair of the WHI steering committee. "Rather than trying to eat
'low-fat,' women should focus on reducing saturated fats and trans
fats." She also recommended that women eat more vegetables, in
particular dark, leafy greens and cruciferous vegetables, though the
trial did not specifically study these foods.
Susan Ipaktchian, "Low-fat diet no panacea for preventing cancer for
women But some adjustments in fat intake may benefit certain women,
study author says," Stanford University News Service, February 8,
2006 ---
http://news-service.stanford.edu/news/2006/february8/med-whi-020806.html
"Will WebMD's Healthy Glow Last?" by Arlene Weintraub,
Business Week, February 23, 2006
The Net health-care concern has been a hit
on the Street since being spun off last year. Now its numbers have
to back up the optimism
Just days after Google (GOOG) raised a
staggering $4 billion in a September secondary stock offering,
another brand-name dot-com made a much quieter, but equally
impressive splash on Wall Street. Health-information provider WebMD
Health (WBMD) spun out from its parent company on Oct. 4, raising
$129 million. Shares of its stock have nearly doubled to $34.92
since then (as of the market close on Feb. 22).
Why aren't physicists as rich as Warren Buffet? On Monday, October 19, 1987 – infamously known
as “black Monday” – the Dow fell 508 points, or 22.9%, marking the
largest crash in history. Using an analytical approach similar to the
one applied to explore heart rate, physicists have discovered some
unusual events preceding the crash. These findings may help economists
in risk analysis and in predicting inevitable future crashes.
"Physicists Predict Stock Market Crashes," PhysOrg, February 24,
2006 ---
http://physorg.com/news11164.html
Jensen Comment
If physicists can predict market crashes, why aren't they short selling
at the right moments to become as rich as Warren Buffet? The problem in
all time series models of stock market prices lies in evaluating the
false positives and negatives. I always tell my students that the Wizard
can predict every stock market crash because the Wizard is always
predicting stock market crashes. The studies cited above, however, are
much more scholarly and worth reading.
Fraud at Harvard
In a legal settlement reached last summer, Harvard agreed to pay $26.5
million
Questions
Did fraud by a Harvard professor ultimately sink its President Summers?
"I was surprised that he was
gone by February of '06," said Mr. McClintick, and
"that it happened as rapidly as it did."
"How
Harvard Lost Russia" was
published in the January issue of Institutional
Investor magazine, a subscription-only
publication, about a month and a half before Dr.
Summers's resignation, which he announced last
Tuesday. The move came just two weeks after a Feb. 7
meeting when the president was challenged on several
issues, including his reaction to events described
in Mr. McClintick's article.
In roughly 18,500 words, (22,007 including
sidebars), Mr. McClintick chronicled financial improprieties by
those in charge of Harvard's Russia project, including Andrei
Shleifer, a professor of economics who is a friend and protégé of
Dr. Summers's, and Jonathan Hay, a Harvard-trained lawyer. The two
men were accused of making personal investments in Russia at a time
when they were working under contract to establish capitalism in the
former Soviet nation.
Their behavior led the United States
government to file civil charges against Harvard, Mr. Shleifer and
Mr. Hay for fraud, breach of contract and making false claims.
In a settlement reached last summer,
Harvard agreed to pay $26.5 million.
Mr. Hay was ordered to pay a fine based on his future earnings and
Mr. Shleifer agreed to pay $2 million, though none of the parties
admitted wrongdoing. Mr. Shleifer has not been subjected to any
disciplinary action from Harvard.
Some Harvard watchers attribute that to Dr.
Summers's influence, though he formally recused himself from the
matter, and they see the entire affair, assiduously detailed by Mr.
McClintick, as an indelible stain on
Harvard's reputation.
Mr. McClintick, 65, a 1962 graduate of
Harvard, is a former reporter for The Wall Street Journal and the
author of several books, including "Indecent Exposure," which
investigated financial scandal at Columbia Pictures. That book was a
finalist for the National Book Award and helped solidify Mr.
McClintick's reputation as a meticulous investigator.
Continued in article
Update on March 8, 2006| Harvard University's faculty-ethics board
is investigating Andrei Shleifer, a star in its economics department
star who was caught up along with the school in a scandal that involved
investing in Russia, according to a person familiar with the matter.
Prof. Shleifer and Harvard last year paid nearly $30 million to settle a
civil suit brought by the U.S. government alleging that Prof. Shleifer
violated federal conflict-of-interest rules by investing in Russia. The
case dates back a decade when Mr. Shleifer headed a
U.S.-government-funded Harvard project to help Russia develop financial
markets
John Hechinger, "Harvard Investigates Conduct Of a Star Economics
Professor," The Wall Street Journal, March 8, 2006; Page A6
YOU know what would be so
cool? A portable
Wi-Fi hot spot. Whenever
you wanted Internet access, you wouldn't have to
hunt for a wireless coffee shop or pay $24 a night
to your hotel.
Instead, you'd travel with a little box. Plug it
into a power outlet — or even your car's cigarette
lighter — and boom, you and everyone within 200 feet
could get onto the Internet at high speed, without
wires.
Actually, such boxes exist.
They come from companies like Kyocera, Junxion and
Top Global, and they're every bit as awesome as they
sound. (Unfortunately, the category is so new that
it has no agreed-upon name. "Portable hot spot" is
descriptive but unwieldy. "Cellular gateway" is a
bit cryptic. Kyocera's term, "mobile router," may be
as good as any.)
Before you start thinking
that you've died and gone to Internet heaven,
however, you should know that these boxes don't work
alone. Each requires the insertion of a PC laptop
card provided by a cellular carrier like
Verizon,
Sprint or Cingular. The
card provides the Internet connection, courtesy of
those companies'
3G
("third generation") high-speed cellular data
networks. The box just rebroadcasts that connection
as a Wi-Fi signal so that all nearby computers — not
just one privileged laptop — can go online.
With those PC cards, you
can go online anywhere there's a cellular signal: in
a taxi, on a bus, in a waiting room or wherever. In
major cities, the speed is delightful, like a D.S.L.
or slowish cable modem (400 to 700 kilobits a
second). In other areas, you can still go online,
but only slightly faster than with a dial-up modem.
(Also note that uploading is far slower than
downloading.)
Continued in article
WiFi Internet Access Across All of London The service is expected to go live within
the next few months, and the entire city will be covered within six
months, according to the network's provider.
K.C. Jones, "Wi-Fi Moving To London," InformationWeek, February
23, 2006 ---
http://www.informationweek.com/story/showArticle.jhtml?articleID=180206231
From The Washington Post on February
24, 2006
A university in what city banned campus-wide Wi-Fi?
Meanwhile broadband is not so great in the United States The laissez faire approach taken by the
United States in developing the nation's broadband network has failed.
Not only have we fallen since 2000 from number three to number 16 in the
number of high-speed Internet subscribers per capita, but there's a good
chance we'll fall out of the top 20 this year. The reason is our
government's failure to oversee the building of the broadband
infrastructure and to provide the subsidies needed to get as many people
online as possible. Unlike other developed nations, we haven't taken an
approach that would reflect a belief that universal access to the
high-speed Internet is a critical component of a competitive economy.
Antone Gonsalves, InternetWeek Newsletter, February 23, 2006
Q: Can I convert my home videos so they
will play on a video iPod? If so, how?
A: Probably, though it
depends on whether they are in one of the formats that can be easily
converted, and it can be hard to tell in advance. You'll need
conversion software to do it. One option, for both Windows and Mac
users, is to spend $30 to upgrade Apple's free QuickTime media
player to the pro version, which can convert numerous video file
types to an iPod-compatible format.
Another option is to download
one of many free conversion utilities that appeared on the Web after
the video-capable iPod was released. For Windows users, there are
numerous choices. One example is Free iPod Video Converter, at
www.ipod-video-converter.org. If you use a
Mac, one such program is iSquint, at
www.isquint.org. I haven't tested either.
Q:I like to visit about 50 news sites
every morning but don't want an RSS feed only. I like to see the
entire site. Is there a way to open all of them at the same time,
without having to click on each bookmark one by one?
A: Certainly. All you
need to do is switch to a tabbed Web browser, like Firefox or Opera
for Windows or Mac; or Safari or Camino, for the Mac only. These
browsers can open multiple Web sites, in the same window, marking
each site with a tab bearing its name. And they allow users to open
these multiple sites with a single click. Though each differs
slightly, all have a command -- usually called "Open in Tabs" --
that will open a list or folder full of bookmarks with one click.
For instance, every morning I open about 20 technology-related Web
sites in Firefox or Safari with one click.
Q:I would like to purchase a laptop
computer in the U.S. but use it for extended periods in Europe. Is
there anything I have to modify because of the difference in the
electrical power supply?
A: Most laptops I have
tested in recent years have power adaptors that can handle both U.S.
and European electrical standards. Just make sure the one you choose
is similarly equipped. The only thing you'd have to buy is a cheap
plug adapter -- not a transformer -- to physically fit the plug into
the sockets used in the European countries where the laptop will be
used.
Using microbes to create alternative fuels
"Craig Venter's Next Little Thing: The man who mapped the human
genome has a new focus: using microbes to create alternative fuels," by
Michael S. Rosenwald, The Washington Post, February 27, 2006 ---
Click Here
"The Methanol Economy Forget about the hydrogen economy:
Methanol is the key to weaning the world off oil. George Olah tells us
how to do it," by Kevin Bullis, MIT's Technology Review, March 2,
2006 ---
http://www.technologyreview.com/BizTech/wtr_16466,296,p1.html
This is a huge book of statistical data that will probably attract
your interest and be of great value within reach of your desk.
For starters, it weighs 29 pounds. It has
five volumes. And it's densely packed with more than a million
numbers that measure America in mind-boggling detail, from the
average annual precipitation in Sweet Springs, Mo., to the wholesale
price of rice in Charleston S.C., in 1707
. . .
Professors Sutch and Carter, who are
married and both teach at the University of California at Riverside,
are editors in chief of Historical Statistics of the United States,
an ambitious expansion of previous compilations that were published
by the United States Census Bureau in 1949, 1960 and 1975. This
"Millennial Edition" is a privatized version, authorized by the
Census Bureau but published by Cambridge University Press.
Since the last edition, the editors write,
they have tried to rationalize the "phenomenal growth of the
American quantitative record," which is why Historical Statistics
has proliferated to more than 5,000 pages, from 1,235 in the last
version, and includes new chapters on slavery, poverty, American
Indians, the Confederacy and the nation's territories overseas.
"As time goes on, the statisticians and the
bureaucrats who produce a lot of these numbers for the government
keep producing new data," Professor Sutch said. "The other thing is
that scholars have really jumped into the field. They are going back
and trying to reconsider all sorts of issues with new perspectives,
and one of those perspectives is a quantitative one."
The new edition, which sells for $825 and
is also available in an online version, is a gold mine for scholars,
students and assorted nerds and numbers crunchers, although, as with
a gold mine, exposing the veins and nuggets can be challenging. Some
tables are not comparable, many do not include percentages, and some
contemporary tables are current only to 1990.
"The whole project was designed to present
data in raw form rather than highly manipulated," Professor Sutch
said. "That makes it more difficult. You have to do a little work to
use this."
The couple have been working on the revised
collection for 11 years, although they estimate that more than half
that time was spent in fund-raising. (Cambridge says the book cost
more than $1 million to produce.) What statistics surprised them?
"We're the wrong people to ask about what's
surprising," Professor Carter said. "We've been working on it so
long."
Historical Statistics of the United States
is a product of collaborative scholarship. Introductory essays by
contributors provide context and some navigational tools, and hint
at trends.
Professors Charles Hirschman, Reynolds
Farley and Richard Alba point out in their essay, for instance, that
while only 1.9 percent of Americans 18 and older claim two or more
racial identities, 4 percent of those younger than 18 do.
A discriminating browser can also learn, or
be reminded, that:
Fewer than 1 in 10 black children under 5
live with both parents; workers with the highest hourly wages now
work the longest hours; there are more religious workers (also
bartenders, gardeners and authors) than ever recorded, and more
shoemakers than at any other time since the Civil War; only half of
Americans have access to fluoridated water; a growing share of poor
people live in the suburbs; philanthropy compared with the gross
domestic product has been declining since 1960; more Protestants and
Jews say they attended religious services within the last week than
at any time in the last 50 years; the nation is producing record
amounts of broccoli; it took four days on average to travel between
New York and Boston in 1800; attendance at horse-racing tracks
peaked in 1976, but rodeo attendance is at an all-time high; and the
proportion of people who have no opinion in presidential approval
polls is the lowest in a half century.
"It's not just a data dump," Professor
Carter said. "Believe it or not, we've been really highly
selective."
The editors write that research for the new
edition "exposed many lacunas in the statistical record." For
example, Professor Sutch said, "On immigration we have a lot of good
data on how many people arrived, but very bad data on how many
left."
The couple do their own taxes and balance
their own checking account, but they were not trained as
statisticians. Professor Sutch, 63, and Professor Carter, 58, are
both economic historians.
"Readers may be surprised that the critical
skill that's more required than formal statistics is more like
literary criticism," Professor Carter said. "You look at a number
and don't say that's a fact. You want to say where did it come from,
who generated it, why, is it consistent with what we would get from
looking at other sources, does it make sense? What sort of insight
can the quantitative record give to the qualitative one?"
Historical Statistics of the United States: Millennial Edition,
5 Volume Set, Susan Carter (Editor), Michael R. Haines, Scott Sigmund
Gartner, Gavin Wright (Editor), Susan B. Carter (Editor) ---
Click Here
The Department of Defense (DOD) has failed
its audit to the extent that auditors have stopped wasting money
trying to audit their books, according to Black Enterprise. Problems
with the Pentagon books has allowed the DOD to pay troops, civilian
workers, and contractors the wrong amounts; to lose track of
equipment, such as planes and tanks; and to document trillions of
dollars in transactions improperly, according to Black Enterprise.
Gregory D. Kutz, managing director of the General Accounting Office
(GAO), told Congress last summer that these accounting problems
would cost taxpayers $13 billion in 2005. The GAO is the
investigative arm of Congress.
The “clean audit” of DOD books scheduled
for 2007 is not in sight, according to Black Enterprise. The DOD has
received a “clean opinion” on only 16 percent of its assets and 49
percent of its liabilities as of June 2005, according to Thomas B.
Modly, deputy undersecretary of defense for financial management.
Black Enterprise reported that Modly said the DOD hopes to settle
their balance sheet on 47 percent of assets and 49 percent of
liabilities by 2007. It might help to understand the problem by
understanding the size of Pentagon operations. Black Enterprise
reports it had in fiscal year 2005:
$1.3 trillion in assets
$1.9 trillion in liabilities
3 million in personnel
$635 billion in operational costs
2,569 facilities in the country
and 807 outside of the United States
One of the other problems cited is that DOD
has about 5.2 million items in its inventory, according to Modly.
Wal-Mart only has 11,000 and Home Depot only has 50,000 inventory
items, according to Black Enterprise. Another problem is the
gridlock of some 4,150 different business operations, including 713
different human resources systems.
Jack Minnery, a Defense Finance and
Accounting Service accountant, told Black Enterprise, “The Pentagon
wasn’t in the business of making money, so they never needed an
income statement. They expensed their assets like planes and
buildings and such. They dished money out, and they never kept track
of what they owned.” Minnery continued, “That’s one of the main
reasons I don’t believe they’ll ever have a clean [audit].” Minnery
complained about missing money in 2002 to earn his label as a
whistle-blower.
Minnery told Black Enterprise, “Their
systems can’t keep track of who they’ve sold stuff to, who owes
them, who they owe.” Concerning the inter-service gaggle of ordering
codes, Minnery said, “The Navy has a set of [codes], the Army has a
set, the Air Force has a set. They don’t have the same number of
digits, and they don’t match each other.”
In 1990, the GAO started assigning some
government agencies to a “high risk” list. DOD’s supply chain and
weapon systems acquisitions have remained on this list since that
time and six other defense divisions made the list in 2005. Danielle
Brian, executive director of the watchdog group Project on
Government Oversight, told Black Enterprise, “Nothing’s gotten
better. It keeps getting worse.” Knoxstudio.com reports that Jeffrey
Steinhoff, GAO’s managing director for financial management and
assurance, said, “They’re not close to the finish line. They have a
long way to go.”
Untangling the mess has seemed elusive
except “by making the business process support the war-fighter more
effectively, we are seeing a significant amount of momentum,”
according to Paul Brinkley, deputy undersecretary of defense for
business transformation. Effective might be an overly optimistic
opinion as Black Enterprise reports that the government spent $179
million on two automation systems meant to resolve disbursement
problems that failed, according to the GAO.
Winslow T. Wheeler, director of a military
reform project at the Center for Defense Information (CDI), told
Black Enterprise, “We don’t know how badly managed it is. It’s not
that DOD flunks audits, it’s that DOD’s books cannot be audited. DOD
aspires for the position where it flunks an audit. If this were a
public company, it would have gone belly up before World War II.”
CDI is an independent monitor of the military.
In more wasteful news, Stuart Bowen,
special inspector general for Iraq reconstruction, told Political
Gateway that $8.8 billion is unaccounted for due to inadequate
oversight from Coalition Provisional Authority (CPA) that “was
relatively nonexistent.” Bowen is in charge of tracing the funds.
Frank Willis, the former number two
official at the CPA transportation ministry, told Political Gateway
that the CPA kept billions in cash to pay for its projects because
Iraq is without the financial infrastructure that would support the
use of checks or money orders. Willis said, “I would describe (the
accounting system) as nonexistent.” Willis told a CBS interviewer,
“Fresh, new, crisp, unspent, just-printed 100-dollar bills. It was
the Wild West.”
In other wasteful news, the GAO has
released a report finding that the Bush Administration spent more
than $1.6 billion in public relations and media contracts over two
and a half years, according to the California Chronicle. Congressman
Henry A. Waxman, (D-Calif.), House Democratic Leader Nancy Pelosi,
(D-Calif.), and Congressmen George Miller, (D-Calif.), and Elijah E.
Cummings, (D-Md.), with other senior Democrats, released the report.
Army to Pay Halliburton Unit Most Costs Disputed by Audi The Army has decided to reimburse a Halliburton
subsidiary for nearly all of its disputed costs on a $2.41 billion
no-bid contract to deliver fuel and repair oil equipment in Iraq, even
though the Pentagon's own auditors had identified more than $250 million
in charges as potentially excessive or unjustified. The Army said in
response to questions on Friday that questionable business practices by
the subsidiary, Kellogg Brown & Root, had in some cases driven up the
company's costs. But in the haste and peril of war, it had largely done
as well as could be expected, the Army said, and aside from a few
penalties, the government was compelled to reimburse the company for its
costs. Under the type of contract awarded to the company, "the
contractor is not required to perform perfectly to be entitled to
reimbursement," said Rhonda James, a spokeswoman for the southwestern
division of the United States Army Corps of Engineers, based in Dallas,
where the contract is administered.
James Glanz, "Army to Pay Halliburton Unit Most Costs Disputed by
Audit," The New York Times, February 27, 2006 ---
http://www.nytimes.com/2006/02/27/international/middleeast/27contract.html?_r=1&oref=slogin
Question:
What has been one of the most massive, if not the most massive, fraud in
the history of the U.S. (aside from Department of Defense ongoing fraud
discussed above)?
Answer:
The attorney/physician rip off on phony asbestos health damage claims.
"Diagnosing for Dollars A court battle over silicosis shines a harsh
light on mass medical screeners—the same people whose diagnoses have
cost asbestos defendants billions," by Roger Parloff, Fortune,
June 13, 2005, pp. 96-110 ---
http://www.fortune.com/fortune/articles/0,15114,1066756,00.html
How, then, to account for this: Of 8,629
people diagnosed with silicosis now suing in federal court in Corpus
Christi, 5,174—or 60%—are "asbestos retreads," i.e., people who have
previously filed claims for asbestos-related disease.
That anomaly turns out to be just one of
many in the Corpus Christi case that sorely challenge medical
explanation. At a hearing in February, U.S. District Judge Janis
Graham Jack characterized the evidence before her as raising "great
red flags of fraud," and a federal grand jury in Manhattan is now
looking into the situation, according to two people who have been
subpoenaed.
The real importance of those
proceedings, however, is not what they reveal about possible fraud
in silica litigation but what they suggest about a possible fraud of
vastly greater dimensions. It's one that may have been afflicting
asbestos litigation for almost 20 years, resulting in billions of
dollars of payments to claimants who weren't sick and to the
attorneys who represented them. Asbestos litigation—the original
mass tort—has bankrupted more than 60 companies and is expected to
eventually cost defendants and their insurers more than $200
billion, of which $70 billion has already been paid.
The odor around asbestosis diagnosis has
been so foul for so long that by 1999, professor Lester Brickman of
the Benjamin N. Cardozo School of Law was referring to asbestos
litigation as a "massively fraudulent enterprise." At the request of
his defamation lawyer, Brickman says, he toned that down to
"massive, specious claiming"
Why Cancer Strikes Some It's a conundrum that puzzles doctors and
patients alike: one person smokes a few cigarettes per week in college
and contracts lung cancer in middle age, while another person smokes a
pack a day his whole life -- and lives to age 90. A new program
announced last week by the National Institutes of Health aims to unravel
such mysteries by precisely measuring the role that environmental
agents, such as pesticides and solvents, play in common diseases,
including cancer, asthma, and autism. A major part of the program will
fund the development of technologies to monitor personal environmental
exposures and to determine how those exposures interact with an
individual's genetic makeup to increase the risk for disease. Scientists
hope these technologies will allow doctors to determine who is at risk
early on, and thus be able to intervene.
Emily Singer, "Why Cancer Strikes Some: New ways to gauge an
individual's response to environmental toxins will help scientists
understand susceptibility to disease," MIT's Technology Review,
February 16, 2006 ---
http://www.technologyreview.com/BioTech/wtr_16348,304,p1.html
Question
So who are usually the master chefs cooking the accounting books and
what is their main reason?
Answer: The executives wanting fat
bonuses
Question:
What is the typical ploy?
Answer
Get the fat bonus and then issue revised financial statements. Who
ever heard of executives having to give back the cash bonuses
received after the financial statements are revised?
Example
Besides Enron, look at big fat Fannie Mae Investigators have uncovered new evidence
that senior executives of Fannie Mae, the nation's largest buyer of home
mortgages, manipulated its accounting in the 1990's to meet earnings
projections so that top executives could receive more than $25 million
in bonuses. In a 2,600-page report that was made public today, former
Senator Warren Rudman and a team of lawyers and investigators concluded
after an 18-month investigation that Fannie Mae's accounting practices
"in virtually all of the areas that we reviewed were not consistent
with" generally accepted accounting principles. Stephen Labaton and Eric Dash, "Report on Fannie Mae
Cites Manipulation to Secure Bonuses," The New York Times, February 23,
2006 ---
Click Here
Report protects the fannies
of Fannie's Board of Directors: But executives are hit hard They said the report criticizes Timothy Howard,
the company's former chief financial officer, and Leanne G. Spencer, the
former controller, for their roles in setting accounting policies. They
added that the report focuses less criticism on Franklin D. Raines, the
former chief executive, but says the company's management didn't keep
the board adequately informed about accounting problems. (See
related article)
James R. Hagerty, "Fannie Report On Accounting Shields Board,"
February 23, 2006; Page A2 ---
http://online.wsj.com/article/SB114066161292580888.html?mod=todays_us_page_one
The Culture of Corruption Runs Deep and Wide in
Both U.S. Political Parties: Few if any are uncorrupted Committee members have shown no
appetite for taking up all those cases and are
considering an amnesty for reporting violations,
although not for serious matters such as accepting a
trip from a lobbyist, which House rules forbid. The data
firm PoliticalMoneyLine calculates that members of
Congress have received more than $18 million in travel
from private organizations in the past five years, with
Democrats taking 3,458 trips and Republicans taking
2,666. . . But of course, there are those who deem the
American People dumb as stones and will approach this
bi-partisan scandal accordingly. Enter Democrat Leader
Nancy Pelosi, complete with talking points for her
minion, that are sure to come back and bite her ....
“House Minority Leader Nancy Pelosi (D-Calif.) filed
delinquent reports Friday for three trips she accepted
from outside sponsors that were worth $8,580 and
occurred as long as seven years ago, according to copies
of the documents.
Bob Parks, "Will Nancy Pelosi's Words Come Back to Bite
Her?" The National Ledger, January 6, 2006 ---
http://www.nationalledger.com/artman/publish/article_27262498.shtml
Doesn't S.304 of
Sarbanes-Oxley say that they have to give the
bonuses back?
I'm not being picky, it's a
serious question. I'm currently doing some research
for a client comparing SOX with the European 8th
Directive, and so have just had the joy of reading
the full text of both. My reading of SOX is that
Fannie Mae's CEO and CFO would have to pay back the
bonuses.
If that's NOT the case,
would someone mind emailing me to point out my error
please! Take it offline -
r.bender@cranfield.ac.uk
Thanks
Ruth
February 24, 2006 reply from Bob Jensen
You may be right about this Ruth, although I
don’t know of this ever happening before SOX. Also,
if bonuses of given throughout a company, it may be
hard to collect money back that’s already spent.
Also it would get sticky if the accounting mistakes
were truly accidents.
It would be far better if Congressional
representatives had to give their take back in the
case of Fannie Mae.
Bob Jensen
The findings come as Fannie Mae's regulator
considers whether to force some former executives to return bonuses. And
the report will not be the final word on the scandal: the Justice
Department and Securities and Exchange Commission are still
investigating former executives. Fannie Mae was run with "an attitude of
arrogance," according to the report, which catalogs how the company
violated accounting principles repeatedly to show stable earnings and
less volatility. But the most troubling finding was that the company,
rattled by falling interest rates in 1998, improperly delayed taking
nearly $200 million in expenses.
Stephen Labaton and Eric Dash, "Loan Buyer Accounting Is Faulted,"
The New York Times, February 24, 2006 ---
http://www.nytimes.com/2006/02/24/business/24fannie.html
February 24, 2006 reply from Linda Kidwell, University of Wyoming
[lkidwell@UWYO.EDU]
Section 304 requires CEOs and CFOs to
reimburse their companies for bonuses or other incentives earned as
a result of statements later restated as a result of misconduct.
Quoting from Robert Prentice's "Student Guide to the Sarbanes-Oxley
Act" (page 28):
"Among several unanswered questions about
this provision is how 'misconduct' should be construed. Does it
require fraudulent intent or just recklessness or even some lesser
wrong? . . . is the misconduct of underlings that the CEO and CFO
are unaware of sufficient to require disgorgement?"
I suppose we'll have to let the courts
interpret this one as time goes on.
Linda
February 24, 2006 reply from Bob Jensen
Hi Linda,
Thank you for the direct quotes.
I
suspect only very stupid executives will actually have to pay back
any bonuses.
One can imagine all sorts of moral hazards here. For example,
suppose CEO Jones (having a salary of $12 million per year)
conspires with Green Eyeshade Lotus (having a salary of $21,000 per
year) to fudge a journal entry resulting in a $500 million
overstatement of earnings. Both secretly split Jones' bonus of $20
million. Of course the G.E. Lotus $10 million "gift" from his boss
is deposited in a secret bank account in the Cayman Islands.
They're both in tall cotton unless the error gets detected and
requires revision of the company's financial statements. If caught,
Jones claims no knowledge of the mistake, and G.E. Lotus readily
confesses that he very accidentally slipped a few digits. Of course
he got no bonus so there's nothing to pay back. Jones announces to
the media that G.E. Lotus has been fired. But that doesn't matter
much to G.E., because he's soon eating lotus leaves in Tahiti. Jones
keeps his half of the take because he is not even accused of
misconduct.
Even if Jones had never met his employee G.E. prior to auditor
discovery of the accounting error, Jones might seek out G.E. to take
the fall ex post (for a$10 million gift). The problem with these
kinds of deals in modern times is that the amount of money involved
is so staggering.
Someday you may want to read one of my favorite short stories by
Somerset Maugham. It's entitled "The Lotus Eater" ---
http://shortstory.byethost6.com/maughamlotus.html
I'm a bit worried about a long life now that now that I'm retiring.
Excess on occasion is exhilarating. It
prevents moderation from acquiring the deadening effect of a habit.
W. Somerset Maugham
All I want to know is, in my many years in
corporate accounting before I joined academe, where were the people
who were supposed to offer ME deals like this? What, do I look like
a Goody-Two-Shoes or something?
Pat
February 24, 2006 reply from Bob Jensen
Hi Pat,
The reason is that CEOs don't make such deals to people like you
Pat who spout quotations like the one below"
"In a house of gold, the hours are lead."
The CEO will always scout out a naïve bookkeeper who daydreams
that a life nibbling on lotus leaves in a gold house is more fun
over the long haul hour by hour day after day.
Put in another way, those are the bookkeepers, unlike you, who
take Glen Gray to heart when Glen tried to convince a judge that the
best jobs entail never having to wear anything but pajamas. I read
somewhere (certainly it could not have been in Playboy Magazine)
that Hugh Hefner has over 300 pairs of pajamas in his Playboy
Mansion.
But I think that's because "He Don't Look Good Naked Anymore" in
his house of gold or so he says (turn up the speakers) ---
http://www.goodolddogs.com/older.html
The stock market seemed relieved yesterday
when Warren Rudman's 2,652-page report into Fannie Mae's accounting
troubles didn't report major new discrepancies in the mortgage
giant's books. That news was enough to put the stock up about 2% on
the day after a nearly 4% rise Wednesday ahead of the report's
release.
And we suppose it is good news of a sort
that Fannie Mae's accounting restatement, for which the world has
been waiting for more than a year, won't grow from the $10.8 billion
figure already estimated. But $10.8 billion is big enough as it is;
WorldCom's fraud came to "only" $11 billion. The report's main
findings paint the picture of a company that routinely flouted both
the rules and law. Some conclusions from the executive summary give
a flavor:
• "[M]anagement's accounting practices
in virtually all of the areas that we reviewed were not
consistent with GAAP, and, in many areas, management was aware
of the departures from GAAP" (emphasis added).
• "[E]mployees who occupied critical
accounting, financial reporting, and audit functions at the
Company were either unqualified for their positions, did not
understand their roles, or failed to carry out their roles
properly."
• "[T]he information that management
provided to the Board of Directors with respect to accounting,
financial reporting, and internal audit issues generally was
incomplete and, at times, misleading."
• "[T]he Company's accounting systems
were grossly inadequate."
The report also identified one case, in
1998, where earnings were manipulated specifically to meet a bonus
target. That one instance was a doozy, however; a $199 million
amortization expense that went unreported in order to make sure
management got its lush payday.
If Fannie Mae were a normal private
company, it would be tarred and feathered faster than you can say
"Enron." But Fannie Mae is not just another private company. It has
a federal charter and an implicit guarantee from the government
(read: taxpayers) of its debt. Which makes it all the more vital
that Congress reduce the risk that Fannie Mae and Freddie Mac pose
to our financial system and the federal fisc.
****************
One of the Rudman report's more worrisome findings was that Fannie's
derivatives accounting was wrong because Fannie claimed that its
hedges exactly matched its risk exposure when it did not. Fannie has
long claimed it is capable of perfectly hedging the interest-rate
and prepayment risks in its $800 billion portfolio of
mortgage-backed securities. The Rudman report found that that often
was not true. But the report only looked at the accounting issues
posed by derivatives and hedging, so the public still knows precious
little about the extent of the portfolio risk.
****************
The report lets former CEO Franklin Raines
off lightly, blaming him mainly for a "culture" that tolerated the
accounting abuses. But the core of that culture was a belief that
critics -- including us -- could be dismissed and assailed because
the company knew it had Congress bought and paid for. And judging by
the laughably weak reform that Financial Services Chairman Mike
Oxley passed through the House, it still does. If Republicans on
Capitol Hill want to know why voters think they've gone native, the
failure to rein in Fannie even after a $10.8 billion accounting
scandal is Exhibit A.
Jensen Comment
Fannie Mae fired the KPMG auditing firm and is now spending over $140
million just to restate past financial statements. Most of the troubles
center on FAS 133 rules for reporting derivative financial instrument
hedges.
How to anticipate problems in the fast-growing market of credit
derivatives?
Risk does not evaporate: After all the market diffusion of risk,
somebody must end up bearing the risk "The size of gross exposures and the
extraordinarily large number of contracts suggest the scale of the
unwinding challenge the market would confront in the event of the exit
of a major counterparty," Timothy Geithner, president of the New York
Fed observed in a speech yesterday. Mr. Geithner added that the 10
largest U.S. banks have about $600 billion in net potential credit
exposure in the derivatives market, and that exposure represents about
20% of their total credit exposure. Banks have increased their exposure
to the credit-derivatives markets by about 15% relative to their capital
over the past five years.
Henny Sender, "Concerns Dog Credit Derivatives: Industry-Group
Symposium Explores Market Imbalances Bankruptcies,"The Wall
Street Journal, March 1, 2006; Page C3 ---
http://online.wsj.com/article/SB114118157518586167.html?mod=todays_us_money_and_investing
After a one-day flurry of nervousness surrounding the
collapse of Barings PLC, financial markets returned to a
nominal calm. The Dow Jones Industrial Average rose
22.48 to 4011.05, shy of its record high of 4011.74
reached Friday.
The settlements announced today, including
the largest penalties ever imposed on individual auditors, reflect the
seriousness with which the SEC regards the responsibilities of
gatekeepers."
It took forever, but KPMG partners finally settle with the SEC on
the really old Xerox accounting fraud The Commission (SEC) has announced on February
22, 2006 that all four remaining defendants in an action brought against
them and KPMG LLP by the agency in connection with a $1.2 billion
fraudulent earnings manipulation scheme by the Xerox Corporation from
1997 through 2000 have agreed to settle the charges against them. Three
partners agreed to permanent injunctions, payment of record civil
penalties and suspensions from practice before the Commission with
rights to reapply in from one to three years. The fourth partner agreed
to be censured by the Commission. "This case represents the SEC's
willingness to litigate important accounting fraud allegations against
major accounting firms and their audit partners, even where the
accounting was complex," said Linda Chatman Thomsen, the SEC's Director
of Enforcement. "The settlements announced
today, including the largest penalties ever imposed on individual
auditors, reflect the seriousness with which the SEC regards the
responsibilities of gatekeepers."
Andrew Priest, "FOUR CURRENT OR FORMER KPMG PARTNERS SETTLE SEC
LITIGATION RELATING TO XEROX AUDITS," Accounting Education News,
February 23, 2006 ---
http://accountingeducation.com/index.cfm?page=newsdetails&id=142393
Faculty Ambivalence: Debates on Unionization of
Faculty and Graduate Assistants
These strategies
do not seem to have paid dividends. The
PSC’s plan fizzled amidst widespread
faculty ambivalence about (or even
opposition to)
defying
New York State law,
which prohibits
strikes by public employee unions; a
settlement on terms well short of the
union’s “non-negotiable” demands appears
imminent. At NYU, President John Sexton
recently stated that striking graduate
students would not receive 2006 teaching
assignments; some of those who started
off on picket lines have
returned to their
jobs.
In retrospect, PSC and GSOC leaders
probably erred in their hard-line
rhetoric and actions. But the two
organizations also illustrate — if in an
exaggerated fashion — some of the
pitfalls associated with academic
unionization.
K.C. Johnson, "The Perils of Academic
Unions," Inside Higher Ed,
February 24, 2006 ---
http://www.insidehighered.com/views/2006/02/24/johnson
Novel explored sexual politics among college
students
Tom Wolfe,whose last novel
explored sexual politics among college students, was
named Thursday by the National Endowment for the
Humanities to deliver this year’s Jefferson Lecture.
Being selected for the talk is considered a top honor by
the federal government for intellectual achievement.
Wolfe’s campus-based novel, I Am Charlotte Simmons, was
published in 2004. He is best known for earlier works,
including The Bonfire of the Vanities, The
Right Stuff, and The Electric Kool-Aid Acid Test.
Inside Higher Ed, February 24, 2006 ---
http://www.insidehighered.com/news/2006/02/24/qt
Debates on Size: Pomona College, Amherst, Rice, and Some Other
Small Colleges Plan to Grow in Size Pomona College, a Claremont McKenna neighbor,
is planning to increase enrollment — currently 1,500 — by 10 percent.
Amherst College has just unveiled a plan to increase the size of each
entering class, currently 410-425 students, by another 15-25 students.
Bryn Mawr College (total enrollment just over 1,200) is currently
conducting a feasibility study about its enrollment size. Grinnell
College last year decided to grow on-campus enrollments by about 150
students, to 1,500. And these moves — all of which involve creating
faculty slots as well — follow shifts involving even larger numbers of
students at places like Middlebury and Gettysburg Colleges. Other
colleges have resisted the trend. The president of Haverford College set
off an intense discussion on the campus last year with his suggestion
that the institution consider expansion. Plans circulated to add several
hundred students. With many students and professors opposed to the idea,
Haverford is staying put at 1,150.
Scott Jaschik, "Size Matters," Inside Higher Ed, February 24,
2006 ---
http://www.insidehighered.com/news/2006/02/24/libarts
February 24, 2006 reply from Susan Baker
In case you have not heard, Rice U is
proposing an increase of up to 30% in its undergraduate student
body.
Susan Baker
Wright said he does not fully agree with the
suggestion that Dartmouth is less visible. Still, he acknowledged that
the College's size and location might present challenges that its
larger, urban peers do not face. "We compete very well because we stay
focused on what we do," Wright said. "We understand that our niche is to
provide an exceptional undergraduate education -- the strongest in the
country." Wright said bigger institutions are not necessarily better and
that there was a particular "magic" about Dartmouth. He added that the
College has name recognition "for those people who count a lot" --
potential students and parents and faculty.
Dax Tejera, "Wright looks to future, $1.3 billion in fundraising,"
The Dartmouth, March 3, 2005 ---
http://www.thedartmouth.com/article.php?aid=2005030301020
When you start the college search, there are
a lot of different qualities to look into when trying to find the ever
elusive "perfect school." You debate on the college's size, strong
majors and departments, location, and guy/girl ratio (something I should
have taken more careful notice to). But who looks into the "unofficial
campus day of nakedness?" I know I sure didn't. It was definitely a
surprise to me, coming in as a wide-eyed freshman, when I was approached
by a few smug upperclassmen, asking me if I was going to participate in
May Day. May Day? Who cares about May Day? It's just another weird
holiday marked down in my planner book. I never got off from school for
it; why should it be significant to me? And when they further explained
this phenomenon that seems to happen only in Chestertown (well, at least
in terms of college campuses), I was pretty shocked. How did it start?
Where did the idea come from? And why is getting naked a factor in this
whole crazy day? I decided to go to the most reliable source in order to
find the answer to my questions: a giant mass blitz to all four grades.
Surely somebody had to know something; there had to be some knowledge to
be passed on. Only moments later, I started getting my first responses
back; after a couple of hours, I had a little over a dozen. The answer?
"Talk to Professor Lamond."
Sara Wuillermin, The Collegian, May 2002 ---
http://collegian.washcoll.edu/may02/may.html
Jensen Comment
The above piece by Sara Wuillermin is also interesting from the
standpoint of her poetry class and nudity events on campus.
And just because I love my readers so much
(yes, all five of you are very special to me) I took the next step
and approached the founding father who gave us a day of freedom from
synthetic fabrics and itchy clothes. After my afternoon chat with
the good professor, my eyes were opened to all things May Day.
It began in 1968 in a 10:30am Forms of Lit.
and Comp. class. Spring had found its way to Chestertown, and it was
the perfect time for Professor Lamond's class to study "Carpe Diem"
poems-Herrick's "Gather Ye Rosebuds While Ye May," "Corrina's Gone A
Maying," Hopkins's "Spring." Who knows if it was the poetry that
inspired one of Lamond's students or if it was the whole idea of
seizing the day, but, at any rate, Peter Hellar seized the
opportunity (horrible pun intended) to ask the question that changed
Washington College forever: "Instead of just reading about these
poems, why don't we do these poems?"
So Lamond made his way to Fox's Five and
Dime to buy crepe paper in order to decorate the first May Pole. The
students helped in the preparations as well. One student brought his
guitar to provide music, while another walked throughout Chestertown
and picked a single flower from every lawn. And when the time came,
the class made their way to the site where the May Pole stood, a
spot that was not directly on campus at the time, where the CAC and
Fine Arts center now are. There were strawberries, there were Chips
Ahoy cookies, there were beverages, but was there nudity? Not unless
you count bare feet.
I know, I know you're waiting for the "good
parts" (aren't I the ultimate jokester with the puns?) when May Day
got crazy and became the foundation for students today who like to
bare all and be free. But that wasn't in the agenda on this first
celebration on campus. It happened the second time around, but not
during Lamond's class time frolic. We can thank for the nakedness a
half dozen guys who decided to show more than their free spirits
after the official festivities were over.
When Lamond's class was done May Daying it
up, they decided to leave their May Pole standing, as a symbol of
their celebration. Plus it looked too damn nice to tear down. Hours
later, a group of males students decided to transport the pole to
the front of Hodson Hall, where they stripped down to their bare
nothingness and showed their own appreciation of the rejuvenation of
spring. (There's still speculation as to whether or not these
gentlemen were Sigs ...) Ever since this point, the spirit of this
liberating tradition seems to ring true through many of the students
of WAC. It wasn't until the mid-70s that the women finally started
participating in the event, and, as always, the ladies made sure to
show up the men's efforts. Jaime Lang remembered hearing, "a girl
rode down what used to be the old caterwalk naked, on a motorcycle,
with her friend, arms outstretched on the back" Lamond confirmed the
story, noting, "They revved their way right up".
Nicole Mancini recalls how she first heard
about the day: "I think I originally heard about May Day's origin
freshmen year. A bunch of us were sitting around in the Dining Hall
(back when we actually liked the food) talking about it ... I
remember hearing stories of the 'Naked Games' and things like that."
And her thoughts about the modern day
attempts? "Now it seems that a lot of the fun has disappeared due to
so many lacking the confidence to 'strut' their stuff. But the
craziest May Day happening? When that naked guy fell down the
flagpole and had to be rushed to the hospital. Talk about ... uhh
... entertainment!"
Stephanie Coomer was skeptical when she
first heard about the event: "My dad went to WAC, too, and he was
the first person to tell me about May Day. I didn't really believe
him 'cause he tends to be a fibber, but when I was a sophomore, I
finally realized the truth about May Day (I was sleeping out for HFS
festival tickets freshman year). The first thing I saw when I walked
out of the dorm was a naked Jay Maschas ... That's when I knew it
was real."
Catherine Dowling praises the grand spring
event: "May Day is great. I lived in Kent, the dorm which I feel
best captures the spirit of May Day every day. Anyone who has lived
there knows what I'm talking about: Kent is like its own country.
And May Day is the national holiday. The Kent people usually didn't
feel weird about doing May Day because it was a part of life there."
But Dowling has some pet peeves about the
day as well: "My least favorite part of May Day is all the people
who come to the flagpole just to watch. I understand that the naked
people have it coming because, let's be honest, who wouldn't be
curious about such a spectacle? But it is still kind of creepy to
have that huge sea of people just standing there staring. C'mon, put
down those cameras, and join in! Don't be afraid, let loose and
enjoy one of the few moments in life when you can run around buck
ass naked and not get arrested. I know some people hate May Day, but
it is not meant to offend. It's all in fun, and it's just about
doing something crazy and a little naughty before you get out in the
real world, where I hear they don't condone public nudity."
Our Kent correspondent also recalls some
May Day legend: "The craziest story I've heard is that one year a
naked guy made the mistake of being naked in the street and got
arrested. Apparently his friends surrounded the police station,
yelling "free naked guy!" until the police let him go. I don't know
how much of this is true, but I like the happy ending."
Well Catherine, it is true. The boy was
known as Miami, and while trying to cross Washington Avenue, a car
swerved to miss his nakedness. Miami was charged for his public
display of nudity and for causing the accident, and was taken in,
still completely in the buff. Upon hearing the news, one of the
Deans went down and gave the boy his sweater, which did everything
but cover up what needed to be. Soon, a fully- clothed group of
students followed the Dean to the station and screamed to the
officers, "Free Miami!" But the story doesn't end there The Kent
County News heard of the protest and ran a story in the paper about
the naked rioting in Chestertown. Suddenly, wires were sent all
over, and not only did this whole community learn of the incident,
but it reached Chestertowners vacationing in Ireland and even the
local Catholic priest who was in Hawaii at the time (If only I could
think of some sort of witty quip to comment on this, but for once,
I'm at a loss, as I'm sure the good Father was).
But, I hope with this new background to
this day, my fellow WAC chums will realize this magical day is not
just about seeing fellow students in a whole new light, but it's
also a celebration of life, love, and seizing the day. So before you
go out and strut you stuff, find a couple minutes, read "Gather Ye
Rosebuds While Ye May" and appreciate its meaning then go rent "8
minute abs."
A U.S. security expert
who devised an application that can fill an iPod
with business-critical data in a matter of
minutes is urging companies to address the very
real threat of data theft.
Abe Usher, a 10-year
veteran of the security industry, created an
application that runs on an iPod
and can search corporate
networks for files likely to contain
business-critical data. At a rate of about 100MB
every couple minutes, it can scan and download
the files onto the portable storage units in a
process dubbed "pod
slurping."
To the naked eye, somebody
doing this would look like any other employee
listening to their iPod at their desk.
Alternatively, the person stealing data need not
even have access to a keyboard but can simply
plug into a USB port on any active machine.
Question
What's the "Rubber Room" in Detroit? Hint:
It has nothing to do with tires.
"Detroit's Symbol of Dysfunction: Paying Employees Not to Work: Cost
Tops $1.4 Billion a Year As Layoffs Fill 'Jobs Bank'; A Dismal Facility
in Flint Mr. Mellon Takes a Long Nap," by Jeffrey McCracken, The Wall
Street Journal, March 1, 2006; Page A1 ---
http://online.wsj.com/article/SB114118143005186163.html?mod=todays_us_page_one
In his 34 years working for General Motors
Corp., one of Jerry Mellon's toughest assignments came this January.
He spent a week in what workers call the "rubber room."
The room is a windowless old storage shed
for engine parts. It is filled with long tables, Mr. Mellon says,
and has space for about 400 employees. They must arrive at 6 a.m.
each day and stay until 2:30 p.m., with 45 minutes off for lunch. A
supervisor roams the aisles, signing people out when they want to
use the bathroom.
Their job: to do nothing.
This is the "Jobs Bank," a two-decade-old
program under which nearly 15,000 auto workers continue to get paid
after their companies stop needing them. To earn wages and benefits
that often top $100,000 a year, the workers must perform some
company-approved activity. Many do volunteer jobs or go back to
school. The rest must clock time in the rubber room or something
like it.
It is called the rubber room, Mr. Mellon
says, because "a few days in there makes you go crazy."
The Jobs Bank at GM and other U.S. auto
companies including Ford Motor Co. is likely to cost around $1.4
billion to $2 billion this year. The programs, which are up for
renewal next year when union contracts expire, have become a symbol
of why Detroit struggles even as Japanese auto makers with big U.S.
operations prosper.
While GM often blames "legacy costs" such
as retiree health care and pensions for its troubles, its Job Bank
shows that the company has inflicted some wounds on itself.
Documents show that GM itself helped originate the Jobs Bank idea in
1984 and agreed to expand it in 1990, seeing it as a stopgap until
times got better and workers could go back to the factories.
"The bank was designed for a different
time, a time when we were growing," says Pete Pestillo, a former
Ford executive who oversaw union talks. The Jobs Bank has failed to
stop the outflow of jobs at Detroit's unionized auto makers. Since
1990, GM's union payroll including former subsidiary Delphi Corp.
has fallen to about 137,000 from 358,000. Many have retired, died or
found other jobs. The rest are in the Jobs Bank.
Mr. Mellon, a 55-year-old father of two,
was born in Flint. He joined GM in 1972, following his grandfather
and his father, a plant foreman who spent 37 years at GM. Through
the 1980s and 1990s, Mr. Mellon held jobs designing electronic
systems for vehicle prototypes. In 2000, GM merged two engineering
divisions, and he wasn't needed anymore.
Since then, except for a period in 2001
when he worked on a military-truck project, GM has paid him his full
salary for not working. That is currently $31 an hour, or about
$64,500 a year, plus health care and other benefits.
Continued in article
GMermany German businesses are profiting from
cost-cutting measures, an improved global outlook and better sentiment
at home. But the fundamental problems remain the same as in Gerhard
Schröder's seven years at the helm. Labor laws are too rigid, though
firing rules were relaxed for the first two years of employment. Taxes
rates are high and complicated, the bureaucracy onerous, the schools and
universities subpar and health-care and pension costs exploding. For all
the current optimism, Germany looks more like GM than Toyota or Porsche.
In the next 100 days, if she is serious about fixing her country's
deeper problems, Ms. Merkel will need to shift into higher gear.
"GMermany," The Wall Street Journal, March 1, 2006 ---
http://online.wsj.com/article/SB114116202709985718.html?mod=opinion&ojcontent=otep
Last week I appeared on a radio show with
an author named John Perkins. This man is a frothing conspiracy
theorist, a vainglorious peddler of nonsense, and yet his book, "Confessions
of an Economic Hit Man," is a runaway best seller.
The world, says Mr. Perkins, is governed by
a shadowy "corporatocracy," an invisible empire of wealth and greed
that deploys a combination of bribes, assassins and seductive women
to enslave the poorest countries. Mr. Perkins served this empire as
an "economic hit man," a consultant who bamboozled unsuspecting
Asians and Latin Americans into borrowing too much, so puncturing
their sovereignty. The loans financed lucrative contracts for
American construction firms. Needless to say, Mr. Perkins is certain
that they did not help poor people.
Even if you believe the stories of seducers
and assassins, which other journalists have questioned, Mr.
Perkins's basic contentions are flat wrong. Sure, developing
countries (like rich countries) borrow too much sometimes. But the
poor don't always lose. Nor are corporations all-powerful.
Mr. Perkins likes to invoke Indonesia, the
scene of his first hit-man assignment. The way he tells it, the
development economists who persuaded Indonesia to borrow money
around 1970 were peddling a ludicrous idea -- that Indonesia's
economy could spring from the dark age to the modern age in a mere
generation. Well, Indonesia's infant mortality and adult illiteracy
rates each fell by two-thirds over the next three decades, and life
expectancy shot up by 19 years.
The same point holds for the developing
world generally. The adult illiteracy rate in the poor world was
halved between 1970 and 2000, and since 1980 the number of people
living on less than $1 a day has fallen by about 200 million, even
as the world's population has expanded rapidly. That is a stunning
achievement given that the ranks of the poor had previously been
swelling steadily, at least since 1820.
The poor have made these gains because Mr.
Perkins's second contention is equally wrong: The corporatocracy is
neither evil nor omnipotent. Survey after survey has shown that the
multinational companies vilified by Mr. Perkins pay better wages
than their local rivals in poor countries: One study of 20,000
Indonesian manufacturing plants found that the average pay in
foreign-owned factories was 50% higher than in local ones -- and
also that foreign competition pushed local wages upward. As Martin
Wolf remarks in his book, "Why Globalization Works," multinational
firms induce a race to the top more than a race to the bottom.
Mr. Perkins has tapped into a widespread
fear. Thanks to the Bush administration, the mere mention of
Halliburton is enough to prove the anticorporate case to many
bookshop audiences. But the truth is that corporations do not rule
the world, and intensifying global competition has rendered them
more vulnerable.
Ernst and Young should go ahead and pony up
for its own suite of transparency services. The accounting firm
failed to disclose a high profile loss of customer data until being
confronted by The Register.
Ernst and Young has lost a laptop
containing data such as the social security numbers of its
customers. One of the people affected by the data loss appears to be
Sun Microsystems CEO Scott McNealy, who was notified that his social
security number and personal information have been compromised.
While pushing all out transparency for its customers, Ernst and
Young failed to cop to the security breach until contacted by us.
"We deeply regret that a laptop containing
confidential client information was stolen, in what appears to be a
random act, from the locked car of one of our employees," said Ernst
and Young spokesman Charles Perkins. "The security and
confidentiality of our client information is of critical importance
to us. The computer was password-protected, and we have no reason to
believe the data itself was targeted or that the information was
accessed by anyone. We are notifying those clients whose information
was contained on the computer."
Ernst and Young declined to comment on
whether or not McNealy was affected.
However, at lat week's RSA security
conference, McNealy noted that he received an e-mail from an
"anonymous partner" detailing a loss of his private data. "We
determined that your name and social security number were among the
data (lost)," the partner wrote to McNealy.
"This is an organization that we spend an
enormous amount of money on to determine whether we are
Sarbanes-Oxley compliant," McNealy said.
"Six Reasons to Kill Farm Subsidies and Trade Barriers: A
no-nonsense reform strategy," by Daniel Griswold, Stephen Slivinski,
and Christopher Preble, Reason Magazine, February 2006 ---
http://www.reason.com/0602/fe.dg.six.shtml
America’s agricultural policies have
remained fundamentally unchanged for nearly three-quarters of a
cen
