on March 30, 2010
To Accompany the April 8, 2010 edition of Tidbits
Bob Jensen at Trinity University
The "Burning Platform" of the United States Empire
Former Chief Accountant of the United States, David Walker, is spreading the word as widely as possible in the United States about the looming threat of our unbooked entitlements. Two videos that feature David Walker's warnings are as follows:
David Walker claims the U.S. economy is on a "burning platform" but does not go into specifics as to what will be left in the ashes.
The US government
is on a “burning platform” of unsustainable policies and practices with fiscal
deficits, chronic healthcare underfunding, immigration and overseas military
commitments threatening a crisis if action is not taken soon.
David M. Walker, Former Chief Accountant of the United States --- http://www.financialsense.com/editorials/quinn/2009/0218.html
In an unusually candid rant, MSNBC libtalker Ed Schultz tells radio listeners
he believes the next "socialist" takeover by the government should be on all the
radio airwaves (Watch the Video) ---
Bernanke Says Bailouts of Banks ‘Unconscionable’
Federal Reserve Chairman Ben S. Bernanke said government bailouts of large financial firms are “unconscionable” and must be ended as part of a regulatory overhaul following the worst financial crisis since the 1930s. It is unconscionable that the fate of the world economy should be so closely tied to the fortunes of a relatively small number of giant financial firms,” Bernanke said today in a speech in Orlando, Florida. “If we achieve nothing else in the wake of the crisis, we must ensure that we never again face such a situation.”
Steve Matthews and Phil Mattingly, "Bernanke Says Bailouts of Banks ‘Unconscionable’ (Update2)," Business Week, March 20, 2010 ---
Budget Office report: Debt will rise to 90% of GDP," The
Washington Times, March 26, 2010 ---
President Obama's fiscal 2011 budget will generate nearly $10 trillion in cumulative budget deficits over the next 10 years, $1.2 trillion more than the administration projected, and raise the federal debt to 90 percent of the nation's economic output by 2020, the Congressional Budget Office reported Thursday.
In its 2011 budget, which the White House Office of Management and Budget (OMB) released Feb. 1, the administration projected a 10-year deficit total of $8.53 trillion. After looking it over, CBO said in its final analysis, released Thursday, that the president's budget would generate a combined $9.75 trillion in deficits over the next decade.
"An additional $1.2 trillion in debt dumped on [GDP] to our children makes a huge difference," said Brian Riedl, a budget analyst at the conservative Heritage Foundation. "That represents an additional debt of $10,000 per household above and beyond the federal debt they are already carrying."
The federal public debt, which was $6.3 trillion ($56,000 per household) when Mr. Obama entered office amid an economic crisis, totals $8.2 trillion ($72,000 per household) today, and it's headed toward $20.3 trillion (more than $170,000 per household) in 2020, according to CBO's deficit estimates.
That figure would equal 90 percent of the estimated gross domestic product in 2020, up from 40 percent at the end of fiscal 2008. By comparison, America's debt-to-GDP ratio peaked at 109 percent at the end of World War II, while the ratio for economically troubled Greece hit 115 percent last year.
"That level of debt is extremely problematic, particularly given the upward debt path beyond the 10-year budget window," said Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget.
For countries with debt-to-GDP ratios "above 90 percent, median growth rates fall by 1 percent, and average growth falls considerably more," according to a recent research paper by economists Kenneth S. Rogoff of Harvard and Carmen M. Reinhart of the University of Maryland.
CBO projected the 2011 deficit will be $1.34 trillion, not much different from the administration's estimate of $1.27 trillion. However, CBO's estimate of the 2020 deficit at $1.25 trillion significantly exceeds the administration's $1 trillion estimate.
Bob Jensen's threads on the pending downfall of the United States ---
Favor for Fannie Mae Reading Mr. Dodd's fine print," The Wall Street
Journal, March 22, 2010 ---
Senator Chris Dodd's financial reform runs to 1,300 pages but lacks a single sentence on how to reform Fannie Mae or Freddie Mac. Actually, it's worse than that. One provision could make Fannie and Freddie even more dominant in the business of mortgage-backed securities.
Remember, these two government-sponsored enterprises were root causes of the housing debacle. They bought tens of billions of dollars in subprime mortgages from the likes of Angelo Mozilo's Countrywide Financial, slapped their guarantees on trillions in home loans, failed to set aside enough capital, and then collapsed into the arms of taxpayers in 2008.
Fan and Fred's rescue has already cost taxpayers $126.9 billion in direct assistance, with the Congressional Budget Office estimating that the total cost of subsidizing them from the bailout through 2020 will approach $400 billion. Yet Mr. Dodd's bill, when combined with current interpretations of accounting rules, will provide a strong incentive for banks to do even more business with Fan and Fred.
It works like this: One provision in the bill intends to encourage lenders to be more careful about the loans they make by requiring them to retain more of the risk when they sell these loans to investors. Specifically, banks that originate loans and then sell them will need to retain 5% of the credit risk.
But some bankers believe that, under current accounting rules, a pool of such loans will not be considered sold, given that the originator still owns a 5% interest. Therefore, the banks might have to reserve capital against the entire 100%, not merely the 5% they continue to own. This would kill any incentive for lenders to sell their loans as asset-backed securities, and if banks can't sell their loans to investors, they will have less cash available to make new loans to other customers.
The result would be less credit available—except there appears to be a way around this rule. Procuring a Fannie or Freddie guarantee removes the transaction's credit risk, so that, voila, the business of securitizing mortgages can return to normal. Fannie and Freddie become even more indispensable to housing finance. And the only people shouldering more risk are the taxpayers.
Should Mr. Dodd perhaps take a little more time crafting this provision? Of course, but mere days after introducing his bill he's demanding a committee vote this week. What else lies within these pages that most Senators will never read?
Big Spender Scorecard --- http://www.wnd.com/files/HouseVoteScoreCard.html
There are lies and then their are damn lies
"Pelosi Claims Health Care Reform to Save $1.3 Trillion; No Mention in CBO Estimate," by Matt Cover, CNS News, March 26, 2010 ---
House Speaker Nancy Pelosi (D-Calif.) said that the health care reform package the House passed on March 21 would ultimately save the country $1.3 trillion over the next 20 years. That claim, however, was not made by the Congressional Budget Office (CBO) in its cost estimate of the bill.
Pelosi, speaking to reporters at her weekly Capitol Hill press conference on Thursday, said that one of the most important reasons for passing the legislation was that it would save the government so much money.
“[O]ne of the main reasons to do the bill was that it saves the taxpayers $1.3 trillion — $1.3 trillion — over the life of the bill and the 10 years beyond,” she said.
However, no such figure appears in the Congressional Budget Office’s estimate of the package President Obama signed into law Tuesday.
According to a CBO letter sent to Pelosi on March 20, the day before that House passed the bill, the health reform bill and an accompanying package of amendments is expected to reduce the deficit by $143 billion over the 2010-2019 time period.
For the following decade, the CBO does not attempt to quantify the bill’s possible effects on the budget because, as it says, there are simply too many unknown factors for any estimate to be accurate.
“CBO has developed a rough outlook for the decade following the 2010–2019 period by grouping the elements of the legislation into broad categories and (together with JCT) assessing the rate at which the budgetary impact of each of those broad categories is likely to increase over time,” the report says.
The CBO did give a broad range that the package might reduce the deficit, saying that if Congress did not modify the law over the next 20 years, it could reduce the deficit “during that decade in a broad range between one quarter percent and one-half percent of gross domestic product (GDP).”
The CBO said that any estimates beyond 20 years were unreasonable, and declined to give any in their letter to Pelosi.
“CBO has not extrapolated estimates further into the future because the uncertainties surrounding them are magnified even more.”
While some press accounts attributed Pelosi’s figure to internal calculations based on the CBO’s 20-year projections, CNSNews.com could not confirm this despite repeated requests to the Speaker’s office asking to name the source of the figure.
In addition, in a March 19 letter to Rep. Paul Ryan (R-Wisc.) the CBO explained that the health care bill will begin adding to the deficit the moment congressional Democrats change the payment system Medicare uses to pay doctors.
Known as the “Doc Fix,” the change was removed from earlier versions of the bill in order to make it appear deficit- friendly. However, if Democrats go ahead with the changes as expected, the CBO explained that the deficit will rise by nearly $60 billion.
"CBO estimates that enacting H.R. 3961 [Doc Fix], by itself, would cost about $208 billion over the 2010–2019 period," the CBO informed Ryan. "CBO estimates that enacting H.R. 3961 together with those two bills [health care and a companion package of amendments] would add $59 billion to budget deficits over the 2010–2019 period."
"The Government Pay Boom America's most privileged class are public union workers," The Wall Street Journal, March 26, 2010 ---
Let's walk through the math. In 2008 almost half of all state and local government expenditures, or an estimated $1.1 trillion, went toward the pay and benefits of public workers. According to the BLS, in 2009 the average state or local public employee received $39.66 in total compensation per hour versus $27.42 for private workers. This means that for every $1 in pay and benefits a private employee earned, a state or local government worker received $1.45.
The BLS study breaks down where that 45% premium comes from. It turns out that public employees earn salaries that are about one-third higher on average than what is provided to private workers per hour worked. But the real windfall for government workers is in benefits. Those are 70% higher than what standard private employers offer, as shown in the nearby table. Government health benefits are twice as generous as what workers employed by private employees earn. By the way, nearly this entire benefits gap is accounted for by unionized public employees. Nonunion public employees are paid roughly what private workers receive.
What if government workers earned the average of what private workers earn? States and localities would save $339 billion a year from their more than $2.1 trillion budgets. These savings are larger than the combined estimated deficits for 2010 and 2011 of every state in America.
In a separate survey, the federal Bureau of Economic Analysis compares the compensation of public versus private workers in each of the 50 states. Perhaps not coincidentally, the pay gap is widest in states that have the biggest budget deficits, such as New Jersey, Nevada and Hawaii. Of the 40 states that have a budget deficit so far this year, 28 would have a balanced budget were it not for the windfall to government workers.
But these current fiscal problems are a picnic compared to the long-term benefit commitments that state and local politicians have made to public retirees. A 2009 study by economists Robert Novy-Marx and Joshua Rauh, published in the Journal of Economic Perspectives, estimated that these government pensions are underfunded by $3.2 trillion, or $27,000 for every American household.
The Orange County Register reports that California has 3,000 retired teachers and school administrators, who stopped working as early as age 55, collecting at least $100,000 a year in pensions for the rest of their lives.
Illinois's pension obligations are so costly the state had to issue $3.5 billion of bonds merely to meet its mandatory contribution to the worker retirement program, which faces $85 billion, or three years of state tax revenues, in unfunded liabilities. Near-bankrupt New Jersey would have to pay $7 billion a year if it properly accounted for its pension and health benefits.
California, Nevada New Jersey and Ohio all allow double dipping, which lets government workers retire in their 50s and then work another full-time job while collecting retirement checks. In Ohio, police, firefighters and teachers can retire after 30 years on the job, collect a full benefit each year and go back to work full-time doing the same job. This is called retire and rehire.
As the Columbus Dispatch reported last year: "Across the state, Ohio's State Teachers Retirement System paid out more than $741 million in pension benefits last school year to 15,857 faculty and staff members who were still working for school systems and building up a second retirement plan." Some teachers can earn nearly $200,000 a year in pensions and salaries.
The union response is that government workers deserve all this because they are more educated and highly skilled. That may account for some of the pay differential but not the blowout benefits. The unions also neglect one of the greatest perks of government employment: job security. Short of shooting up a Post Office, government workers rarely get fired or laid off.
If government workers were underpaid, we'd expect high attrition rates, as they pursued better private opportunities. The reality is the opposite. Cato Institute economist Chris Edwards has analyzed Department of Labor statistics and found that private workers are three times more likely to quit their jobs than are government workers.
So if your state is broke, this is a major reason. Eventually, governors, state legislators and city council members are going to have to decide whether protecting America's privileged class of government workers is a higher priority than funding such core functions of government as public safety. Something has to give. It's time to close the biggest pay gap in America.
"Entitlement Rip Off," by John Stossel, Townhall, March 14, 2010 ---
Bernie Madoff took money from people who thought he'd invested it, gave some to others who thought it was a partial return on their earlier investments and kept much for himself. That's called a Ponzi scheme, and his $50 billion fraud was called the biggest ever. But it wasn't the biggest. Social Security and Medicare are much bigger ones.
These are trillion-dollar scams. Medicare has a $36 trillion unfunded liability. Social Security's is $8 trillion. There's no money to keep those promises.
But Congress isn't investigating this scam. Congress runs it. That FICA money you thought government had saved for your retirement is gone. There's nothing left but IOUs backed by nothing. Your money was spent not only on current retirees but on wars, welfare, corporate bailouts, earmarks and all the other stuff Congress wants. For years, this was possible because the FICA tax brought in surpluses that allowed government to pay retirees more than they contributed and still help buy those other things.
Those days are gone. The huge group of baby boomers has started to retire, and that means trouble. In 2008, for the first time, Medicare paid out more than it took in.
So instead of filling the government's coffers and hiding the real size of the budget deficit, the entitlement programs have now begun to drain the treasury. Part of the "problem" is that we live longer. When Social Security started, most people didn't live to 65. Now we average 78.
This means that baby boomers like me who expect to collect Social Security and Medicare are basically stealing from children.
Think of the burden: When I was a kid, there were five workers for every retired person. Now, there are only three. And soon there will only be two young workers to fund each baby boomer's Social Security and Medicare checks.
When I explore this alarming matter on my Fox Business New show tomorrow night, Veronique de Rugy, an economist at the Mercatus Center, will point out that Social and Medicare right now consume almost half the federal budget. In coming years, if nothing changes, they will swallow nearly the whole thing. But since Congress will want to spend money on all the other things it now buys -- not to mention a new medical entitlement -- the government will either have to raise taxes to stratospheric heights, borrow like crazy or inflate the dollar. Whichever it chooses, we'll have serious problems.
Higher taxes are not a good solution because taxation suppresses economic activity by transferring capital to politicians. Yet our only hope is a sustained economic boom.
As Rep. Paul Ryan, R-Wis., points out: "You literally cannot tax your way out of this problem. It's not mathematically possible. ... You wipe out the middle class."
Well, how about borrowing? That might mean raising interest rates, which, again, would depress economic activity. Even then, lenders such as China may soon be too nervous to lend Uncle Sam more money. Moody's recently announced it might downgrade America's credit rating.
The most likely outcome is that the Fed will print more money, inflating the currency, so that the creditors are paid with less-valuable dollars. Our purchasing power will disappear.
The architects of the welfare state sure have left us a big mess. Yet hardly anyone talks about entitlements, except to add new ones.
De Rugy asks: Why can't people take care of their own retirement by investing the money government now takes? Had we done this all along, the looming problem would have been averted. Instead, "We're about to witness the biggest, most massive transfer of wealth from the relatively young and poor people of society to the relatively old and wealthy people in society."
Our forefathers would be appalled. After the American Revolution, when the new government was debating how to pay its bills, George Washington said this about a national debt: "We should avoid ungenerously throwing upon posterity ... the burden we ourselves ought to bear." Well, we sure are dumping my generation's debt onto posterity. I wish we had more politicians like George Washington.
"The Real Pending Crisis: Public Pensions," by Bruce Bialosky,
Townhall, November 2, 2009 ---
Bob Jensen's threads on entitlements are at http://www.trinity.edu/rjensen/entitlements.htm
What is the world is going to happen to private sector versus public sector auditing?
The big difference between private sector auditors versus government auditors is that we can sue the private sector auditors over and over and over until they make serious efforts to get it right. Virtually nothing is being done to make the government’s auditors get it right.
inside contacts in the large firms are telling me is that more than ever efforts
are now being made to make their auditors independent to a point where they will
stand up to their largest and most lucrative clients and demand that there be
better GAAP and GAAS conformance ---
Advancing Quality through Transparency Deloitte LLP Inaugural Report ---
I think the PCAOB audit reviews have contributed in a small but marked way to improve audits. But there’s a long way, miles and miles, to go before we sleep --- http://www.trinity.edu/rjensen/fraud001.htm
Market Versus the Government!
The question is what’s the alternative? Those that want a Government’s Central Planning Board to allocate resources in the economy (in place of markets) are aiming the world economy for disaster, confusion, and disruption. And who keeps the government honest? At the moment the GAO declares that it’s impossible to audit our largest government agencies like the Pentagon, the IRS, etc. Government accountability, accounting, and auditing are in much worse shape than our far less-than-perfect private sector accountability, accounting, and auditing.
The Sad State of Government Accounting --- http://www.trinity.edu/rjensen/theory01.htm#GovernmentalAccounting
The Sad State of Private Sector Accounting --- http://www.trinity.edu/rjensen/fraud001.htm
No Resource Allocation System Can Exist Without Accountability,
Accounting, and Auditing
Accountability, accounting, and auditing are necessary under any type of resource stewardship and resource allocation system. At one extreme we have markets, investors, and creditors who rely upon audits and stewardship accounting of the private sector market participants. The FASB and the IASB do indeed, in my viewpoint, focus on the information needs of those investors and creditors. The auditing firms, however, are faced with what Tom Selling calls a “broken model” where those being audited choose their auditors and negotiate the audit fees. This is certainly problematic if not completely broken.
The Government’s resource allocation system brought us the Jack Murtha Airport with its full security system, air controller system, six flights a day to only one destination, and less than 50 passengers a day. It’s a cash flow black hole.
At the other extreme we have the government auditors who cannot
get any type of handle on how to audit the enormous agencies to a point with
the auditors have just given up on total system audits. Nobody audits the
Pentagon after the GAO declared it “unauditable.”
The world is not perfect, and certainly financial and commodities markets were manipulated by Enron, Lehman, Merrill, etc. Andersen’s audits were among the worst in the history of the world, and Andersen got its just dessert for not enforcing quality control of its audits. Government is the land of corrupt resource allocation that usually leads to even less efficient resource allocations than the market-based resource allocations.
I think auditing of banks has been a sham by virtually all the auditing firms, and these firms will soon pay a heavy price in court for certifying fiction of bank accounting for the thousands of banks that recently went “bank”rupt. Unless the large auditing firms overcome their sham audits of banks, they too will bite the dust.
question is whether the professionalism/independence recovery efforts of all the
large auditing firms can save them is still open to question. After all these
years since Andersen imploded, I think the Wall Street bank audits indicate that
the big auditing firms, in Art Wyatt’s wording, “still didn’t get it.” Art Wyatt
was the lead executive research partner for Andersen. After Andersen imploded,
Art observed the lack of professionalism in the surviving auditing firms and
concluded that “They Still Don’t Get It” ---
Can you hear us now?
The question is whether the auditing firms are in the wake of the banking collapse and bailout are more seriously listening and, more importantly, finally doing the right thing. Investors are amazingly tolerant of the cycles of scandal and promised reforms in the capital markets. The Dow remained amazingly high during all the recent Wall Street scandals and bailouts. And investors and creditors will have their day in court when they bring the bankers and their auditors to the dock ---
But nobody is bringing the broken government accounting and auditing system to the dock. You can’t usually sue the government. Many of the recent frauds could’ve been prevented or mitigated by the SEC, but the SEC is not being held accountable for its huge failures, especially under an incompetent political hack named Chris Cox.
What’s the big difference between Soviet Union Accounting in 1960 and accounting in the U.K. and the U.S. in 2010?
In the Soviet Union the public could not haul the sham auditors into court. Accounting in the Soviet Union really was fiction writing at all levels of enterprise. In the Soviet Union there could never be a Prem Sikka, a Frank Partnoy, a Mark Lewis, a Lynn Turner, or a CBS Sixty Minutes. Why does Prem Sikka now want to destroy our market system and model us after the Soviet Union? Perhaps I’m being unfair to Prem. He tears at the foundations of markets without ever suggesting what he thinks should take their place for an economy’s resource allocation system. Others like Partnoy, Lewis, and Turner want to “make markets be markets” with better accountability and auditing”
"Make Markets Be Markets"
"Bring Transparency to Off-Balance Sheet Accounting," by Frank Partnoy, Roosevelt Institute, March 2010 ---
Watch the video!
Why aren’t we hauling the GAO and the SEC and government watchdogs in general into court and demanding that they make at least as much effort at reform as the private sector accountants and auditors?
The big difference between private sector auditors versus government auditors is that we can sue the private sector auditors over and over and over until they
"Obama suddenly slaps Cuba over human rights," by Andrew Malcolm, Los Angeles Times, March 24, 2010 --- Click Here
President Obama took the unusual step Wednesday afternoon of issuing a special denunciation of Cuba's human rights policies, after a year of advocating improved relations after nearly a half-century of political estrangement with the island neighbor.
"Instead of embracing an opportunity to enter a new era," Obama said (full text below), "Cuban authorities continue to respond to the aspirations of the Cuban people with a clenched fist."
As recently as last summer at a Caribbean summit, Obama and Raul Castro talked separately of opening discussions on a wide range of issues including human rights. The country's semi-retired revolutionary leader, brother Fidel Castro, had warm words when Obama was awarded the Nobel Peace Prize in the autumn.
But then in December the Cuban icon said Obama's warm smile could not be trusted.
Today, about seven months out from November's midterm elections, Obama responded.
The lack of response to Obama overtures from Iran have not prompted similar White House outbursts.
Forwarded by Maureen
> *Not Democrat, Not Republican, Not Independent.*
> *It's called the "PISSED OFF PARTY" (or POP).*
> *a.. The U.S. Post Service was established in 1775. You have had 234 years to get it right and it is broke.*
> *b.. Social Security was established in 1935. You have had 74 years to get it right and it is broke.*
> *c.. Fannie Mae was established in 1938. You have had 71 years to get it right and it is broke.*
> *d.. War on Poverty started in 1964. You have had 45 years to get it right; $1 trillion of our money is confiscated each year and transferred to "the poor" and they only want more.*
> *e.. Medicare and Medicaid were established in 1965. You have had 44 years to get it right and they are broke.*
> *f.. Freddie Mac was established in 1970. You have had 39 years to get it right and it is broke.*
> *g.. The Department of Energy was created in 1977 to lessen our dependence on foreign oil. It has ballooned to 16,000 employees with a budget of $24
> billion a year and we import more oil than ever before. You had 32 years to get it right and it is an abysmal failure.*
Bob Jensen's universal health care messaging --- http://www.trinity.edu/rjensen/Health.htm
the Tidbits Archives ---
Shielding Against Validity Challenges in Plato's Cave ---
Shielding Against Validity Challenges in Plato's Cave
By Bob Jensen
What went wrong in accounting/accountics research?
The Sad State of Accountancy Doctoral
Programs That Do Not Appeal to Most Accountants ---
AN ANALYSIS OF THE EVOLUTION OF RESEARCH
CONTRIBUTIONS BY THE ACCOUNTING REVIEW: 1926-2005 ---
Bob Jensen's threads on accounting theory
Tom Lehrer on Mathematical Models and
Systemic problems of accountancy (especially the
vegetable nutrition paradox) that probably will never be solved ---
Bob Jensen's economic crisis messaging http://www.trinity.edu/rjensen/2008Bailout.htm
Bob Jensen's threads --- http://www.trinity.edu/rjensen/threads.htm
Bob Jensen's Home Page --- http://www.trinity.edu/rjensen/