Tidbits Quotations
To Accompany the February 8, 2011 edition of Tidbits
Bob Jensen at Trinity University

Archive of Tidbits Quotations --- http://www.trinity.edu/rjensen/TidbitsDirectory.htm

The past is never dead. It's not even past.
William Faulkner

An Ethics Case
This might be a good video to use in an ethics class. It demonstrates how convincing scam artists can become and how they pray on investors by demonstrating their "superior" research. One of the most common tactics of investment analysts and advisers to exaggerate their past records of success.

Stansberry Investment Research --- http://www.stansberryresearch.com/

Video:  A controversial and negative video forecast of a collapse of the U.S. monetary system and rioting in the streets of America ---
Jensen Comment
I linked to the above Stansberry video as food for thought and not because I buy into all of this somewhat self-serving gloom about what the Zimbabwe Theory of Finance will do to bring down the United States.  The end of this video gets a bit too mysterious to me in an effort sell his newsletter. But the early parts of the video are sobering. What the video demonstrates most to me is how sales pitches can be so convincing by scam artists. This might be a good video to use in an ethics class. It demonstrates how convincing scam artists can become and how they pray on investors by demonstrating their "superior" research. One of the most common tactics of investment analysts and advisers to exaggerate their past records of success.


"Catching SEC-Busted Stansberry Research In 4 Blatant Lies & Why Porter Stansberry Is The Real Life Hyman Roth," by Timothy Sykes, October 4, 2010 ---

I’ve previously written about Stansberry Research by exposing their $1.5 million SEC fine and how they use certainly unethical, but-not-always-illegal manipulative language to market their “picks” using sucker-inducing marketing messages like ““This is the kind of situation that can change your life… where a $10,000 stake can allow you to literally quit work, forever.”

Continued in article

Also see http://briandeer.com/vaxgen/stansberry-fraud.htm

Stansberry's defense of the SEC charges against him proving how clever these guys are in the face of adversity ---

Suggested Student Assignment
Assign a debate where students take up both sides of Stansberry's defense and his advice for investing in these troubled economic times.

Nobody has more visceral hatred of Ben Bernanke that Jr. Deputy Accountant Adrienne Gonzalez ---

"We need "something like the strikes and riots that have spread across Greece."
Frances Fox Piven, Mobilizing the Jobless, January 10, 2011, The Nation

So where are the angry crowds, the demonstrations, sit-ins and unruly mobs? After all, the injustice is apparent. Working people are losing their homes and their pensions while robber-baron CEOs report renewed profits and windfall bonuses. Shouldn't the unemployed be on the march? Why aren't they demanding enhanced safety net protections and big initiatives to generate jobs?

Jensen Comment
Advocacy of "unruly mobs." Sounds a bit like promoting a violent takeover to me.

Ed Schultz-Jon Stewart Feud Breaks Out (VIDEO) ---

Optimism for America (for a change)
"President Obama Can Make Start-Up America Succeed,"  by Daniel Isenberg, Harvard Business Review Blog, February 2, 2011 --- Click Here

MSNBC Leftist Star excitedly falls for a hoax
"Hey Rachel Maddow, I Have a Bridge To Sell You," by Adriane Gonzalez, Jr. Deputy Accountant, February 2, 2011 ---

"Does Jimmy Carter Deserve To Be Sued?" by Mona Charan, Townhall, February 2, 2011 ---
Jensen Comment
Apart from the issues of the lawsuit, I think this article goes overboard in criticizing Carter himself who's often a man with good intentions and occasionally a man with poor judgment. I don't think he has a "festering abhorrence of the Jewish state," although I do think he abhors some of the self-serving actions of Israel.

"Jimmy Carter, greedy grabber," New York Post, February 5, 2011 ---

Jimmy Carter is a miracle worker: He's found a way to milk a peanut.

As The Washington Times reported, taxpayers now spend $68,000 a year to clean the exterior of his private home on his humble peanut farm in Georgia.

His tennis court is "swept twice a day, his pool is cleaned daily and his grass cut, his flower beds weeded and his windows washed on a regular basis -- all at taxpayers' expense," the paper found.

Now, there's certainly nothing wrong with living well -- as long as you're doing it off your own dime.

It's not like Carter needs the help: He draws a substantial government pension and his presidential center rakes in Saudi silver by the barrelful.

Continued in article

Comments About Krugman's Forthcoming Visit to Trinity University

Hi Tom,
You noted that leftist economist Paul Krugman will make a presentation on the Trinity University campus. Trinity spends hundreds of thousands of dollars (to a fault)  each year to bring in famous scholars of all political persuasion to speak on campus, although in this particular instance I suspect Krugman's invitation is part of a long-running program over the decades to bring all winners of the Nobel Prize in economics to campus --- a program that has succeeded in almost all instances except for mentally ill laureates unable to visit the campus --- John Nash and John Hicks.
 It's a rather interesting story how my good friend and Trinity colleague Bill Breit flew all the way to England just to persuade the highly reclusive hermit John Hicks to speak at Trinity. Just finding Hicks proved to be like finding a missing person and persuading him to come to Trinity was impossible. But Bill did enjoy having tea in the hovel of Professor Hicks.
 These particular Trinity economist lectures have some constraints. The laureates are to speak about their personal life histories in terms of how they got to the professional pinnacles of their careers by receiving their Nobel Prizes. Hence the focus is more upon  their own lives than upon the technicalities of their writings that made them famous. So Paul Krugman will have a somewhat difficult time persuading Trinity students that $800 trillion of U.S. debt plus entitlements are good things to pass along to our children.
 Some of the Nobel Economists have been invited more than once. During my tenure at Trinity Nobel laureate Milton Friedman made at least three appearances, including a commencement address. At that point in his life Professor Friedman would not fly commercially such that Trinity brought him from Stanford to San Antonio via a private jet owned by one of our Board members.
 One particular instance with Professor Friedman was hilarious. He always brought his devoted wife Rose along with him to our campus. Rose was a tiny little thing --- seemed to me like she did not even reach five feet in stature. When Milton was speaking in Laurie Auditorium to thousands of people, a young heckler commenced to interrupt Milton's presentation. Professor Friedman's tiny little Rose stepped across the aisle and symbolically hit the heckler on the shoulder with her shoe.
 Another much more expensive series at Trinity brings in virtually all ex-presidents of nations of the world (except for those that were brutal dictators). And still another series brings in famous people such as Desmond Tutu. Alexander Haig, Colin Powell George Steinbrenner and many, many others. Last term one of the invited speakers was Condoleezza Rice.
 When I mentioned "to a fault" above what I meant was that there are so many famous people making presentations at a small university like Trinity that sometimes the audience can be embarrassingly small. A student could almost get an education at Trinity by never attending anything but lectures from famous natural scientists, mathematicians, social scientists, authors, poets, etc.

Winning a Nobel Prize almost guarantees a lucrative invitation to speak at Trinity.
 One of the highlights of my entire life was attending a poetry reading by Nobel Laureate Seamus Heaney ---

 No poetry reading will ever measure up after listening to poems read by a poet with deep Irish country accent talking about what flows from his "stubby little pencil.".
 It was generally conceded by progressives and liberals alike that the worst speaker to ever be invited to campus was Michael Moore. Among an academic audience Moore was a fish out of water when he tried to incite so much hate and forgot the humor.
 Progressive Faculty Versus Conservative Students at Trinity
 Having two sons currently attending Trinity you're well aware, Tom, that Trinity is a private university that charges a hefty tuition in spite of having a very large endowment per student. The student body and the faculty ranges from left to right in terms of political persuasion, although the mean for the students undoubtedly is much more to the right than the mean for the faculty.
 The tendency of Trinity students to be somewhat conservative (many of them have conservative parents) is often frustrating to some of Trinity's progressive (liberal) faculty. A bridge-playing friend of mine who taught a political science course on the global impact of multinationals had a hatred of multinationals that can best be described as visceral to a fault. His lectures became more and more like sermons on hellfire and brimstone. His resulting teaching evaluations were so low that I think those evaluations drove him to accept a lucrative deal offered by the President to go into early retirement.   

Condoleezza Rice
As long as I'm rambling here, I might note that Condoleezza Rice, who has a political science PhD, just joined the faculty of the Graduate School of Business at Stanford University. The GSB somewhat recently started up a Global Business Center where Dr. Rice will be joined by five new assistant professors. This is a bit of a horizontal transfer since in 2009 she returned to the Political Science Department at Stanford.

I might add that before she became the U.S. Secretary of State, Dr. Rice was the academic Provost of Stanford. Her rise from the depths of poverty in Birmingham, Alabama is truly fascinating to me. Among other things she very nearly became a professional concert pianist along the way. Dr. Rice began to learn French, music, figure skating and ballet at the age of three. She was a prodigy that in many ways worked her way up the American Dream with poise, class, and determination.

But she's despised by many academics simply because of her conservatism in politics and her enduring friendship with George W. Bush. That is just not politically correct in the academy.

Bob Jensen

"Persecuted By WikiLeaks:  Julian Assange abets Mugabe," The Wall Street Journal, January 21, 2011 ---

Late last month Julian Assange secured a million-dollar advance from two publishers to write his autobiography. The WikiLeaks founder says he needs the money to cover the legal expenses arising from charges that he raped two women in Sweden. But perhaps Mr. Assange would do better to defend himself and pay the lawyers' fees of the people now in legal jeopardy thanks to his wanton disclosures.

One worthy candidate is Morgan Tsvangirai, Zimbabwe's long-time opposition leader and now its powerless Prime Minister. Yesterday, the Associated Press reported that Zimbabwe Attorney General Johannes Tomana, a loyalist to despot Robert Mugabe, has assembled an "expert panel" to review 3,000 U.S. diplomatic cables published by WikiLeaks for evidence that Mr. Tsvangirai committed treason. "Treason," AP adds, "carries a possible death sentence in Zimbabwe."

The charge that hangs most heavily on Mr. Tsvangirai's head is that he privately urged Western diplomats to maintain sanctions on Zimbabwe—sanctions that target Mr. Mugabe's cronies—even though the Prime Minister has opposed those sanctions in public. Maybe Mr. Assange imagines that he's usefully exposed a case of blatant political hypocrisy. The rest of us are more likely to forgive Mr. Tsvangirai for trying to help his country in private while having no choice but to concede in public to a desperate political reality.

This is not the first time the regime has sought to indict Mr. Tsvangirai for treason, and no doubt it would resort to other dirty tricks were it not for the convenience of the leaked cables. But there's no doubt, either, that Mr. Assange has made the regime's work that much easier. Even a million for Mr. Tsvangirai's defense wouldn't begin to cover WikiLeaks' collateral damage.

Jensen Comment
I keep waiting for Assange to leak some Al Qaeda or Taliban or MSNBC cables.

An Interview with Professor Walter E. Williams
"The State Against Blacks:  'The welfare state has done to black Americans what slavery couldn't do. . . . And that is to destroy the black family.'," by Jason L. Riley, The Wall Street Journal, January 22, 2011 ---

'Sometimes I sarcastically, perhaps cynically, say that I'm glad that I received virtually all of my education before it became fashionable for white people to like black people," writes Walter Williams in his new autobiography, "Up from the Projects." "By that I mean that I encountered back then a more honest assessment of my strengths and weaknesses. Professors didn't hesitate to criticize me—sometimes to the point of saying, 'That's nonsense.'"

Mr. Williams, an economist at George Mason University, is contrasting being black and poor in the 1940s and '50s with today's experience. It's a theme that permeates his short, bracing volume of reminiscence, and it's where we began our conversation on a recent morning at his home in suburban Philadelphia.

"We lived in the Richard Allen housing projects" in Philadelphia, says Mr. Williams. "My father deserted us when I was three and my sister was two. But we were the only kids who didn't have a mother and father in the house. These were poor black people and a few whites living in a housing project, and it was unusual not to have a mother and father in the house. Today, in the same projects, it would be rare to have a mother and father in the house."

Even in the antebellum era, when slaves often weren't permitted to wed, most black children lived with a biological mother and father. During Reconstruction and up until the 1940s, 75% to 85% of black children lived in two-parent families. Today, more than 70% of black children are born to single women. "The welfare state has done to black Americans what slavery couldn't do, what Jim Crow couldn't do, what the harshest racism couldn't do," Mr. Williams says. "And that is to destroy the black family."

Government programs and regulations are favorite butts of the professor, who is best known today for his weekly column—started in 1977 and now appearing in more than 140 newspapers—and for his stints guest-hosting Rush Limbaugh's popular radio program. Libertarianism is currently in vogue, thanks to the election of a statist president and the subsequent rise of the tea party movement. But Walter Williams was a libertarian before it was cool. And like other prominent right-of-center blacks—Clarence Thomas, Thomas Sowell, Shelby Steele—his intellectual odyssey began on the political left.

"I was more than anything a radical," says Mr. Williams. "I was more sympathetic to Malcolm X than Martin Luther King because Malcolm X was more of a radical who was willing to confront discrimination in ways that I thought it should be confronted, including perhaps the use of violence.

"But I really just wanted to be left alone. I thought some laws, like minimum-wage laws, helped poor people and poor black people and protected workers from exploitation. I thought they were a good thing until I was pressed by professors to look at the evidence."

During his junior year at California State College in Los Angeles, Mr. Williams switched his major from sociology to economics after reading W.E.B. Du Bois's "Black Reconstruction in America," a Marxist take on the South's transformation after the Civil War that will never be confused with "The Wealth of Nations." Even so, the book taught him that "black people cannot make great progress until they understand the economic system, until they know something about economics."

He earned his doctorate in 1972 from UCLA, which had one of the top economics departments in the country, and he says he "probably became a libertarian through exposure to tough-mined professors"—James Buchanan, Armen Alchian, Milton Friedman—"who encouraged me to think with my brain instead of my heart. I learned that you have to evaluate the effects of public policy as opposed to intentions."

Mr. Williams distinguished himself in the mid-1970s through his research on the effects of the Davis-Bacon Act of 1931—which got the government involved in setting wage levels—and on the impact of minimum-wage law on youth and minority unemployment. He concluded that minimum wages caused high rates of teenage unemployment, particularly among minority teenagers. His research also showed that Davis-Bacon, which requires high prevailing (read: union) wages on federally financed or assisted construction projects, was the product of lawmakers with explicitly racist motivations.

One of Congress's goals at the time was to stop black laborers from displacing whites by working for less money. Missouri Rep. John Cochran said that he had "received numerous complaints in recent months about Southern contractors employing low-paid colored mechanics." And Alabama Rep. Clayton Allgood fretted about contractors with "cheap colored labor . . . of the sort that is in competition with white labor throughout the country."

Continued in article

"Amber Waves of Ethanol Four of every 10 rows of U.S. corn now go for fuel, not food," The Wall Street Journal, January 22, 2011 ---

The global economy is getting back on its feet, but so too is an old enemy: food inflation. The United Nations benchmark index hit a record high last month, raising fears of shortages and higher prices that will hit poor countries hardest. So why is the United States, one of the world's biggest agricultural exporters, devoting more and more of its corn crop to . . . ethanol?

The nearby chart, based on data from the Department of Agriculture, shows the remarkable trend over a decade. In 2001, only 7% of U.S. corn went for ethanol, or about 707 million bushels. By 2010, the ethanol share was 39.4%, or nearly five billion bushels out of total U.S. production of 12.45 billion bushels. Four of every 10 rows of corn now go to produce fuel for American cars or trucks, not food or feed.

This trend is the deliberate result of policies designed to subsidize ethanol. Note the surge in the middle of the last decade when Congress began to legislate renewable fuel mandates and many states banned MTBE, which had competed with ethanol but ran afoul of the green and corn lobbies.

This carve out of nearly half of the U.S. corn corp to fuel is increasing even as global food supply is struggling to meet rising demand. U.S. farmers account for about 39% of global corn production and about 16% of that crop is exported, so U.S. corn stocks can influence the world price. Chicago Board of Trade corn March futures recently hit 30-month highs of $6.67 a bushel, up from $4 a bushel a year ago.

Demand from developing nations like China is also playing a role in rising prices, and in our view so is the loose monetary policy of the U.S. Federal Reserve that has increased the price of nearly all commodities traded in dollars.

But reduced corn food supply undoubtedly matters. About 40% of U.S. corn production is used to produce feed for animals. As corn prices rise, beef, poultry and other prices rise, too. The price squeeze has already contributed to the bankruptcy of companies like Texas-based Pilgrim's Pride Corp. and Delaware-based poultry maker Townsends Inc. over the past few years.

This damage coincides with a growing consensus that ethanol achieves none of its alleged policy goals. Ethanol supporters claim the biofuel reduces U.S. dependence on foreign oil and provides a cleaner source of energy. But Cornell University scientist David Pimentel calculates that if the entire U.S. corn crop were devoted to ethanol production, it would satisfy only 4% of U.S. oil consumption.

The Environmental Protection Agency has found that ethanol production has a minimal to negative impact on the environment. Even Al Gore, once an ethanol evangelist, now says his support had more to do with Presidential politics in Iowa and admits the fuel provides little or no environmental gain.

Not that this has changed the politics of ethanol. When consumers didn't buy enough gas last year to meet previous ethanol mandates, the Obama Administration lifted the cap on how much ethanol may be mixed into gasoline to 15% from 10%. Presto! More ethanol "demand." On Friday the EPA greatly expanded the number of cars approved to use the 15% blend. Last month, Congressmen whose constituents benefit from this largesse tucked into the tax bill an extension of the $5 billion tax credit for blending ethanol into gasoline.

At a time when the world will need more corn and grains, it makes no sense to devote scarce farmland to make a fuel that exists only because of taxpayer subsidies and mandates. If food supplies tighten and prices keep rising, such a policy will soon become immoral.

It takes a big person to admit advocating something in total error
I had almost zero respect for Nobel Prize winner Al Gore's persistent advocacy of corn ethanol that takes more energy to produce than is gained. Also ethanol purportedly generates twice as much ozone as gasoline in traditional combustion engines and is absurdly expensive to transport.

Members of the Academy all do not admit mistakes, but my respect for teachers/researchers increases when they publically admit to their own errors
Al Gore is not a card carrying member of the Academy, but he just did a very academic thing.
I'm still not in Al Gore's for a number of reasons, but I do like to give credit where credit is due,"

"Al Gore's Ethanol Epiphany:  He concedes the industry he promoted serves no useful purpose"  The Wall Street Journal, November 22, 2010 ---

Anyone who opposes ethanol subsidies, as these columns have for decades, comes to appreciate the wisdom of St. Jude. But now that a modern-day patron saint—St. Al of Green—has come out against the fuel made from corn and your tax dollars, maybe this isn't such a lost cause.

Welcome to the college of converts, Mr. Vice President. "It is not a good policy to have these massive subsidies for first-generation ethanol," Al Gore told a gathering of clean energy financiers in Greece this week. The benefits of ethanol are "trivial," he added, but "It's hard once such a program is put in place to deal with the lobbies that keep it going."

No kidding, and Mr. Gore said he knows from experience: "One of the reasons I made that mistake is that I paid particular attention to the farmers in my home state of Tennessee, and I had a certain fondness for the farmers in the state of Iowa because I was about to run for President."

Mr. Gore's mea culpa underscores the degree to which ethanol has become a purely political machine: It serves no purpose other than re-electing incumbents and transferring wealth to farm states and ethanol producers. Nothing proves this better than the coincident trajectories of ethanol and Mr. Gore's career.

Continued in article

Farm lobbies in the United States have succeeded in putting  barriers up to importation of sugar cane ethanol from places like Brazil to protect the interest of corn growing agribusiness in the U.S.


Jensen Comment
This does not necessarily mean that all ethanol in general is a totally bad idea. Producing sugar cane ethanol seems to have more benefits than cost in Brazil relative to corn ethanol which experts tell us has more cost than benefit. Apparently sugar cane is a better source of ethano,l and Brazil has vast amounts of sugar cane and very little oil in production.

Sugar cane not only has a greater concentration of sucrose than corn (by about 30%), but is also much easier to extract. The bagasse generated by the process is not wasted, but is used in power plants as a surprisingly efficient fuel to produce electricity

. . .

One problem with ethanol is that because it is easily miscible with water, it cannot be efficiently shipped through modern pipelines, like liquid hydrocarbons,

Research should proceed full bore ahead to make cheaper and/or better fuels of all types. But even Al Gore admits that the sign our our pumps that reads "10% Ethanol" is all politics and not science.

Murdoch has openly acknowledged that he is pushing an agenda (for the GOP in The Wall Street Journal) and will not hesitate to use all his assets.
Zafar Kahn to the AECM
The implication here, by Zafar at least, is that the entire WSJ too biased to be a reliable source for news. Academics should stop citing it.

Don't you love it when The Wall Street Journal's Editorial Page  lambasts leading Republicans?

"Professor Cornpone:  Ethanol lobbyist Newt Gingrich and us—and the future of the GOP," The Wall Street Journal, January 31, 2011 ---

The last time these columns were lambasted by a presidential candidate in Iowa, he was Democrat Richard Gephardt and the year was 1988. The Missouri populist won the state caucuses in part on the rallying cry that "we've got to stop listening to the editorial writers and the establishment," especially about ethanol and trade. Imagine our amusement to find Republican Newt Gingrich joining such company.

The former (Republican) Speaker blew through Des Moines last Tuesday for the Renewable Fuels Association summit, and his keynote speech to the ethanol lobby was as pious a tribute to the fuel made from corn and tax dollars as we've ever heard. Mr. Gingrich explained that "the big-city attacks" on ethanol subsidies are really attempts to deny prosperity to rural America, adding that "Obviously big urban newspapers want to kill it because it's working, and you wonder, 'What are their values?'"

. . .

Some pandering is inevitable in presidential politics, but, befitting a college professor, Mr. Gingrich insists on portraying his low vote-buying as high "intellectual" policy. This doesn't bode well for his judgment as a president. Even Al Gore now admits that the only reason he supported ethanol in 2000 was to goose his presidential prospects, and the only difference now between Al and Newt is that Al admits he was wrong.

Jensen Comment
It seems to me that if Murdock really wants Republicans to get all farmers to vote for Republican candidates he should push for grand increases in all farm subsidies. I think Murdock goofed badly by letting this piece of poison be printed in his GOP rag. He must've been out of town.

Harvard economist John Kenneth Galbraith said something like "Ireland is a land of poets and has never produced one economist." This is not an exact quotation but it captures the essence of what this famous Harvard professor thought about Ireland's economic acumen.

Professor Galbraith did not live to see his diagnosis turn into proof.

Michael Lewis is one of my favorite authors and analysts. He's also a humorist who finds little funny about the current economic crisis in Ireland.

"Michael Lewis: The Economic Crisis -When Irish Eyes Are Crying," Vanity Fair via Simoleon Sense, February 2, 2011 ---

Even in an era when capitalists went out of their way to destroy capitalism, the Irish bankers set some kind of record for destruction. Theo Phanos, a London hedge-fund manager with interests in Ireland, says that “Anglo Irish was probably the world’s worst bank. Even worse than the Icelandic banks.”

Ireland’s financial disaster shared some things with Iceland’s. It was created by the sort of men who ignore their wives’ suggestions that maybe they should stop and ask for directions, for instance. But while Icelandic males used foreign money to conquer foreign places—trophy companies in Britain, chunks of Scandinavia—the Irish male used foreign money to conquer Ireland. Left alone in a dark room with a pile of money, the Irish decided what they really wanted to do with it was to buy Ireland. From one another. An Irish economist named Morgan Kelly, whose estimates of Irish bank losses have been the most prescient, made a back-of-the-envelope calculation that puts the losses of all Irish banks at roughly 106 billion euros. (Think $10 trillion.) At the rate money currently flows into the Irish treasury, Irish bank losses alone would absorb every penny of Irish taxes for at least the next three years.


In recognition of the spectacular losses, the entire Irish economy has almost dutifully collapsed. When you fly into Dublin you are traveling, for the first time in 15 years, against the traffic. The Irish are once again leaving Ireland, along with hordes of migrant workers. In late 2006, the unemployment rate stood at a bit more than 4 percent; now it’s 14 percent and climbing toward rates not experienced since the mid-1980s. Just a few years ago, Ireland was able to borrow money more cheaply than Germany; now, if it can borrow at all, it will be charged interest rates nearly 6 percent higher than Germany, another echo of a distant past. The Irish budget deficit—which three years ago was a surplus—is now 32 percent of its G.D.P., the highest by far in the history of the Eurozone. One credit-analysis firm has judged Ireland the third-most-likely country to default. Not quite as risky for the global investor as Venezuela, but riskier than Iraq. Distinctly Third World, in any case.

Continued in article

"Their Own Private Europe," by Paul Krugman, The New York Times, January 27, 2011 ---

President Obama’s State of the Union address was a ho-hum affair. But the official Republican response, from Representative Paul Ryan, was really interesting. And I don’t mean that in a good way.

. . .

On the eve of the financial crisis, conservatives had nothing but praise for Ireland, a low-tax, low-spending country by European standards. The Heritage Foundation’s Index of Economic Freedom ranked it above every other Western nation. In 2006, George Osborne, now Britain’s chancellor of the Exchequer, declared Ireland “a shining example of the art of the possible in long-term economic policy making.” And the truth was that in 2006-2007 Ireland was running a budget surplus, and had one of the lowest debt levels in the advanced world.

¶ So what went wrong? The answer is: out-of-control banks; Irish banks ran wild during the good years, creating a huge property bubble. When the bubble burst, revenue collapsed, causing the deficit to surge, while public debt exploded because the government ended up taking over bank debts. And harsh spending cuts, while they have led to huge job losses, have failed to restore confidence.

Continued in article¶

Jensen Comment
I'm not a fan of Nobel Laureate Paul Krugman and his lack of concern for multi-trillion dollar deficits and movement toward a time when interest on the debt will be bigger than all other U.S. budget items combined (except for Medicare), but this time I think he does have a point. Deficits are not the cause of Ireland's high unemployment and economic collapse. The blame lies at the foot of its banks helping to create the biggest (relative to population) real estate bubble in the western world.

Bob Jensen's threads on bankers that are rotten to the core ---

Bob Jensen's threads on the bailout mess ---

"I Can Balance the Budget," by John Stossel, Townhall, February 2, 2011 ---

The Congressional Budget Office says the current year's budget deficit will be a record $1.5 trillion. It also says that over the next decade we're on track for annual deficits of "only" $768 billion. I suspect the CBO has hired Rosy Scenario to do the bookkeeping, but let's take that number at face value.

I'm now going to balance the budget, with the help of some experts.

I'll begin with things I'm most eager to cut. Let's privatize air traffic control. Canada did it, and it works better. Then privatize Amtrak. Get rid of all subsidies for rail. That'll save $12 billion.

End subsidies for public broadcasting, like NPR. Cancel the Small Business Administration. Repeal the Davis-Bacon rules under which the government pays union-set wages to workers on federal construction projects. Cut foreign aid by half (although we should probably get rid of all of it). So far, that's $20 billion.

Oops. That doesn't dent the deficit. We have to do much more.

So eliminate the U.S. Education Department. We'd save $94 billion. Federal involvement doesn't improve education. It gets in the way.

Agriculture subsidies cost us $30 billion a year. Let's get rid of them. They distort the economy. We should also eliminate Housing and Urban Development. That's $53 billion more.

Who needs the Energy Department and its $20 billion sinkhole? The free market should determine energy investments.

And let's end the war on drugs. In effect, it's a $47 billion subsidy for thugs in the black market.

I've already cut more than six times more than President Obama proposed in his State of the Union address. His freeze of nondefense discretionary spending would save only $40 billion.

But my cuts still total only $246 billion. If we're going to get rid of the rest of the CBO's projected deficit, we must attack the "untouchable" parts of the budget, starting with Social Security. Raising the retirement age and indexing benefits to inflation would save $93 billion. I'd save more by privatizing Social Security, but our progressive friends won't like that, so for now I'll ignore privatization.

The biggest budget busters are Medicare and Medicaid, and get this: the 400 subsidy programs run by HHS. Assuming I take just two-thirds of the Cato Institute's suggested cuts, that saves $281 billion.


"Curt Olds, the Lord High Executioner," by James Taranto, The Wall Street Journal's Best of the Web Newsletter, January 28, 2011

For some perspective on the recent "debate" over "civility" and "eliminationist rhetoric," let's turn to Montana, home of the Missoula Children's Theater. A recent production there gets a bad review today in a letter to the editor of the Missoulian, the local daily:

Open letter to MCT director Curt Olds:
First I would like to compliment you and the entire staff of "The Mikado" on the beautiful sets, costuming and professional performance we experienced on Sunday, Jan. 23. However, I must call you on something that was inserted into the play which I am almost positive was not in the original book.
The comments made in such a cavalier and oh-so-humorous way were uncalled for. Now, I realize you play to a mostly liberal audience in Missoula and so, I am sure, felt comfortable in your calling for the beheading of Sarah Palin. I am painfully aware that most in the audience tittered with laughter and clapped because "no one would miss her" but there were some in your audience who took great offense to this "uncivil tone" about another human being.
We are in the midst of a crisis that took place in Tucson where many started pointing fingers at that horrible right wing with all their hatred and targeting and standing for the second amendment and on and on and on. So, here we are in a lovely play with beautiful voices serenading us and we have to hear that it is okay to call for the killing of Sarah Palin because we don't like her and no one would miss her. Unbelievable.
As a professional you should be ashamed of yourself, the audience should be ashamed of themselves and I am ashamed of myself for not standing up and leaving at that very moment. I would like to see an apology from you not because I want to hinder free-speech but for the hypocrisy this so clearly shows.
Rory Page,

Jensen Comment
There's been a lot of that going around before and after the Tucson tragedy. Actually a bigger bounty has been placed on the head of Dick Cheney by progressive hypocrites.

"How Public Unions Took Taxpayers Hostage:  The first to seize on the political potential of government workers was New York's Mayor Robert F. Wagner. The Kennedy White House took notice of his success," by Fred Siegel, The Wall Street Journal, January 25, 2011 ---

The turbulent years of the 1960s and '70s are best known by the headline-grabbing civil rights and women's rights movements. But there was another "rights" movement, largely overlooked, that has also had a profound effect on American life. The looming public-pension crisis that threatens to bankrupt city, county and state governments had its origins in those same years when public employees, already protected by civil-service rules, gained the right to bargain collectively.

Liberals were once skeptical of public-sector unionism. In the 1930s, New York Mayor Fiorello LaGuardia warned against it as an infringement on democratic freedoms that threatened the ability of government to represent the broad needs of the citizenry. And in a 1937 letter to the head of an organization of federal workers, FDR noted that "a strike of public employees manifests nothing less than an intent on their part to prevent or obstruct the operations of Government until their demands are satisfied. Such action, looking toward the paralysis of Government by those who have sworn to support it, is unthinkable and intolerable."

Private-sector union leaders were also divided. George Meany, the president of the AFL-CIO from 1955-1979 who came out of the building trades, argued that it was "impossible to bargain collectively with the government." Private unionists more generally worried that rather than winning a greater share of profits, public-sector labor would be extracting taxes from a public that included their own workers. But in the late 1950s, with the failure of the labor movement's organizing campaign in the South, Meany's own executive council insisted on the necessity of winning the right to organize public employees.

The first to seize on the political potential of government workers was New York City Mayor Robert F. Wagner. The mayor's father, a prominent New Deal senator, had authored the landmark 1935 Wagner Act, which imposed on private employers the legal duty to bargain collectively with the properly elected union representatives of their employees. Mayor Wagner, prodded by Jerry Wurf of the American Federation of State, County and Municipal Employees (Afscme), gave city workers the right to bargain collectively in 1958.

Running for re-election in 1961, Mayor Wagner was opposed by the old-line party bosses of all five boroughs. He turned to a new force, the public-sector unions, as his political machine. His re-election resonated at the Kennedy White House, which had won office by only the narrowest of margins in 1960.

Ten weeks after Wagner's victory, Kennedy looked to mobilize public-sector workers as a new source of Democratic Party political support. In mid-January 1962, he issued Executive Order 10988, which gave federal workers the right to organize in unions.

Two young and militant public-sector unionists, Al Shanker of the American Federation of Teachers and Wurf of Afscme, both strong supporters of the still nascent civil rights movement, seized the opportunity. Shanker saw both teachers and African-Americans as second-class citizens fighting the old-line political bosses. He'd also called a brief teachers strike in 1960. Shanker called another strike in 1962 that shifted the balance of power from principals to teachers, where it has remained down to the present.

In 1958, there had been but 15 public-employee strikes nationwide, involving a handful of workers. By 1968, after the old guard in Afscme had been deposed by the so-called young Turks led by Wurf, more than 200,000 union members, mostly in local and state government, were involved in 254 strikes.

In 1968, amid rioting, civil rights and antiwar protests, Martin Luther King Jr. backed an Afscme strike by poorly paid, mostly African-American sanitation men in Memphis, Tenn. After King's tragic assassination, the city quickly settled with the union.

In the 1970s, government-worker unions became a political venue for New Leftist, feminist and black activists hoping to carry on in the militant spirit of the 1960s. The divisions within organized labor over the Vietnam War allowed Wurf and his allies to take on the declining private unions of the AFL-CIO, whose leader Meany backed the war. Wurf made himself a key player in George McGovern's 1972 presidential campaign, and public employees have had a lead role in Democratic Party politics ever since.

Public-employee unionism seemed to be moving from success to success—Afscme was gaining a thousand (mostly female) workers a week—until the summer of 1975. At that point there was a surge in strikes, and the government unions began to threaten Democratic officeholders.

On July 1, 1975, New York sanitation workers walked off the job, allowing garbage to pile up in the streets of a Gotham already in the throes of fiscal crisis. In short order, cops objecting to furloughs imposed by the city's liberal Democratic Mayor Abe Beame shut down the Manhattan side of the Brooklyn Bridge, with marchers carrying signs that read "Cops Out, Crime In" and "Burn City Burn."

On that same July 1, 76,000 Pennsylvania state workers went on strike against liberal Democratic Gov. Milton Shapp's austerity measures. Afscme's leader in Pennsylvania, Gerald MacIntee, told his members "Let's go out and close down this God-damned state." And in Seattle, the fireman's union initiated a recall ballot on July 1 directed against the one-time union favorite, Mayor Wes Uhlman, who held back pay hikes in the midst of rising deficits.

Mr. Uhlman narrowly survived and he, like Beame and Shapp, calmed the situation by largely caving in to the striker's demands. But a line had been crossed: With New York's near-bankruptcy a visible marker, the peril posed by public-sector unionism became a problem for Democrats as well as Republicans.

The fiscal burden of public-employee unions briefly became visible again in the early '80s, when many warned of a looming public-pension crisis. That crisis was averted by the stock market boom that began in 1982-83 and lasted until 2007-08. It is now back with a vengeance.

Restraining the immense clout that government-employee unions have accumulated over the past half-century will be difficult, but not impossible. Civil rights for African-Americans and women was a fulfillment of the universalist American promise as expressed in the Declaration of Independence. Collective bargaining by public employees was not rooted in deep-seated American tradition.

Instead, the decision to grant this privilege was a political decision designed to enhance the power of a pressure group whose interests, even many liberals assumed, would be at odds with those of the general public. Political decisions can be reversed.

Mr. Siegel is a scholar in residence at St. Francis College and a senior fellow at the Manhattan Institute.


How much of the OBSF blame falls on the accounting profession?

"Public Pension Hygiene Act:  The first reform step is exposing the true size of the funding hole," The Wall Street Journal, January 22, 2011 ---

We're so accustomed to misnamed legislation like the Employee Free Choice Act (card check) that it's hard to believe that a welcome proposal called the Public Employee Pension Transparency Act describes what it actually purports to do. To wit, prohibit public pension bailouts by the federal government and expose the $3.5 trillion of unfunded public pension liabilities that local and state governments have obscured.

Most state and local governments currently use their own estimated rate of return on their investments to discount their liabilities. By projecting unrealistically high rates of return, states minimize their unfunded liabilities, at least on paper. Lower unfunded liabilities in turn allow them to reduce how much they and public employees must contribute to their pension funds. Inflated investment assumptions are one reason that public pension funds are unfunded to the tune of $3.5 trillion.

Public pensions typically assume an 8% annual return on average, but over the past five years state pension funds with more than $5 billion in assets have earned only 4.5%. Taxpayers must make up the difference between what the funds earn and what they need to pay retirees. For Californians that is roughly $5 billion this year.

Local taxpayers are already seeing their services whacked and taxes raised to fill these pension holes. University of California students will have to pony up 8% more next year for tuition to offset an expected $500 million in state budget cuts. Illinois residents will soon pay 67% more in income taxes, but taxpayers won't feel the full brunt for another decade when the funds begin running out of money. When Chicago's pension fund goes dry around 2019, over half of the city's revenue will be dedicated to pensions.

In the 1950s and 1960s, many private employers obscured their liabilities the way governments are doing today, though they didn't have a public backstop. Many funds went broke. In 1974 Congress established minimum funding requirements and penalized companies that underfunded pensions. The law also required companies to report and discount their liabilities using a more conservative rate of return.

These changes exploded liabilities and prompted many companies to switch from defined-benefit plans to defined-contribution plans like 401(k)s. While a majority of private workers now have defined-contribution plans, defined-benefit plans remain the norm in government.

Enter the Public Employee Pension Transparency Act, which is sponsored by House Republicans Devin Nunes and Darrell Issa of California and Wisconsin's Paul Ryan. Their bill would encourage governments to switch to defined-contribution plans by revealing the true magnitude of their unfunded liabilities. States and municipalities would have to report their liabilities to the U.S. Treasury using their own rosy investment forecasts as well as a more realistic Treasury bond rate (to be determined by a formula).

This data would make clear how much taxpayers potentially owe and increase pressure on lawmakers to fix their plans. For instance, Illinois estimated in 2009 that it had a roughly $85 billion unfunded liability. Using a Treasury discount rate, that unfunded liability balloons to $167 billion.

Out of respect for state sovereignty, the federal government shouldn't and can't tell local governments how to run or fund their pensions. But the bill doesn't do so and it also doesn't force states to fund their plans using a lower discount rate. States don't even have to comply with the law, though they would forego their ability to sell federally subsidized, tax-exempt bonds if they don't.

The bill may not persuade states like Illinois and California to revamp their pensions, but it will reveal how broken they are—and that's a start.

Bob Jensen's threads on the sad state of government accounting and accountability ---

From The Wall Street Journal Accounting Weekly Review on July 10, 2009

Public Pensions Cook the Books
by Andrew G. Biggs
The Wall Street Journal

Jul 06, 2009
Click here to view the full article on WSJ.com

TOPICS: Advanced Financial Accounting, Financial Accounting Standards Board, Governmental Accounting, Market-Value Approach, Pension Accounting

SUMMARY: As Mr. Biggs, a resident scholar at the American Enterprise Institute, puts it, "public employee pension plans are plagued by overgenerous benefits, chronic underfunding, and now trillion dollar stock-market losses. Based on their preferred accounting methods...these plans are underfunded nationally by around $310 billion. [But] the numbers are worse using market valuation methods...which discount benefit liabilities at lower interest rates...."

CLASSROOM APPLICATION: Introducing the importance of interest rate assumptions, and the accounting itself, for pension plans can be accomplished with this article.

1. (Introductory) Summarize the accounting for pension plans, including the process for determining pension liabilities, the funded status of a pension plan, pension expense, the use of a discount rate, the use of an expected rate of return. You may base your answer on the process used by corporations rather than governmental entities.

2. (Advanced) Based on the discussion in the article, what is the difference between accounting for pension plans by U.S. corporations following FASB requirements and governmental entities following GASB guidance?

3. (Introductory) What did the administrators of the Montana Public Employees' Retirement Board and the Montana Teachers' Retirement System include in their advertisements to hire new actuaries?

4. (Advanced) What is the concern with using the "expected return" on plan assets as the rate to discount future benefits rather than using a low, risk free rate of return for this calculation? In your answer, comment on the author's statement that "future benefits are considered to be riskless" and the impact that assessment should have on the choice of a discount rate.

5. (Advanced) What is the response by public pension officers regarding differences between their plans and those of corporate entities? How do they argue this leads to differences in required accounting? Do you agree or disagree with this position? Support your assessment.

Reviewed By: Judy Beckman, University of Rhode Island


"Public Pensions Cook the Books:  Some plans want to hide the truth from taxpayers," by Andrew Biggs, The Wall Street Journal, July 6, 2009 --- http://online.wsj.com/article/SB124683573382697889.html

Here's a dilemma: You manage a public employee pension plan and your actuary tells you it is significantly underfunded. You don't want to raise contributions. Cutting benefits is out of the question. To be honest, you'd really rather not even admit there's a problem, lest taxpayers get upset.

What to do? For the administrators of two Montana pension plans, the answer is obvious: Get a new actuary. Or at least that's the essence of the managers' recent solicitations for actuarial services, which warn that actuaries who favor reporting the full market value of pension liabilities probably shouldn't bother applying.

Public employee pension plans are plagued by overgenerous benefits, chronic underfunding, and now trillion dollar stock-market losses. Based on their preferred accounting methods -- which discount future liabilities based on high but uncertain returns projected for investments -- these plans are underfunded nationally by around $310 billion.

The numbers are worse using market valuation methods (the methods private-sector plans must use), which discount benefit liabilities at lower interest rates to reflect the chance that the expected returns won't be realized. Using that method, University of Chicago economists Robert Novy-Marx and Joshua Rauh calculate that, even prior to the market collapse, public pensions were actually short by nearly $2 trillion. That's nearly $87,000 per plan participant. With employee benefits guaranteed by law and sometimes even by state constitutions, it's likely these gargantuan shortfalls will have to be borne by unsuspecting taxpayers.

Some public pension administrators have a strategy, though: Keep taxpayers unsuspecting. The Montana Public Employees' Retirement Board and the Montana Teachers' Retirement System declare in a recent solicitation for actuarial services that "If the Primary Actuary or the Actuarial Firm supports [market valuation] for public pension plans, their proposal may be disqualified from further consideration."

Scott Miller, legal counsel of the Montana Public Employees Board, was more straightforward: "The point is we aren't interested in bringing in an actuary to pressure the board to adopt market value of liabilities theory."

While corporate pension funds are required by law to use low, risk-adjusted discount rates to calculate the market value of their liabilities, public employee pensions are not. However, financial economists are united in believing that market-based techniques for valuing private sector investments should also be applied to public pensions.

Because the power of compound interest is so strong, discounting future benefit costs using a pension plan's high expected return rather than a low riskless return can significantly reduce the plan's measured funding shortfall. But it does so only by ignoring risk. The expected return implies only the "expectation" -- meaning, at least a 50% chance, not a guarantee -- that the plan's assets will be sufficient to meet its liabilities. But when future benefits are considered to be riskless by plan participants and have been ruled to be so by state courts, a 51% chance that the returns will actually be there when they are needed hardly constitutes full funding.

Public pension administrators argue that government plans fundamentally differ from private sector pensions, since the government cannot go out of business. Even so, the only true advantage public pensions have over private plans is the ability to raise taxes. But as the Congressional Budget Office has pointed out in 2004, "The government does not have a capacity to bear risk on its own" -- rather, government merely redistributes risk between taxpayers and beneficiaries, present and future.

Market valuation makes the costs of these potential tax increases explicit, while the public pension administrators' approach, which obscures the possibility that the investment returns won't achieve their goals, leaves taxpayers in the dark.

For these reasons, the Public Interest Committee of the American Academy of Actuaries recently stated, "it is in the public interest for retirement plans to disclose consistent measures of the economic value of plan assets and liabilities in order to provide the benefits promised by plan sponsors."

Nevertheless, the National Association of State Retirement Administrators, an umbrella group representing government employee pension funds, effectively wants other public plans to take the same low road that the two Montana plans want to take. It argues against reporting the market valuation of pension shortfalls. But the association's objections seem less against market valuation itself than against the fact that higher reported underfunding "could encourage public sector plan sponsors to abandon their traditional pension plans in lieu of defined contribution plans."

The Government Accounting Standards Board, which sets guidelines for public pension reporting, does not currently call for reporting the market value of public pension liabilities. The board announced last year a review of its position regarding market valuation but says the review may not be completed until 2013.

This is too long for state taxpayers to wait to find out how many trillions they owe.

Bob Jensen's threads on the sad state of government accounting and accountability ---

"Will the Republicans Cut Government This Time? It's time for the GOP to walk the walk," by John Stossel, Reason Magazine, January 20, 2011 ---

The Republicans promise less intrusive, less expensive government. But will they deliver? In the past, they have said they would shrink the state, but then they came into power and spent more. Consider George W. Bush's eight horrendous years: The budget grew 89 percent—from $1.86 trillion to $3.52 trillion.

Two Republican House members, Scott Garrett of New Jersey, No. 2 on the budget committee, and Bill Huizenga, a freshman from Michigan, say that they really mean to cut.

"I sure plan to," Garrett said.

I asked him to name three things he'd cut.

He paused for a beat, then said, "We spend about a million dollars for mohair subsidies. We need to eliminate that." We sure do. The subsidies were created to make sure America had enough mohair for soldiers' uniforms during World War I. Yet even though uniforms are no longer made of mohair, my former colleague Sam Donaldson collected subsidies because he once raised sheep and goats on his New Mexico ranch. All farm subsidies are a disgusting scam. Get rid of them.

But the mohair scam is a million bucks. It's nothing.

"So let's go up larger then," said Garrett. "How about foreign aid? (C)ut that out, and you would save around $1.3 billion. Right now, we basically pay federal employees ... who are parts of a union to engage in union activity. How about eliminating those dollars? ... (S)ave about $1.2 billion.

"We have come up with a list of over some $2 trillion."

The ones Garrett named, however, are less than 1 percent of $2 trillion. I understand their reluctance to mention the big stuff, given the political opposition, but when will politicians bite that bullet? They need to!

I'm glad the House leadership has talked about cutting spending back to 2008 budget levels. Garrett said: "Some of us would say let's roll it back even further—to '07 or '06 levels."

Why not? Why not cut back to the first Bush budget, in 2002, before his spending orgy? I never got a clear answer to that. "Let's figure out what constitutionally we must be doing and where we have started coloring way outside the lines," Huizenga suggested. "Two, are (programs) being effective? ... If they are, fund them. If they're not, let's de-fund them."

The Republicans' promised spending cuts are directed at "nondefense discretionary" spending. Fine. Cut that. But "nondefense discretionary" spending is just 15 percent of the budget. The Republicans' pledge leaves out the big stuff: Social Security, Medicare, Medicaid, and what the government calls defense. That's where the big money is.

"Exactly," Garrett said. You could eliminate all nondefense discretionary spending, and you wouldn't solve the problem. You have to go a lot further than that, and that's why we have to touch those other areas."

I pointed out that I don't hear much talk about that.

"Some of us talk about it. You have to touch on each one of these areas and until the American public is cognizant ... that we have to have shared sacrifice."

"The UAW's Next Act Saved by Washington, the union wants to write its own labor laws," The Wall Street Journal, January 24, 2011 ---

The top priority for the United Auto Workers this year is to organize one of the foreign, or so-called "transplant," car makers. That makes perfect sense—for the UAW. Their rich labor contracts and stifling work rules helped bring low Detroit's Big Three, so the union needs new dues-paying members.

We've long believed companies get the unions they deserve, but in this case it's worth noting that the UAW isn't confident enough to play by normal labor-organizing rules. New UAW chief Bob King has set out 11 "principles" that he says car makers must embrace or the UAW will "expose" them as "human rights violators." Yes, like dictatorships.

This is no idle intimidation, especially with the union's political allies manning key labor jobs in Washington. The threat is also backed with at least $60 million from the union's $800 million strike fund. With fewer than 400,000 members, down from 1.5 million in 1979, the union can afford to raid that fund since it isn't likely to strike the weakened GM, Ford or Chrysler anytime soon.

Mr. King's principles start by repeating the well-established ban on employer intimidation for union activity, but then go much further. He also wants car makers to give up their right to discuss unionization on company grounds "unless the UAW is invited to participate." In effect, the UAW wants companies to give up their right to free speech even in their own workplaces. Meanwhile, unions are free to visit employee homes whenever they wish.

The union chief is also demanding that "an impartial, third party" resolve "any disagreements" over the conduct of the organizing campaign. The National Labor Relations Board currently plays this role, but the UAW seems to want companies to agree to a separate judicial body and waive their rights under the law.

Last but not least audaciously, Mr. King sneaks in unionization by "card check." Not even the last Congress's Democratic supermajority passed this Big Labor priority. But the UAW principles commit companies to unionize if a majority of workers sign union cards, forgoing a secret ballot election. All the UAW would have to do to allow card check is claim a "history of anti-union activities" at the target company. It would also oblige arbitration on a first labor contract, if six months after a union is formed the two sides can't agree. This was also part of the card check bill that died quietly last year.

The UAW is making these demands because it knows how hard it will be to organize the 88,000 or so workers at Nissan, Honda, Toyota, Mercedes-Benz and other foreign-owned plants. The union has tried and failed before, most notably in its repeated attempts to organize Nissan's plant in Smyrna, Tennessee and Toyota's in Georgetown, Kentucky. These companies have for the most part built plants in business-friendly Southern states and showed employees that a nonunion job paid on par with UAW wages is better over the long term than a union presence that makes the company uncompetitive.

The UAW hasn't announced its first target, which might be the politically vulnerable Toyota or a new arrival like Kia or VW. The political campaign is already under way, and last week the UAW sent a thousand members to lobby Congress for support.

As much as GM and Chrysler, the UAW was also bailed out by the Bush and Obama Administrations in 2008-2009. And Mr. King's principles do acknowledge that the union should learn from that failure and build "relations with employers based upon a foundation of respect, shared goals and a common mission." But you wouldn't know that from the bullying way it has begun its latest organizing campaign.

Jensen Comment
Amidst all the furor, GM is at this moment building a new engine factory --- in Mexico.

"The Great Fannie and Freddie Rip-Off:  The GSEs' common shareholders need to organize and make their voices heard in Congress," by Ralph Nadar, The Wall Street Journal, January 26, 2011 ---

For decades Fannie and Freddie behaved like other large, publicly held financial corporations. They were profit-seeking companies, listed on the New York Stock Exchange (NYSE). They displayed an unfettered drive for greater sales, profits, executive bonuses and stock options for the top brass. Their shareholders received dividends and rising stock values.

These so-called government sponsored enterprises (GSEs) dominated the secondary mortgage market. The implied government backstop slightly lowered their borrowing costs in return for a poorly enforced obligation to facilitate a mortgage market for lower-income home buyers. Otherwise, the GSE moniker meant little, since everybody knew that, like Citigroup, Goldman Sachs and other Wall Street giants, Washington viewed them as "too big to fail."

With the onset of the subprime mortgage collapse, Fannie and Freddie went down with the rest of the financial industry. The federal government moved into high bailout gear during the latter half of 2008 with three distinct rescue models for Wall Street and Detroit.

One model provided capital and credit lines to Bank of America, Citigroup, Morgan Stanley, J.P. Morgan Chase and AIG, leaving their shareholders beaten down but intact to start recovering value.

The second model dispatched General Motors into a well-orchestrated, stunningly quick bankruptcy process. While the bankruptcy court treated the common shareholders like flotsam and jetsam, GM emerged well subsidized and tax-privileged with a clean balance sheet under temporary ownership by the U.S. and Canadian governments and the United Auto Workers.

The third model placed Fannie and Freddie under an indeterminate conservatorship scheme that kept but abused its common shareholders, who had already lost up to 99% of their investment. Neither vanquished nor given an opportunity to recover, the institutional and individual shareholders are trapped in limbo.

Here is how the scheme congealed. In return for providing an open credit line, the government received warrants to buy up to 79.9% of the GSEs' common stock for $0.00001 per share. The government's share stayed under 80% to avoid forcing the liabilities of these two behemoths onto the government's books. Treasury achieved this by having the common shareholders nominally own the other 20%.

Here's the rub: The zombie common shareholders have no rights or remedies against Fannie and Freddie, both operationally active companies, or their regulator—the Federal Housing Finance Agency. FHFA ordered the Fannie and Freddie boards and executives to suspend communications with shareholders and abolish the annual stockholders meeting.

In 2008, then-Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke told Fannie and Freddie investors that the companies "are adequately capitalized." Moreover, another regulator, the Office of Federal Housing Enterprise Oversight (Ofheo), assured investors—including many mutual funds, pension trusts and small banks—of the soundness of their investment.

Fannie Mae's then-Senior Vice President Chuck Greener, backed by his then-CEO Daniel Mudd, said, "We are maintaining a strong capital base, building reserves for credit losses and generating solid reserves as our business continues to serve the market." That was on July 11, 2008.

These former officials (both have since left Fannie Mae) should have known better. On Sept. 8, 2008, when Treasury announced the conservatorship, the GSEs' common stock dropped to pennies and the shareholders realized they were misled.

Such statements by private executives controlling a publicly traded corporation should have prompted a Securities and Exchange Commission investigation. Such was the betrayal of trust of investors who were told for years that putting their money in these GSEs was second only to investing in Treasury bonds.

Still, some faithful shareholders, including me, held on, believing that they might have a chance to recover something—as did their counterparts in Citigroup, AIG and the rest of the rescued.

Then came the cruelest and most unnecessary diktat of all. On June 16, 2010, the FHFA directed Fannie and Freddie to delist their common and preferred stock from the NYSE. The exchange did not demand this move. True, Fannie had dropped slightly below the $1 per share threshold stipulated by NYSE rules, but the Big Board is quite flexible with time either to get back over $1 or to allow companies to offer a reverse stock split. Freddie was comfortably over the $1 level. Why delist with one irresponsible stroke of the government's pen and destroy billions of dollars of remaining shareholder value? This move took the shares down to the range of 30 cents, chasing away many institutional holders.

Continued in article

Bob Jensen's Fraud Updates are at

Bob Jensen's threads on bailout frauds are at

"Why Finland's schools are the best in the West," by Robert Smol, CBC News (Canada), January 22, 2011 ---

In what's often called the real world, successful businesses are those that encourage their best employees, respond effectively to their clients needs and invest continually in their programs and infrastructure.

But does the same hold true when we talk about public education and substitute students for clients and teachers for employees?

As far as I'm concerned, yes. But don't take my word for it. Just look at Finland.

Over the past decade its public education system has consistently been ranked as one of the best in the world, particularly so among Western democracies, in terms of student success.

Its main qualities? A public education noted for its highly educated teachers, innovative student-centered learning and decentralized management.

In the international student achievement surveys, carried out for the Organization for Economic Cooperation and Development, Finland has almost consistently remained in the top four rankings in all three assessment categories: reading, math and science.

The only exception was the most recent 2009 survey where Finland fell to sixth place in math. But that has more to do with other, in this case Asian, countries upping their scores than the Finns falling behind.

Yes, Canada has fared pretty well, too, in some of these rankings, particularly when you focus on the results from Ontario, B.C. and Alberta.

But another no less important testament to Finland's success is how little the test scores differed among its disparate schools. The results by school were the most consistent among the systems that were studied.

Clearly, Finland's public school system is doing something right and any country interested in improving its own might want to take a serious look.

 Higher standards

One obvious reason for Finland's success is the high educational standards for its teachers.

In Finland, a master's degree is required to be a teacher at any level, including the primary grades.

Global rankings

The Paris-based OECD surveyed the reading, science and math performance of half a million students from more than 70 countries, employing a two-hour pencil-and-paper test. A difference of 40 points is roughly equivalent to a year of schooling.

Here are the top 10 rankings and scores for reading:

Shanghai province (China), 556 Korea, 539 Finland, 536 Hong Kong, 533 Singapore, 526 Canada, 524 New Zealand, 521 Japan, 520 Australia, 515 Netherlands, 508

Here in Ontario, I receive a monetary stipend for my master's degree; in Finland I would have to have that same post-graduate certificate just to be considered for the job.

There, though, the higher requirement is more attainable in that all post-secondary education is tuition free.

Another distinctive hallmark of the Finnish system is the high level of autonomy given to municipal boards and school administrators.

In Finland, schools and courses are primarily organized around the needs and wants of the specific community that they serve.

"The state grant is not divided into specific amounts for salaries, labs, instruments, books or whatever — it is a lump sum and the school authorities can use it as they like," says Reijo Aholainen, a spokesperson for the Finnish ministry of education.

"You have to follow the national core curriculum but how you do it, whether you want more teachers or more computers, is a local decision on the part of the school board." Less time in the classroom

Although they consistently hover near the top of the international rankings, Finnish students overall spend the lowest amount of time actually in the classroom when compared to other OECD countries.

This is especially true for students age 9-11, where the Finns spend 640 hours in class over a school year as opposed to 810 hours on average for the OECD countries.

In Finland there is no formal kindergarten as we know it although pre-primary programs are almost universally attended.

Students in Finland begin their compulsory education in Grade 1 where the usual intake age is seven. This would appear to challenge the belief held by many of my generation that the sooner you start formally teaching kids, the smarter they will become.

What's more, Finland's primary, middle and upper secondary school classes are typically organized in 45-minute blocks, with each one followed by a 15-minute recess.

If these teaching blocks need to be merged, say for high school science labs, then the free time is added to that as well.

Let's put this in a Canadian context. Here in my high school near Toronto, students typically take four 75-minute classes with only five minutes between classes and a 40-minute lunch Certainly not much time to recharge. Consumer choice

Another surprise about the Finnish system, particularly given its high test scores, is that school is only compulsory up to the end of Grade 9.

Not surprisingly, the overwhelming majority of Finnish teens (over 95 per cent) apply to go on to upper-secondary school. But the key word here is apply, which means that the student is making a personal choice to continue learning. In my view, it is foolhardy to force those teens who clearly have no interest in learning to remain in school until they are 18, as we do here in Ontario. Believe me, I know!

But the truly impressive part of the Finnish system is the clear choice of educational streams that students have should they choose to continue on.

Of the more than 95 per cent who stay in school, roughly 38 per cent move on to the separate vocational high schools, which offer a more hands-on, workplace-focused system of instruction, designed to set them up for further post-secondary education in the field of their choice.

Over here, technology or shop courses are often seen, even at the institutional level, as "dumping grounds."

In Finland, on the other hand, non-academically inclined students are, at least from an institutional perspective, given a clear, parallel and respectable educational choice.

Can we (in Canada) duplicate this?

Can we learn some things from Finland? Absolutely! But can we import it and expand it in Canada? I doubt that very much.

For the most part, we are still in survival mode here in Canada when it comes to public education. To think of finding money to expand the system and pay for more highly qualified teachers is the stuff of dreams.

Continued in article

Jensen Comment
Actually New York City schools are better since over 90% students are assigned A mostly A grades by union teachers. How much better can you get when the kids can earn these grades without even attending class?

If a student doesn’t come to school,” he continued, “how can you justify passing that kid?
 Fernanda Santos

"Bronx School’s Top Ranking Stirs Wider Doubts About Rating System," by Fernanda Santos, The New York Times, January 20, 2011 ---

One of the trademarks of New York City’s school accountability system is an equation that assigns every school a letter grade, A through F, based on a numerical score from 1 to 100.

Bronx School’s Top Ranking Stirs Wider Doubts About Rating System By FERNANDA SANTOS Published: January 20, 2011

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One of the trademarks of New York City’s school accountability system is an equation that assigns every school a letter grade, A through F, based on a numerical score from 1 to 100. Enlarge This Image Marcus Yam for The New York Times

Lynn Passarella, facing camera, the principal of the Theater Arts Production Company School, outside the school on Thursday. She declined to comment on the allegations about her school’s grading practices.

A parent pulling up the latest report card for the Theater Arts Production Company School in the Bronx would find that it earned the score of 106.3 (including extra credit).

But that very empiric-sounding number, which was the highest of any high school in the city, is based in part on subjective measures like “academic expectations” and “engagement,” as measured by voluntary parent, teacher and student surveys.

And, according to some teachers at the school, even the more tangible factors in the score — graduation rates and credits earned by students — were not to be taken at face value. The school has a policy that no student who showed up for class should fail, and even some who missed many days of school were still allowed to pass and graduate.

The Department of Education, which revealed on Wednesday that it was investigating grading practices at the school, says that it has a team devoted to analyzing school statistics every year and looking for red flags like abnormal increases in student scores or dropout rates. But a department official said that nothing in its data had raised suspicions about the school, known as Tapco, until a whistle-blower filed a complaint in October.

Still, in a data-driven system where letter grades can determine a school’s fate, one big question looms over the investigation: If the allegations turn out to be true, are they an exception or a sign of a major fault in the school accountability system?

“The D.O.E. has absolutely created a climate for these types of scandals to happen,” Michael Mulgrew, the president of the teachers’ union, said in an interview. “Their culture of ‘measure everything and question nothing a principal tells you’ makes it hard to figure out what’s real and what’s not real inside a school.”

There are many gradations of impropriety, and it is unclear if any of them apply to Tapco, which has about 500 students and also includes a middle school. The school’s teacher handbook states that no student should fail a class if he or she regularly attends, and that students who miss work should be given “multiple opportunities for student success and work revision.”

Current and former teachers at the school said that even students who were regularly absent were given passing grades, in some cases with course credits granted by the principal without a teacher’s knowledge. Some students’ records showed credits for courses the school did not offer.

The investigation over the irregularities at Tapco, which began in October, also include allegations that the school’s principal, Lynn Passarella, manipulated teacher and parent surveys, which represent 10 of the 100 points in a school’s score. Graduation rates, passing rates on Regents exams and earned credits constitute most of the score.

Ms. Passarella declined to comment on the allegations.

A spokesman for the Education Department, Matthew Mittenthal, said: “We take every allegation of misconduct seriously, and hope that the public can reserve judgment until the investigation is complete.”

Sometimes, the analysts who pore over the data uncover serious problems. Last year, the Education Department lowered the overall scores of three high schools. At Jamaica High School in Queens, the department discovered that the school had improperly granted credit to some transfer students. At John F. Kennedy High School in the Bronx and W. H. Maxwell Career and Technical Education High School in Brooklyn, administrators could not provide documentation to explain why some students had left the schools.

Since 2008, at least four principals and assistant principals have been reprimanded — two retired, one served a 30-day unpaid suspension and another paid a $6,500 fine — on charges that included tampering with tests.

Principals can get as much as $25,000 in bonuses if their schools meet or exceed performance targets, and some experts are skeptical that the department’s system of checks and balances is as trustworthy as it should be, particularly when money is at stake.

Tapco’s administrators got a bonus once, for the 2008-9 school year, when the high school’s overall score was 85.8, which earned it an A. (The middle school scored 73.) Ms. Passarella received $7,000, while her assistant principals got $3,500 each, according to the Education Department. (Administrator bonuses for 2009-10 performance have not been doled out.)

“There’s an inherent temptation towards corruption when you create a situation where there are rewards for things like higher test scores or favorable surveys,” said Sol Stern, an education researcher at the Manhattan Institute, a conservative research group. “It’s an invitation to cheating.”

One mother, Cathy Joyner, whose daughter, Sapphire Connor, is a junior, said the school was excellent, adding that “the children are respectful” and that the school was “concentrating on their talents.”

But one teacher, who spoke on condition of anonymity because he said he feared for his job, gave a different account. For teachers who do not do what the principal wants, the teacher said, “it’s difficult to get tenure.”

“If a student doesn’t come to school,” he continued, “how can you justify passing that kid?"

Wow:  97% of Elementary NYC Public Students Get A or B Grades --- There must be higher IQ in the water!
"City Schools May Get Fewer A’s," by Jennifer Medina, The New York Times, January 28, 2010 ---

Michael Mulgrew, the president of the United Federation of Teachers, criticized the decision to reduce the number of schools that receive top grades.

Continued in article

Bob Jensen's threads on assessment are at

"What Caused the Bubble? Mission accomplished: Phil Angelides succeeds in not upsetting the politicians," by Holman W, Jenkins, Jr., The Wall Street Journal, January 29. 2011 ---

The 2008 financial crisis happened because no one prevented it. Those who might have stopped it didn't. They are to blame.

Greedy bankers, incompetent managers and inattentive regulators created the greatest financial breakdown in nearly a century. Doesn't that make you feel better? After all, how likely is it that some human beings will be greedy at exactly the same time others are incompetent and still others are inattentive?

Oh wait.

You could almost defend the Financial Crisis Inquiry Commission's (FCIC) new report if the question had been who, in hindsight, might have prevented the crisis. Alas, the answer is always going to be the Fed, which has the power to stop just about any macro trend in the financial markets if it really wants to. But the commission was asked to explain why the bubble happened. In that sense, its report doesn't seem even to know what a proper answer might look like, as if presented with the question "What is 2 + 2?" and responding "Toledo" or "feral cat."

The dissenters at least propose answers that might be answers. Peter Wallison focuses on U.S. housing policy, a diagnosis that has the advantage of being actionable.

The other dissent, by Keith Hennessey, Bill Thomas and Douglas Holtz-Eakin, sees 10 causal factors, but emphasizes the pan-global nature of the housing bubble, which it attributes to ungovernable global capital flows.

That is also true, but less actionable.

Let's try our hand at an answer that, like Mr. Wallison's, attempts to be useful.

The Fed will make errors. International capital flows will sometimes be disruptive. Speculators will be attracted to hot markets. Bubbles will be a feature of financial life: Building a bunch of new houses is not necessarily a bad idea; only when too many others do the same does it become a bad idea. On that point, not the least of the commission's failings was its persistent mistaking of effects for causes, such as when banks finally began treating their mortgage portfolios as hot potatoes to be got rid of.

If all that can't be changed, what can? How about the incentives that invited various parties to shovel capital into housing without worrying about the consequences?

The central banks of China, Russia and various Asian and Arab nations knew nothing about U.S. housing. They poured hundreds of billions into it only because Fannie and Freddie were perceived as federally guaranteed and paid a slightly higher yield than U.S. Treasury bonds. (And one of the first U.S. actions in the crisis was to assure China it wouldn't lose money.)

Borrowers in most states are allowed to walk away from their mortgages, surrendering only their downpayments (if any) while dumping their soured housing bets on a bank. Change that even slightly and mortgage brokers and home builders would find it a lot harder to coax people into more house than they can afford.

Mortgage middlemen who don't have "skin in the game" and feckless rating agencies have also been routine targets of blame. But both are basically ticket punchers for large institutions that should have and would have been assessing their own risk, except that their own creditors, including depositors, judged them "too big to fail," creating a milieu where they could prosper without being either transparent or cautious. We haven't even tried to fix this, say by requiring banks to take on a class of debtholder who would agree to be converted to equity in a bailout. Then there'd be at least one sophisticated marketplace demanding assurance that a bank is being run in a safe and sound manner. (Sadly, the commission's report only reinforces the notion that regulators are responsible for keeping your money safe, not you.)

The FCIC Chairman Phil Angelides is not stupid, but he is a politician. His report contains tidbits that will be useful to historians and economists. But it's also a report that "explains" poorly. His highly calculated sound bite, peddled from one interview to the next, that the crisis was "avoidable" is worthless, a nonrevelation. Everything that happens could be said to happen because somebody didn't prevent it. So what? Saying so is saying nothing.

Mr. Angelides has gone around trying to convince audiences that the commission's finding was hard hitting. It wasn't. It was soft hitting. More than any other goal, it strives mainly to say nothing that would actually be inconvenient to Barack Obama, Harry Reid, Barney Frank or even most Republicans in Congress. In that, it succeeded.

Jensen Comment
And then the subprime crisis was followed by the biggest swindle in the history of the world ---

At this point time in 2011 there's only marginal benefit in identifying all the groups like credit agencies and CPA audit firms that violated professionalism leading up to the subprime crisis. The credit agencies, auditors, Wall Street investment banks, Fannie Mae, and Freddie Mack were all just hogs feeding on the trough of bad and good loans originating on Main Streets of every town in the United States.

If the Folks on Main Street that Approved the Mortgage Loans in the First Stage Had to Bear the Bad Debt Risks There Would've Been No Poison to Feed Upon by the Hogs With Their Noses in the Trough Up to and Including Wall Street and Fannie and Freddie.

If the Folks on Main Street that Approved the Mortgage Loans in the First Stage Had to Bear the Bad Debt Risks All Would've Been Avoided
The most interesting question in my mind is what might've prevented the poison (uncollectability) in the real estate loans from being concocted in the first place. What might've prevented it was for those that approved the loans (Main Street banks and mortgage companies in towns throughout the United States) to have to bear all or a big share of the losses when borrowers they approved defaulted.

Instead those lenders that approved the loans easily passed those loans up the system without any responsibility for their reckless approval of the loans in the first place. It's easy to blame Barney Frank for making it easier for poor people to borrow more than they could ever repay. But the fact of the matter is that the original lenders like Countrywide were approving subprime mortgages to high income people that also could not afford their payments once the higher prime rates kicked in under terms of the subprime contracts. If lenders like Countrywide had to bear a major share of the bad debt losses the lenders themselves would've been more responsible about only approving mortgages that had a high probability of not going into default. Instead Countrywide and the other Main Street lenders got off scott free until the real estate bubble finally burst.

And why would a high income couple refinance a fixed rate mortgage with a risky subprime mortgage that they could not afford when the higher rates kicked in down the road? The answer is that the hot real estate market before the crash made that couple greedy. They believed that if they took out a subprime loan with a very low rate of interest temporarily that they could turn over their home for a relatively huge profit and then upgrade to a much nicer mansion on the hill from the profits earned prior to when the subprime rates kicked into higher rates.

When the real estate bubble burst this couple got left holding the bag and received foreclosure notices on the homes that they had gambled away. And the Wall Street investment banks, Fannie, and Freddie got stuck with all the poison that the Main Street banks and mortgage companies had recklessly approved without any risk of recourse for their recklessness.

If the Folks on Main Street that Approved the Mortgage Loans in the First Stage Had to Bear the Bad Debt Risks There Would've Been No Poison to Feed Upon by the Hogs With Their Noses in the Trough Up to and Including Wall Street and Fannie and Freddie.

Bob Jensen's threads on this entire mess are at

"Washington’s Financial Disaster," by Frank Partnoy, The New York Times, January 29, 2011 ---

THE long-awaited Financial Crisis Inquiry Commission report, finally published on Thursday, was supposed to be the economic equivalent of the 9/11 commission report. But instead of a lucid narrative explaining what happened when the economy imploded in 2008, why, and who was to blame, the report is a confusing and contradictory mess, part rehash, part mishmash, as impenetrable as the collateralized debt obligations at the core of the crisis.

The main reason so much time, money and ink were wasted — politics — is apparent just from eyeballing the report, or really the three reports. There is a 410-page volume signed by the commission’s six Democrats, a leaner 10-pronged dissent from three of the four Republicans, and a nearly 100-page dissent-from-the-dissent filed by Peter J. Wallison, a fellow at the American Enterprise Institute. The primary volume contains familiar vignettes on topics like deregulation, excess pay and poor risk management, and is infused with populist rhetoric and an anti-Wall Street tone. The dissent, which explores such root causes as the housing bubble and excess debt, is less lively. And then there is Mr. Wallison’s screed against the government’s subsidizing of mortgage loans.

These documents resemble not an investigative trilogy but a left-leaning essay collection, a right-leaning PowerPoint presentation and a colorful far-right magazine. And the confusion only continued during a press conference on Thursday in which the commissioners had little to show and nothing to tell. There was certainly no Richard Feynman dipping an O ring in ice water to show how the space shuttle Challenger went down.

That we ended up with a political split is not entirely surprising, given the structure and composition of the commission. Congress shackled it by requiring bipartisan approval for subpoenas, yet also appointed strongly partisan figures. It was only a matter of time before the group fractured. When Republicans proposed removing the term “Wall Street” from the report, saying it was too pejorative and imprecise, the peace ended. And the public is still without a full factual account.

For example, most experts say credit ratings and derivatives were central to the crisis. Yet on these issues, the reports are like three blind men feeling different parts of an elephant. The Democrats focused on the credit rating agencies’ conflicts of interest; the Republicans blamed investors for not looking beyond ratings. The Democrats stressed the dangers of deregulated shadow markets; the Republicans blamed contagion, the risk that the failure of one derivatives counterparty could cause the other banks to topple. Mr. Wallison played down both topics. None of these ideas is new. All are incomplete.

Another problem was the commission’s sprawling, ambiguous mission. Congress required that it study 22 topics, but appropriated just $8 million for the job. The pressure to cover this wide turf was intense and led to infighting and resignations. The 19 hearings themselves were unfocused, more theater than investigation.

In the end, the commission was the opposite of Ferdinand Pecora’s famous Congressional investigation in 1933. Pecora’s 10-day inquisition of banking leaders was supposed to be this commission’s exemplar. But Pecora, a former assistant district attorney from New York, was backed by new evidence of widespread fraud and insider dealings, shocking documents that the public had never seen or imagined. His fierce cross-examination of Charles E. Mitchell, the head of National City Bank, Citigroup’s predecessor, put a face on the crisis.

This commission’s investigation was spiritless and sometimes plain wrong. Richard Fuld, the former head of Lehman Brothers, was thrown softballs, like “Can you talk a bit about the risk management practices at Lehman Brothers, and why you didn’t see this coming?” Other bankers were scolded, as when Phil Angelides, the commission’s chairman, admonished Lloyd Blankfein, the chief executive of Goldman Sachs, for practices akin to “selling a car with faulty brakes and then buying an insurance policy on the buyer of those cars.” But he couldn’t back up this rebuke with new evidence.

The report then oversteps the facts in its demonization of Goldman, claiming that Goldman “retained” $2.9 billion of the A.I.G. bailout money as “proprietary trades.” Few dispute that Goldman, on behalf of its clients, took both sides of trades and benefited from the A.I.G. bailout. But a Goldman spokesman told me that the report’s assertion was false and that these trades were neither proprietary nor a windfall. The commission’s staff apparently didn’t consider Goldman’s losing trades with other clients, because they were focused only on deals with A.I.G. If they wanted to tar Mr. Blankfein, they should have gotten their facts right.

Lawmakers would have been wiser to listen to Senator Richard Shelby of Alabama, who in early 2009 proposed a bipartisan investigation by the banking committee. That way seasoned prosecutors could have issued subpoenas, cross-examined witnesses and developed cases. Instead, a few months later, Congress opted for this commission, the last act of which was to coyly recommend a few cases to prosecutors, who already have been accumulating evidence the commissioners have never seen.

There is still hope. Few people remember that the early investigations of the 1929 crash also failed due to political battles and ambiguous missions. Ferdinand Pecora was Congress’s fourth chief counsel, not its first, and he did not complete his work until five years after the crisis. Congress should try again.

Frank Partnoy is a law professor at the University of San Diego and the author of “The Match King: Ivar Kreuger, the Financial Genius Behind a Century of Wall Street Scandals.”

Jensen Comment
Professor Partnoy is one of my all-time fraud fighting heroes. He was at one time an insider in marketing Wall Street financial instrument derivatives products and, while he was one of the bad guys, became conscience-stricken about how the bad guys work. Although his many books are somewhat repetitive, his books are among the best in exposing how the Wall Street investment banks are rotten to the core.

Frank Partnoy has been a a strong advocate of regulation of the derivatives markets even before Enron's energy trading scams came to light. His testimony before the U.S. Senate about Enron's infamous Footnote 16 ---

I quote Professor Partnoy's books frequently in my Timeline of Derivative Financial Instruments Frauds ---

While nasty little kids are driving their "fat, ugly, and molesting" teachers to give up the ghost because of networked and often false insults, their older brothers, sisters, parents, and misfits (many of whom are foreign enemies) are bent on overthrowing government regimes. No regime is immune from the instabilities caused by technologies that have great benefits to societies along with emerging costs that we'd not anticipated.

Anarchists have never had it so good!

Is this something George Orwell failed to anticipate or is it something that will ultimately bring on the evils of Big Brother?

Twittering an evil dictator sounds like a great thing until we discover that a nation may forever be thrown into instability and hunger by these little "tweets." Twittering may bring wealth and prosperity to Egypt in this decade, but don't count on it doing so for all the world in the 21st Century.

"Stability's End:  Technologies with goofy names like Twitter and Facebook are replacing political stability with a state of permanent instability," by Daniel Henninger, The Wall Street Journal, February 3, 2011 ---

'Stability" has been the goal of civilized foreign policy since the dawn of the Cold War and arguably since the Congress of Vienna, which posited a framework for international relations in 1815. Stability, whose virtues are many, has had a worthy run. It's done.

Stability is done as we have known it, at least until political leadership evolves a better understanding than they have shown during the events in Egypt of the permanently unstable world they've tumbled into. The man who pitched the curators of national stability into their current shocked state—evident this week in the streets of Cairo and before that in the capital of Tunisia and before that in the U.S.'s November elections—is William Shockley.

Shockley, a physicist, co- invented the transistor. The transistor replaced the vacuum tube as the central component of all electronic devices. The transistor enabled Twitter, Apple, Facebook, Microsoft, an ocean of apps and the unending storm of information that blows all of us, including politicians, here and there like leaves. Why would anyone think it possible in such a world for a Hosni Mubarak to maintain stability with the methods he's used since 1981?

The point here is not to argue again that information and communication technology (ICT) has caused another colorful "revolution." Nor is it to overstate the power of these technologies to enable democratic reform.

My point is merely to describe what is going on in front of our faces: This new, exponentially expanding world of information technologies is now creating permanent instability inside formerly stable political arrangements.

This stuff disrupts everything it touches. It overturned the entire music industry, and now it is doing the same to established political systems.

Here is how it works. In 2007, Egypt sentenced a blogger named Kareem Amer to four years in prison for insulting the president. Ten years ago, Mr. Amer would have simply disappeared, like all the others. So what if his family and 15 friends grumbled? Stability.

Not now. Instead, Mr. Amer became an icon of regime repression. What changed? Instead of 15 friends whispering over coffee in a café, 15,000 can talk to each other all day and every day via Internet cafés about who's getting tortured. According to the Open Net Initiative's helpful country profiles, some one million Egyptian households have broadband access, often sharing lines.

Think what this means at the crudest level: Huge swaths of any wired population exist in a state of engagement. Instability. Before, stifled populations were mostly sullen. Now, all the time, they're in mental motion.

Even if the Mubarak thugs somehow disperse the people in the street, they'll return some day because there is no effective way to cap their ability to share grievances on a massive scale. Egypt earlier pulled the plug on its entire Internet. So what? No nation will turn it off forever.

The Egyptian government itself has been responsible for expanding ICT, even making cheap computers available. Tunisia's autocrats wired their own nation, with some 1.7 million Internet users in a population of 10.2 million.

Continued in article

February 4, 2011 reply from David Fordham

Bob, what's old is apparently new again.

Either that, or author Henninger is completely ignorant of history.  I agree with Henninger in general.  But it's not new.  The same exact argument he makes about transistorized technology can be leveled against Gutenberg (and just as deservedly) hundreds of years ago.  Anyone who's been to Europe is aware of the instability which devastated that highly-civilized society after the invention of the printing press made it possible for radical new ideas to get into the hands of a wide (and generally unthinking, relatively uneducated, unenlightened, and catastrophically impatient) audience.  Instead of peaceful discussion, conferencing, give-and-take, diplomacy, and other less destructive avenues of change, which admittedly take time and are not as immediately effective, the widespread dispersal of "any man's" ideas -- happening without regard to the origin, merits, or value of those ideas-- resulted in the very instability Henninger is describing.

Riots, mob violence, millions of deaths, wanton destruction of wealth (ruination of the fruit of human labor) on an unprecedented scale, complete destruction of priceless antiquities, disappearance of what we today call "civil rights", nations appearing, nations disappearing, leaders rising and falling, polarization of the population... all of this and more can trace its origins to the widespread dissemination of ideas which upset the status quo -- new concepts being put to an unprepared populace.

Much has also been written about the impact of the printing press on the American independence movement, which the English still call "the uprising" or "the revolt".

I'm sure Shockley would be honored to have the results of his work compared with Gutenberg.  (Alas, Shockley is often demonized because "he called it as he saw it" after extensive research in genetics and human behavior.)    This is why I'm not a big fan of complete democracy in the presence of irresponsible "journalism", whether on paper or on a cell phone screen.  As Scar says in the movie the Lion King,.... (click here
http://www.youtube.com/watch?v=lfSea_Q4WXg  ... 15 seconds.)

So I disagree with the use of the word "new" when Henninger says his point is to "describe what is going on... the "new" exponentially-expanding world of information technologies is creating permanent instability ..."   No.  The exponentially expanding world of information technologies dates from the invention of writing, and political instability is not "created by" technology. (tip of the hat and wink to David Coy.)  It is created by people who utilize the technology in a particular way, usually a very ignorant, short-sighted, and often self-serving way, without realizing the long-term effect their action has on the human institutions.  Today's journalists, commentators, "pundits", and yes, even some of us old graybeard denizens of the academy (like yours truly) often spout off ideas which, simply due to the reach of the technology, like Gutenberg's, will cause others to reach conclusions, judgments, opinions, attitudes, etc. which the originator hadn't stopped to think about, and if the originator had, probably would not have promulgated in the first place.

The author of an old book called Ecclesiastes says there is a time (and place) for everything. This implies that there is an inappropriate time and place.  I believe it.

Read some articles about the iconoclasts, the resulting counter-reformation, the inquisitions, and other results of Gutenberg's invention to see what we're in for if our journalists (and social networkers) aren't careful.   Perhaps one might begin to appreciate some of my acidity, rancor, and contempt for so much of today's "news". I've been there and although I haven't "done that", I have seen its effects, and it isn't pretty.

Bottom line:  I agree entirely and completely with Henninger's take on instability, and the widespread dispersal of communication leading to instability.  But this is not new.

David Fordham

Video:  Scar's surrounded by idiots --- https://mail.google.com/a/trinity.edu/#inbox/12decc30470f9b36

So Says Dilbert
"How to Tax the Rich:  Try giving them perks and privileges (an extra vote?) in return, says 'Dilbert' creator Scott Adams," The Wall Street Journal, January 29, 2011 ---

The president was too polite to mention it during his State of the Union speech on Tuesday, but here's a quick summary of the problem: The U.S. is broke. The hole is too big to plug with cost cutting or economic growth alone. Rich people have money. No one else does. Rich people have enough clout to block higher taxes on themselves, and they will.

Likely outcome: Your next home will be the box that your laser printer came in. I hope that you kept it.

Whenever I feel as if I'm on a path toward certain doom, which happens every time I pay attention to the news, I like to imagine that some lonely genius will come up with a clever solution to save the world. Imagination is a wonderful thing. I don't have much control over the big realities, such as the economy, but I'm an expert at programming my own delusions. I make no apology for that. A well-crafted delusion can be a delicious guilty pleasure. And best of all, it's totally free. As a public service, today I will teach you how to wrap yourself in a warm blanket of imagined solutions for the government's fiscal dilemma.

To begin, assume that as the fiscal meltdown becomes more perilous, everyone will become more flexible and perhaps a bit more open-minded. That seems reasonable enough. A good crisis has a way of changing people. Now imagine that the world needs just one great idea to put things back on the right track. Great ideas have often changed history. It's not hard to imagine it can happen again.

Try to imagine that the idea that saves the country is an entirely new one. It's too much of a stretch to imagine that a stale idea would suddenly become acceptable. In fact, that's the dividing line between imagination and insanity. Only crazy people imagine that bad ideas can suddenly become good if you keep trying them. So let's assume that our imagined solution is a brand new idea. That feels less crazy and more optimistic. Another advantage is that no one has an entrenched view about an idea that has never been heard.

For those of you with healthy egos—and that would be every reader of The Wall Street Journal—you can make this fantasy extra delicious by imagining that you are the person who comes up with the idea that saves the world. I'll show you how to imagine that. I think you'll be surprised at how easy it is.

I spent some time working in the television industry, and I learned a technique that writers use. It's called "the bad version." When you feel that a plot solution exists, but you can't yet imagine it, you describe instead a bad version that has no purpose other than stimulating the other writers to imagine a better version.

Continued in article

"Inspector General Keeps the Pressure on a Regional (North Central Association) Accreditor," by Eric Kelderman, Chronicle of Higher Education, May 27, 2010 ---


Bob Jensen's universal health care messaging --- http://www.trinity.edu/rjensen/Health.htm

Return to the Tidbits Archives ---


Shielding Against Validity Challenges in Plato's Cave ---

·     With a Rejoinder from the 2010 Senior Editor of The Accounting Review (TAR), Steven J. Kachelmeier

·     With Replies in Appendix 4 to Professor Kachemeier by Professors Jagdish Gangolly and Paul Williams

·     With Added Conjectures in Appendix 1 as to Why the Profession of Accountancy Ignores TAR

·     With Suggestions in Appendix 2 for Incorporating Accounting Research into Undergraduate Accounting Courses

Shielding Against Validity Challenges in Plato's Cave  --- http://www.trinity.edu/rjensen/TheoryTAR.htm
By Bob Jensen

What went wrong in accounting/accountics research?  ---

The Sad State of Accountancy Doctoral Programs That Do Not Appeal to Most Accountants ---


Bob Jensen's threads on accounting theory ---

Tom Lehrer on Mathematical Models and Statistics ---

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/